2023 Annual Report
Financial
Highlights
Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia.
Empire’s key businesses are food retailing, through wholly-owned subsidiary Sobeys Inc., and related real
estate. With approximately $30.5 billion in annual sales and $16.5 billion in assets, Empire and its subsidiaries,
franchisees and affiliates employ approximately 131,000 people.
($ in millions, except per share amounts)
Sales
Gross profit(1)
Gross margin(1)
Operating income
Adjusted Operating income(1)
EBITDA
EBITDA margin
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Net earnings(2)
per share (fully diluted)(2)
Adjusted Net earnings(1)(2)
per share (fully diluted)(1)(2)
Book value per common share(1)
Dividends per share
52 weeks ended
May 6, 2023
53 weeks ended
May 7, 2022
52 weeks ended
May 1, 2021
$
30,478.1
$
30,162.4
$
28,268.3
7,792.7
25.6%
1,232.4
1,291.5
2,263.0
7.4%
2,322.1
7.6%
686.0
2.64
727.1
2.80
20.09
0.66
7,659.7
25.4%
1,363.7
1,363.7
2,330.8
7.7%
2,330.8
7.7%
745.8
2.80
745.8
2.80
18.82
0.60
7,199.3
25.5%
1,299.5
1,299.5
2,143.8
7.6%
2,143.8
7.6%
701.5
2.60
701.5
2.60
16.30
0.52
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of the MD&A for a description of the types of costs included. Additionally, certain estimated financial impacts
associated with the Cybersecurity Event are not reflected in the Adjusted Metrics above as they relate to sales declines which management considers are attributable to the
Event, as well as operational effectiveness which temporarily declined during the Event. Management estimates that the impact of these non-adjusted items on operating
income and EBITDA to be at least ($20.0) million and the net earnings impact to be at least ($15.0) million.
(2) Attributable to owners of the Company.
FINANCIAL HIGHLIGHTS
SALES
ADJUSTED EBITDA (1)
4.7%
5-year CAGR
5.8%
10-year CAGR(3)
18.0%
5-year CAGR
9.4%
10-year CAGR
ADJUSTED
NET EARNINGS (1)(2)
16.1%
5-year CAGR
6.4%
10-year CAGR
DIVIDENDS
9.5%
5-year CAGR
7.5%
10-year CAGR
($ in billions)
($ in millions)
($ in millions)
($ per share)
30
25
20
15
10
5
0
2500
2000
1500
1000
500
800
600
400
200
2013
2018
2023
0
2013
2018
2023
0
2013
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2018
2023
2013
2018
2023
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of the MD&A for a description of the types of costs included. Additionally, certain estimated financial impacts
associated with the Cybersecurity Event are not reflected in the Adjusted Metrics above as they relate to sales declines which management considers are attributable to the
Event, as well as operational effectiveness which temporarily declined during the Event. Management estimates that the impact of these non-adjusted items on operating
income and EBITDA to be at least ($20.0) million and the net earnings impact to be at least ($15.0) million.
(2) Attributable to owners of the Company.
(3) Compound annual growth rate.
1
A Message from
the Chair
Delivering Results – Guided by Values
While much has changed in our business since Empire was founded in
Stellarton, Nova Scotia 116 years ago, one thing has remained constant since
our company’s earliest days: a staunch commitment to serving the needs of
our customers and delivering results, always guided by our values.
Our commitment to these enduring values is all the more evident in difficult
times. The past year brought a unique set of challenges to our business, our
teammates and Canadians alike. The world was gripped by a global cost
of living crisis, the likes of which we have not seen in decades. Economies
experienced record inflation, interest rates skyrocketed and we all continued to
be impacted by the fragility of global supply chains.
We are proud of Empire’s ability to remain resilient during such turbulent
times, but we recognize it has not been an easy road for many people across
the country. Empire was not isolated from the effects of these challenging
times, yet remained steadfast in continuing to build a healthy, sustainable
and results-focused business; foundational in our ongoing commitment to our
values of being customer-driven, powered by our people and community
engaged, foundational in our ability to support Canadian families.
Our values have also been the
driving force behind our successful
Transforming Our Business
business turnaround at Empire,
helping to light our path over the
past six years – just as they have
always done since 1907.
Our values have also been the driving force behind our successful business
turnaround at Empire, helping to light our path over the past six years – just
as they have always done since 1907. They supported us through many
tough decisions in Project Sunrise and, again, in Project Horizon, when our
transformation initiatives really started to take hold.
In the future, our values will continue to pave the way forward for Empire as we
invest to get stronger.
We will continue to grow our store network, improve our facilities, expand
our e-commerce capabilities through our cutting-edge grocery delivery
platform, Voilà, and enhance our offering in order to deliver the best customer
experience possible. We will invest more in creating meaningful employment
opportunities for Canadians and in our best-place-to-work culture, where
diversity, equity and inclusion will remain a centrepiece of our efforts. We
will advance our efforts around sustainable business practices and make a
significant and lasting reduction to the carbon footprint of our operations.
We will continue to help strengthen the social fabric of our country through
our community investments and philanthropic initiatives, partnering with an
array of organizations including Canada’s Children’s Hospital Foundations,
Special Olympics and Kids Help Phone. And we will always innovate to meet the
evolving needs of Canadians.
2
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT A MESSAGE FROM THE CHAIR
Strong Governance
Empire has been incredibly well served by a Board of Directors that is
experienced, highly engaged and entirely focused on the success and
sustainability of our company. I thank each member for their insights,
wise counsel and unwavering commitment to good governance.
On behalf of our Board of Directors, I must also thank the Company’s
executive leadership, led by our CEO, Michael Medline. Michael’s resolute
stewardship over the past six years has been instrumental in helping us
successfully navigate challenging waters, while simultaneously identifying and
pursuing the opportunities that serve to differentiate Empire, all while boldly
charting a vision and detailed blueprint for our success in the years to come.
As it always has been, that success – our success – will always be anchored
in the dedication of our 131,000 teammates, the strength of our communities
and the support of our customers, who put their trust in us each and every
day. This will never change, nor will our commitment to values in action.
Together, we will continue to adapt, learn and grow to ensure our next 116 years
will be the best ones yet.
Sincerely,
signed “James M. Dickson”
James M. Dickson
Chair, Empire Company Limited
July 28, 2023
3
Message from the
President & CEO
Six years ago, we knew we had a mountain to climb to turn around our
struggling business. Transforming Empire Company Limited would require
decisive, bold action.
As we embarked on this considerable journey, we prioritized key areas
of the business: restoring Safeway, expanding FreshCo, creating a truly
extraordinary customer experience in our stores and building Voilà, the best
e-commerce business in the country. Innovate. Expand. Deliver. Grow. Excel.
These became our calls to action as we transitioned Empire to a strong,
unified national structure.
Since 2018, we have vastly improved our store network and acquired stellar
partners, like Longo’s and Farm Boy, along the way. We knew our customers
deserved a first-class loyalty program, and we delivered with Scene+. We
worked smarter. We put ourselves on a level playing field to compete. We
transformed our business from the ground up.
I am extremely proud to declare that our turnaround is complete. We’ll let the
numbers speak for themselves. Empire has delivered on all our goals, often
while fighting unexpected headwinds. That’s because we are a team that
does what we say we’re going to do. As the great NBA coach Phil Jackson
once said: “The strength of the team is each member. The strength of each
member is the team.”
And just as we have in the past, we have set clear strategies for the future—we
are ready to execute and to become the best retailer in Canada.
Culture, values, resilience
As our culture at Empire evolved over the last six years, we rallied around
our values like never before. Our team has persevered through adversity and
mighty crises: a devastating pandemic with economic and humanitarian
consequences; sweeping natural disasters, including floods, fires and
hurricanes, that wreaked havoc on communities across Canada; and a
cybersecurity event that impacted our store systems. In the last year,
Canadians have faced the highest cost of living increase in four decades.
Interest rates rose precipitously around the world amid a tumultuous global
economy, impacting retailers, grocers, food costs, and our customers.
Our team, 131,000 strong, has maintained a relentless drive through good
times and hard times to support the customers and communities they
serve across Canada. Last year, Empire redoubled our efforts to make a
positive impact in the communities where we operate. We made meaningful
advancements in diversity, equity and inclusion, including an innovative
Discussion Lab series where teammates could share their experiences and
perspectives on barriers to inclusion.
“This is a team that is hungry
and ready to win, and now
has all the tools, capabilities,
and assets needed to do so.”
4
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT A MESSAGE FROM THE PRESIDENT & CEO
I am also proud to say that to date, our Family of Support Child & Youth
Mental Health Initiative, launched in 2020 in partnership with the Sobey
Foundation and Canada’s Children’s Hospital Foundations, has raised and
donated more than $12 million to increase early intervention mental health
support for children and families across Canada. And our drive to become a
more sustainable retailer continues. We are more than halfway to our target of
achieving a 50 per cent reduction in food waste in our stores by 2025, having
achieved a 32 per cent reduction last year.
Through it all, Empire Company has delivered on its plans and built a solid
foundation for our customers, our communities and our shareholders. Over the last
six years, we achieved 26 per cent annual growth in adjusted earnings per share.
The Road Ahead
As we look to fiscal 2024 and beyond, we have reached a strategic inflection
point. An exciting runway of growth stretches ahead of us as a transformed,
successful retailer. We generate significant cash flow, and our company will
benefit as inflation moderates. We are worthy stewards of our shareholders’
capital and will have increased discipline in our capital allocation as we enter
this new phase.
In our industry, we earned our reputation for being a fair, collaborative
retailer. In the future, our supplier partners, our charitable partners, and our
partners in sustainability will play a key role in our drive for progress. So too
will our customers. We got to where we are today because we listened to
them. Customers are the heart and the inspiration behind Empire’s continued
innovation, evolution, and advancement.
Finally, our biggest asset is and has always been our people. Our team —
passionate, proactive, strategic — will be the driving force behind our business
growth in the next era. This is a team that is hungry and ready to win, and now
has all the tools, capabilities, and assets needed to do so.
We have made it through some of the toughest times imaginable together and
are excited for the possibilities ahead. As I said when I joined Empire several
years ago, the best is yet to come for this business and our incredible team.
signed “Michael Medline”
Michael Medline
President & Chief Executive Officer
Empire Company Limited
July 28, 2023
5
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Sustainability Report
At-a-Glance
Planet
We’re reducing our impacts and taking
action on climate change to do OurPart™ to
protect our planet for future generations.
CLIMATE ACTION
Near-term Scope 1 and 2
targets validated by
Science Based Targets
initiative (SBTi)
Products
We’re doing OurPart™ by delivering
sustainable and ethical product choices
for our customers.
People
We’re focused on growing and empowering
a diverse, equitable and inclusive workforce
to enable our customers and communities
to thrive.
ETHICAL & SUSTAINABLE SOURCING
Seafood Metrics program
launched, improving
traceability
DIVERSITY, EQUITY & INCLUSION
90%
of Directors and above set
DE&I performance and
accountability goals
6
SUSTAINABILITY REPORT AT-A-GLANCE
At Empire, we take our growing and evolving sustainability commitments seriously.
And we don’t just talk about it. We act. We are working hard to do OurPart™ to help
protect the planet. We are driven to serve and develop products that are good for
everyone across the supply chains that impact our business.
CLIMATE ACTION
CLIMATE ACTION
CLIMATE ACTION
15%
reduction in Scope 1
and 2 compared to 2019
baseline – on track to
achieve near-term targets
75%
of suppliers by
spend engaged
on CDP Supply
Chain program
Conducted first climate scenario risk
assessment on operational footprint and
published inaugural TCFD-aligned report
FOOD WASTE
Close to 15M pounds of surplus food
donated, gaining recognition from
Second Harvest as Canada’s top food-
rescue partner for 2022
ETHICAL & SUSTAINABLE SOURCING
SUPPLIER PARTNERSHIPS
77%
of palm oil in products
certified sustainable
390+
women entrepreneurs
supported in fiscal 2023
DIVERSITY, EQUITY & INCLUSION
COMMUNITY INVESTMENT
Achieved Phase 1 Progressive Aboriginal
Relations certification from the Canadian
Council for Aboriginal Business
DIVERSITY, EQUITY & INCLUSION
78% leaders in offices, corporate stores,
and distribution centres completed Speak
Freely training
~$19M
donated to support healthy bodies
and minds in our communities
(~$7M in corporate donations
and ~$12M raised)
We are proud to share our progress and some of our stories in our Sustainability Business Report at: www.SobeysSBReport.ca
7
Management’s
Discussion and
Analysis
For the fourth quarter and fiscal year ended May 6, 2023
Consolidated Financial Condition
Key Financial Condition Measures
Shareholders’ Equity
Normal Course Issuer Bid
Accounting Standards and Policies
Changes to Accounting Standards Adopted
During Fiscal 2023
Standards, Amendments and Interpretations
27
27
28
29
30
30
Issued but not yet Adopted
Critical Accounting Estimates
Disclosure Controls and Procedures
Internal Control Over Financial Reporting
30
31
33
33
Related Party Transactions
34
Key Management Personnel Compensation
35
Indemnities
35
Contingencies
35
Risk Management
36
43
Designation for Eligible Dividends
Non-GAAP Financial Measures & Financial Metrics 44
44
46
47
Financial Measures
Food Retailing Segment Reconciliation
Financial Metrics
9
11
11
11
12
15
16
17
17
17
18
18
18
18
19
20
20
20
21
21
21
21
22
22
22
23
24
24
24
25
25
26
26
26
26
Forward-Looking Information
Overview of the Business
Project Horizon
Company Priorities
Business Updates
Outlook
Summary Results – Fourth Quarter
Sales
Gross Profit
Operating Income
EBITDA
Finance Costs
Income Taxes
Net Earnings
Operating Results – Full Year
Sales
Gross Profit
Operating Income
EBITDA
Finance Costs
Income Taxes
Net Earnings
Financial Performance by Segment
Food Retailing
Investments and Other Operations
Quarterly Results of Operations
Liquidity and Capital Resources
Operating Activities
Investing Activities
Capital Expenditures
Store Network Activity and Square Footage
Financing Activities
Free Cash Flow
Employee Future Benefit Obligations
Guarantees and Commitments
8
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated financial results of
Empire Company Limited (“Empire” or the “Company”) (TSX: EMP.A) and its subsidiaries, including wholly-
owned Sobeys Inc. (“Sobeys”) for the fourth quarter and fiscal year ended May 6, 2023 compared to the fourth
quarter and fiscal year ended May 7, 2022. The MD&A should be read in conjunction with the Company’s
audited consolidated financial statements and notes thereto for the fiscal year ended May 6, 2023, and the
fiscal year ended May 7, 2022. Additional information about the Company, including the Company’s Annual
Information Form, can be found on SEDAR at www.sedar.com or on the Company’s website at
www.empireco.ca.
The audited consolidated financial statements and the accompanying notes are prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”) and are reported in Canadian dollars (“CAD”). These consolidated financial statements include
the accounts of Empire and its subsidiaries and structured entities which the Company is required to
consolidate. The information contained in this MD&A is current to June 21, 2023, unless otherwise noted.
FORWARD-LOOKING INFORMATION
This document contains forward-looking statements which are presented for the purpose of assisting the
reader to contextualize the Company’s 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
“anticipates”, “expects”, “believes”, “estimates”, “intends”, “could”, “may”, “plans”, “predicts”, “projects”, “will”,
“would”, “foresees” and other similar expressions or the negative of these terms.
These forward-looking statements include, but are not limited to, the following items:
• Management’s expectations regarding the scope and impact of the Cybersecurity Event (as defined
under the heading “Business Update – Cybersecurity Event”), and the estimate of the impact on its
financial results in 2024. These statements and expectations may be impacted by several factors
including the nature, amount and timing of the insurance outcome;
• The Company’s aim to increase total adjusted earnings per share (“EPS”) through net earnings,
growth, and share repurchases, as well as its intention to continue improving sales, gross margin
(excluding fuel) and adjusted earnings before interest, taxes, depreciation, and amortization
(“EBITDA”) margin, all of which could be impacted by several factors including a prolonged
unfavourable macro-economic environment and unforeseen business challenges, as well as the
factors identified in the “Risk Management” section of this MD&A;
• The Company’s plan to invest capital in its store network including store expansions and renovations
and renovate approximately 20% to 25% of the network over the next three years which could be
impacted by cost of materials, availability of contractors, operating results, and other macro-economic
impacts;
• The Company’s expectation that it will continue its e-commerce expansion with Voilà, which may be
impacted by future operating and capital costs, customer response and the performance of its
technology provider, Ocado Group plc (“Ocado”);
• The Company’s plan to integrate Voilà and Grocery Gateway may be impacted by pre-existing supplier
relationships;
• The Company’s expectation that it will continue to focus on driving efficiency and cost effectiveness
initiatives which could be impacted by supplier relationships, labour relations, and other macro-
economic impacts;
1
9
MANAGEMENT’S DISCUSSION AND ANALYSIS
• 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, the projected number of store openings, and the location, feasibility and timing of
construction, all of which may be impacted by construction schedules and permits, the macro-
economic environment and labour relations;
• The Company’s plans to further grow and enhance the Own Brand portfolio, which may be impacted
by future operating costs and customer response;
• The Company’s expectation of the impacts of cost inflationary pressures, which may be impacted by
supplier relationships and negotiations and the macro-economic environment;
• The Company’s expectations regarding the amount and timing of expenses relating to the completion
of any future Customer Fulfilment Centres (“CFC”), which may be impacted by supply of materials and
equipment, construction schedules and capacity of construction contractors;
• The Company’s expectations on the timing of the disposition of 56 retail fuel sites in Western Canada,
which may be impacted by regulatory approval and closing conditions;
• The Company’s expected contributions to its registered defined benefit plans, which could be impacted
by fluctuations in capital markets;
• The Company’s expectation that its cash and cash equivalents on hand, together with unutilized
aggregate credit facilities and cash generated from operating activities will enable the Company to
fund future capital investments, pension plan contributions, working capital, current funded debt
obligations and ongoing business requirements, and its belief that it has sufficient funding in place to
meet these requirements and other short and long-term obligations, all of which could be impacted by
changes in the macro-economic environment, operating results; and
• The Company’s plans to purchase for cancellation Class A shares under the normal course issuer bid,
which may be impacted by market and macro-economic conditions, availability of sellers, changes in
laws and regulations, and the results of operations.
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 this MD&A.
Although the Company believes the predictions, forecasts, expectations or conclusions reflected in the forward-
looking information are reasonable, it can provide no assurance that such matters will prove correct. Readers
are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking
information and are cautioned not to place undue reliance on such forward-looking information. The forward-
looking information in this document reflects the Company’s current expectations and is subject to change.
The Company does not undertake to update any forward-looking statements that may be made by or on behalf
of the Company other than as required by applicable securities laws.
10
2
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
OVERVIEW OF THE BUSINESS
Empire’s key businesses and financial results are segmented into two reportable segments: (i) Food retailing;
and (ii) Investments and other operations. With approximately $30.5 billion in annual sales and $16.5 billion in
assets, Empire and its subsidiaries, franchisees and affiliates employ approximately 131,000 people.
Empire’s Food retailing segment is carried out through Sobeys, a wholly-owned subsidiary. Proudly Canadian,
with headquarters in Stellarton, Nova Scotia, Sobeys has been serving the food shopping needs of Canadians
since 1907. Sobeys owns, affiliates or franchises more than 1,600 stores in all 10 provinces under retail
banners that include Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy, Longo’s and
Lawtons Drugs, operates grocery e-commerce under the banners Voilà, Grocery Gateway, IGA.net and
ThriftyFoods.com, and operates more than 350 retail fuel locations.
Project Horizon
The Company successfully completed its three-year growth strategy, Project Horizon, at the end of fiscal 2023.
As part of this strategy, the Company realized significant benefits from the store renovation program, new store
expansion (including FreshCo conversions and Farm Boy expansion), promotional optimization and data
analytics, Scene+ (a new loyalty program), personalization of customer offers, growing and enhancing the Own
Brand portfolio, and generating strategic sourcing cost efficiencies. The Company achieved management’s
target of an incremental $500 million in annualized EBITDA.
Project Horizon initiatives will continue to provide benefits in fiscal 2024 and beyond, including Scene+,
personalization and a continued emphasis on developing the store network through renovations and new store
expansion.
Over Project Horizon’s three-year timeframe, the Company achieved a compound annual growth rate
(“CAGR”) in EPS of approximately 13% and an increase in EBITDA margin(1) of approximately 60 basis points,
consistent with management’s updated expectations provided in the third quarter of fiscal 2023. Differences
compared to the original Project Horizon targets of improving EBITDA margin by 100 basis points, which was
expected to generate an EPS CAGR of at least 15% was largely due to delays in delivering some key initiatives
as a result of the novel coronavirus (“COVID-19” or “pandemic”) and the Cybersecurity Event (as defined under
the heading “Business Update – Cybersecurity Event”), higher depreciation than originally anticipated resulting
from higher capital spend, and the impact of significant and unexpected inflation.
The Company’s calculation of the EPS CAGR and the EBITDA margin increase excludes the full impacts of
the Cybersecurity Event (due to its unusual nature and the expectation that the timing of certain insurance
recoveries will occur after the fiscal year end) and the one-time costs associated with the Grocery Gateway
integration. See “Business Updates – Cybersecurity Event” and “Business Updates – Voilà” for more
information on these adjustments.
Company Priorities
Over the last six years, the Company has successfully completed two transformation strategies, Project
Sunrise and Project Horizon. These strategies have comprehensively reset Empire’s foundation, enhanced
the Company’s data capabilities, deepened the understanding of customers, and prepared the business to
effectively capture emerging trends. With these transformation strategies now accomplished and the
turnaround complete, the Company aims to grow total adjusted EPS over the long-term through net earnings
growth and share repurchases. The Company intends to continue improving sales, gross margin (excluding
fuel) and adjusted EBITDA margin by focusing on priorities such as:
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
3
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
Continued Focus on Store:
Over recent years, the Company has accelerated investments in renovations, conversions, and new stores
along with store processes, communications, training, technology and tools. Beyond fiscal 2023, investing in
the store network will remain a priority, demonstrated by a sustained emphasis on renovations and continued
store expansion in Discount. The Own Brands program enhancement will remain a priority through increased
distribution, shelf placement and product innovation.
The Company intends to invest capital in its store network and is planning to renovate approximately 20% to
25% of the network over the next three years. This capital investment includes important sustainability
initiatives such as refrigeration system upgrades, heating, ventilation and air conditioning (“HVAC”) system
upgrades and other energy efficiency initiatives.
Enhanced Focus on Digital and Data:
The focus on digital and data will include continued e-commerce expansion with Voilà, loyalty, through Scene+
(see “Business Updates – Voilà” and “Business Updates – Scene+” for more information), personalization,
improved space productivity and the continued improvement of promotional optimization. Space productivity
will further enhance the customer experience by improving store layouts, optimizing category and product
adjacencies and tailoring product assortment for each store. The advanced analytics tools built for promotional
optimization will continue to be refined through the partnership between the advanced analytics team and
category merchants.
Efficiency and Cost Control:
The Company has significantly improved its efficiency and cost effectiveness through sourcing efficiencies,
optimizing supply chain productivity and improving systems and processes. Beyond fiscal 2023, the Company
will continue to focus on driving efficiency and cost effectiveness through initiatives related to strategic sourcing
and supply chain productivity.
Business Updates
Cybersecurity Event
On November 4, 2022, Empire experienced IT system issues related to a cybersecurity event (the
“Cybersecurity Event” or “Event”). Upon discovery, the Company immediately activated its incident response
and business continuity plans, including the engagement of world-class experts, isolated the source and
implemented measures to prevent further spread.
This Cybersecurity Event and the precautionary response caused some temporary challenges in the third
quarter. For example, availability of some products was temporarily impacted, pharmacy services were shut
down for four days while some in-store services, such as self-checkouts, gift cards and redemption of Scene+
points were impacted for approximately one week. Other than this, customers would have noticed very few
changes to their normal shopping experience.
Empire’s security teams, supplemented by leading cyber defense firms, worked to remediate this incident,
implemented preventative measures, including proactively shutting down certain systems out of an abundance
of caution, and took steps to supplement existing security monitoring, scanning and protective measures.
During restoration efforts, the Company established certain workaround processes to ensure continuity of
supply chain, product availability, costing and retail pricing. Empire completed its controlled and phased
approach to systematically bringing information and administrative systems back online early in the fourth
quarter of fiscal 2023.
The Company regards the protection of personal information as critically important and has taken all required
steps with privacy regulators and potentially impacted individuals.
The Company has a multi-layered security approach involving cyber software tools, controls, policies,
standards and procedures pertaining to security access, system development, change management and
problem and incident management. This Cybersecurity Event has reinforced the importance of the investments
already made in the cybersecurity area, as well as upcoming investments in the IT systems and people.
Continuous enhancement of the Company’s IT infrastructure will strengthen its defense against future such
incidents.
12
4
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
The Company maintains a variety of insurance coverages, including cyber insurance. Empire is in the process
of working with its insurance providers to make claims under its policies. Due to the complexity of the cyber
insurance coverage and related claims, there is a time lag between the initial incurrence of costs and the
recognition of anticipated insurance proceeds. While the operational impact of the Cybersecurity Event is
behind the Company, management expects that there will be additional insurance recoveries in fiscal 2024.
The Cybersecurity Event is considered an unusual item and has been excluded from the Company’s
assessment of Project Horizon. For comparative purposes, the Company is presenting adjusted operating
income(1), adjusted EBITDA(1), adjusted net earnings(1) and adjusted EPS(1) (collectively, the “Adjusted
Metrics”) to exclude certain impacts of the Cybersecurity Event. The net financial impact of incremental direct
costs, inventory shrink and insurance recoveries on net earnings in the fourth quarter and fiscal year ended
May 6, 2023 were $5.0 million and ($34.1) million, respectively. Please refer to the “Summary Results – Fourth
Quarter” and “Operating Results – Full Year” sections of this document for a more detailed discussion,
including a reconciliation of these non generally accepted accounting principles (“GAAP”) financial measures.
In addition, certain financial impacts are not reflected in the Adjusted Metrics described above, as they relate
to sales declines which management considers are attributable to the Cybersecurity Event and the associated
temporary decline in operational effectiveness during the Cybersecurity Event. Management estimates that
the impact on net earnings in the fourth quarter was insignificant and the impact on the fiscal year ended May
6, 2023, was at least ($15) million, from impacts such as the temporary loss of advanced planning, promotion,
and fresh item management tools, temporary closures of pharmacies and customers’ inability to redeem gift
cards and loyalty points.
Empire estimates, based on available information, that the final impact on net earnings over fiscal 2023 and
fiscal 2024 will be approximately ($32.0) million, net of estimated insurance recoveries.
Scene+
In June 2022, the Company launched a new loyalty strategy through Scene+, one of Canada’s leading loyalty
programs. Along with Scotiabank and Cineplex, the Company is now a co-owner of Scene+. The new loyalty
program was successfully launched in Atlantic Canada in August 2022, followed by Western Canada in
September 2022, Ontario in November 2022 and Quebec & Thrifty Foods in March 2023.
As part of the Scene+ rollout, the Company launched its next generation recommendation engine for one-to-
one, machine learning powered personalization at scale. The recommendation engine is focused on improving
customer engagement and offer relevancy. The target algorithms will continue to improve over time, driving
progressively better performance and results.
Farm Boy
The acquisition of Farm Boy on December 10, 2018 added 26 locations to the Company’s Ontario store
network. The Company expects to open an additional 22 stores in the five years following the acquisition date,
mainly in the Greater Toronto Area (“GTA”). For the fiscal year, the Company opened a total of three new
stores. As at June 21, 2023, Farm Boy has 47 stores operating in Ontario. In fiscal 2024, the Company expects
to open two additional Farm Boy stores in Ontario.
FreshCo
In fiscal 2018, the Company announced plans to expand its FreshCo discount format to Western Canada with
expectations of converting up to 25% of the 255 Safeway and Sobeys full-service format stores in Western
Canada to the FreshCo banner.
Through the FreshCo expansion program, the discount business in Western Canada has been on a sharp
growth trajectory, driven by store conversions and regional expansion. The value proposition, strong
multicultural assortment along with the addition of the Scene+ loyalty program has supported the growth and
expansion of the discount format.
As at June 21, 2023, FreshCo has 44 stores operating in Western Canada including four stores opened during
fiscal 2023, in line with management’s expectations. In fiscal 2024, the Company expects to open an additional
three FreshCo stores in Western Canada.
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
5
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
Voilà
In fiscal 2021, the Company introduced its new e-commerce platform, Voilà, which is the future of online
grocery home delivery in Canada. Voilà is powered by industry-leading technology provided by Ocado through
its automated CFCs. The Company will operate four CFCs across Canada with supporting spokes and
curbside pickup. The Company will be able to serve approximately 75% of Canadian households representing
approximately 90% of Canadians’ projected e-commerce spend.
The first CFC in Toronto began deliveries in June 2020. The second CFC in Montreal began deliveries in
March 2022. The third CFC in Calgary which services the majority of Alberta, began deliveries on June 20,
2023. The fourth CFC in Vancouver will service customers in B.C. starting in calendar 2025. In fiscal 2021, the
Company launched Voilà curbside pickup, which currently services 98 stores in locations across Canada and
is also powered by Ocado technology.
Longo’s e-commerce business, Grocery Gateway, will be merged into Voilà in July 2023 thereby capturing
logistics and delivery synergies. Operating as a ‘shop in shop’ will increase the reach of Longo’s within Ontario
and increase Voilà’s product count by approximately 2,000 Longo’s products. The costs of the integration were
charged to earnings in the fourth quarter of fiscal 2023 and were approximately $7.0 million, net of tax and
non-controlling interest.
Voilà’s future earnings will primarily be impacted by the rate of sales growth, with operational efficiencies,
margins, and cost discipline serving as important drivers to manage financial performance.
In the fourth quarter of fiscal 2023, the Company’s four e-commerce platforms (Voilà, Grocery Gateway,
IGA.net and ThriftyFoods.com) experienced a combined sales decline of 13.5% compared to the same quarter
in the prior year (excluding the additional week of operations in the prior year). The decrease is primarily driven
by higher online sales in the fourth quarter of fiscal 2022 as a result of the pandemic, which had an outsized
impact on the Company’s non-Voilà e-commerce businesses. According to third-party market data, Voilà
continues to outperform the market over the last fiscal year.
Longo’s
On May 10, 2021, the Company, through a wholly-owned subsidiary, acquired 51% of Longo’s, a long-
standing, family-built network of specialty grocery stores in the GTA, and its Grocery Gateway e-commerce
business. The purchase price of the transaction was $660.6 million. The Company acquired the business
through the issuance of 3,187,348 Non-Voting Class A shares with a transaction date price of $129.6 million,
cash of $196.6 million and a contingent note payable of $10.7 million.
After the fifth anniversary of the transaction, the Longo’s 49% non-controlling shareholders have an option to
sell up to a 12.25% interest in Longo’s to Sobeys per annum, at a multiple applied to the last 12 months
EBITDA. The multiple will vary depending on achievement of certain business results. If Longo’s non-
controlling shareholders exercise an option to sell, Sobeys will have a corresponding call option for the same
percentage in the following year. After the tenth anniversary of the transaction, both Sobeys and Longo’s have
mutual put and call options for any remaining minority shares outstanding. A financial liability of $239.7 million
was recognized at the date of acquisition which is remeasured at the end of each quarter.
14
6
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Sustainable Business Reporting
Environmental, Social and Governance (“ESG”) has deep roots in the Company’s history, and the principles
of ESG have been a part of the organization since the Company started over 115 years ago.
The Company published its 2022 Sustainable Business Report in July 2022 which set bold, science-based
emissions reduction targets in support of Canada’s transition to a low-carbon economy. This is a significant
step forward in the Company’s plan to help combat climate change and is the latest step in the journey to
commit and invest in sustainability. As part of the Company’s sustainability commitments and corporate
governance practices, the Company launched a newly established Sustainable Business Council (the
“Council”) in fiscal 2023. In conjunction with the Company’s science-based targets (which are being validated
by the Science-Based Targets initiative), the Council will ensure accurate reporting of carbon emissions for
internal monitoring and external reporting.
The Company is focused on several initiatives as part of a continuing ESG journey such as working to remove
plastics from the business, focusing on reducing or eliminating avoidable and hard-to-recycle plastics,
expanding the Company’s efforts to cultivate a fair, equitable and inclusive environment for all and embedding
sustainable business mandates within the Company’s performance management goals.
OUTLOOK
With the Company’s turnaround complete, management aims to grow total adjusted EPS over the long-term
through net earnings growth and share repurchases. The Company intends to continue improving sales, gross
margin (excluding fuel) and adjusted EBITDA margin by focusing on priorities such as: a continued focus on
stores (investing in renovations, Discount expansion, and Own Brands program enhancement), an expanded
focus on digital and data (through key strategic initiatives including Voilà, Scene+, personalization, space
productivity and promotional optimization), and driving efficiency and cost effectiveness through initiatives
related to strategic sourcing and supply chain.
For fiscal 2024, capital spend is expected to be approximately $775 million, with approximately half of this
investment allocated to renovations and new store expansion, and approximately $50 million allocated toward
sustainability initiatives such as refrigeration system upgrades, HVAC system upgrades and other energy
efficiency initiatives. The Company is planning to renovate approximately 20% to 25% of the network over the
next three years.
During fiscal 2024, the Company intends to purchase approximately $400 million in Class A shares under an
NCIB. The Company has declared a quarterly dividend which reflects an increase in the annualized dividend
rate of 10.6%, marking the 28th consecutive year of dividend increases.
The Company continues to be well positioned to pursue growth despite the impacts of global economic
uncertainties such as higher than normal inflation and supply chain challenges. The industry continues to
experience heightened levels of inflationary pressures, particularly related to cost of goods sold and fuel.
Although it is difficult to estimate how long these pressures will last, the Company is focused on supplier
relationships and negotiations to ensure competitive pricing for customers whose shopping behaviours
become more price sensitive in a heightened inflationary environment.
On December 13, 2022, the Company signed a definitive agreement between a wholly-owned subsidiary of
Sobeys and Canadian Mobility Services Limited, a wholly-owned subsidiary of Shell Canada, to sell all 56 retail
fuel sites in Western Canada for approximately $100.0 million. Closing of the transaction is subject to
customary conditions, including regulatory approvals. The Company expects the transaction to close in the
first half of fiscal 2024.
7
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
SUMMARY RESULTS – FOURTH QUARTER
The Company's fourth quarter ends on the first Saturday in May. As a result, the fourth quarter is usually 13
weeks but includes results for 14 weeks every five to six years. The quarters ended May 6, 2023 and May 7,
2022 were 13 and 14 weeks, respectively. The 53rd week of operations in fiscal 2022 accounted for
approximately $551.0 million in sales and generated earnings per share of approximately $0.07.
On November 4, 2022, Empire experienced IT system issues related to a Cybersecurity Event. The Company
has included in its Adjusted Metrics an adjustment for direct costs such as inventory shrink, hardware and
software restoration costs, legal and professional fees, and labour costs, net of insurance recoveries to date.
The adjustment to net earnings for the quarter ended May 6, 2023 was a recovery of $5.0 million. Empire is in
the process of working with its insurance providers to make claims under its policies. Due to the complexity of
the cyber insurance coverage and related claims, there is a time lag between the initial incurrence of costs and
the recognition of anticipated insurance proceeds.
Longo’s e-commerce business, Grocery Gateway, will be merged into Voilà in July 2023. The Company has
included in its Adjusted Metrics an adjustment for the costs of the integration charged to earnings in the fourth
quarter of fiscal 2023 which were approximately $7.0 million, net of tax and non-controlling interest.
($ in millions, except per share amounts)
Sales
Gross profit(1)
Operating income
Adjusted operating income(1)
EBITDA(1)
Adjusted EBITDA(1)
Finance costs, net
Income tax expense
Non-controlling interest
Net earnings(2)
Adjusted net earnings(1)(2)
Basic earnings per share
Net earnings(2)
Adjusted net earnings(1)(2)
Basic weighted average number of shares
outstanding (in millions)
Diluted earnings per share
Net earnings(2)
Adjusted net earnings(1)(2)
Diluted weighted average number of shares
outstanding (in millions)
Dividend per share
$
$
$
$
$
$
Gross margin(1)
EBITDA margin(1)
Adjusted EBITDA margin(1)
Same-store sales(1) growth (decline)
Same-store sales growth (decline), excluding fuel
Effective income tax rate
$
Change
(432.4)
(45.0)
(12.0)
(5.5)
6.1
12.6
(11.8)
5.3
(9.9)
4.4
6.4
%
Change
(5.5)%
(2.2)%
(3.6)%
(1.6)%
1.0%
2.1%
(14.4)%
9.1%
(66.4)%
2.5%
3.6%
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
7,408.4 $
1,959.0
321.6
328.1
592.3
598.8
70.2
63.5
5.0
182.9
184.9
0.72 $
0.73 $
254.9
0.72 $
0.72 $
255.4
0.165 $
7,840.8 $
2,004.0
333.6
333.6
586.2
586.2
82.0
58.2
14.9
178.5
178.5
0.68
0.68
263.0
0.68
0.68
264.0
0.150
13 Weeks Ended
May 6, 2023
26.4%
8.0%
8.1%
1.6%
2.6%
25.3%
14 Weeks Ended
May 7, 2022
25.6%
7.5%
7.5%
(0.1)%
(2.5)%
23.1%
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
(2) Attributable to owners of the Company.
16
8
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited Consolidated Operating Results
Sales
Sales for the quarter ended May 6, 2023 decreased by 5.5% mainly due to the additional week of operations
in fiscal 2022 and lower fuel sales, offset by benefits from Project Horizon initiatives and continued strength in
the Company’s discount banners.
Gross Profit
Gross profit for the quarter ended May 6, 2023 decreased by 2.2% mainly as a result of the additional week of
operations in fiscal 2022, partially offset by benefits from Project Horizon initiatives, such as promotional
optimization and the expansion of FreshCo.
Gross margin for the quarter ended May 6, 2023 increased to 26.4% from 25.6% in the prior year. Gross
margin increased primarily as a result of benefits from Project Horizon initiatives, lower supply chain costs and
the mix impact of lower fuel sales. Gross margin, excluding the mix impact of fuel, increased by 58 basis points.
Operating Income
($ in millions)
Food retailing
Investments and other operations:
Crombie REIT
Genstar
Other operations, net of corporate
expenses
Operating income
Adjustments:
Cybersecurity Event(1)
Grocery Gateway Integration(1)
Adjusted operating income(2)
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
$
304.5 $
321.2 $
$
Change
(16.7)
10.9
6.5
(0.3)
17.1
10.7
3.3
(1.6)
12.4
$
$
$
321.6 $
333.6 $
(6.8) $
13.3
328.1 $
- $
-
333.6 $
0.2
3.2
1.3
4.7
(12.0)
(6.8)
13.3
(5.5)
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
For the quarter ended May 6, 2023, operating income from the Food retailing segment decreased mainly due
to higher sales and gross profit in the prior year partially offset by lower selling and administrative expenses in
the current year, both resulting from the additional week of operations in the quarter ended May 7, 2022. Selling
and administrative expenses decreased primarily due to one less week of operations, resulting in a reduction
of retail labour costs and other variable operating expenses, as well as lower annual incentives compared to
the prior year. The decrease in selling and administrative expenses was partially offset by planned investments
in Project Horizon initiatives (including the expansion of Farm Boy, Voilà and FreshCo) and higher depreciation.
For the quarter ended May 6, 2023, operating income from the Investments and other operations segment
increased primarily as a result of higher equity earnings from Genstar, mainly due to higher property sales
compared to prior year.
9
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
EBITDA
($ in millions)
EBITDA
Adjustments:
Cybersecurity Event(1)
Grocery Gateway Integration(1)
Adjusted EBITDA(2)
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
$
$
592.3 $
(6.8)
13.3
598.8 $
586.2 $
-
-
586.2 $
$
Change
6.1
(6.8)
13.3
12.6
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
For the quarter ended May 6, 2023, EBITDA increased to $592.3 million from $586.2 million in the prior year
mainly as a result of the same factors affecting operating income (which excludes the increase in depreciation
and amortization). EBITDA margin increased to 8.0% from 7.5% in the prior year. Adjusted EBITDA margin
increased to 8.1% from 7.5% in the prior year.
Finance Costs
For the quarter ended May 6, 2023, net finance costs decreased primarily due to the early redemption premium
of $9.2 million which occurred in the prior year related to the $500 million Series 2013-2 Notes.
Income Taxes
The effective income tax rate for the quarter ended May 6, 2023 was 25.3% compared to 23.1% last year. The
effective tax rate was lower than the statutory rate primarily due to the revaluation of tax estimates, not all of
which are recurring. The effective tax rate in the same quarter last year was lower than the statutory rate
primarily due to benefits related to investment tax credits and capital items taxed at lower rates.
Net Earnings
($ in millions, except per share amounts)
Net earnings(1)
EPS (fully diluted)
Adjustment (net of income taxes of $4.5):
Cybersecurity Event(2)
Grocery Gateway Integration(2)
Adjusted net earnings(1)(3)
Adjusted EPS (fully diluted)(3)
Diluted weighted average number of
shares outstanding (in millions)
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
$
$
$
$
182.9 $
0.72 $
(5.0)
7.0
184.9 $
0.72 $
178.5 $
0.68
-
-
178.5 $
0.68
$
Change
4.4
(5.0)
7.0
6.4
255.4
264.0
(8.6)
(1) Attributable to owners of the Company.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
(3) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
18
10
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
OPERATING RESULTS – FULL YEAR
The Company's fiscal year ends on the first Saturday in May. As a result, the fiscal year is usually 52 weeks but includes
results for 53 weeks every five to six years. The years ended May 6, 2023 and May 7, 2022 were 52 and 53 weeks,
respectively. The 53rd week of operations in fiscal 2022 accounted for approximately $551.0 million in sales and generated
earnings per share of $0.07.
On November 4, 2022, Empire experienced IT system issues related to a Cybersecurity Event. The Company has included
in its Adjusted Metrics an adjustment for direct costs such as inventory shrink, legal and professional fees, hardware and
software restoration costs and labour costs, net of insurance recoveries to date. The adjustment to net earnings was ($34.1)
million.
In addition, the Cybersecurity Event required certain operational systems to be shut down for several weeks. The inability
to utilize these systems had a temporary negative impact on Empire’s sales and operational effectiveness, further impacting
third quarter and Fiscal 2023 net earnings by at least ($15.0) million (($0.06) per share). There was no incremental impact
in the fourth quarter.
Empire is in the process of working with its insurance providers to make claims under its policies. Due to the complexity of
the cyber insurance coverage and related claims, there is a time lag between the initial incurrence of costs and the
recognition of anticipated insurance proceeds.
Longo’s e-commerce business, Grocery Gateway, will be merged into Voilà in July 2023. The Company has included in its
Adjusted Metrics an adjustment for the costs of the integration charged to earnings in the fourth quarter of fiscal 2023 which
were approximately $7.0 million, net of tax and non-controlling interest.
($ in millions, except per share amounts)
Sales
Gross profit(1)
Operating income
Adjusted operating income(1)
EBITDA(1)
Adjusted EBITDA(1)
Finance costs, net
Income tax expense
Non-controlling interest
Net earnings(2)
Adjusted net earnings(1)(2)
$
May 1, 2021
May 6, 2023
May 7, 2022
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended 2023 Compared to 2022
$ Change % Change
1.0%
1.7%
(9.6)%
(5.3)%
(2.9)%
(0.4)%
(5.4)%
(12.1)%
(36.3)%
(8.0)%
(2.5)%
30,162.4 $
7,659.7
1,363.7
1,363.7
2,330.8
2,330.8
282.1
270.3
65.5
745.8
745.8
28,268.3 $
7,199.3
1,299.5
1,299.5
2,143.8
2,143.8
269.4
265.9
62.7
701.5
701.5
30,478.1 $
7,792.7
1,232.4
1,291.5
2,263.0
2,322.1
267.0
237.7
41.7
686.0
727.1
315.7
133.0
(131.3)
(72.2)
(67.8)
(8.7)
(15.1)
(32.6)
(23.8)
(59.8)
(18.7)
Basic earnings per share
Net earnings(2)
Adjusted net earnings(2)
Basic weighted average number of shares
outstanding (in millions)
Diluted earnings per share
Net earnings(2)
Adjusted net earnings(1)(2)
Diluted weighted average number of shares
outstanding (in millions)
Dividend per share
$
$
$
$
$
2.65 $
2.81 $
2.81 $
2.81 $
258.8
265.2
2.64 $
2.80 $
259.4
0.66 $
2.80 $
2.80 $
266.2
0.60 $
2.61
2.61
268.3
2.60
2.60
269.3
0.52
Gross margin(1)
EBITDA margin(1)
Adjusted EBITDA margin(1)
Same-store sales(1) growth
Same-store sales growth (decline), excluding fuel
Effective income tax rate
52 Weeks Ended
May 6, 2023
25.6%
7.4%
7.6%
2.3%
1.5%
24.6%
53 Weeks Ended
May 7, 2022
25.4%
7.7%
7.7%
0.0%
(2.1)%
25.0%
52 Weeks Ended
May 1, 2021
25.5%
7.6%
7.6%
4.7%
5.6%
25.8%
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
Additionally, certain estimated financial impacts associated with the Cybersecurity Event are not reflected in the Adjusted Metrics
above as they relate to sales declines which management considers are attributable to the Event, as well as operational effectiveness
which temporarily declined during the Event. Management estimates that the impact of these non-adjusted items on operating income
and EBITDA to be at least ($20.0) million and the net earnings impact to be at least ($15.0) million.
(2) Attributable to owners of the Company
11
19
MANAGEMENT’S DISCUSSION AND ANALYSIS Empire Company Limited Consolidated Operating Results
Sales
Sales for the fiscal year ended May 6, 2023 increased 1.0%, primarily driven by increased fuel sales and
benefits from Project Horizon initiatives, including the expansion of FreshCo in Western Canada. This increase
was partially offset by the additional week of operations in the prior year, the impact of the pandemic restrictions
in place during various stages of the prior year, changing consumer purchasing behaviours as a result of higher
food inflation, and the impact of the Cybersecurity Event in the current year.
Gross Profit
Gross profit for the fiscal year ended May 6, 2023 increased by 1.7% primarily as a result of benefits from
Project Horizon initiatives, such as the expansion of FreshCo, Voilà and Farm Boy, partially offset by the
additional week of operations in fiscal 2022, the Cybersecurity Event and the change in customer purchasing
behaviours.
Gross margin for the fiscal year ended May 6, 2023 increased to 25.6% from 25.4% in the prior year. Gross
margin was positively impacted by benefits from Project Horizon initiatives offset by the mix impact of lower
fuel sales and the Cybersecurity Event. Gross margin, excluding the mix impact of fuel, increased by 43 basis
points.
Operating Income
($ in millions)
Food retailing
Investments and other operations:
Crombie REIT
Genstar
Other operations, net of corporate expenses
Operating income
Adjustments:
Cybersecurity Event(1)
Grocery Gateway Integration(1)
Adjusted operating income(1)
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
$
1,140.1 $
1,277.0 $
$
Change
(136.9)
77.3
16.5
(1.5)
92.3
1,232.4 $
45.8 $
13.3
59.1
1,291.5 $
61.0
32.4
(6.7)
86.7
1,363.7 $
- $
-
-
1,363.7 $
16.3
(15.9)
5.2
5.6
(131.3)
45.8
13.3
59.1
(72.2)
$
$
$
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
Additionally, certain estimated financial impacts associated with the Cybersecurity Event are not reflected in the adjusted metric
above as it relates to sales declines which management considers are attributable to the Event, as well as operational effectiveness
which temporarily declined during the Event. Management estimates that the impact of this non-adjusted item on operating income
to be at least ($20.0) million.
For the fiscal year ended May 6, 2023, operating income from the Food retailing segment decreased mainly
due to higher selling and administrative expense and a decrease in other income (driven by $47.0 million of
lease terminations in the prior year), partially offset by higher sales and gross profit. Selling and administrative
expenses increased primarily as a result of investments in Project Horizon initiatives (including the expansion
of Voilà, Farm Boy and FreshCo) as well as higher depreciation, the Cybersecurity Event and increased project
costs, partially offset by one less week of operations in the current year, resulting in a reduction of retail labour
costs and other variable operating expenses.
For the fiscal year ended May 6, 2023, operating income from the Investments and other operations segment
increased primarily as a result of higher equity earnings from Crombie Real Estate Investment Trust (“Crombie
REIT”), mainly due to increased sales of properties, partially offset by lower equity earnings from Genstar as
a result of higher property sales in the prior year.
20
12
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
EBITDA
($ in millions)
EBITDA
Adjustments:
Cybersecurity Event(1)
Grocery Gateway Integration(1)
Adjusted EBITDA(1)
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
2,263.0 $
2,330.8 $
$
Change
(67.8)
45.8
13.3
59.1
2,322.1 $
-
-
-
2,330.8 $
45.8
13.3
59.1
(8.7)
$
$
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
Additionally, certain estimated financial impacts associated with the Cybersecurity Event are not reflected in the adjusted metric
above as it relates to sales declines which management considers are attributable to the Event, as well as operational effectiveness
which temporarily declined during the Event. Management estimates that the impact of this non-adjusted item on EBITDA to be at
least ($20.0) million.
For the fiscal year ended May 6, 2023, EBITDA decreased to $2,263.0 million from $2,330.8 million in the prior
year mainly as a result of the same factors affecting operating income. EBITDA margin decreased to 7.4%
from 7.7% in the prior year. Adjusted EBITDA margin decreased to 7.6% from 7.7% in the prior year.
Finance Costs
For the fiscal year ended May 6, 2023, net finance costs decreased primarily due to the early redemption
premium of $9.2 million which occurred in the prior year related to the $500 million Series 2013-2 Notes.
Income Taxes
The effective income tax rate for the fiscal year ended May 6, 2023 was 24.6% compared to 25.0% last year.
The current year effective tax rate was lower than the statutory rate primarily due to the revaluation of tax
estimates, not all of which were recurring, the benefit of consolidated structured entities and capital items that
are taxed at lower rates. The effective tax rate in the prior year was lower than the statutory rate primarily due
to consolidated structured entities and capital items, both of which are taxed at lower rates, and benefits related
to investment tax credits.
Net Earnings
($ in millions, except per share amounts)
Net earnings(1)
EPS (fully diluted)
Adjustments (net of income taxes of $18.0):
Cybersecurity Event(2)
Grocery Gateway Integration(2)
Adjusted net earnings(1)(2)
Adjusted EPS (fully diluted)(2)
Diluted weighted average number of shares outstanding (in millions)
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
686.0 $
2.64 $
34.1
7.0
727.1 $
2.80 $
259.4
745.8 $
2.80
-
-
745.8 $
2.80
266.2
$
$
$
$
$
Change
(59.8)
34.1
7.0
(18.7)
(1) Attributable to owners of the Company.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
Additionally, certain estimated financial impacts associated with the Cybersecurity Event are not reflected in the Adjusted Metrics
above as they relate to sales declines which management considers are attributable to the Event, as well as operational effectiveness
which temporarily declined during the Event. Management estimates that the impact of this non-adjusted item on net earnings to be
at least ($15.0) million.
13
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL PERFORMANCE BY SEGMENT
Food Retailing
The following is a review of Empire’s Food retailing segment’s financial performance, comprising the
consolidated results of Sobeys for the fiscal years ended May 6, 2023, May 7, 2022 and May 1, 2021.
The following financial information is Sobeys’ contribution to Empire as the amounts are net of consolidation
adjustments. For further analysis of these adjustments, see the “Operating Results – Full Year” section.
$
($ in millions)
Sales
Gross profit
Operating income
Adjusted operating income(1)
EBITDA
Adjusted EBITDA(1)
Net earnings(2)
Adjusted net earnings(1)(2)
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
52 Weeks Ended
May 1, 2021
30,478.1 $
7,792.7
1,140.1
1,199.2
2,170.6
2,229.7
610.1
651.2
30,162.4 $
7,659.7
1,277.0
1,277.0
2,243.9
2,243.9
677.9
677.9
28,268.3 $
7,199.3
1,251.3
1,251.3
2,094.7
2,094.7
673.9
673.9
2023 Compared to 2022
$ Change % Change
1.0%
1.7%
(10.7)%
(6.1)%
(3.3)%
(0.6)%
(10.0)%
(3.9)%
315.7
133.0
(136.9)
(77.8)
(73.3)
(14.2)
(67.8)
(26.7)
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
Additionally, certain estimated financial impacts associated with the Cybersecurity Event are not reflected in the Adjusted Metrics
above as they relate to sales declines which management considers are attributable to the Event, as well as operational effectiveness
which temporarily declined during the Event. Management estimates that the impact of this non-adjusted item on net earnings to be
at least ($15.0) million.
(2) Attributable to owners of the Company.
To assess its financial performance and condition, Sobeys’ management monitors a set of financial measures
which evaluate sales growth, profitability and financial condition, which are set out below.
($ in millions)
Sales growth
Same-store sales growth
Same-store sales growth (decline), excluding fuel
Return on equity(1)
Adjusted return on equity
Funded debt to total capital(1)
Funded debt to adjusted EBITDA(1)
Acquisitions of property, equipment, investment
property and intangibles
52 Weeks Ended
May 6, 2023
1.0%
2.3%
1.5%
14.7%
15.7%
63.3%
3.2x
53 Weeks Ended
May 7, 2022
6.7%
0.0%
(2.1)%
17.7%
17.7%
65.1%
3.3x
52 Weeks Ended
May 1, 2021
6.3%
4.7%
5.6%
20.8%
20.8%
66.6%
3.3x
$
755.4 $
817.2 $
659.1
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
Investments and Other Operations
($ in millions)
Crombie REIT
Genstar
Other operations, net of corporate expenses
52 Weeks Ended
May 6, 2023
77.3 $
16.5
(1.5)
92.3 $
$
$
53 Weeks Ended
May 7, 2022
61.0 $
32.4
(6.7)
86.7 $
$
Change
16.3
(15.9)
5.2
5.6
For the fiscal year ended May 6, 2023, operating income from the Investments and other operations segment
increased primarily as a result of higher equity earnings from Crombie REIT, mainly due to increased sales of
properties, partially offset by lower equity earnings from Genstar as a result of higher property sales in the prior
year.
22
14
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
QUARTERLY RESULTS OF OPERATIONS
Fiscal 2023
Fiscal 2022
($ in millions, except
per share amounts)
Sales
Operating income
Adjusted Operating income(2)
EBITDA(3)
Adjusted EBITDA(2)(3)
Net earnings(4)
Adjusted net earnings(2)(4)
Per share information, basic
Net earnings(4)
Adjusted net earnings(2)(4)
Basic weighted average number
of shares outstanding (in millions)
Per share information, diluted
Net earnings(4)
Adjusted net earnings(2)(4)
Diluted weighted average number
of shares outstanding (in millions)
$
$
$
$
$
Q3(1)
(13 Weeks)
Q4
(14 Weeks)
Q2
(13 Weeks)
Q1
(13 Weeks)
Q1
Q4
(13 Weeks)
(13 Weeks)
May 6, 2023 Feb. 4, 2023 Nov. 5, 2022 Aug. 6, 2022 May 7, 2022 Jan. 29, 2022 Oct. 30, 2021 Jul. 31, 2021
7,626.0
$
347.4
347.4
581.9
581.9
188.5
188.5
7,377.3 $
354.8
354.8
597.5
597.5
203.4
203.4
7,840.8 $
333.6
333.6
586.2
586.2
178.5
178.5
7,318.3 $
327.9
327.9
565.2
565.2
175.4
175.4
7,408.4 $
321.6
328.1
592.3
598.8
182.9
184.9
7,489.3
232.8
285.4
492.5
545.1
125.7
164.8
7,937.6
344.1
344.1
594.0
594.0
187.5
187.5
7,642.8
333.9
333.9
584.2
584.2
189.9
189.9
Q3
(13 Weeks)
Q2
(13 Weeks)
$
$
0.72 $
0.73 $
0.49
0.64
$
$
0.73
0.73
$
$
0.72
0.72
$
$
0.68 $
0.68 $
0.77 $
0.77 $
0.66 $
0.66 $
0.71
0.71
254.9
257.9
260.1
262.2
263.0
264.1
265.4
267.0
0.72 $
0.72 $
0.49
0.64
$
$
0.73
0.73
$
$
0.71
0.71
$
$
0.68 $
0.68 $
0.77 $
0.77 $
0.66 $
0.66 $
0.70
0.70
255.4
258.4
260.6
263.0
264.0
264.9
266.3
268.1
(1) See “Non-GAAP Financial Measures and Financial Metrics” section of the third quarter fiscal 2023 MD&A for a reconciliation of the
adjusted metrics presented in the table.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A for a description of the types of costs included.
Additionally, certain estimated financial impacts associated with the Cybersecurity Event are not reflected in the Adjusted Metrics
above as they relate to sales declines which management considers are attributable to the Event, as well as operational effectiveness
which temporarily declined during the Event. Management estimates that the impact of these non-adjusted items on operating income
and EBITDA to be at least ($20.0) million, and the net earnings impact to be at least ($15.0) million.
(3) EBITDA is reconciled to net earnings for the current and comparable period in the “Non-GAAP Financial Measures & Financial
Metrics” section of this MD&A.
(4) Attributable to owners of the Company.
For the last eight quarters reflected in the table above, results have fluctuated due to the impacts of COVID-
19 and the related shift in consumer shopping behaviour which led to fluctuations in sales during fiscal 2021
and fiscal 2022. With the easing of restrictions, sales began to stabilize by fiscal 2022 but continued to trend
high and compare favourably to pre-pandemic levels. Results in the fourth quarter of fiscal 2022 were impacted
by an additional week of operations. Beginning on May 10, 2021, the Company’s results incorporate the results
of Longo’s.
Sales are affected by fluctuations in inflation. Results are affected by seasonality, in particular during the
summer months and over the holidays when retail sales trend higher and can result in stronger operating
results. Sales, operating income, EBITDA and net earnings have all been influenced by the Company’s
strategic investment activities, the competitive environment, cost management initiatives, food prices and
general industry trends, adjusted items, as well as other risk factors as outlined in the “Risk Management”
section.
15
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The table below highlights significant cash flow components for the relevant periods. For additional detail,
please refer to the consolidated statements of cash flows in the Company’s audited consolidated financial
statements for the fiscal year ended May 6, 2023.
($ in millions)
Cash flows from operating activities
Cash flows used in investing activities
Cash flows used in financing activities
Increase (decrease) in cash and cash
equivalents
Operating Activities
$
$
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
52 Weeks Ended
May 6, 2023
504.6 $
(148.7)
(345.2)
469.5
$
(227.0)
(295.8)
1,605.3 $
(684.7)
(1,511.6)
53 Weeks Ended
May 7, 2022
2,107.1
(891.4)
(1,293.9)
10.7 $
(53.3) $
(591.0) $
(78.2)
Cash flows from operating activities for the fourth quarter of fiscal 2023 increased versus prior year primarily
as a result of favourable working capital changes, partially offset by lower net earnings due to the additional
week of operations in the prior year and higher taxes paid in the current year.
Cash flows from operating activities for the fiscal year ended May 6, 2023 decreased versus prior year primarily
as a result of unfavourable working capital changes driven by higher inventory, higher income taxes paid and
lower net earnings due to the additional week of operations in the prior year.
Investing Activities
The table below outlines details of investing activities for the relevant periods:
($ in millions)
Increase in equity investments
Acquisitions of property, equipment,
investment property and intangibles
Proceeds on disposal of assets(1) and
lease terminations
Leases and other receivables, net
Other assets and other long-term liabilities
Business acquisitions
Payments received for finance subleases
Interest received
Cash flows used in investing activities
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
52 Weeks Ended
May 6, 2023
$
(1.0) $
(83.0) $
(3.4) $
53 Weeks Ended
May 7, 2022
(124.5)
(158.2)
(205.9)
(757.7)
29.4
(35.5)
(3.4)
(2.4)
21.9
0.5
(148.7) $
25.5
15.7
(2.1)
(6.0)
27.3
1.5
(227.0) $
48.9
(34.8)
(6.7)
(18.7)
84.8
2.9
(684.7) $
(780.3)
175.6
25.4
(28.9)
(242.0)
79.4
3.9
(891.4)
$
(1) Proceeds on disposal of assets include property, equipment and investment property.
Cash used in investing activities for the fourth quarter of fiscal 2023 decreased versus prior year primarily due
to the prior year purchase of $83.0 million of Crombie REIT Class B Limited Partnership units (“Class B LP
units”). The decrease is partially offset by higher leases and other receivables.
Cash used in investing activities for the fiscal year ended May 6, 2023 decreased versus prior year as a result
of the prior year business acquisition of Longo’s and the prior year purchase of $124.5 million of Crombie REIT
Class B LP units. The decrease is partially offset by lower proceeds on disposal of assets and lease
terminations compared to the prior year.
24
16
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Capital Expenditures
The Company invested $243.1 million and $796.7 million in capital expenditures(1) for the quarter and fiscal
year ended May 6, 2023, respectively (2022 – $273.4 million and $767.2 million) including renovations and
construction of new stores, investments in advanced analytics technology and other technology systems,
FreshCo stores in Western Canada and Voilà CFCs.
For fiscal 2024, capital spend is expected to be approximately $775 million, with approximately half of this
investment allocated to renovations and new store expansion, and approximately $50 million allocated toward
sustainability initiatives such as refrigeration system upgrades, HVAC system upgrades and other energy
efficiency initiatives. The Company is planning to renovate approximately 20% to 25% of the network over the
next three years.
(1) Capital expenditures are calculated on an accrual basis and includes acquisitions of property, equipment and investment properties,
and additions to intangibles.
Store Network Activity and Square Footage
The table below outlines details of investments by Sobeys in its store network during the quarter and fiscal
year ended May 6, 2023 compared to the prior year.
# of stores
Opened/relocated/acquired (1)(2)
Expanded
Rebannered/redeveloped
Closed - pending conversion
Closed(1)
Opened - FreshCo(3)
Closed - pending conversion to FreshCo(3)
Opened - Farm Boy
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
1
-
1
-
9
1
-
1
4
1
1
-
12
3
-
2
8
1
3
-
21
4
-
3
56
2
8
1
40
12
15
8
(1) Total impact excluding the expansion of Farm Boy and FreshCo.
(2)
(3) Specific to converted Western Canada FreshCo stores.
Includes 36 Longo’s stores that were acquired in the first quarter of fiscal 2022.
The following table shows Sobeys’ square footage changes for the 13 weeks ended May 6, 2023:
Square feet (in thousands)
Opened
Rebannered/redeveloped
Expanded
Closed
Net change before the impact of the expansion of Farm Boy and FreshCo
Opened - FreshCo(1)
Opened - Farm Boy
Net change
13 Weeks Ended 14 Weeks Ended
May 7, 2022
May 6, 2023
1
-
-
(33)
(32)
50
30
48
51
(15)
7
(48)
(5)
131
55
181
(1) Specific to converted Western Canada FreshCo stores, net of Safeway and Sobeys closures.
At May 6, 2023, Sobeys’ retail space totalled 41.9 million square feet, a 0.7% increase compared to 41.6 million
square feet at May 7, 2022.
17
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financing Activities
Cash used in financing activities for the quarter ended May 6, 2023 increased versus prior year due to higher
volume of repurchases of Non-Voting Class A shares offset by decreased payments of lease liabilities.
Cash used in financing activities for the fiscal year ended May 6, 2023 increased versus prior year due to the
repayment of the $500.0 million Series 2013-2 Notes, partially offset by advances on credit facilities.
Free Cash Flow
Management uses free cash flow as a measure to assess the amount of cash available for debt repayment,
dividend payments and other investing and financing activities.
($ in millions)
Cash flows from operating activities
Add: proceeds on disposal of assets(1)
and lease terminations
Less: interest paid
payments of lease liabilities, net of
$
13 Weeks
Ended
14 Weeks
Ended
52 Weeks
Ended
53 Weeks
Ended
$
May 6, 2023 May 7, 2022 Change May 6, 2023 May 7, 2022 Change
2,107.1 $ (501.8)
469.5 $ 35.1 $
1,605.3 $
504.6 $
$
29.4
(3.4)
25.5
3.9
(22.0) 18.6
48.9
(52.0)
175.6
(56.2)
(126.7)
4.2
payments received for finance subleases
(163.2)
(218.2)
55.0
(653.0)
(635.0)
(18.0)
acquisitions of property, equipment,
investment property and intangibles
Free cash flow(2)
(158.2)
209.2 $
(205.9)
47.7
48.9 $ 160.3 $
(757.7)
191.5 $
(780.3)
22.6
811.2 $ (619.7)
$
(1) Proceeds on disposal of assets include property, equipment and investment property.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
Free cash flow for the quarter ended May 6, 2023 increased versus prior year primarily as a result of a decrease
in payments of lease liabilities, net of payments received for finance subleases, a decrease in acquisitions of
property, equipment, investment property and intangibles and an increase in cash flows from operating
activities. The increase in cashflow from operating activities is driven by favourable working capital changes,
partially offset by lower net earnings and higher income taxes paid.
Free cash flow for the fiscal year ended May 6, 2023 decreased versus prior year primarily as a result of a
decrease in cash flows from operating activities and lower proceeds on disposal of assets and lease
terminations. The decrease in cash flows from operating activities is driven by unfavourable working capital
changes, higher income taxes paid and lower net earnings.
Employee Future Benefit Obligations
For the fiscal year ended May 6, 2023, the Company contributed $11.0 million (2022 - $20.1 million) to its
registered defined benefit plans. The Company expects to contribute approximately $17.1 million to these
plans in fiscal 2024.
Guarantees and Commitments
The following table presents the Company’s commitments and other obligations that will come due over the
next five fiscal years as at May 6, 2023:
($ in millions)
Commitments
Long-term debt(1)
Third party finance leases, as lessee
Related party finance leases, as lessee
Non-controlling interest liabilities
Capital commitments
Contractual obligations
Third party finance subleases, as lessor
Owned properties operating leases, as lessor
Subleased properties operating leases, as lessor
Contractual obligations, net
$
$
(1) Principal debt repayments.
2024
2025
2026
2027
2028
Thereafter
Total
101.0 $
578.8
176.7
73.0
39.2
968.7
(87.9)
(6.2)
(57.7)
816.9 $
8.9 $
7.1 $
568.2
177.5
-
68.4
823.0
(83.2)
(5.5)
(51.2)
683.1 $
533.7
178.7
1.9
-
721.4
(76.3)
(5.0)
(45.0)
595.1 $
6.3 $
490.2
176.9
12.5
-
685.9
(69.7)
(4.0)
(38.1)
574.1 $
323.7 $
439.7
171.9
7.4
-
942.7
(62.7)
(2.2)
(31.9)
845.9 $
3,027.8
1,476.2
240.2
-
5,311.4
567.2 $ 1,014.2
5,638.4
2,357.9
335.0
107.6
9,453.1
(690.4)
(35.5)
(346.9)
4,865.2 $ 8,380.3
(310.6)
(12.6)
(123.0)
26
18
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
For further information on guarantees and commitments, please see Notes 9 and 15 of the Company’s audited
consolidated financial statements for the fiscal year ended May 6, 2023.
CONSOLIDATED FINANCIAL CONDITION
Key Financial Condition Measures
($ in millions, except per share and ratio calculations)
Shareholders’ equity, net of non-controlling interest
Book value per common share(1)
Long-term debt, including current portion
Long-term lease liabilities, including current portion
Funded debt to total capital(1)
Funded debt to adjusted EBITDA(1)
Adjusted EBITDA to interest expense(1)
Current assets to current liabilities
Total assets
Total non-current financial liabilities
May 6, 2023
May 7, 2022
$
$
$
$
$
$
5,200.4 $
20.09 $
1,012.3 $
6,184.6 $
58.1%
3.1x
8.8x
0.8x
16,483.7 $
7,289.5 $
4,991.5 $
18.82 $
1,176.7 $
6,285.4 $
59.9%
3.2x
8.3x
0.8x
16,593.6 $
7,220.0 $
May 1, 2021
4,372.7
16.30
1,225.3
5,908.1
62.0%
3.3x
8.0x
0.9x
15,173.9
7,187.7
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
During fiscal 2023, DBRS Morningstar (“DBRS”) upgraded Sobeys’ credit rating from BBB (low) to BBB and
changed the trend from positive to stable while S&P Global (“S&P”) remained unchanged from the prior year.
The following table shows Sobeys’ credit ratings as at May 6, 2023:
Rating Agency
DBRS
S&P
Credit Rating (Issuer rating)
BBB
BBB-
Trend/Outlook
Stable
Stable
Pursuant to an agreement dated November 3, 2022, Empire amended and restated its senior, unsecured
revolving term credit agreement extending the maturity date to November 4, 2027. The principal amount was
reduced from $250.0 million to $150.0 million. As of May 6, 2023, the outstanding amount of this facility was
$48.8 million (2022 – $47.3 million). Interest payable on this facility fluctuates with changes in the Canadian
prime rate or bankers’ acceptance rates.
Pursuant to an agreement dated November 3, 2022, Sobeys amended and restated its $650.0 million senior,
unsecured revolving term credit agreement extending the maturity date to November 4, 2027. As of May 6,
2023, the outstanding amount of this facility was $306.9 million (2022 – $ nil) and Sobeys has issued $70.4
million in letters of credit against the facility (2022 – $75.1 million). Interest payable on this facility fluctuates
with changes in the Canadian prime rate or bankers’ acceptance rates.
The redemption of the 4.70% Series 2013-2 Notes due August 8, 2023, which was announced in the fourth
quarter of fiscal 2022, was completed on June 2, 2022. The total redemption payment of $516.5 million included
the remaining aggregate principal balance of $500.0 million and $16.5 million in accrued interest and
prepayment costs.
Through the acquisition of Longo’s on May 10, 2021, Sobeys acquired their existing $75.0 million demand
operating line of credit. As of May 6, 2023, the outstanding amount of the facility was $44.5 million (2022 –
$15.1 million). Interest payable on this facility fluctuates with changes in the Canadian prime rate.
The Company believes its cash and cash equivalents on hand as of May 6, 2023, together with approximately
$404.4 million in unutilized, aggregate credit facilities and cash generated from operating activities will enable
the Company to fund future capital investments, pension plan contributions, working capital, current funded
debt obligations and ongoing business requirements. The Company also believes it has sufficient funding in
place to meet these requirements and other short and long-term financial obligations. The Company mitigates
potential liquidity risk by ensuring its sources of funds are diversified by term to maturity and source of credit.
For additional information on Empire’s long-term debt, see note 15 of the Company’s audited consolidated
financial statements for the fiscal year ended May 6, 2023.
19
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
Shareholders’ Equity
The Company’s share capital was comprised of the following on May 6, 2023:
Authorized
2002 Preferred shares, par value of $25 each, issuable in series
Non-Voting Class A shares, without par value
Class B common shares, without par value, voting
Issued and outstanding ($ in millions)
Non-Voting Class A shares
Class B common shares
Shares held in trust
Total
Number of Shares
155,164,908
98,138,079
(24,034)
Number of Shares
May 6, 2023
991,980,000
745,160,121
122,400,000
May 6, 2023
$
$
1,908.2 $
7.3
(0.8)
1,914.7 $
May 7, 2022
991,980,000
754,605,023
122,400,000
May 7, 2022
2,019.6
7.3
(0.8)
2,026.1
The Company’s share capital on May 6, 2023 compared to the same period in the last fiscal year is shown in
the table below:
(Number of shares)
Non-Voting Class A shares
Issued and outstanding, beginning of year
Issued during year
Purchased for cancellation
Issued and outstanding, end of year
Shares held in trust, beginning of year
Issued for future settlement of equity settled plans
Purchased for future settlement of equity settled plans
Shares held in trust, end of year
Issued and outstanding, net of shares held in trust, end of year
Class B common shares
Issued and outstanding, beginning and end of year
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
164,563,680
46,130
(9,444,902)
155,164,908
(39,027)
45,396
(30,403)
(24,034)
155,140,874
167,323,301
3,619,362
(6,378,983)
164,563,680
(46,512)
7,790
(305)
(39,027)
164,524,653
98,138,079
98,138,079
The outstanding options at May 6, 2023 were granted at prices between $18.70 and $42.60 and expire
between June 2023 and June 2030 with a weighted average remaining contractual life of 4.67 years. Stock
option transactions during fiscal 2023 and 2022 were as follows:
Balance, beginning of year
Granted
Exercised
Expired
Forfeited
Balance, end of year
Stock options exercisable, end of year
Fiscal 2023
Fiscal 2022
Weighted
Average
Exercise
Price
31.33
40.39
26.82
34.58
31.56
32.44
Number of
Options
4,007,326 $
471,847
(161,334)
(6,046)
(88,961)
4,222,832 $
1,731,502
Weighted
Average
Exercise
Price
27.96
42.05
22.55
26.39
37.69
31.33
Number of
Options
4,361,032 $
610,692
(936,807)
(9,582)
(18,009)
4,007,326 $
1,212,083
For the fiscal year ended May 6, 2023, the Company paid common dividends of $170.2 million (2022 – $156.8
million) to its common shareholders, representing $0.67 per share (2022 – $0.60 per share) for common
shareholders.
As at June 19, 2023, the Company had Non-Voting Class A and Class B common shares outstanding of
154,091,171 and 98,138,079, respectively. Options to acquire 4,339,061 Non-Voting Class A shares were
outstanding as of May 6, 2023 (May 7, 2022 – 4,007,326). As at June 19, 2023, options to acquire 4,324,496
Non-Voting Class A shares were outstanding (June 21, 2022 – 3,998,354).
28
20
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
The Company established a trust fund to facilitate the purchase of Non-Voting Class A shares for the future
settlement of vested units under the Company’s equity settled stock-based compensation plans. Contributions
to the trust fund and the Non-Voting Class A shares purchased are held by TSX Trust Company as trustee.
The trust fund is a structured entity and as such the accounts of the trust fund are included on the consolidated
financial statements of the Company. The following represents the activity of shares held in trust, recorded at
cost:
Shares held in trust
Balance, beginning of year
Purchased
Issued
Balance, end of year
Normal Course Issuer Bid (“NCIB”)
Number of Shares
May 6, 2023
May 7, 2022
39,027
30,403
(45,396)
24,034
$
$
0.8 $
1.1
(1.1)
0.8 $
0.9
-
(0.1)
0.8
On June 21, 2023, the Company renewed its NCIB by filing a notice of intention with the Toronto Stock
Exchange (“TSX”) to purchase for cancellation up to 12,600,000 Non-Voting Class A shares (“Class A shares”)
representing approximately 9.0% of the public float of 139,497,542 Class A shares as of June 19, 2023, subject
to regulatory approval. As of June 19, 2023, there were 152,926,775 Class A shares issued and outstanding.
The Company intends to repurchase approximately $400.0 million of Class A shares in fiscal 2024. The
purchases will be made through the facilities of the TSX and/or any alternative Canadian trading systems to
the extent they are eligible. The price that Empire will pay for any shares will be the market price at the time of
acquisition. The Company believes that repurchasing shares at the prevailing market prices from time to time
is a worthwhile use of funds and in the best interests of Empire and its shareholders. Purchases under the
renewed NCIB may commence on July 2, 2023 and shall terminate no later than July 1, 2024.
Based on the average daily trading volume (“ADTV”) of 337,583 shares over the last six months, daily
purchases will be limited to 84,395 Class A shares (25% of the ADTV of the Class A shares), other than block
purchase exemptions.
The Company has also renewed its automatic share purchase plan with its designated broker allowing the
purchase of Class A shares for cancellation under its NCIB during trading black-out periods, subject to
regulatory approval.
Under the Company’s current NCIB, that commenced on July 2, 2022 and expires on July 1, 2023, the
Company received approval from the TSX to purchase up to 10,500,000 Class A shares representing
approximately 7.0% of the public float of Class A shares outstanding as of June 17, 2022. As of June 19, 2023,
the Company has purchased 10,464,644 shares through the facilities of the TSX at a weighted average price
of $36.18 for a total consideration of $378.6 million under the NCIB that commenced July 2, 2022 and expires
on July 1, 2023.
Shares purchased during the quarter and year-to-date ended May 6, 2023 compared to the same periods of
the previous fiscal year are shown in the table below:
($ in millions, except per share amounts)
Number of shares
Weighted average price per share
Cash consideration paid
May 6, 2023
3,110,280
13 Weeks Ended 14 Weeks Ended 52 Weeks Ended 53 Weeks Ended
May 7, 2022
6,378,983
39.02
248.9
May 7, 2022
413,100
May 6, 2023
9,444,902
39.83 $
16.5 $
37.06 $
350.0 $
35.91 $
111.7 $
$
$
21
29
MANAGEMENT’S DISCUSSION AND ANALYSIS
ACCOUNTING STANDARDS AND POLICIES
Changes to Accounting Standards Adopted During Fiscal 2023
In May 2020, the IASB issued a package of narrow-scope amendments to three standards (IFRS 3, “Business
Combinations”; IAS 16, “Property, Plant and Equipment”; and IAS 37, “Provisions, Contingent Liabilities and
Contingent Assets”) as well as the IASB’s Annual Improvements to IFRS Standards 2018 - 2020. These
amendments to existing IFRS standards are to clarify guidance and wording, or to correct for relatively minor
unintended consequences, conflicts or oversights. These amendments became effective for annual periods
beginning on or after January 1, 2022. There was no impact on the Company’s financial statements.
Standards, Amendments and Interpretations Issued but not yet Adopted
In October 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1, “Presentation
of Financial Statements”) to clarify that covenants to be complied with after the reporting date for an entity’s
right to defer settlement of a liability does not affect the classification of the liability as current or non-current
at the reporting date. These narrow-scope amendments aim to improve information an entity provides with
regards to the covenants through additional disclosures. These amendments are effective for annual reporting
periods beginning on or after January 1, 2024, with early adoption permitted. The Company is assessing the
potential impact of these narrow-scope amendments.
In September 2022, the IASB issued narrow-scope amendments to IFRS 16, “Leases”. These amendments
clarify how a seller-lessee subsequently measures the lease liability that arises from a sale and leaseback
transaction, the seller-lessee determines “lease payments” and “revised lease payments” in a way that does
not result in the seller-lessee recognizing any amount of the gain or loss that relates to the right of use it retains.
These amendments only apply to sale and leaseback transactions for which the lease payments include
variable lease payments that do not depend on an index or a rate. The amendment is effective for annual
reporting periods beginning on or after January 1, 2024 with early adoption permitted. The Company expects
no impact from these amendments.
In May 2021, the IASB issued narrow-scope amendments to IAS 12, “Income Taxes”. The amendments require
deferred tax assets and liabilities to be recognized for transactions that result in both deductible and taxable
temporary differences of the same amount at initial recognition. These amendments are effective for annual
reporting periods beginning on or after January 1, 2023, with early adoption permitted. There will be no impact
on the Company’s financial statements from these amendments.
In January 2020, the IASB issued Classification of Liabilities as Current or Non-Current (Amendments to IAS
1, “Presentation of Financial Statements”). The narrow-scope amendment affects only the presentation of
liabilities in the statement of financial position and not the amount or timing of recognition. Specifically, it
clarifies:
•
•
classification is unaffected by expectations about whether an entity will exercise its right to defer
settlement of a liability; and
that “settlement” refers to the transfer to the counterparty of cash, equity instruments, other assets or
services.
These amendments are effective for annual periods beginning on or after January 1, 2024, with early adoption
permitted. The Company is assessing the potential impact of this narrow-scope amendment.
30
22
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Critical Accounting Estimates
The preparation of consolidated financial statements, in conformity with generally accepted accounting
principles (“GAAP”), requires management to make estimates, judgments and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Certain of these estimates
require subjective or complex judgments by management that may be uncertain. Some of these items include
the valuation of inventories, goodwill, employee future benefits, stock-based compensation, estimates of
provisions, impairments, customer loyalty programs, useful lives of property, equipment, investment property
and intangibles for purposes of depreciation and amortization, and income taxes. Changes to these estimates
could materially impact the financial statements. These estimates are based on management's best knowledge
of current events and actions the Company may undertake in the future. Management regularly evaluates the
estimates and assumptions it uses. Actual results could differ from these estimates.
Leases
Estimates and judgments are used in the measurement of lease liabilities and right-of-use assets, with key
assumptions related to the determination of discount rates and lease term expectations.
Non-Controlling Interest Put and Call Options
The Company has applied estimates and judgment to the non-controlling interest put and call options the
Company entered into as part of business acquisitions. The calculation is an earnings multiple that has various
components including estimates of cash flows and discount rates.
Valuation of Inventories
Inventories are valued at the lower of cost and estimated net realizable value. Significant estimation and
judgment is required in the determination of (i) estimated inventory provisions due to spoilage and shrinkage
occurring between the last physical inventory count and the balance sheet dates; and (ii) inventories valued at
retail and adjusted to cost. Changes or differences in any of these estimates may result in changes to
inventories on the consolidated balance sheets and a charge or credit to operating income in the consolidated
statements of earnings.
Impairments of Non-Financial Assets
Management assesses impairment of non-financial assets such as investments in associates and joint
ventures, goodwill, intangible assets, property and equipment, right-of-use assets and investment property. In
assessing impairment, management estimates the recoverable amount of each asset or cash generating unit
(“CGU”) based on expected future cash flows. When measuring expected future cash flows, management
makes assumptions about future growth of profits which relate to future events and circumstances. Actual
results could vary from these estimated future cash flows. Estimation uncertainty relates to assumptions about
future operating results and the application of an appropriate discount rate.
Goodwill is subject to impairment testing on an annual basis. The Company performed its annual assessment
of goodwill impairment during its third quarter. However, if indicators of impairment are present, the Company
will review goodwill for impairment when such indicators arise. In addition, at each reporting period, the
Company reviews whether there are indicators that the recoverable amount of long-lived assets may be less
than their carrying amount.
Goodwill and long-lived assets were reviewed for impairment by determining the recoverable amount of each
CGU or groups of CGUs to which the goodwill or long-lived assets relate. Management estimated the
recoverable amount of the CGUs based on the higher of value-in-use (“VIU”) and fair value less costs of
disposal. The VIU calculations are based on expected future cash flows. When measuring expected future
cash flows, management makes key assumptions about future growth of profits which relate to future events
and circumstances. Estimation uncertainty relates to assumptions about future operating results and the
application of an appropriate discount rate. Actual results could vary from these estimates which may cause
significant adjustments to the Company’s goodwill or long-lived assets in subsequent reporting periods.
23
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
Pension Benefit Plans and Other Benefit Plans
The cost of the Company’s pension benefits for defined contribution plans are expensed at the time active
employees are compensated. The cost of defined benefit pension plans and other benefit plans is accrued
based on actuarial valuations, which are determined using the projected unit credit method pro-rated on service
and management’s best estimate of salary escalation, retirement ages, and expected growth rate of health
care costs.
Current market values are used to value benefit plan assets. The obligation related to employee future benefits
is measured using current market interest rates, assuming a portfolio of Corporate AA bonds with terms to
maturity that, on average, match the terms of the obligation.
To the extent that plan amendments increase the obligation related to past service, the Company will recognize
a past service cost immediately as an expense.
In measuring its defined benefit liability, the Company will recognize all of its actuarial gains and losses
immediately into other comprehensive income. The key assumptions are disclosed in Note 18 of the
Company’s audited consolidated financial statements for the year ended May 6, 2023.
Income Taxes
Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable
to temporary differences between the financial statement carrying values of assets and liabilities and their
respective income tax bases. Deferred income tax assets or liabilities are measured using enacted or
substantively enacted income tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The calculation of current and deferred income
taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment.
The financial statement carrying values of assets and liabilities are subject to accounting estimates inherent in
those balances. The income tax bases of assets and liabilities are based upon the interpretation of income tax
legislation across various jurisdictions. The current and deferred income tax assets and liabilities are also
impacted by expectations about future operating results and the timing of reversal of temporary differences as
well as possible audits of tax filings by the regulatory authorities.
Changes or differences in these estimates or assumptions may result in changes to the current or deferred
income tax balances on the consolidated balance sheets.
Business Acquisitions
For business acquisitions, the Company applies judgment on the recognition and measurement of assets and
liabilities assumed and estimates are utilized to calculate and measure such adjustments. In measuring the
fair value of an acquiree’s assets and liabilities, management uses estimates about future cash flows and
discount rates. Any measurement changes after initial recognition would affect the measurement of goodwill,
except for deferred taxes.
Provisions
Provisions are recognized when there is a present legal or constructive obligation as a result of a past event,
for which it is probable that a transfer of economic benefits will be required to settle the obligation, and where
a reliable estimate can be made of the amount of the obligation. Provisions are discounted using a pre-tax
discount rate that reflects the current market assessments of the time value of money and the risks specific to
the liability, if material.
Vendor Allowances
The Company has supply agreements with varying terms for purchase of goods for resale, some of which
include volume related allowances, purchase discounts, listing fees and other discounts and allowances.
Estimates and judgment are required when the receipt of allowances is conditional on the Company achieving
specified performance conditions associated with the purchase of product and determining if these have been
met. These include estimates of achieving agreed volume targets based on historical and forecast
performance.
32
24
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Disclosure Controls and Procedures
Management of the Company, which includes the President & Chief Executive Officer (“CEO”) and Executive
Vice President & Chief Financial Officer (“CFO”), is responsible for establishing and maintaining Disclosure
Controls and Procedures (“DC&P”) to provide reasonable assurance that material information relating to the
Company is made known to management by others, particularly during the period in which the annual filings
are being prepared, and that information required to be disclosed by the Company and its annual filings, interim
filings and other reports filed or submitted by it under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation. The CEO and CFO have evaluated the
effectiveness of the Company’s DC&P and, based on that evaluation, the CEO and CFO have concluded that
the Company’s DC&P was effective as at May 6, 2023 and that there were no material weaknesses relating to
the design or operation of the DC&P.
Internal Control Over Financial Reporting
Management of the Company, which includes the CEO and CFO, is responsible for establishing and
maintaining Internal Control over Financial Reporting (“ICFR”), as that term is defined in National Instrument
52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings”. The control framework management
used to design and assess the effectiveness of ICFR is “Internal Control Integrated Framework (2013)”
published by the Committee of Sponsoring Organizations of the Treadway Commission. The CEO and CFO
have evaluated the effectiveness of the Company’s ICFR and, based on that evaluation, the CEO and CFO
have concluded that the Company’s ICFR was effective as at May 6, 2023 and that there were no material
weaknesses relating to the design or operation of the ICFR.
There have been no changes in the Company’s ICFR during the period beginning February 5, 2023 and ended
May 6, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
25
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
RELATED PARTY TRANSACTIONS
The Company enters into related party transactions with Crombie REIT and key management personnel,
including ongoing leases and property management agreements. As at May 6, 2023, the Company holds a
41.5% (2022 – 41.5%) ownership interest in Crombie REIT and accounts for its investment using the equity
method.
Crombie REIT has instituted a distribution reinvestment plan (“DRIP”) whereby Canadian resident REIT
unitholders may elect to automatically have their distributions reinvested in additional REIT units. The
Company has enrolled in the DRIP to maintain its economic and voting interest in Crombie REIT.
The Company leased certain real property from Crombie REIT during the year at amounts which in
management’s opinion approximate fair market value that would be incurred if leased from a third party.
Management has determined these amounts to be fair value based on the significant number of leases
negotiated with third parties in each market it operates. The aggregate net payments under these leases
totalled approximately $261.3 million (2022 – $213.5 million).
Crombie REIT provides administrative and property management services to the Company on a fee for service
basis pursuant to a Management Agreement.
Sobeys, through wholly-owned subsidiaries, engages in property sales and sale leaseback transactions with
Crombie REIT, based on fair market values. These transactions consist of the following:
($ in millions)
Properties sold and leased back(1)
Properties sold
Lease modification terminations
Total
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
Number of
properties
Cash
consideration
Pre-tax
gains
Number of
properties
Cash
consideration
2 $
1
-
3 $
17.4 $
2.1
-
19.5 $
-
0.2
-
0.2
10 $
1
3
14 $
95.6 $
2.6
10.0
108.2 $
Pre-tax
gains
7.1
-
22.8
29.9
(1) May 7, 2022, includes 50% sale leaseback of a distribution centre in which Crombie REIT now owns 100% of the property.
During the fiscal year ended May 6, 2023, Crombie REIT disposed of two properties to third parties (2022 -
two properties). These transactions resulted in the reversal of previously deferred pre-tax gains of $6.1 million
(2022 - $1.7 million) which has been recognized in other income on the consolidated statements of earnings.
During the fiscal year ended May 6, 2023, Sobeys, through a wholly-owned subsidiary, received $16.5 million
(2022 - $19.5 million) for reimbursements of lessor improvements from Crombie REIT. These payments are
related to modernization and efficiency improvements of existing properties, and construction allowances.
On January 31, 2022, Crombie REIT announced it had closed a bought-deal public offering of units at a price
of $17.45 per unit for aggregate proceeds of $200.0 million. Concurrent with the public offering, a wholly-owned
subsidiary of the Company purchased, on a private placement basis, $83.0 million of Class B LP units to
maintain a 41.5% ownership interest in Crombie REIT.
On May 19, 2021, Crombie REIT announced it had closed a bought-deal public offering of units at a price of
$16.60 per unit for aggregate proceeds of $100.0 million. Concurrent with the public offering, a wholly-owned
subsidiary of the Company purchased, on a private placement basis, $41.5 million of Class B LP units to
maintain a 41.5% ownership interest in Crombie REIT.
34
26
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Key Management Personnel Compensation
Key management personnel include the Board of Directors and members of the Company’s executive team
that have authority and responsibility for planning, directing and controlling the activities of the Company.
Key management personnel compensation is comprised of:
($ in millions)
Salaries, bonus and other short-term employment benefits
Post-employment benefits
Share-based payments
Total
Indemnities
52 Weeks Ended
May 6, 2023
$
$
14.0 $
1.5
14.6
30.1 $
53 Weeks Ended
May 7, 2022
19.5
2.6
13.2
35.3
The Company has agreed to indemnify its directors, officers and particular employees in accordance with the
Company’s policies. The Company maintains insurance policies that provide coverage against certain claims.
CONTINGENCIES
The Company has submitted insurance claims in connection with losses incurred related to the Cybersecurity
Event which occurred on November 4, 2022. The amount and timing of receipt for the insurance recoveries
are uncertain and subject to approval by the insurance companies. As a result, recoveries will only be
recognized on the consolidated statements of earnings when the amount and timing are virtually certain.
The Company is subject to claims and litigation arising out of the ordinary course of business operations. The
Company’s management does not consider the exposure to such litigation to be material.
In the ordinary course of business, the Company is subject to ongoing audits by tax authorities. While the
Company believes that its tax filing positions are appropriate and supportable, from time to time certain matters
are reviewed and challenged by the tax authorities.
27
35
MANAGEMENT’S DISCUSSION AND ANALYSIS
RISK MANAGEMENT
Through its operating companies and its equity-accounted investments, Empire is exposed to a number of
risks in the normal course of business that have the potential to affect operating performance. In order to
achieve and sustain superior business performance an Enterprise Risk Management (“ERM”) program has
been established within the Company.
As part of the ERM process, the Company identifies, assesses, manages and reports on key risks to the
organization and its objectives. Risks are ranked and executive ownership is established in each case. In
addition, processes have been put in place to facilitate effective oversight by establishing risk appetite
statements, key risk indicators, treatment action plans and dashboards for key risks identified. Key risks have
been, and continue to be, embedded in the business and strategy discussions at the Board and/or Committee
meetings. Annually, the senior leadership of the Company conducts a regular assessment of the Company’s
effectiveness in managing existing/known risks along with an identification and discussion of new and
emerging risks.
Competition
Empire’s Food retailing business, Sobeys, operates in a dynamic and competitive market. Other national and
regional food distribution companies, along with non-traditional competitors, such as mass merchandisers,
warehouse clubs, and online retailers, represent a competitive risk to Sobeys’ ability to attract customers and
operate profitably in its markets.
Sobeys maintains a strong national presence in the Canadian retail food and food distribution industry,
operating in over 900 communities in Canada. A significant risk to Sobeys is the potential for reduced revenues
and profit margins as a result of increased competition. A failure to maintain geographic diversification to
reduce the effects of localized competition could have an adverse impact on Sobeys’ operating margins and
results of operations. To successfully compete, Sobeys must be customer and market-driven, be focused on
superior execution and have efficient, cost-effective operations. It also must invest in its existing store and e-
commerce network as well as its merchandising, marketing and operational execution to evolve its strategic
platform to better meet the needs of consumers looking for food options. Sobeys updates branding strategies
to remain relevant to customers. Failure to implement a marketing and branding strategy, including evaluating
the strategic objectives and having people, processes and systems in place to execute the strategy, could
adversely affect Sobeys. The consolidation of industry competitors may also lead to increased competition and
loss of market share. The Company further believes it must invest in merchandising initiatives to better forecast
and respond to changing consumer trends. Any failure to successfully execute in these areas could have a
material adverse impact on Sobeys’ financial results.
Empire’s real estate operations, through its investment in Crombie REIT, compete with numerous other
managers and owners of real estate properties in seeking tenants and new properties to acquire. The existence
of competing managers and owners could affect their ability to: (i) acquire property in compliance with their
investment criteria; (ii) lease space in their properties; and (iii) maximize rents charged and minimize
concessions granted. Commercial property revenue is also dependent on the renewal of lease arrangements
by key tenants. These factors could adversely affect the Empire’s financial results and cash flows. A failure by
Crombie REIT to maintain strategic relationships with developers to ensure an adequate supply of prospective
attractive properties or to maintain strategic relationships with existing and potential tenants to help achieve
high occupancy levels at each of its properties could adversely affect Empire.
Business Continuity
The Company may be subject to unexpected or critical events and natural hazards, including severe weather
events, interruption of utilities and infrastructure or occurrence of pandemics, which could cause sudden or
complete cessation of its day to day operations. The Company leverages an integrated business continuity
management framework, including a comprehensive crisis management plan. However, no such plan can
eliminate the risks associated with events of this magnitude. Any failure to respond effectively or appropriately
to such events could adversely affect the Company’s operations, reputation and financial results.
36
28
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Cybersecurity
IT systems are an integral part of the Company’s business and are relied on to complete daily and strategic
operations. The Company uses various technologies, some of which are managed by third parties, to process,
transmit and store electronic information. In addition, the Company facilitates a variety of business processes
and activities, including reporting on business and interacting with customers, vendors and employees. These
IT systems are subject to an increasing number of complex cyber threats, including cyberattacks, data
breaches, employee error or malfeasance, power outages, telecommunication or utility failures, systems
failures, service provider failures, natural disasters or other catastrophic events. As the cyber threats evolve
and become more sophisticated and complex, the more difficult it is to detect and successfully defend against
them. For example, see the discussion of the Cybersecurity Event in the “Business Updates” section. In
addition, cyber-security-related vulnerabilities by their very nature may remain undetected for an extended
period of time.
The Company actively monitors, manages, and continues to enhance the ability to mitigate cyber risk through
a multi-layered security approach. However, there is no assurance that these measures will be successful. If
the Company does not effectively manage a reliable IT infrastructure or fails to timely identify or appropriately
respond to cybersecurity incidents, then the Company’s IT systems could be interrupted, destroyed or shut
down completely, which in turn could result in operational disruptions (which may be similar to those
experienced in connection with the Cybersecurity Event) or the misappropriation of sensitive data. Depending
on the nature and scope of a cybersecurity incident, it could lead to the compromise of confidential information,
improper access to Company systems and networks, manipulation or destruction of data, operational
disruptions and exposure to liability.
The Company has implemented security measures with respect to systems protection, employee training, and
business continuity and contingency planning. A disruption to the Company’s systems or a breach of sensitive
information may negatively impact the Company’s operations and financial position, damage its reputation,
reduce its competitive advantage and reduce the ability to achieve its strategic objectives and/or the trading
price of the Non-Voting Class A shares.
Data Protection and Information Management
The integrity, reliability and security of information in all its forms is critical to the Company’s daily and strategic
operations. Inaccurate, incomplete or unavailable information, external intrusions on information systems or
inappropriate access to information could lead to incorrect financial and/or operational reporting, poor
decisions, privacy breaches or inappropriate disclosure, leaks of sensitive information or system disruptions.
Gathering and analyzing information regarding customers’ purchasing preferences is an important part of the
Company’s strategy to attract and retain customers and effectively compete. In addition, personal health
information is collected in order to provide pharmacy, benefits administration and home health care services
to customers. Any failure to maintain privacy of customer and/or Company information or to comply with
applicable privacy laws or regulations could adversely affect the Company’s reputation, competitive position
and results of operations.
The Company recognizes that information is a critical enterprise asset. Currently, data and information
management risk is managed through a multi layered security approach involving software tools based
controls, policies, standards and procedures pertaining to security access, system development, change
management and problem and incident management.
Product Safety and Security
Sobeys is subject to potential liabilities connected with its business operations, including potential liabilities
and expenses associated with product defects, food safety and product handling, and provision of pharmacy
products and related services. Such liabilities may arise in relation to the storage, distribution, display and
dispensing of products and, with respect to Sobeys’ private label products, in relation to the production,
packaging and design of products.
29
37
MANAGEMENT’S DISCUSSION AND ANALYSIS
A large majority of Sobeys’ sales are generated from food and a smaller portion from pharmaceutical products.
Sobeys could be vulnerable in the event of a significant outbreak of food-borne illness or increased public
health concerns in connection with certain food or pharmaceutical products. Such an event could materially
affect Sobeys’ financial performance. Procedures are in place to manage food and pharmaceutical crises,
should they occur. These procedures are intended to identify risks, provide clear communication to teammates
and consumers and ensure that potentially harmful products are removed from sale immediately.
Sobeys has food safety procedures and programs which address safe food handling and preparation
standards. Similarly, provincial pharmacy standards and regulations are strictly followed, supported by robust
internal policies and procedures to help mitigate risk along with a comprehensive reporting and follow up
system to quickly manage and contain any incidents. On a monthly basis the Executive team is updated on
food safety and pharmacy risks. However, there can be no assurance that such measures will prevent the
occurrence of any such product contamination or safety incident.
Supply Chain Disruptions Including Impacts of Climate Change
The Company is exposed to potential supply chain disruptions and errors that could result in obsolete
merchandise or an excess or shortage of merchandise in its retail store network. The Company’s distribution
and supply chain could be negatively impacted by over reliance on key vendors, consolidation of facilities,
disruptions due to severe weather conditions, natural disasters, climate change driven disruptions or other
catastrophic events, failure to manage costs and inventories, and geopolitical disruptions. A failure to develop
competitive new products, deliver high-quality products and implement and maintain effective supplier
selection and procurement practices could adversely affect Sobeys’ ability to deliver desired products to
customers and adversely affect the Company’s ability to attract and retain customers, decreasing competitive
advantage. A failure to maintain an efficient supply and logistics chain may adversely affect Sobeys’ ability to
sustain and meet growth objectives and maintain margins.
Product Costs
Sobeys is a significant purchaser of food product which is at risk of cost inflation given rising commodity prices
and other costs of production to food manufacturers. Should rising costs of product materialize in excess of
the Company’s expectations and should the Company not be able to offset such cost inflation through higher
retail prices or other cost savings, there could be a negative impact on sales and margin performance.
Technology
The Company operates extensive and complex information technology systems that are vital to the successful
operation of its business and marketing strategies. Any interruption to these systems or the information
collected by them would have a significant adverse impact on the Company, its operations and its financial
results. The Company is committed to improving its operating systems, tools and procedures in order to
become more efficient and effective.
The implementation of major information technology projects carries with it various risks, including the risk of
realization of functionality, the capacity and capability of key resources to both execute and deliver key strategic
initiatives while also sustaining and supporting the on-going business operations.
Environmental
The Company operates its business locations across the country, including retail stores, distribution centres
and fuel sites, and is subject to environmental risks associated with the contamination of such properties and
facilities. Sobeys’ retail fuel locations operate underground storage tanks. Environmental contamination
resulting from leaks or damages to these tanks is possible. To mitigate this environmental risk, Sobeys
engages in several monitoring procedures, as well as risk assessment activities, to minimize potential
environmental hazards. The Company also operates refrigeration equipment in its stores and distribution
centres. These systems contain refrigerant gases which could be released if equipment fails or leaks.
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EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
When environmental issues are identified, any required environmental site remediation is completed using
appropriate, qualified internal and external resources. The Company may be required to absorb all costs
associated with such remediation, which may be substantial. Failure to properly manage any of these
environmental risks could adversely affect the reputation, operations or financial performance of the Company.
The Company is subject to legislation that imposes liabilities on retailers for costs associated with recycling
and disposal of consumer goods packaging and printed materials distributed to consumers. There is a risk that
the Company will be subject to increased costs associated with these laws.
Environmental Regulation
Environmental legislation has evolved in a manner that has resulted in stricter standards and enforcement,
larger fines and liability and increased capital expenditures and operating costs. The environmental issues
affecting the Company’s operations include extended producer responsibility on plastics and packaging,
electricity consumption, fossil fuel use in the transport of goods, air pollution laws and regulations, regulations
relating to climate change, hazardous waste regulation, and restrictions against greenhouse gas emissions.
The discharge of pollutants into the air, soil or water may give rise to liabilities to governments and third parties
and may require the Company to incur costs to remedy such discharge. No assurance can be given that
environmental laws will not result in a curtailment of production or a material increase in the costs of production
activities that could adversely affect the Company’s financial condition, results of operations or prospects. The
Company may also be subject under such regulations to clean-up costs and liability for toxic or hazardous
substances that may exist on or under or near any of its properties or that may be produced as a result of its
operations. Changes in legislation, including carbon taxes and the implementation of other greenhouse gas
reduction initiatives and regulations related to transitioning to a low-carbon and more climate resilient future,
could result in additional costs which could have a negative impact on the Company's financial performance if
the Company is not able to identify offsetting cost reductions and efficiencies.
Talent, Attraction and Retention
Effective leadership is important to the growth and continued success of the Company. The inability of the
Company to properly attract, build talent and retain its teammates with the appropriate skill set and failure to
manage and monitor teammates’ performance may affect teammate morale, overall reputation and the
Company’s future performance. The Company develops and delivers training programs at all levels across its
various operating regions to improve teammate knowledge and to better serve its customers. The Company
also monitors engagement of teammates on a regular basis, and creates plans to address gaps.
There is always a risk associated with the loss of key personnel. Succession plans have been identified for
key roles including the depth of management talent throughout the Company and its subsidiaries; these plans
are overseen by the Human Resources Committee and reviewed at least annually by the Board of Directors.
Franchisee and Affiliates Relationships
The success of Empire is closely tied to the performance of Sobeys’ network of retail stores. Franchisees and
affiliates operate approximately 51% of Sobeys’ retail stores. Sobeys relies on its franchisees, affiliates and
corporate store management to successfully execute retail strategies and programs.
To maintain controls over Sobeys’ brands and the quality and range of products and services offered at its
stores, franchisees and affiliates agree to purchase merchandise from Sobeys. In addition, each store agrees
to comply with the policies, marketing plans and operating standards prescribed by Sobeys. These obligations
are specified under franchise and operating agreements which expire at various times for individual franchisees
and affiliates. Despite these franchise and operating agreements, Sobeys may have limited ability to control a
franchisees’ and affiliates’ business operations. A breach of these franchise and operating agreements or
operational failures by a significant number of franchisees and affiliates may adversely affect Sobeys’
reputation and financial performance.
31
39
MANAGEMENT’S DISCUSSION AND ANALYSIS
Labour Union Relationships
A significant percentage of the Company’s store and distribution centre workforce, particularly in Western
Canada, is unionized. While overall the Company has and works to maintain good relationships with its
teammates and unions, the renegotiation of collective agreements always presents the risk of labour
disruption. The Company has consistently stated it will accept the short-term costs of labour disruption to
support a commitment to building and sustaining a competitive cost structure for the long term. Any prolonged
or widespread work stoppages or other labour disputes could have an adverse impact on the Company’s
financial results.
Drug Regulation, Legislation and Health Care Reform
The Company currently operates more than 400 in-store and freestanding pharmacies which are subject to
federal, provincial, territorial and local legislation as well as regulations governing the sale of prescription drugs.
Changes to reimbursement models used to fund prescription drugs, including the potential implementation of
a national pharmacare model, or failure to comply with these laws and regulations could have a negative
impact on financial performance, operations and reputation.
These laws and regulations typically regulate prescription drug coverage for public plans including patient and
product eligibility as well as elements of drug pricing and reimbursements including product cost, markup,
dispensing fee, distribution allowances and in some provinces the ability to negotiate manufacturer allowances.
In some provinces, legislation requires the selling price for prescription drugs to third-party insurance plans
and cash customers to not be higher than the price established for the provincial drug plan. In addition to
reimbursement, these laws and regulations govern drug approval and distribution, allowable packaging and
labelling, marketing, handling, storage and disposal.
Provincial governments and private plans continue to implement measures to manage the cost of their drug
plans, the impact of which varies by province and by plan. The Council of the Federation, a joint collaboration
created by the provincial premiers, continues to work on cost reduction initiatives within the pharmaceutical
sector, many of which are extended to the private sector.
The Patented Medicines Prices Review Board (“PMPRB”) protects and informs Canadian consumers by
regulating the prices of patented medicines sold in Canada and by reporting on pharmaceutical trends. PMPRB
is a quasi-judicial body that is part of the Health Portfolio and operates at arm’s length from the Minister of
Health. Implementation of amendments to the Patented Medicines Regulations originally proposed in 2019,
the first substantive updates to the regulations in over 30 years, were delayed due to COVID-19. Since this
time there have continued to be more revisions and delays in making changes to the regulations and potential
timelines and scale of any impacts are unknown.
While timing and impact are uncertain at this time, pharmaceutical price compression will put pressure on
pharmacy funding and pharmacy operating models, and it is anticipated that healthcare reform and regulation
will continue to put pressure on pharmacy reimbursement through changes to patient and drug eligibility,
prescription drug pricing including cost, dispensing fee, allowable markup, manufacturer allowance funding,
distribution as well as potential restriction around customer inducements and expanded use of preferred
providers. The Company has and will continue to identify opportunities to mitigate the negative impact these
changes have on financial performance.
Ethical Business Conduct
Any failure of the Company to adhere to its policies, the law, or ethical business practices could significantly
affect its reputation and brands and could therefore negatively impact the Company’s financial performance.
The Company’s framework for managing ethical business conduct includes the adoption of a Code of Business
Conduct and Ethics which directors and teammates of the Company are required to acknowledge and agree
to on a regular basis and the Company maintains an anonymous, confidential whistle blowing hotline. There
can be no assurance that these measures will be effective to prevent violations of law or unethical business
practices.
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EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Social
Social reform movements bring public awareness to issues through protests and/or media campaigns. Issues
that relate to the Company’s business include, but are not limited to, diversity, animal welfare, local and ethical
sourcing, nutritional labelling and human rights. Oversight of the Company’s social strategies and issues
management is through the Executive Committee and the Board of Directors. Ineffective action or inaction on
social reform matters could adversely affect the Company’s reputation or financial performance.
Occupational Health and Safety
The Company has developed programs to promote a healthy and safe workplace, as well as progressive
employment policies focused on the well-being of the thousands of teammates who work in its stores,
distribution centres and offices. These policies and programs are reviewed regularly by the Human Resources
Committee of the Board of Directors. Failure to comply with these policies and programs could adversely affect
the Company’s reputation or financial performance.
Real Estate
The Company utilizes a capital allocation process which is focused on obtaining the most attractive real estate
locations for its retail stores, as well as for its commercial property and residential development operations,
with direct or indirect Company ownership being an important, but not overriding, consideration. The Company
develops certain retail store locations on owned sites; however, the majority of its store development is done
in conjunction with external developers. The availability of high-potential new store sites and the ability to
expand existing stores are therefore in large part contingent upon the successful negotiation of operating
leases with these developers and the Company’s ability to purchase high-potential sites.
Loyalty Program
The Company recently became a co-owner of Scene+ and completed a national rollout, in order to provide
added value to customers. The decisions made by the partners can adversely affect the reputation and
financial operations of the Company. Promotional and other activities related to the operation of the new
program must be effectively managed and coordinated to ensure a positive customer perception. Delays in
making capital investments necessary to achieve target state will negatively impact the business case. Failure
to effectively manage, communicate and promote the loyalty program may negatively impact the Company’s
reputation.
Economic Environment
Management continues to closely monitor economic conditions, including inflation, foreign exchange rates,
interest rates, employment rates and capital markets. Uncertainty in the economic environment could adversely
impact demand for the Company’s products and services which in turn could adversely affect financial
performance. Management believes that although a volatile economy has an impact on all businesses and
industries, the Company has an operational and capital structure that is sufficient to meet its ongoing business
requirements.
Interest Rate Fluctuation
The Company’s long-term debt objective is to maintain the majority of its debt at fixed interest rates. Any
increase in the applicable interest rates could increase interest expense and have a material adverse effect on
the Company’s cash flow and results of operations. The Company monitors the respective mix of fixed and
variable interest rates to maintain an appropriate level considering economic conditions. There can be no
assurance that risk management strategies, if any, undertaken by the Company will be effective.
Utility and Fuel Prices
The Company is a significant consumer of electricity, other utilities and fuel. The costs of these items have
been subject to significant volatility. Unanticipated cost increases in these items could negatively affect the
Company’s financial performance. A failure to maintain effective consumption and procurement programs
could adversely affect the Company’s financial results. In addition, Sobeys operates a large number of fuel
stations. Significant increases in wholesale prices or availability could adversely affect operations and financial
results of the fuel retailing business.
33
41
MANAGEMENT’S DISCUSSION AND ANALYSIS
Free Trade
The Company is susceptible to risks associated with trade relationships between Canada and other countries
including the United States. Changes to trade agreements and tariffs between Canada and other countries
could increase the costs of certain products and some items could become unavailable thereby having a
negative impact on customer experience. While the Company can mitigate these risks to a certain extent
through the use of alternative suppliers, international trade by its nature can be unpredictable and the Company
may not be able to fully mitigate the negative impact of changes in trade agreements and tariffs.
Liquidity Risk
The Company’s business is dependent in part on having access to sufficient capital and financial resources to
fund its growth activities and investment in operations. Any failure to maintain adequate financial resources
could alter the Company’s growth or ability to satisfy financial obligations as they come due. The Company
actively maintains committed credit facilities to ensure that it has sufficient available funds to meet current and
foreseeable future financial requirements. The Company monitors capital markets and the related economic
conditions and maintains access to debt capital markets for long-term debt issuances as deemed prudent in
order to minimize risk and optimize pricing. However, there can be no assurance that adequate capital
resources will be available in the future on acceptable terms or at all.
Legal, Taxation and Accounting
Changes to any of the various federal and provincial laws, rules and regulations related to the Company’s
business could have a material impact on its financial results. Compliance with any proposed changes could
also result in significant cost to the Company. Failure to fully comply with various laws and rules and regulations
may expose the Company to proceedings which may materially affect its performance.
Similarly, income tax regulations and/or accounting pronouncements may be changed in ways which could
negatively affect the Company. The Company mitigates the risk of non-compliance with the various laws and
rules and regulations by monitoring for newly adopted activities, improving technology systems and controls,
improving internal controls to detect and prevent errors and overall application of more scrutiny to ensure
compliance. In the ordinary course of business, the Company is subject to ongoing audits by tax authorities.
While the Company believes that its tax filing positions are appropriate and supportable, from time to time
certain matters are reviewed and challenged by the tax authorities.
Credit Rating
There can be no assurance that the credit ratings assigned to the various debt instruments issued by Sobeys
will remain in effect for any given period of time or that the rating will not be lowered, withdrawn or revised by
DBRS or S&P at any time. Real or anticipated changes in credit ratings can affect the cost at which Sobeys
can access the capital markets. The likelihood that Sobeys’ creditors will receive payments owing to them will
depend on Sobeys’ financial health and creditworthiness. Credit ratings assigned by a ratings agency provide
an opinion of that ratings agency on the risk that an issuer will fail to satisfy its financial obligations in
accordance with the terms under which an obligation has been issued. Receipt of a credit rating provides no
guarantee of Sobeys’ future creditworthiness.
Capital Allocation
It is important that capital allocation decisions result in an appropriate return on capital. The Company has a
number of strong mitigation strategies in place regarding the allocation of capital, including the Board of
Directors’ review of significant capital allocation decisions. Failure to appropriately allocate capital could alter
the Company’s growth and adversely affect the financial performance of the Company.
Foreign Currency
The Company conducts the majority of its operating business in CAD and its foreign exchange risk is mainly
limited to currency fluctuations between the CAD, the Euro, the Great British pound (“GBP”) and the United
States dollar (“USD”). USD purchases of products represent approximately 3.84% of Sobeys’ total annual
purchases. Euro and GBP purchases are primarily limited to specific contracts for capital expenditures. A
failure to adequately manage the risk of exchange rate changes could adversely affect the Company’s financial
results.
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EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Pension Plans
The Company has certain retirement benefit obligations under its registered defined benefit plans. New
regulations and market-driven changes may result in the Company being required to make contributions that
differ from estimates, which could have an adverse effect on the financial performance of the Company.
The Company participates in various multi-employer pension plans, providing pension benefits to unionized
teammates pursuant to provisions in collective bargaining agreements. Approximately 11% of the teammates
of Sobeys and its franchisees and affiliates participate in these plans. The responsibility of Sobeys, its
franchisees, and affiliates to make contributions to these plans is limited to the amounts established in the
collective bargaining agreements and other associated agreements, however, poor performance of these plans
could have a negative effect on the participating teammates or could result in changes to the terms and
conditions of participation in these plans, which in turn could negatively affect the financial performance of the
Company.
Leverage Risk
The Company’s degree of leverage could have adverse consequences for the Company. These include limiting
the Company’s ability to obtain additional financing for working capital and activities such as capital
expenditures, product development, debt service requirements and acquisitions. Higher leveraging restricts
the Company’s flexibility and discretion to operate its business by limiting the Company’s ability to declare
dividends due to having to dedicate a portion of the Company’s cash flows from operations to the payment of
interest on its existing indebtedness. Utilizing cash flows for interest payments also limits capital available for
other purposes including operations, capital expenditures and future business opportunities. Increased levels
of debt expose the Company to increased interest expense on borrowings at variable rates thereby limiting the
Company’s ability to adjust to changing market conditions. This could place the Company at a competitive
disadvantage compared to its competitors that have less debt, by making the Company vulnerable during
downturns in general economic conditions and limiting the Company’s ability to make capital expenditures that
are important to its growth and strategies.
Insurance
The Company and its subsidiaries are self-insured on a limited basis with respect to certain operational risks
and purchase insurance coverage from financially stable third-party insurance companies. In addition to
maintaining comprehensive loss prevention programs, the Company maintains management programs to
mitigate the financial impact of operational risks. Such programs may not be effective to limit the Company’s
exposure to these risks, and to the extent that the Company is self-insured or liability exceeds applicable
insurance limits, the Company’s financial position could be adversely affected.
DESIGNATION FOR ELIGIBLE DIVIDENDS
“Eligible dividends” receive favourable treatment for income tax purposes. To be considered an eligible
dividend, a dividend must be designated as such at the time of payment.
Empire has, in accordance with the administrative position of CRA, included the appropriate language on its
website to designate the dividends paid by Empire as eligible dividends unless otherwise designated.
35
43
MANAGEMENT’S DISCUSSION AND ANALYSIS
NON-GAAP FINANCIAL MEASURES & FINANCIAL METRICS
There are measures and metrics included in this MD&A that do not have a standardized meaning under GAAP
and therefore may not be comparable to similarly titled measures and metrics presented by other publicly
traded companies. Management believes that certain of these measures and metrics, including gross profit
and EBITDA, are important indicators of the Company’s ability to generate liquidity through operating cash
flow to fund future working capital requirements, service outstanding debt and fund future capital expenditures
and uses these metrics for these purposes.
In addition, management adjusts measures and metrics, including operating income, EBITDA and net earnings
in an effort to provide investors and analysts with a more comparable year-over-year performance metric than
the basic measure by excluding certain items. These items may impact the analysis of trends in performance
and affect the comparability of the Company’s core financial results. By excluding these items, management
is not implying they are non-recurring.
Financial Measures
The intent of non-GAAP financial measures is to provide additional useful information to investors and analysts.
Non-GAAP financial measures should not be considered in isolation or used as a substitute for measures of
performance prepared in accordance with GAAP. The Company’s definitions of the non-GAAP terms included
in this MD&A are as follows:
• The Cybersecurity Event adjustment includes the impact of incremental direct costs such as inventory
shrink, hardware and software restoration costs, legal and professional fees, labour costs and
insurance recoveries. Management believes that the Cybersecurity Event adjustment results in a
useful economic representation of the underlying business on a comparative basis. The adjustment
does not include management’s estimate of the full financial impact of the Cybersecurity Event, as it
excludes the net earnings impacts related to the estimated decline in sales and operational
effectiveness from impacts such as the temporary loss of advanced planning, promotion and fresh
item management tools, the temporary closure of pharmacies, and customers’ temporary inability to
redeem gift cards and loyalty points.
• The Grocery Gateway Integration adjustment includes the impact of the asset write-off related to the
grocery gateway name and facility assets, severance, IT project costs and other costs.
• Gross profit is calculated as sales less cost of sales. Management believes cost of sales is a useful
metric to monitor profitability on a product-level basis. Gross profit represents a supplementary metric
to assess underlying operating performance and profitability.
• Adjusted operating income is operating income excluding certain items to better analyze trends in
performance. These items are excluded to allow for better period over period comparison of ongoing
operating results. Adjusted operating income is reconciled to operating income in its respective
subsection of the “Summary Results – Fourth Quarter” and “Operating Results – Full Year” sections.
• EBITDA is calculated as net earnings before finance costs (net of finance income), income tax
expense, depreciation and amortization of intangibles. Management believes EBITDA represents a
supplementary metric to assess profitability and measure the Company’s underlying ability to generate
liquidity through operating cash flows.
44
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EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
The following table reconciles net earnings to EBITDA:
($ in millions)
Net earnings
Income tax expense
Finance costs, net
Operating income
Depreciation
Amortization of intangibles
EBITDA
($ in millions)
Net earnings
Income tax expense
Finance costs, net
Operating income
Depreciation
Amortization of intangibles
EBITDA
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
13 Weeks Ended
May 1, 2021
187.9 $
63.5
70.2
321.6
237.0
33.7
592.3 $
193.4
58.2
82.0
333.6
227.8
24.8
586.2
$
$
183.3
45.0
66.7
295.0
200.2
19.2
514.4
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
52 Weeks Ended
May 1, 2021
727.7 $
237.7
267.0
1,232.4
916.0
114.6
2,263.0 $
811.3
270.3
282.1
1,363.7
872.3
94.8
2,330.8
$
$
764.2
265.9
269.4
1,299.5
768.7
75.6
2,143.8
$
$
$
$
• Adjusted EBITDA is EBITDA excluding certain items to better analyze trends in performance. These
items are excluded to allow for better period over period comparison of ongoing operating results.
Adjusted EBITDA is reconciled to EBITDA in its respective subsection of the “Summary Results –
Fourth Quarter” and “Operating Results – Full Year” sections.
• Management calculates interest expense as interest expense on financial liabilities measured at
amortized cost and interest expense on lease liabilities. Management believes that interest expense
represents a true measure of the Company’s debt service expense, without the offsetting finance
income.
The following tables reconciles finance costs, net to interest expense:
($ in millions)
Finance costs, net
Plus: finance income, excluding interest
income on lease receivables
Less: pension finance costs, net
Less: accretion expense on provisions
Interest expense
($ in millions)
Finance costs, net
Plus: finance income, excluding interest
income on lease receivables
Less: pension finance costs, net
Less: accretion expense on provisions
Interest expense
13 Weeks Ended
May 6, 2023
14 Weeks Ended
May 7, 2022
13 Weeks Ended
May 1, 2021
70.2 $
1.7
(2.7)
(0.3)
68.9 $
82.0
$
2.3
(2.0)
(0.1)
82.2
$
66.7
1.7
(2.1)
(0.5)
65.8
52 Weeks Ended
May 6, 2023
53 Weeks Ended
May 7, 2022
52 Weeks Ended
May 1, 2021
267.0 $
5.3
(7.8)
(1.4)
263.1 $
282.1
$
7.3
(7.8)
(1.9)
279.7
$
269.4
9.8
(8.1)
(2.3)
268.8
$
$
$
$
• Adjusted net earnings is net earnings, net of non-controlling interest, excluding certain items to better
analyze trends in performance. These items are excluded to allow for better period over period
comparison of ongoing operating results. Adjusted net earnings is reconciled in its respective
subsection of the “Summary Results – Fourth Quarter” and “Operating Results – Full Year” sections.
• Adjusted EPS (fully diluted) is calculated as adjusted net earnings divided by diluted weighted average
number of shares outstanding.
37
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MANAGEMENT’S DISCUSSION AND ANALYSIS
• Free cash flow is calculated as cash flows from operating activities, plus proceeds on disposal of
property, equipment and investment property and lease terminations, less acquisitions of property,
equipment, investment property and intangibles, interest paid and payments of lease liabilities, net of
payments received from finance subleases. Management uses free cash flow as a measure to assess
the amount of cash available for debt repayment, dividend payments and other investing and financing
activities. Free cash flow is reconciled to GAAP measures as reported on the consolidated statements
of cash flows, and is presented in the “Free Cash Flow” section of this MD&A.
• Funded debt is all interest-bearing debt, which includes bank loans, bankers’ acceptances, long-term
debt and long-term lease liabilities. Management believes that funded debt represents the most
relevant indicator of the Company’s total financial obligations on which interest payments are made.
• Total capital is calculated as funded debt plus shareholders’ equity, net of non-controlling interest.
The following table reconciles the Company’s funded debt and total capital to GAAP measures as reported on
the balance sheets as at May 6, 2023, May 7, 2022 and May 1, 2021, respectively:
($ in millions)
Long-term debt due within one year
Long-term debt
Lease liabilities due within one year
Long-term lease liabilities
Funded debt
Total shareholders’ equity, net of non-controlling interest
Total capital
$
$
May 6, 2023
May 7, 2022
101.0 $
911.3
563.7
5,620.9
7,196.9
5,200.4
12,397.3 $
581.0 $
595.7
509.5
5,775.9
7,462.1
4,991.5
12,453.6 $
May 1, 2021
46.5
1,178.8
490.5
5,417.6
7,133.4
4,372.7
11,506.1
Food Retailing Segment Reconciliation
The following tables adjust Empire’s Food retailing operating income, EBITDA, and net earnings, net of non-
controlling interest, for certain items to better analyze trends in performance. These items are excluded to
allow for better period over period comparison of ongoing operating results.
($ in millions)
Operating income
Adjustments:
Cybersecurity Event
Grocery Gateway Integration
Adjusted operating income
($ in millions)
EBITDA
Adjustments:
Cybersecurity Event
Grocery Gateway Integration
Adjusted EBITDA
($ in millions)
Net earnings
Adjustments:
Cybersecurity Event
Grocery Gateway Integration
Adjusted net earnings
52 Weeks Ended
May 6, 2023
1,140.1
$
53 Weeks Ended
May 7, 2022
1,277.0
$
52 Weeks Ended
May 1, 2021
1,251.3
$
2023 Compared to 2022
$ Change
(136.9)
$
45.8
13.3
1,199.2
$
-
-
1,277.0
$
-
-
1,251.3
$
45.8
13.3
(77.8)
$
52 Weeks Ended
May 6, 2023
2,170.6
$
53 Weeks Ended
May 7, 2022
2,243.9
$
52 Weeks Ended
May 1, 2021
2,094.7
$
2023 Compared to 2022
$ Change
(73.3)
$
45.8
13.3
2,229.7
$
-
-
2,243.9
$
-
-
2,094.7
$
45.8
13.3
(14.2)
$
52 Weeks Ended
May 6, 2023
610.1
$
53 Weeks Ended
May 7, 2022
677.9
$
52 Weeks Ended
May 1, 2021
673.9
$
2023 Compared to 2022
$ Change
(67.8)
$
34.1
7.0
651.2
$
-
-
677.9
$
-
-
673.9
$
34.1
7.0
(26.7)
$
46
38
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Financial Metrics
The intent of the following non-GAAP financial metrics is to provide additional useful information to investors
and analysts. Management uses financial metrics for decision-making, internal reporting, budgeting and
forecasting. The Company’s definitions of the metrics included in this MD&A are as follows:
• Same-store sales are sales from stores in the same location in both reporting periods. Management
believes same-store sales represents a supplementary metric to assess sales trends as it removes
the effect of the opening and closure of stores.
• Same-store sales, excluding fuel are sales from stores in the same location in both reporting periods
excluding the fuel sales from stores in the same location in both reporting periods. Management
believes same-store sales, excluding fuel represents a supplementary metric to assess sales trends
as it removes the effect of the opening and closure of stores and the volatility of fuel prices.
• Gross margin is gross profit divided by sales. Management believes that gross margin is an important
indicator of profitability and can help management, analysts and investors assess the competitive
landscape and promotional environment of the industry in which the Company operates. An increasing
percentage indicates lower cost of sales as a percentage of sales.
• EBITDA margin is EBITDA divided by sales. Management believes that EBITDA margin is an important
indicator of performance and can help management, analysts and investors assess the competitive
landscape, promotional environment and cost structure of the industry in which the Company operates.
An increasing percentage indicates higher EBITDA as a percentage of sales.
• Adjusted EBITDA margin is adjusted EBITDA divided by sales. Management believes that adjusted
EBITDA margin is an important indicator of performance and can help management, analysts and
investors assess the competitive landscape, promotional environment and cost structure of the
industry in which the Company operates. An increasing percentage indicates higher adjusted EBITDA
as a percentage of sales.
• Funded debt to total capital ratio is funded debt divided by total capital. Management believes that the
funded debt to total capital ratio represents a measure upon which the Company’s changing capital
structure can be analyzed over time. An increasing ratio would indicate that the Company is using an
increasing amount of debt in its capital structure.
• Funded debt to EBITDA ratio is funded debt divided by trailing four-quarter EBITDA. Management
uses this ratio to partially assess the financial condition of the Company. An increasing ratio would
indicate that the Company is utilizing more debt per dollar of EBITDA generated.
• EBITDA to interest expense ratio is trailing four-quarter EBITDA divided by trailing four-quarter interest
expense. Management uses this ratio to partially assess the coverage of its interest expense on
financial obligations. An increasing ratio would indicate that the Company is generating more EBITDA
per dollar of interest expense, resulting in greater interest coverage.
• Book value per common share is shareholders’ equity, net of non-controlling interest, divided by total
common shares outstanding.
• Return on equity is net earnings for the year attributable to owners of the parent, divided by average
shareholders’ equity. Management believes return on equity represents a supplementary measure to
assess the Company’s profitability.
39
47
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table shows the calculation of Empire’s book value per common share as at May 6, 2023, May
7, 2022 and May 1, 2021:
($ in millions, except per share information)
Shareholders’ equity, net of non-controlling interest
Shares outstanding (basic)
Book value per common share
May 6, 2023
May 7, 2022
$
$
5,200.4 $
258.8
20.09 $
4,991.5 $
265.2
18.82 $
May 1, 2021
4,372.7
268.3
16.30
Additional financial information relating to Empire, including the Company’s Annual Information Form, can be
found on the Company’s website www.empireco.ca or on the SEDAR website for Canadian regulatory filings
at www.sedar.com.
Approved by Board of Directors: June 21, 2023
Stellarton, Nova Scotia, Canada
48
40
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Consolidated
Financial
Statements
May 6, 2023
Management’s Statement of Responsibility for
Financial Reporting
Independent Auditor’s Report
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in
Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
50
51
57
57
58
59
60
61
62
49
CONSOLIDATED FINANCIAL STATEMENTS
Management’s Statement of Responsibility for
Financial Reporting
Preparation of the consolidated financial statements accompanying this annual report and the presentation of all
other information in the report is the responsibility of management. The consolidated financial statements have been
prepared in accordance with International Financial Reporting Standards or Generally Accepted Accounting Principles
and reflect management’s best estimates and judgments.
All other financial information in the report is consistent with that contained in the consolidated financial statements.
Management of the Company has established and maintains a system of internal control that provides reasonable
assurance as to the integrity of the consolidated financial statements, the safeguarding of Company assets, and the
prevention and detection of fraudulent financial reporting.
The Board of Directors, through its Audit Committee, oversees management in carrying out its responsibilities for
financial reporting and systems of internal control. The Audit Committee, which is chaired by and composed solely
of directors who are unrelated to, and independent of, the Company, meet regularly with financial management
and external auditors to satisfy itself as to reliability and integrity of financial information and the safeguarding of
assets. The Audit Committee reports its findings to the Board of Directors for consideration in approving the annual
consolidated financial statements to be issued to shareholders.
The external auditors have full and free access to the Audit Committee.
signed “Michael Medline”
signed “Matt Reindel”
Michael Medline
President and Chief Executive Officer
Matt Reindel
Executive Vice President & Chief Financial Officer
June 21, 2023
June 21, 2023
50
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Independent auditor’s report
To the Shareholders of Empire Company Limited
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Empire Company Limited and its subsidiaries (together, the Company) as at
May 6, 2023 and May 7, 2022, and its financial performance and its cash flows for the 52 weeks ended
May 6, 2023 and 53 weeks ended May 7, 2022 in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated balance sheets as at May 6, 2023 and May 7, 2022;
the consolidated statements of earnings for the 52 weeks ended May 6, 2023 and 53 weeks ended
May 7, 2022;
the consolidated statements of comprehensive income for the 52 weeks ended May 6, 2023 and
53 weeks ended May 7, 2022;
the consolidated statements of changes in shareholders’ equity for the 52 weeks ended May 6, 2023
and 53 weeks ended May 7, 2022;
the consolidated statements of cash flows for the 52 weeks ended May 6, 2023 and 53 weeks ended
May 7, 2022; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
Cogswell Tower, 2000 Barrington Street, Suite 1101, Halifax, Nova Scotia, Canada B3J 3K1
T: +1 902 491 7400, F: +1 902 422 1166, ca_halifax_main_fax@pwc.com
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
51
CONSOLIDATED FINANCIAL STATEMENTS Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the 52 weeks ended May 6, 2023. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Recognition of vendor allowances
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 2(f) − Basis of preparation (Vendor
allowances) and note 3(x) − Summary of significant
accounting policies (Vendor allowances) to the
consolidated financial statements.
The Company receives allowances from certain
vendors whose products are purchased for resale.
Included in these vendor agreements are volume-
related allowances, purchase discounts, listing fees
and other allowances.
The Company recognizes these vendor allowances
as a reduction of cost of sales and related
inventories.
The number and variety of the vendor agreements
can make it complex for management to determine
the performance obligations associated with the
vendor allowances and the related recognition
thereof. As a result, management judgment is
required.
We considered this a key audit matter due to the
number of vendor allowance transactions and
varying terms of the vendor agreements, making
the recognition of vendor allowances more
complex, requiring management judgment. This
resulted in a high degree of auditor judgment and
effort in performing procedures and evaluating
evidence.
Tested the operating effectiveness of controls
related to the recognition of vendor allowances,
including management’s approval and
recording of vendor agreements and the
monitoring of the aging of vendor allowance
receivables.
For a sample of vendor allowance transactions
recognized during the year, evaluated the
reasonableness of management’s
determination that performance obligations
associated with vendor allowances have been
met by:
− Evaluating the terms in vendor agreements
and agreeing amounts recorded to vendor
agreements, internal supporting
documents, corresponding cash
receipts/net settlements and any related
correspondence with vendors.
For a sample of vendor allowance receivables
at the balance sheet date, evaluated the
reasonableness of management’s
determination that performance obligations
associated with vendor allowances have been
met by:
− Evaluating the terms in vendor agreements
and agreeing amounts recorded to vendor
agreements, internal supporting documents
and any related correspondence with
vendors and, as applicable, recalculating
52
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT Key audit matter
How our audit addressed the key audit matter
the amount recognized.
− Tracing amounts to cash receipts/net
settlements after the balance sheet date,
where applicable.
− Considering outstanding vendor claims at
and after the balance sheet date, where
applicable.
Assessed the aging of vendor allowance
receivables at the balance sheet date.
Considered credit notes issued after the
balance sheet date.
Valuation of retail inventories
Refer to note 2(a) − Basis of preparation
(Inventories), note 3(e) − Summary of significant
accounting policies (Inventories) and note 4 −
Inventories to the consolidated financial
statements.
As at May 6, 2023, the Company held inventories
of $1,743.3 million, which included retail
inventories.
The Company has more than 1,600 stores across
Canada. Inventories are valued at the lower of cost
and estimated net realizable value. The cost of
retail inventories is determined using weighted
average cost or the retail method. The retail
method uses the anticipated selling price less
normal profit margins, on a weighted average cost
basis.
Significant estimation and judgment is required by
management in the determination of (i) estimated
shrinkage occurring between the last physical
inventory count and the balance sheet date, and (ii)
inventories valued at retail and adjusted to cost.
We considered this a key audit matter due to the
magnitude of the inventories balance, the number
of stores at which retail inventories are held, the
Our approach to addressing the matter included the
following procedures, among others:
Tested the operating effectiveness of controls
related to the inventory valuation process.
Tested the operating effectiveness of controls
related to the physical inventory count process
at the stores.
Observed the physical inventory count process
for a sample of stores during the year and
performed independent test counts.
For a sample of retail inventory items counted
that are recorded at weighted average cost
value, traced the underlying data at the
physical inventory count date to recent
purchase invoices.
For a sample of retail inventory items counted
that are recorded at retail value, traced the
underlying data at the physical inventory count
date to recent retail selling prices.
Evaluated the reasonableness of the profit
margins applied to retail inventories to adjust
inventories valued at retail to cost by
comparing profit margin rates applied to
historical profit margins on a sample basis.
53
CONSOLIDATED FINANCIAL STATEMENTS Key audit matter
volume of transactions between the last physical
inventory count and the balance sheet date and the
related significant estimations and judgments
required by management, and the audit effort
involved in testing the retail inventories at the
balance sheet date.
How our audit addressed the key audit matter
For independent test counts performed on retail
inventories, tested the underlying data used in
management’s roll-forward schedule from the
last physical inventory count to the balance
sheet date and recalculated the mathematical
accuracy thereof.
Tested how management estimated shrinkage
and evaluated the reasonableness of shrinkage
applied to inventories at the balance sheet
date.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
54
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
55
CONSOLIDATED FINANCIAL STATEMENTS
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Adam Boutros.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Halifax, Nova Scotia
June 21, 2023
56
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT Empire Company Limited
Consolidated Balance Sheets
As At
(in millions of Canadian dollars)
ASSETS
Current
Cash and cash equivalents
Receivables
Inventories (Note 4)
Prepaid expenses
Leases and other receivables (Note 5)
Income taxes receivable
Leases and other receivables (Note 5)
Investments, at equity (Note 7)
Other assets
Property and equipment (Note 8)
Right-of-use assets (Note 9)
Investment property (Note 10)
Intangibles (Note 11)
Goodwill (Note 12)
Deferred tax assets (Note 13)
LIABILITIES
Current
Accounts payable and accrued liabilities
Income taxes payable
Provisions (Note 14)
Long-term debt due within one year (Note 15)
Lease liabilities due within one year (Note 9)
Other liabilities due within one year (Note 16)
Provisions (Note 14)
Long-term debt (Note 15)
Long-term lease liabilities (Note 9)
Other long-term liabilities (Note 16)
Employee future benefits (Note 17)
Deferred tax liabilities (Note 13)
SHAREHOLDERS’ EQUITY
Capital stock (Note 18)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Non-controlling interest (Note 23)
May 6
2023
May 7
2022
$
$
221.3
683.4
1,743.3
131.0
85.2
90.8
2,955.0
587.0
701.9
26.3
3,338.1
4,860.9
166.8
1,375.6
2,067.8
404.3
812.3
558.8
1,591.5
127.6
73.8
48.7
3,212.7
549.1
681.5
21.7
3,159.2
4,999.7
146.8
1,338.5
2,059.0
425.4
$
16,483.7
$
16,593.6
$
$
3,028.6
61.3
29.9
101.0
563.7
73.0
3,857.5
42.7
911.3
5,620.9
279.2
166.6
268.8
2,988.9
127.6
32.7
581.0
509.5
-
4,239.7
44.2
595.7
5,775.9
366.0
178.2
260.0
11,147.0
11,459.7
1,914.7
50.1
3,216.0
19.6
5,200.4
136.3
5,336.7
2,026.1
37.2
2,914.2
14.0
4,991.5
142.4
5,133.9
See accompanying notes to the consolidated financial statements.
$
16,483.7
$
16,593.6
On Behalf of the Board
(signed) “James Dickson”
Director
(signed) “Michael Medline”
Director
7
57
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Consolidated Statements of Earnings
52 and 53 Weeks Ended
(in millions of Canadian dollars, except share and per share amounts)
Sales
Other income (Note 19)
Share of earnings from investments, at equity (Note 7)
Operating expenses
Cost of sales
Selling and administrative expenses
Operating income
Finance costs, net (Note 21)
Earnings before income taxes
Income tax expense (Note 13)
Net earnings
Earnings for the year attributable to:
Non-controlling interest
Owners of the Company
Earnings per share (Note 22)
Basic
Diluted
May 6
2023
May 7
2022
$
$
30,478.1
60.8
87.7
30,162.4
86.8
93.1
22,685.4
6,708.8
1,232.4
267.0
965.4
237.7
22,502.7
6,475.9
1,363.7
282.1
1,081.6
270.3
$
727.7
$
811.3
$
41.7
686.0
$
65.5
745.8
$
727.7
$
811.3
$
$
2.65
2.64
$
$
2.81
2.80
265.2
266.2
Weighted average number of common shares outstanding, in millions (Note 22)
Basic
Diluted
258.8
259.4
See accompanying notes to the consolidated financial statements.
58
8
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Consolidated Statements of Comprehensive Income
52 and 53 Weeks Ended
(in millions of Canadian dollars)
May 6
2023
May 7
2022
Net earnings
$
727.7
$
811.3
Other comprehensive income (loss), net
Items that will be reclassified subsequently to net earnings
Unrealized gains (losses) on derivatives designated as cash flow hedges
(net of tax - Note 13)
Share of other comprehensive income of investments, at equity
(net of tax - Note 13)
Exchange differences on translation of foreign operations
(net of tax - Note 13)
Items that will not be reclassified subsequently to net earnings
Actuarial gains on defined benefit plans (net of tax - Notes 13 and 17)
4.1
1.8
(0.3)
5.6
5.7
(2.0)
1.8
(0.4)
(0.6)
46.1
Total comprehensive income
$
739.0
$
856.8
Total comprehensive income for the year attributable to:
Non-controlling interest
Owners of the Company
See accompanying notes to the consolidated financial statements.
$
41.7
697.3
$
65.5
791.3
$
739.0
$
856.8
9
59
CONSOLIDATED FINANCIAL STATEMENTS
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B
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Consolidated Statements of Cash Flows
52 and 53 Weeks Ended
(in millions of Canadian dollars)
Operations
Net earnings
Adjustments for:
Depreciation
Income tax expense
Finance costs, net (Note 21)
Amortization of intangibles
Net gain on disposal of assets
Net gain on lease terminations
Impairment losses (reversals) of non-financial assets, net
Impairment losses of long-lived assets
Amortization of deferred items
Equity in earnings of other entities, net of distributions received (Note 7)
Employee future benefits
Decrease in long-term provisions
Equity based compensation
Net change in non-cash working capital
Income taxes paid, net
May 6
2023
May 7
2022
$
727.7
$
811.3
916.0
237.7
267.0
114.6
(44.7)
-
6.2
6.7
1.6
(10.2)
(3.9)
(2.9)
17.3
(307.4)
(320.4)
872.3
270.3
282.1
94.8
(23.1)
(47.0)
(7.4)
-
1.8
9.5
(12.0)
(0.7)
14.6
(46.8)
(112.6)
Cash flows from operating activities
1,605.3
2,107.1
Investment
Increase in equity investments (Note 7)
Property, equipment and investment property purchases
Intangible purchases
Proceeds on disposal of assets
Proceeds on lease terminations
Leases and other receivables, net
Other assets and other long-term liabilities
Business acquisitions (Note 23)
Payments received for finance subleases
Interest received
Cash flows used in investing activities
Financing
Issuance of long-term debt
Repayments of long-term debt
Advances (repayments) on credit facilities, net
Interest paid
Payments of lease liabilities (principal portion)
Payments of lease liabilities (interest portion)
Repurchase of common shares (Note 18)
Dividends paid, common shares
Non-controlling interest
Cash flows used in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
(3.4)
(574.2)
(183.5)
48.9
-
(34.8)
(6.7)
(18.7)
84.8
2.9
(684.7)
87.1
(590.2)
337.9
(52.0)
(507.6)
(230.2)
(350.0)
(170.2)
(36.4)
(124.5)
(633.0)
(147.3)
165.6
10.0
25.4
(28.9)
(242.0)
79.4
3.9
(891.4)
94.6
(96.8)
(83.2)
(56.2)
(482.8)
(231.6)
(248.9)
(156.8)
(32.2)
(1,511.6)
(1,293.9)
(591.0)
812.3
(78.2)
890.5
Cash and cash equivalents, end of year
$
221.3
$
812.3
See accompanying notes to the consolidated financial statements.
11
61
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
1. Reporting entity
Empire Company Limited (“Empire” or the “Company”) is a Canadian company whose key businesses are food retailing
and related real estate. The Company is incorporated in Canada and the address of its registered office of business is
115 King Street, Stellarton, Nova Scotia, B0K 1S0, Canada. The consolidated financial statements for the year ended
May 6, 2023 include the accounts of Empire, all subsidiary companies, including 100% owned Sobeys Inc. (“Sobeys”),
and certain enterprises considered structured entities (“SEs”), where control is achieved on a basis other than through
ownership of a majority of voting rights. Investments in which the Company has significant influence and its joint
ventures are accounted for using the equity method. As at May 6, 2023, the Company’s business operations were
conducted through its two reportable segments: Food retailing and Investments and other operations, as further
described in Note 26, Segmented information. The Company’s Food retailing business is affected by seasonality and
the timing of holidays. Retail sales are traditionally higher in the Company’s first quarter. The Company's fiscal year
ends on the first Saturday in May. As a result, the fiscal year is usually 52 weeks but results in a duration of 53 weeks
every five to six years. The years ended May 6, 2023 and May 7, 2022 were 52 and 53 weeks, respectively.
2. Basis of preparation
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (“IFRS”).
The consolidated financial statements were authorized for issue by the Board of Directors on June 21, 2023.
Basis of measurement
The consolidated financial statements are prepared on the historical cost basis, except the following assets and
liabilities which are stated at their fair value: certain financial instruments (including derivatives) at fair value through
profit and loss (“FVTPL”) and cash settled stock-based compensation plans. Put option liabilities are carried at fair
value through equity. Assets held for sale are stated at the lower of their carrying amount and fair value less costs to
sell.
Use of estimates, judgments and assumptions
The preparation of the consolidated financial statements requires management to make estimates, judgments and
assumptions that affect the amounts reported on the consolidated financial statements and accompanying notes.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
The Company has applied judgment in its assessment of the appropriateness of consolidation of SEs, the
appropriateness of equity accounting for its investments in associates and joint ventures, discount rate, classification
of financial instruments, the level of componentization of property and equipment, the determination of cash generating
units (“CGUs”), the identification of indicators of impairment for property and equipment, investment property, intangible
assets and goodwill, the recognition and measurement of assets acquired and liabilities assumed, the measurement of
right-of-use assets and lease liabilities, vendor allowances and the recognition of provisions and non-controlling interest
put and call options.
Estimates, judgments and assumptions that could have a significant impact on the amounts recognized in the
consolidated financial statements are summarized below. Estimates are based on management’s best knowledge of
current events and actions the Company may undertake in the future. Actual results could differ from these estimates.
(a) Inventories
Inventories are valued at the lower of cost and estimated net realizable value. Significant estimation and judgment is
required in the determination of (i) estimated inventory provisions due to spoilage and shrinkage occurring between the
last physical inventory count and the balance sheet dates; and (ii) inventories valued at retail and adjusted to cost.
62
12
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
(b) Impairment of non-financial assets
Assumptions are used when management assesses impairment of non-financial assets such as investments in
associates and joint ventures, goodwill, intangible assets, property and equipment, right-of-use assets and investment
property. Management estimates the recoverable amount of each asset or CGU based on the higher of value-in-use
(“VIU”) and fair value less costs of disposal (“FVLCD”). The VIU calculations are based on expected future cash flows.
When measuring expected future cash flows, management makes key assumptions about future growth of profits which
relate to future events and circumstances. Estimation uncertainty relates to assumptions about future operating results
and the application of an appropriate discount rate. Actual results could vary from these estimates which may cause
significant adjustments to the Company’s non-financial assets in subsequent reporting periods. Impairment losses and
reversals are disclosed in the consolidated financial statements in Notes 8, 9, 10, 11 and 12.
(c) Leases
Estimates and judgment are used in the measurement of lease liabilities and right-of-use assets. Key assumptions
include determination of discount rates and lease term expectations. Note 9 details the right-of-use assets and lease
liabilities.
(d) Income taxes
Assumptions are applied when management assesses the timing and reversal of temporary differences and estimates
the Company’s future earnings to determine the recognition of current and deferred income taxes. Judgments are also
made by management when interpreting the tax rules in jurisdictions where the Company operates. Note 13 details the
current and deferred income tax expense and deferred tax assets and liabilities.
(e) Provisions
Estimates and assumptions are used to calculate provisions when the Company estimates the expected future cash
flows relating to the obligation and applies an appropriate discount rate.
(f) Vendor allowances
The Company has supply agreements with varying terms for purchase of goods for resale, some of which include
volume related allowances, purchase discounts, listing fees, and other discounts and allowances. Estimates and
judgment are required when the receipt of allowances is conditional on the Company achieving specified performance
conditions associated with the purchase of product and determining if these have been met. These include estimates
of achieving agreed volume targets.
(g) Employee future benefits
Accounting for the costs of defined benefit pension plans and other post-employment benefits requires the use of
several assumptions. Pension obligations are based on current market conditions and actuarial determined data such
as medical cost trends, mortality rates and future salary increases. A sensitivity analysis and more detail of key
assumptions used in measuring the pension and post-employment benefit obligations are disclosed in Note 17.
(h) Business acquisitions
For business acquisitions, the Company applies judgment on the recognition and measurement of assets acquired and
liabilities assumed, and estimates are utilized to calculate and measure such adjustments. In measuring the fair value
of an acquiree’s assets and liabilities management uses estimates about future cash flows and discount rates. Any
measurement changes after initial recognition would affect the measurement of goodwill.
(i) Non-controlling interest put and call options
The Company applies estimates and judgment to the non-controlling interest put and call options the Company enters
into as part of business acquisitions. The calculation is an earnings multiple that has various components including
estimates of cash flows and discount rates.
63
13
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
3. Summary of significant accounting policies
The significant accounting policies set out below have been applied consistently in the preparation of the consolidated
financial statements for all periods presented.
(a) Basis of consolidation
The financial statements for the Company include the accounts of the Company and all of its subsidiary undertakings
up to the reporting date. Subsidiaries, including SEs, are all entities the Company controls. Control exists when the
Company has existing rights that give it the current ability to direct the activities that significantly affect the entity’s
returns. The Company reassesses control on an ongoing basis. All subsidiaries have a reporting date within six weeks
of the Company’s reporting date. Where necessary, adjustments have been made to reflect transactions between the
reporting dates of the Company and its subsidiaries.
SEs are entities controlled by the Company which were designed so that voting or similar rights are not the dominant
factor in deciding who controls the entity. SEs are consolidated if, based on an evaluation of the substance of its
relationship with the Company, the Company concludes that it controls the SE. SEs controlled by the Company were
established under terms that impose certain limitations on the decision-making powers of the SEs’ management and
that results in the Company receiving the majority of the benefits related to the SEs’ operations and net assets, being
exposed to the majority of risks incident to the SEs’ activities, and retaining the majority of the residual or ownership
risks related to the SEs or their assets.
All intercompany transactions, balances, income and expenses are eliminated in preparing the consolidated financial
statements.
Earnings or losses and other comprehensive income or losses of subsidiaries acquired or disposed of during the period
are recognized from the effective date of acquisition, or up to the effective date of disposal, as applicable.
Non-controlling interest represents the portion of a subsidiary’s earnings and losses and net assets that is not held by
the Company. If losses in a subsidiary applicable to a non-controlling interest exceed the non-controlling interest in the
subsidiary’s equity, the excess is allocated to the non-controlling interest except to the extent that the majority has a
binding obligation and is able to cover the losses, except as discussed in Note 3(j).
(b) Business acquisitions
Business acquisitions are accounted for by applying the acquisition method. The acquisition method involves the
recognition of the acquiree’s identifiable assets and liabilities, including contingent liabilities, regardless of whether they
were recorded on the financial statements prior to acquisition. The acquiree’s identifiable assets, liabilities and
contingent liabilities that meet the conditions for recognition under IFRS 3, “Business combinations”, are recognized at
their fair value at the acquisition date, except for: (i) deferred tax assets or liabilities and liabilities or assets related to
employee benefit arrangements which are recognized and measured in accordance with International Accounting
Standard (“IAS”) 12, “Income taxes”, and IAS 19, “Employee benefits”, respectively; (ii) right-of-use assets and lease
liabilities for leases in accordance with IFRS 16, “Leases” in which the acquiree is the lessee; and (iii) assets (or disposal
groups) that are classified as held for sale in accordance with IFRS 5, “Non-current assets held for sale and
discontinued operations”, which are measured and recognized at fair value less costs to sell. Goodwill arising on
acquisition is recognized as an asset and represents the excess of acquisition cost over the fair value of the Company’s
share of the identifiable net assets of the acquiree at the date of the acquisition. Any excess of identifiable net assets
over the acquisition cost is recognized in net earnings or loss immediately after acquisition. Transaction costs related
to the acquisition are expensed as they are incurred.
(c) Foreign currency translation
Assets and liabilities of foreign operations with a different functional currency than the Company are translated at
exchange rates in effect at each reporting period end date. The revenues and expenses are translated at average
exchange rates for the period. Cumulative gains and losses on translation are shown in accumulated other
comprehensive income or loss (“AOCI”).
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the foreign
currency exchange rate in effect at each reporting period end date. Non-monetary items are translated at the historical
exchange rate at the date of transaction. Exchange gains or losses arising from the translation of these balances
denominated in foreign currencies are recognized in operating income or loss. Revenues and expenses denominated
in foreign currencies are translated into Canadian dollars at the average foreign currency exchange rate for the period.
64
14
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
(d) Cash and cash equivalents
Cash and cash equivalents are defined as cash and guaranteed investments with a maturity less than 90 days at date
of acquisition, as well as, highly liquid guaranteed investments that are redeemable in cash on demand without penalty.
(e) Inventories
Warehouse inventories are valued at the lower of cost and net realizable value with cost being determined on a
weighted average cost basis. Retail inventories are valued at the lower of cost and net realizable value. Cost is
determined using weighted average cost or the retail method. The retail method uses the anticipated selling price less
normal profit margins, on a weighted average cost basis. The cost of inventories is comprised of directly attributable
costs and includes the purchase price plus other costs incurred in bringing the inventories to their present location and
condition, such as freight. The cost is reduced by the value of allowances received from vendors. The Company
estimates net realizable value as the amount that inventories are expected to be sold taking into consideration
fluctuations of retail price due to seasonality less estimated costs necessary to make the sale. Inventories are written
down to net realizable value when the cost of inventories is not estimated to be recoverable due to obsolescence,
damage or permanent declines in selling prices. When circumstances that previously caused inventories to be written
down below cost no longer exist or when there is clear evidence of an increase in retail selling price, the amount of the
write-down previously recorded is reversed. Costs that do not contribute to bringing inventories to their present location
and condition, such as storage and administrative overheads, are specifically excluded from the cost of inventories and
are expensed in the period incurred.
Income taxes
(f)
Tax expense recognized in net earnings or loss comprises the sum of deferred income tax and current income tax not
recognized in other comprehensive income or loss.
Current income tax assets and liabilities are comprised of claims from, or obligations to, fiscal authorities relating to the
current or prior reporting periods, that are unpaid at the reporting date. Current tax is the tax expected to be payable
on the taxable income for the year calculated using rates that have been enacted or substantively enacted at the
balance sheet date. It includes adjustments for tax expected to be payable or recoverable in respect of previous
periods. Where the amount of tax payable or recoverable is uncertain, the Company establishes provisions based on
the most likely amount of the liability or recovery. The calculation of current income tax is based on tax rates and tax
laws that have been enacted or substantively enacted at the end of the reporting period.
Deferred income taxes are calculated using the asset and liability method on temporary differences between the
carrying amounts of assets and liabilities and their related tax bases. However, deferred tax is not provided on the initial
recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business
acquisition or affects tax or accounting profit. The deferred tax assets and liabilities have been measured using
substantively enacted tax rates that will be in effect when the amounts are expected to settle. Deferred tax assets are
only recognized to the extent that it is probable that they will be able to be utilized against future taxable income. The
assessment of the probability of future taxable income in which deferred tax assets can be utilized is based on the
Company’s latest approved forecast, which is adjusted for significant non-taxable income and expenses and specific
limits to the use of any unused tax loss or credit. If a positive forecast of taxable income indicates the probable use of
a deferred tax asset, especially when it can be used without a time limit, that deferred tax asset is usually recognized
in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties are
assessed individually by management based on the specific facts and circumstances.
Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets
and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognized as a
component of income or expense in net earnings or loss, except where they relate to items that are recognized in other
comprehensive income or loss (such as the unrealized gains and losses on cash flow hedges) or directly in equity.
(g) Assets held for sale
Property and equipment listed for sale are reclassified as assets held for sale on the consolidated balance sheets when
the sale is highly probable. These assets are expected to be sold within a 12-month period. Assets held for sale are
valued at the lower of carrying value and fair value less costs to sell.
(h) Investments in associates
Associates are those entities over which the Company is able to exert significant influence but which it does not control
and which are not interests in a joint venture. Control is reassessed on an ongoing basis. Investments in associates
are initially recognized at cost and subsequently accounted for using the equity method.
65
15
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Acquired investments in associates are also subject to the acquisition method as explained above. However, any
goodwill or fair value adjustment attributable to the Company's share in the associate is included in the amount
recognized as investments in associates.
All subsequent changes to the Company's share of interest in the equity of the associate are recognized in the carrying
amount of the investment. Changes resulting from the earnings or losses generated by the associate are reported
within share of earnings from investments, at equity on the Company’s consolidated statements of earnings or loss.
These changes include subsequent depreciation, amortization or impairment of the fair value adjustments of assets
and liabilities.
Changes resulting from earnings of the associate or items recognized directly in the associate's equity are recognized
in earnings or losses or equity of the Company, as applicable. However, when the Company's share of losses in an
associate equals or exceeds its interest in the associate, including any unsecured receivables, the Company does not
recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the
associate. If the associate subsequently reports earnings, the Company resumes recognizing its share of those
earnings only after its share of the earnings exceeds the accumulated share of losses that had previously not been
recognized.
Unrealized gains and losses on transactions between the Company and its associates are eliminated to the extent of
the Company's interest in those entities. Where unrealized losses are eliminated, the underlying asset is also tested
for impairment losses from a Company perspective.
At each reporting period end date, the Company assesses whether there are any indicators of impairment in its
investment in associates. For investments in publicly traded entities, carrying value of the investment is compared to
the current market value of the investment based on its quoted price at the balance sheet date. For entities which are
not publicly traded, VIU of the investment is determined by estimating the Company’s share of the present value of the
estimated cash flows expected to be generated by the investee. If impaired, the carrying value of the Company’s
investment is written down to its estimated recoverable amount, being the higher of fair value less cost to sell and VIU.
In the process of measuring future cash flows, management makes assumptions about future growth of profits. These
assumptions relate to future events and circumstances. The actual results may vary and may cause significant
adjustments to the Company’s investments in associates in the subsequent financial years.
Each of the associates identified by the Company has a reporting year end of December 31. For purposes of the
Company’s consolidated year end financial statements, each of the associates’ results are included based on financial
statements prepared as at March 31, with any changes occurring between March 31 and the Company’s year end that
would materially affect the results being taken into account.
Investments in joint ventures
(i)
Investments in joint ventures are joint arrangements whereby the Company and the other parties to the arrangements
have joint control and therefore have rights to the net assets of the arrangement. Investments in joint ventures are
initially recognized at cost and subsequently accounted for using the equity method.
(j) Financial instruments
Financial instruments are recognized on the consolidated balance sheets when the Company becomes a party to the
contractual provisions of a financial instrument. The classification and measurement categories for financial assets are
amortized cost, fair value through other comprehensive income (“FVOCI”), and FVTPL. Financial assets that are not
designated as FVTPL on initial recognition are classified and measured at amortized cost if (i) they are held within a
business model whose objective is to hold assets to collect contractual cash flows, and (ii) the contractual terms give
rise on specified dates to cash flows that are solely payments of principal and interest. Debt investments that are not
designated as FVTPL on initial recognition are classified and measured at FVOCI if (i) they are held within a business
model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and (ii) the
contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. Equity
investments held for trading are classified and measured at FVTPL. Financial assets not classified at amortized cost
or FVOCI are classified and measured at FVTPL. The classification and measurement categories for other financial
liabilities are amortized cost and FVTPL.
66
16
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The Company’s financial assets and liabilities are generally classified and measured as follows:
Asset/Liability
Cash and cash equivalents
Receivables
Leases and other receivables
Derivative financial assets and liabilities
Non-derivative other assets
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities (except as below)
Classification
and Measurement
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Sobeys has entered into put and call options with non-controlling interest shareholders of certain subsidiary companies
such that the Company may acquire their shareholdings under certain conditions on or after the exercise date. As a
result, the Company recognizes a financial liability within other long-term liabilities at the present value of the amount
payable on exercise of the applicable put option. Remeasurement adjustments are recorded in retained earnings. At
the end of each reporting period, non-controlling interests for these subsidiaries that have been recognized, including
the earnings attributable to these non-controlling interests, are derecognized against the related non-controlling interest
liability immediately before its period-end revaluation.
Impairment of financial assets are based on expected credit losses (“ECL”). The Company recognizes loss allowances
on its trade receivables based on lifetime ECLs for those assets measured at amortized cost. Loss allowances are
recognized on leases and other receivables for which the credit risk has not increased significantly since initial
recognition based on the 12-month ECL. Where there is a significant increase in the credit risk of leases and other
receivables subsequent to initial recognition, the Company recognizes loss allowances based on lifetime ECLs. The
Company considers past events, current conditions, and reasonable and supportable forecasts affecting collectability
when determining whether the credit risk of a financial asset has increased significantly since initial recognition, or in
estimating lifetime ECLs.
(k) Hedges
The Company has cash flow hedges which are used to manage exposure to fluctuations in foreign currency exchange
and energy prices. For cash flow hedges, the effective portion of the change in fair value of the hedging item is recorded
in other comprehensive income or loss. To the extent the change in fair value of the derivative does not completely
offset the change in fair value of the hedged item, the ineffective portion of the hedging relationship is recorded in net
earnings or loss. Amounts accumulated in other comprehensive income or loss are reclassified to net earnings or loss
when the hedged item is recognized in net earnings or loss. When a hedging instrument in a cash flow hedge expires
or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss in
accumulated other comprehensive income or loss relating to the hedge is carried forward until the hedged item is
recognized in net earnings or loss. When the hedged item ceases to exist as a result of its expiry or sale, or if an
anticipated transaction is no longer expected to occur, the cumulative gain or loss in accumulated other comprehensive
income or loss is immediately reclassified to net earnings or loss.
Financial derivatives assigned as part of a cash flow hedging relationship are classified on the consolidated balance
sheets as either an other asset or other long-term liability as required based on their fair value determination.
Significant derivatives include the following:
(i) Foreign currency forward contracts and foreign currency swaps for the primary purpose of limiting exposure to
exchange rate fluctuations relating to the purchase of goods or expenditures denominated in foreign currencies.
Certain contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective
portion of the change in the fair value of the contracts is accumulated in other comprehensive income or loss until
the variability in cash flows being hedged is recognized in earnings or loss in future accounting periods.
(ii) Electricity forward contracts for the primary purpose of limiting exposure to fluctuations in the market prices of
electricity. These contracts are designated as hedging instruments for accounting purposes. Accordingly, the
effective portion of the change in fair value of the contracts is accumulated in other comprehensive income or
loss until the variability in cash flows being hedged is recognized in earnings or loss in future accounting periods.
67
17
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
(iii) Natural gas forward contracts for the primary purpose of limiting exposure to fluctuations in the market prices
of natural gas. These contracts are designated as hedging instruments for accounting purposes. Accordingly, the
effective portion of the change in fair value of the contracts is accumulated in other comprehensive income or loss
until the variability in cash flows being hedged is recognized in earnings or loss in future accounting periods.
(l) Property and equipment
Owner-occupied land, buildings, equipment, leasehold improvements and assets under construction are carried at
acquisition cost less accumulated depreciation and impairment losses.
When significant parts of property and equipment have different useful lives, they are accounted for as separate
components. Depreciation is recorded on a straight-line basis from the time the asset is available or when assets under
construction become available for use over the estimated useful lives of the assets as follows:
Buildings
Equipment
Leasehold improvements
10 - 40 years
3 - 20 years
Lesser of lease term and 7 - 20 years
Depreciation is included within selling and administrative expenses on the consolidated statements of earnings.
Material residual value estimates and estimates of useful life are reviewed and updated as required, or annually at a
minimum.
Gains or losses arising on the disposal of property and equipment are determined as the difference between the
disposal proceeds and the carrying amount of the assets and are recognized in net earnings or loss in other income or
loss. If the sale is to a Company’s investment, at equity, a portion of the gain or loss is deferred and reduces the carrying
value of the investment.
(m) Investment property
Investment properties are properties which are held either to earn rental income or for capital appreciation or for both,
rather than for the principal purpose of the Company’s operating activities. Investment properties are accounted for
using the cost model. The depreciation policies for investment property are consistent with those described for property
and equipment.
Any gain or loss arising from the sale of an investment property is immediately recognized in net earnings or loss,
unless the sale is to an investment, at equity, in which case a portion of the gain or loss is deferred and would reduce
the carrying value of the Company’s investment. Rental income and operating expenses from investment property are
reported in other income and selling and administrative expenses, respectively, on the consolidated statements of
earnings.
(n) Leases
(i) The Company as a lessee
The Company recognizes a right-of-use asset and corresponding lease liability at the commencement date. The
commencement date is the date in which the lessor makes the asset available for use by the Company. Lease
payments for short-term leases or variable payments that do not depend on an index or a rate are recognized in
selling and administrative expenses.
Lease liabilities reflect the present value of fixed lease payments and variable lease payments that are based on
an index or a rate or subject to fair market renewal amounts expected to be payable by the lessee over the lease
term. Lease term reflects the period over which the lease payments are reasonably certain including renewal
options that the Company is reasonably certain to exercise. Where applicable, lease liabilities will include the
purchase option exercise price if the Company is reasonably certain to exercise that option, termination penalties
if the lease term also reflects the termination option and amounts expected to be payable under a residual value
guarantee. Subsequent to initial measurement the Company measures lease liabilities on an amortized cost basis.
Lease liabilities are remeasured when there is a modification to the lease. Lease payments are discounted using
the interest rate implicit in the lease, or if that rate cannot be determined, the lessee’s incremental borrowing rate
at the lease inception date or the modification date as applicable. Interest expense is recognized in finance costs,
net on the consolidated statements of earnings.
68
18
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Right-of-use assets are measured at the initial amount of the lease liabilities plus any initial direct costs, lease
payments made at or before the commencement date less lease incentives received and restoration costs.
Subsequent to initial measurement, the Company applies the cost model to the right-of-use assets. Right-of-use
assets are measured at cost less accumulated depreciation, accumulated impairment losses and any
remeasurements of lease liabilities. The assets are depreciated on a straight-line basis over the shorter of the
asset’s useful life consistent with the rates in Note 3(l) and lease term. Depreciation begins at the commencement
date of the lease.
(ii) The Company as a lessor
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases. For subleases, where the
Company acts as an intermediate lessor, the Company assesses classification with reference to the right-of-use
asset arising from the head lease.
For finance subleases the Company derecognizes the corresponding right-of-use asset and records a net
investment in the finance sublease and related interest income is recognized in finance costs, net on the
consolidated statements of earnings.
Lease income from operating leases is recognized on a straight-line basis over the term of the relevant lease.
(iii) Sale and leaseback transactions
A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. A sale and
leaseback is recognized as a sale when the control of the asset has been transferred to the purchaser. The
Company will measure the right-of-use asset arising from the leaseback and the proportion of the previous carrying
amount of the asset that relates to the right-of-use retained by the Company. Any profit or loss in a sale and
leaseback transaction related to the transfer of rights of the asset to the buyer-lessor is recognized immediately.
(o) Intangibles
Intangibles arise on the purchase of a new business, existing franchises, software (including software that is internally
developed by the Company or through customization costs in cloud computing arrangements) and the acquisition of
pharmacy prescription files. They are accounted for using the cost model whereby capitalized costs are amortized on
a straight-line basis over their estimated useful lives as these assets are considered finite. Useful lives are reviewed
annually and intangibles are subject to impairment testing. The following useful lives are applied:
Deferred purchase agreements
Franchise rights/agreements
Lease rights
Prescription files
Software
Other
5 - 10 years
10 years
5 - 10 years
15 years
3 - 7 years
5 - 10 years
Amortization has been included in selling and administrative expenses on the consolidated statements of earnings.
Expenditures made by the Company relating to intangible assets that do not meet the capitalization criteria are
expensed in the period incurred.
Included in intangibles are brand names, loyalty programs and private labels, the majority of which have indefinite
useful lives. Intangibles with indefinite useful lives are measured at cost less any accumulated impairment losses.
These intangibles are tested for impairment on an annual basis or more frequently if there are indicators that intangibles
may be impaired.
(p) Goodwill
Goodwill represents the excess of the purchase price of the business acquired over the fair value of the underlying net
tangible and intangible assets acquired at the date of acquisition.
(q) Impairment of non-financial assets
Goodwill and indefinite life intangibles are reviewed for impairment at least annually by assessing the recoverable
amount of each CGU or groups of CGUs to which the goodwill or indefinite life intangible relates. The recoverable
amount is the higher of FVLCD and VIU. When the recoverable amount of the CGU(s) is less than the carrying amount,
an impairment loss is recognized immediately in net earnings or loss. Impairment losses related to goodwill cannot be
reversed.
69
19
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Long-lived tangible and finite life intangible assets are reviewed each reporting period for impairment when events or
changes in circumstances indicate that the carrying value of the assets may not be recoverable. If such an indication
exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of FVLCD and VIU. Where the asset does not generate cash flows that are
independent from other assets, the Company estimates the recoverable amount of the CGU(s) to which the asset
belongs. The Company has determined a CGU to be primarily an individual store or customer fulfilment centre.
Corporate assets such as head offices and distribution centres do not individually generate separate cash inflows and
are therefore aggregated for testing with the stores they service. When the recoverable amount of an asset (or CGU)
is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to the recoverable
amount. An impairment loss is recognized immediately in selling and administrative expenses on the consolidated
statements of earnings.
Where an impairment loss subsequently reverses, other than related to goodwill, the carrying amount of the asset (or
CGU) is increased to the revised estimate, but is limited to the carrying amount that would have been determined if no
impairment loss had been recognized in prior years. A reversal of impairment loss is recognized immediately in net
earnings or loss.
(r) Customer loyalty programs
The Scene+ loyalty program is used by Sobeys in all geographic regions in applicable banners. Scene+ points are
earned by Sobeys customers based on purchases in-store and online. The Company pays a per point fee under the
terms of the Scene+ joint venture agreement. Longo’s Thank You Rewards program allows members to earn points on
their purchases at Longo’s stores. Members can redeem these points, for cash towards future grocery purchases or to
purchase products or services. The cost of points is recorded as a reduction of revenue. The AIR MILES® loyalty
program was used during part of the year ended May 6, 2023 and has been discontinued as of March 23, 2023. The
Company paid a per point fee under the terms of the agreement with AIR MILES®.
(s) Provisions
Provisions are recognized when there is a present legal or constructive obligation as a result of a past event, for which
it is probable that a transfer of economic benefits will be required to settle the obligation, and where a reliable estimate
can be made of the amount of the obligation. Provisions are discounted using a pre-tax discount rate that reflects the
current market assessments of the time value of money and the risks specific to the liability, if material. Where
discounting is used, the increase in the provision due to passage of time (unwinding of the discount) is recognized in
finance costs, net on the consolidated statements of earnings.
(t) Borrowing costs
Borrowing costs are primarily comprised of interest on the Company’s debts. Borrowing costs directly attributable to
the acquisition, construction or production of a qualifying asset are capitalized as a component of the cost of the asset
to which it is related. All other borrowing costs are expensed in the period in which they are incurred and are reported
in finance costs.
(u) Deferred revenue
Deferred revenue consists of long-term supplier purchase agreements. Deferred revenue is included in other long-term
liabilities and is amortized to income on a straight-line basis over the term of the related agreements.
(v) Employee benefits
(i) Short-term employment benefits
Short-term employee benefits include wages, salaries, compensated absences, profit-sharing and bonuses
expected to be settled within 12 months from the end of the reporting period. Short-term employee benefits are
measured on an undiscounted basis and are recorded as selling and administrative expenses as the related
service is provided.
(ii) Post-employment benefits
The cost of the Company’s pension benefits for defined contribution plans are expensed at the time active
employees are compensated. The cost of defined benefit pension plans and other benefit plans is accrued based
on actuarial valuations, which are determined using the projected unit credit method pro-rated on service and
management’s best estimate of salary escalation and retirement ages.
70
20
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The liability recognized on the consolidated balance sheets for defined benefit plans is the present value of the
defined benefit obligation at the reporting date less the fair market value of plan assets. Current market values are
used to value benefit plan assets. The obligation related to employee future benefits is measured using current
market interest rates, assuming a portfolio of Corporate AA bonds with terms to maturity that, on average, match
the terms of the obligation.
Remeasurements, comprising actuarial gains and losses and the return on plan assets (excluding amounts in net
interest), are recognized immediately on the consolidated balance sheets with a corresponding charge to retained
earnings through other comprehensive income or loss in the period in which they occur. Remeasurements are not
reclassified to net earnings or loss in subsequent periods.
Past service costs are recognized in net earnings or loss on the earlier of the date of the plan amendment or
curtailment, and the date that the Company recognizes restructuring-related costs.
Service cost on the net defined benefit liability, comprising current service costs, past service costs, gains and
losses on curtailments and non-routine settlements, is included in selling and administrative expenses. Net interest
expense on the net defined benefit liability is included in finance costs, net.
(iii) Termination benefits
Termination benefits are recognized as an expense at the earlier of when the Company recognizes related
restructuring costs and when the Company can no longer withdraw the offer of those benefits.
(w) Revenue recognition
Revenue is recognized upon delivery and acceptance of the goods. Revenue is measured at the expected
consideration net of discounts and allowances. Sales include revenues from customers through corporate stores
operated by the Company and consolidated SEs, customer fulfilment centers and revenue from sales to non-structured
entity franchised stores, affiliated stores and independent accounts. Revenue received from non-structured entity
franchised stores, affiliated stores and independent accounts is mainly derived from the sale of product. The Company
also collects franchise fees under two types of arrangements: (i) franchise fees contractually due based on the dollar
value of product shipped are recorded as revenue when the product is shipped; and (ii) franchise fees contractually
due based on the franchisee's retail sales are recorded as revenue upon invoicing.
(x) Vendor allowances
The Company receives allowances from certain vendors whose products are purchased for resale. Included in these
vendor programs are volume related allowances, purchase discounts, listing fees, and other discounts and allowances.
The Company recognizes these allowances as a reduction of cost of sales and related inventories. Certain allowances
are contingent on the Company achieving minimum purchase levels. These allowances are recognized when it is
probable that the minimum purchase level will be met and the amount of allowance can be estimated. Amounts received
but not yet earned are presented in other liabilities as deferred vendor allowances.
(y) Finance and dividend income
Finance income and expenses are reported on an accrual basis using the effective interest method. Dividend income
is recognized when the right to receive payment has been established.
(z) Earnings per share
Basic earnings per share is calculated by dividing the earnings available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share is calculated by adjusting
the weighted average number of common shares outstanding for the dilutive effect of employee stock options and
performance share units (“PSUs”). When a loss is recorded, 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.
(aa) Stock-based compensation
The Company operates both equity and cash settled stock-based compensation plans for certain employees.
All goods and services received in exchange for the grant of any stock-based payments are measured at their fair
values. Where employees are rewarded using stock-based payments, the fair values of employees’ services are
determined indirectly by reference to the fair value of the equity instruments granted. Cash settled plans are revalued
at each reporting date (Note 27).
71
21
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
(ab) Changes to accounting standards adopted during fiscal 2023
In May 2020, the International Accounting Standards Board (“IASB”) issued a package of narrow-scope amendments
to three standards (IFRS 3, “Business Combinations”; IAS 16, “Property, Plant and Equipment”; and IAS 37,
“Provisions, Contingent Liabilities and Contingent Assets”) as well as the IASB’s Annual Improvements to IFRS
Standards 2018 - 2020. These amendments to existing IFRS standards are to clarify guidance and wording, or to
correct for relatively minor unintended consequences, conflicts or oversights. These amendments became effective for
annual periods beginning on or after January 1, 2022. There was no impact on the Company’s financial statements.
(ac) Standards, amendments and interpretations issued but not yet adopted
In October 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1, “Presentation of
Financial Statements”) to clarify that covenants to be complied with after the reporting date for an entity’s right to defer
settlement of a liability does not affect the classification of the liability as current or non-current at the reporting date.
These narrow-scope amendments aim to improve information an entity provides with regards to the covenants through
additional disclosures. These amendments are effective for annual reporting periods beginning on or after January 1,
2024, with early adoption permitted. The Company is assessing the potential impact of these narrow-scope
amendments.
In September 2022, the IASB issued narrow-scope amendments to IFRS 16, “Leases”. These amendments clarify how
a seller-lessee subsequently measures the lease liability that arises from a sale and leaseback transaction, the seller-
lessee determines “lease payments” and “revised lease payments” in a way that does not result in the seller-lessee
recognizing any amount of the gain or loss that relates to the right of use it retains. These amendments only apply to
sale and leaseback transactions for which the lease payments include variable lease payments that do not depend on
an index or a rate. The amendment is effective for annual reporting periods beginning on or after January 1, 2024 with
early adoption permitted. The Company expects no impact from these amendments.
In May 2021, the IASB issued narrow-scope amendments to IAS 12, “Income Taxes”. The amendments require
deferred tax assets and liabilities to be recognized for transactions that result in both deductible and taxable temporary
differences of the same amount at initial recognition. These amendments are effective for annual reporting periods
beginning on or after January 1, 2023, with early adoption permitted. There will be no impact on the Company’s financial
statements from these amendments.
In January 2020, the IASB issued Classification of Liabilities as Current or Non-Current (Amendments to IAS 1,
“Presentation of Financial Statements”). The narrow-scope amendment affects only the presentation of liabilities in the
statement of financial position and not the amount or timing of recognition. Specifically, it clarifies:
•
•
classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of
a liability; and
that “settlement” refers to the transfer to the counterparty of cash, equity instruments, other assets or services.
These amendments are effective for annual periods beginning on or after January 1, 2024, with early adoption
permitted. The Company is assessing the potential impact of this narrow-scope amendment.
4.
Inventories
The cost of inventories recognized as an expense for the year ended May 6, 2023 was $22,685.4 (2022 - $22,502.7).
The Company recorded an expense for the year ended May 6, 2023 of $4.7 (2022 - $2.1) for write-down of inventories
below cost to net realizable value for inventories on hand.
5. Leases and other receivables
Lease receivable
Notes receivable and other
Loans receivable
Less amount due within one year
May 6, 2023
May 7, 2022
$
$
567.6
59.0
45.6
672.2
85.2
587.0
$
$
553.1
24.3
45.5
622.9
73.8
549.1
22
72
All lease receivables are due from franchisees and affiliates and are secured by the related head lease.
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Loans receivable represent long-term financing to certain retail associates. These loans are primarily secured by
inventory, fixtures and equipment, bear various interest rates and have repayment terms up to 10 years. The carrying
amount of the loans receivable approximates fair value based on the variable interest rates charged on the loans.
Included in notes receivable and other as at May 6, 2023 is $29.8 (2022 - $ nil) related to property sales due from a
third party.
6. Assets held for sale
Assets held for sale relates to land, buildings and equipment expected to be sold in the next 12 months. These assets
were previously used in the Company’s retail and retail support operations.
Opening balance
Additions
Disposals and write-downs
Closing balance
May 6, 2023
May 7, 2022
$
$
-
3.0
(3.0)
-
$
$
3.4
16.0
(19.4)
-
During the year ended May 6, 2023, the Company sold one property to a third party. Total proceeds from this transaction
was $39.4, resulting in a pre-tax gain of $36.4.
During the year ended May 6, 2023, Empire signed an agreement between a wholly owned subsidiary of Sobeys and
Canadian Mobility Services Limited, a wholly owned subsidiary of Shell Canada to sell its 56 retail fuel sites in Western
Canada for approximately $100.0, which will close in the first half of fiscal 2024. The net carrying value of the related
net assets is not material.
During the year ended May 7, 2022, the Company sold three properties to third parties. Total proceeds from these
transactions were $23.7, resulting in a pre-tax gain of $4.3.
7.
Investments, at equity
Investment in associates and joint ventures
Crombie Real Estate Investment Trust ("Crombie REIT")
Canadian real estate partnerships
United States ("U.S.") real estate partnerships
Joint ventures
Total
May 6, 2023
May 7, 2022
$
$
627.3
69.8
0.6
4.2
701.9
$
$
599.9
77.7
1.0
2.9
681.5
The fair value of the investment in Crombie REIT, which is based on a published price quoted on the Toronto Stock
Exchange (“TSX”), is as follows:
Crombie REIT
May 6, 2023
May 7, 2022
$
1,133.1
$
1,230.8
The Canadian and U.S. real estate partnerships and joint ventures are not listed on a public stock exchange and hence
published price quotes are not available.
The Company owns 73,392,022 (2022 - 72,442,967) Class B Limited Partnership (“Class B LP”) units and attached
special voting units of Crombie REIT, along with 909,090 (2022 - 909,090) REIT units, representing a 41.5% (2022 -
41.5%) economic and voting interest in Crombie REIT.
Crombie REIT has a distribution reinvestment plan (“DRIP”) whereby Canadian resident REIT unitholders may elect to
have their distributions automatically reinvested in additional REIT units. The Company is enrolled in the DRIP.
During the year ended May 7, 2022, a wholly-owned subsidiary of the Company purchased, on a private placement
basis, $124.5 of Class B LP units of Crombie REIT.
73
23
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The Company’s carrying value of its investment in Crombie REIT is as follows:
May 6, 2023
May 7, 2022
Balance, beginning of year
Equity earnings
Share of comprehensive income
Distributions, net of DRIP
Deferral of gains on sale of property
Reversal of deferred gain on sale of property to unrelated party
Purchase of Class B LP units
Dilution loss
Balance, end of year
$
$
599.9
71.3
2.5
(51.1)
(0.1)
6.1
-
(1.3)
627.3
$
$
471.4
61.0
2.5
(53.9)
(5.7)
1.7
124.5
(1.6)
599.9
The Company’s carrying value of its investment in Canadian real estate partnerships is as follows:
May 6, 2023
May 7, 2022
Balance, beginning of year
Equity earnings
Distributions
Balance, end of year
$
$
77.7
15.5
(23.4)
69.8
The Company’s carrying value of its investment in U.S. real estate partnerships is as follows:
Balance, beginning of year
Equity earnings
Distributions
Foreign currency translation adjustment
Balance, end of year
May 6, 2023
1.0
0.9
(0.9)
(0.4)
0.6
$
$
$
$
$
$
84.9
17.1
(24.3)
77.7
May 7, 2022
11.3
15.3
(25.0)
(0.6)
1.0
The following amounts represent the revenues, expenses, assets and liabilities of Crombie REIT as at and for the 12
months ended March 31, 2023, and 2022 as well as a reconciliation of the carrying amount of the Company’s investment
in Crombie REIT to the net assets attributable to unitholders of Crombie REIT:
March 31, 2023
March 31, 2022
Revenues
Expenses
Earnings before income taxes
Income (loss) from continuing operations
Other comprehensive income
Total comprehensive income
Assets
Current
Non-current
Total
Liabilities
Current
Non-current
Total
74
$
$
$
$
$
$
$
$
422.3
257.7
164.6
12.1
6.1
18.2
March 31, 2023
51.2
4,034.6
4,085.8
443.2
1,798.9
2,242.1
$
$
$
$
$
$
$
$
410.3
264.4
145.9
(2.9)
6.2
3.3
March 31, 2022
55.0
4,065.8
4,120.8
443.2
1,887.9
2,331.1
24
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Unitholders' net assets
REIT Units
Class B LP units
Less total REIT units outstanding as at March 31
Cumulative changes since acquisition of Crombie REIT
Issue costs related to Class B LP units
Deferred gains (net of depreciation addback and timing variances)
Dilution gains
Write-off of portion of AOCI on dilution of interest in Crombie REIT
Crombie REIT tax reorganization - deferred tax adjustment
Carrying amount attributable to investment in Class B LP units
REIT units owned by Empire
Cumulative equity earnings on REIT units
Cumulative distributions on REIT units
Empire's carrying amount of investment in Crombie REIT
March 31, 2023
March 31, 2022
$
$
$
1,093.0
750.7
1,843.7
(1,093.0)
12.8
(157.8)
38.6
0.7
(31.7)
613.3
13.8
8.7
(8.5)
627.3
$
1,060.7
729.0
1,789.7
(1,060.7)
12.7
(163.1)
38.6
0.7
(31.7)
586.2
13.8
7.6
(7.7)
599.9
The Company has interests in various Canadian real estate partnerships ranging from 40.7% to 49.0% which are
involved in residential property developments in Ontario and Western Canada.
The following amounts represent the revenues, expenses, assets and liabilities of the Canadian real estate partnerships
as at and for the 12 months ended March 31, 2023 and 2022:
Revenues
Expenses
Net earnings
Current assets
Current liabilities
Net assets
Carrying amount of investment
March 31, 2023
March 31, 2022
$
$
$
$
$
103.3
65.4
37.9
March 31, 2023
215.7
64.6
151.1
69.8
$
$
$
$
$
116.6
76.4
40.2
March 31, 2022
225.4
59.3
166.1
77.7
The Company has interests in various U.S. real estate partnerships ranging from 37.1% to 39.0% which are involved
in residential property developments in the U.S.
The following amounts represent the revenues, expenses, assets and liabilities of the U.S. real estate partnerships as
at and for the 12 months ended March 31, 2023 and 2022:
March 31, 2023
March 31, 2022
Revenues
Expenses
Net earnings
Current assets
Current liabilities
Net assets
Carrying amount of investment
$
$
$
$
$
1.4
0.1
1.3
March 31, 2023
3.7
1.9
1.8
0.6
$
$
$
$
$
76.4
35.6
40.8
March 31, 2022
7.5
4.1
3.4
1.0
25
75
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
8.
Property and equipment
May 6, 2023
Cost
Opening balance
Additions
Additions from business
acquisitions
Transfers and adjustments
Disposals and write-downs
Closing balance
Leasehold Assets Under
Land Buildings Equipment Improvements Construction
Total
$ 372.6 $ 1,182.8 $ 2,787.1 $
19.8
6.4
123.0
1,104.6 $
34.3
360.4 $ 5,807.5
783.4
599.9
0.3
(3.8)
(16.6)
2.2
46.0
(25.3)
$ 372.3 $ 1,212.1 $ 2,813.4 $
2.9
164.4
(264.0)
0.7
56.7
(25.9)
1,170.4 $
-
(414.2)
(0.4)
6.1
(150.9)
(332.2)
545.7 $ 6,113.9
$
Accumulated depreciation and impairment
Opening balance
Disposals and write-downs
Transfers and adjustments
Depreciation
Impairment losses
Impairment reversals
Closing balance
- $
-
-
-
-
-
- $
$
533.8 $ 1,602.8 $
(14.3)
-
54.3
-
-
(260.4)
(11.4)
288.6
10.2
(2.4)
573.8 $ 1,627.4 $
511.7 $
(25.0)
4.6
84.9
0.3
(1.9)
574.6 $
- $ 2,648.3
(299.7)
-
(6.8)
-
427.8
-
-
10.5
(4.3)
-
- $ 2,775.8
Net carrying value
$ 372.3 $
638.3 $ 1,186.0 $
595.8 $
545.7 $ 3,338.1
May 7, 2022
Cost
Opening balance
Additions
Additions from business
acquisitions
Transfers and adjustments
Disposals and write-downs
Closing balance
Leasehold Assets Under
Land Buildings Equipment Improvements Construction
Total
$ 387.1 $ 1,199.9 $ 2,600.2 $
10.7
149.8
9.0
-
(4.1)
(19.4)
-
50.0
(77.8)
$ 372.6 $ 1,182.8 $ 2,787.1 $
62.3
194.2
(219.4)
992.7 $
31.2
336.2 $ 5,516.1
709.5
508.8
20.3
112.4
(52.0)
1,104.6 $
1.6
(484.2)
(2.0)
84.2
(131.7)
(370.6)
360.4 $ 5,807.5
$
Accumulated depreciation and impairment
Opening balance
Disposals and write-downs
Transfers and adjustments
Depreciation
Impairment losses
Impairment reversals
Closing balance
- $
-
-
-
-
-
- $
$
518.3 $ 1,537.1 $
(40.1)
2.1
53.5
-
-
(204.2)
(3.5)
274.0
2.3
(2.9)
533.8 $ 1,602.8 $
483.1 $
(47.7)
9.1
74.0
1.1
(7.9)
511.7 $
- $ 2,538.5
(292.0)
-
7.7
-
401.5
-
3.4
-
-
(10.8)
- $ 2,648.3
Net carrying value
$ 372.6 $
649.0 $ 1,184.3 $
592.9 $
360.4 $ 3,159.2
Assets under construction
During the year ended May 6, 2023, the Company capitalized borrowing costs of $1.6 (2022 - $0.6) on indebtedness
related to property and equipment under construction. The Company used a capitalization rate of 5.2% (2022 - 5.9%).
Security
As at May 6, 2023, the net carrying value of property pledged as security for borrowings is $39.3 (2022 - $42.1).
Fixed asset commitments
As at May 6, 2023, the Company had entered into commitments of $101.8 (2022 - $93.4) for the construction, expansion
and renovation of buildings.
76
26
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Impairment of property and equipment
The Company evaluates for indicators of impairments and indicators of impairment reversals. For CGUs with
impairment indicators, the Company performed an impairment test for property and equipment and determined
recoverable amounts based on VIU calculations using cash flow projections from the Company’s latest internal
forecasts. When the recoverable amount of a CGU is less than the carrying amount, an impairment loss is recognized.
When the recoverable amount of a previously impaired CGU is greater than the value of its impaired assets, an
impairment reversal is recognized. Key assumptions used in determining VIU include discount rates, growth rates and
expected changes in cash flows. Management estimates discount rates using pre-tax rates that reflect current market
assessments of the time value of money and risks specific to the CGUs. Forecasts are projected beyond three years
based on a long-term growth rate of 2.0%. Discount rates are calculated on a pre-tax basis and range from 6.0% to
7.0%.
Impairment losses of $10.5 and reversals of $4.3 were recorded in selling and administrative expenses during the year
ended May 6, 2023 (2022 - $3.4 and $10.8 respectively).
All impairment losses and impairment reversals relate to the Food retailing segment.
9.
Leases
Finance leases, as lessee
The Company leases various retail stores, distribution centres, offices and equipment under non-cancellable finance
leases. These leases have varying terms, escalation clauses, renewal options and bases on which variable rent is
payable.
Changes in right-of-use assets are as follows:
May 6, 2023
Opening balance
Additions
Additions from business acquisitions
Adjustment
Disposals
Depreciation
Closing balance
May 7, 2022
Opening balance
Additions
Additions from business acquisitions
Disposals
Depreciation
Closing balance
Property
Other
Total
$
$
$
$
4,891.6
349.9
6.4
(2.8)
(43.2)
(460.7)
4,741.2
Property
4,590.3
566.9
265.6
(80.5)
(450.7)
4,891.6
$
$
$
$
108.1
42.9
-
2.8
(8.1)
(26.0)
119.7
88.6
38.1
-
-
(18.6)
108.1
$
$
$
$
4,999.7
392.8
6.4
-
(51.3)
(486.7)
4,860.9
Total
4,678.9
605.0
265.6
(80.5)
(469.3)
4,999.7
Other
During the year ended May 6, 2023, the Company completed sale and leaseback transactions which resulted in an
adjustment in the right-of-use asset of $0.2 (2022 - $19.0).
The Company has variable rent payments which are recognized in selling and administrative expenses on the
consolidated statements of earnings. Contingent rent recognized for the year ended May 6, 2023 is $14.4 (2022 -
$14.5).
77
27
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Finance lease liabilities
Changes in lease liabilities are as follows:
Opening balance
Additions
Additions from business acquisitions
Interest expense on lease liabilities
Disposals
Lease payments
Closing balance
Current
Non-current
Total
May 6, 2023
May 7, 2022
$
$
$
$
6,285.4
400.4
6.4
230.2
-
(737.8)
6,184.6
563.7
5,620.9
6,184.6
$
$
$
$
5,908.1
628.1
267.1
231.6
(35.1)
(714.4)
6,285.4
509.5
5,775.9
6,285.4
The weighted average incremental borrowing rate as at May 6, 2023 is 3.8% (2022 - 3.7%). The weighted average
lease term remaining as at May 6, 2023 is 14 years (2022 - 14 years).
The total future minimum rent payable under the Company’s finance leases as of May 6, 2023 is $7,996.3. The
commitments over the next five fiscal years are:
2024
2025
2026
2027
2028
Thereafter
$
Third Party Lease
Payments
578.8
568.2
533.7
490.2
439.7
3,027.8
$
Related Party
Lease Payments
176.7
177.5
178.7
176.9
171.9
1,476.2
Operating leases, as lessee
The Company has short-term operating leases that are primarily related to equipment and vehicles and has recorded
$9.8 (2022 - $13.6) in selling and administrative expenses on the consolidated statements of earnings.
Finance leases, as a lessor
Finance income for the year ended May 6, 2023 was $20.9 (2022 - $22.2). The total future minimum rent to be received
by the Company relating to properties that are subleased to third parties are:
2024
2025
2026
2027
2028
Thereafter
Total undiscounted lease payments receivable
Unearned finance income
Net investment in finance subleases
Finance Lease
Payments to be
Received
87.9
83.2
76.3
69.7
62.7
310.6
690.4
122.8
567.6
$
$
Operating leases, as lessor
The Company leases most investment properties under operating leases. These leases have varying terms, escalation
clauses, renewal options and bases upon which contingent rent is receivable.
Lease income for the year ended May 6, 2023 was $16.1 (2022 - $16.7) of which $0.2 (2022 - $0.2) was contingent
rent and was recognized in other income on the consolidated statements of earnings.
78
28
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The lease payments expected to be received over the next five fiscal years for owned properties are:
2024
2025
2026
2027
2028
Thereafter
Total
Operating Lease
Payments to be
Received
6.2
5.5
5.0
4.0
2.2
12.6
35.5
$
$
The Company recorded $69.1 (2022 - $74.8) of sublease income of which $7.1 (2022 - $7.8) was contingent rent
received which has been recognized in selling and administrative expenses on the consolidated statements of earnings.
The lease payments expected to be received over the next five fiscal years for subleased properties are:
2024
2025
2026
2027
2028
Thereafter
Total
10.
Investment property
Operating Lease
Payments to be
Received
57.7
51.2
45.0
38.1
31.9
123.0
346.9
$
$
Investment property is primarily comprised of commercial properties owned by the Company held for income generating
purposes, rather than for the principal purpose of the Company’s operating activities.
May 6, 2023
May 7, 2022
Cost
Opening balance
Additions
Additions from business acquisitions
Transfers and adjustments
Disposals and write-downs
Closing balance
Accumulated depreciation
Opening balance
Depreciation
Transfers and adjustments
Disposals and write-downs
Closing balance
Net carrying value
Fair value
$
$
$
$
$
$
167.1
23.6
0.2
1.5
(5.9)
186.5
20.3
1.5
1.0
(3.1)
19.7
166.8
279.8
$
$
$
$
$
$
184.0
-
-
(0.4)
(16.5)
167.1
25.4
1.5
-
(6.6)
20.3
146.8
244.2
The fair value of investment property is classified as Level 3 on the fair value hierarchy. The fair value represents the
price that would be received to sell the assets in an orderly transaction between market participants at the measurement
date.
79
29
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
An external, independent valuation company, having appropriate recognized professional qualifications and
experience, assisted management in determining the fair value of certain investment properties chosen from a rotating
sample each year at May 6, 2023 and May 7, 2022. Additions to investment property through acquisition are transacted
at fair value, therefore, carrying value equals fair value at the time of acquisition. Properties reclassified from property
and equipment are valued for disclosure purposes using comparable market information or the use of an external
independent valuation company.
Rental income from investment property included in other income on the consolidated statements of earnings amounted
to $1.5 for the year ended May 6, 2023 (2022 - $1.5).
Direct operating expenses (including repairs and maintenance but excluding depreciation expense) arising from
investment property that generated rental income amounted to $4.6 for the year ended May 6, 2023 (2022 - $4.8).
Direct operating expenses (including repairs and maintenance but excluding depreciation expense) arising from non-
income producing investment property amounted to $2.6 for the year ended May 6, 2023 (2022 - $2.4). All direct
operating expenses for investment properties are included in selling and administrative expenses on the consolidated
statements of earnings.
Impairment of investment property follows the same methodology as property and equipment (Note 3(q)). There were
no impairment losses or reversals for the years ended May 6, 2023 and May 7, 2022.
11.
Intangibles
May 6, 2023
Cost
Opening balance
Additions and transfers
Disposals and write-downs
Closing balance
$
$
721.0 $
-
-
721.0 $
Accumulated amortization and impairment
Opening balance
Amortization
Disposals, write-downs and
28.2 $
-
$
transfers
Impairment losses
Closing balance
Net carrying value
$
$
-
4.0
32.2 $
Brand
Names
Deferred
Purchase
Agreements
Prescription
Files
Software
Other
Total
174.9 $
9.4
(10.7)
173.6 $
111.4 $
10.3
(10.5)
-
111.2 $
301.9 $
-
(0.8)
301.1 $
473.4 $ 260.1 $
139.2
11.1
(4.0)
(49.1)
563.5 $ 267.2 $
1,931.3
159.7
(64.6)
2,026.4
181.2 $
19.0
161.4 $ 110.6 $
65.5
19.8
592.8
114.6
(0.8)
-
199.4 $
(47.3)
2.7
(4.7)
-
182.3 $ 125.7 $
(63.3)
6.7
650.8
688.8 $
62.4 $
101.7 $
381.2 $ 141.5 $
1,375.6
80
30
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
May 7, 2022
Cost
Opening balance
Additions and transfers
Additions from business
acquisitions
Disposals and write-downs
Closing balance
Accumulated amortization
Opening balance
Amortization
Disposals, write-downs and
transfers
Closing balance
Net carrying value
$
466.2 $
-
254.8
-
721.0 $
28.3 $
-
(0.1)
28.2 $
$
$
$
$
Brand
Names
Deferred
Purchase
Agreements
Prescription
Files
Software
Other
Total
174.6 $
3.4
-
(3.1)
174.9 $
110.9 $
11.8
(11.3)
111.4 $
303.1 $
-
378.7 $ 232.4 $
162.6
21.1
1,555.0
187.1
-
(1.2)
301.9 $
14.3
3.3
(71.2)
(7.7)
473.4 $ 260.1 $
272.4
(83.2)
1,931.3
163.1 $
19.3
183.2 $
43.4
93.5 $
20.3
579.0
94.8
(1.2)
181.2 $
(65.2)
(3.2)
161.4 $ 110.6 $
(81.0)
592.8
692.8 $
63.5 $
120.7 $
312.0 $ 149.5 $
1,338.5
Included in other intangibles at May 6, 2023 are liquor licenses of $10.4 (2022 - $10.9). These licenses have options
to renew and it is the Company’s intention to renew these licenses at each renewal date indefinitely. Therefore, cash
inflows are expected to be generated at each store location for which the license is valid, and these assets are
considered to have indefinite useful lives. Also included in other intangibles as at May 6, 2023 are the following amounts:
loyalty programs - $12.0 (2022 - $16.7), lease rights - $18.0 (2022 - $18.2) and private labels - $59.5 (2022 - $59.5).
The Company has determined that brand names with a net carrying value of $688.8 (2022 - $692.8) have indefinite
useful lives. All intangibles with indefinite useful lives relate to the Food retailing segment. Impairment of these
intangibles is assessed at least annually on the same basis as goodwill (Note 12). Impairment losses of $6.7 was
recorded in selling and administrative expenses during the year ended May 6, 2023 (2022 - $ nil).
Impairment of intangibles with finite useful lives follows the same methodology as property and equipment (Note 3(q)).
There were no impairment losses or reversals on these intangibles for the years ended May 6, 2023 and May 7, 2022.
Intangible commitments
As at May 6, 2023, the Company had entered into commitments of $5.8 (2022 - $16.1) related to other intangibles.
12. Goodwill
Opening balance
Additions from business acquisitions
Disposals
Closing balance
May 6, 2023
May 7, 2022
$
2,059.0
$
8.8
-
2,067.8
$
$
1,577.8
483.9
(2.7)
2,059.0
Goodwill arising from business acquisitions is allocated at the lowest level within the organization at which it is monitored
by management to make business decisions and is not higher than an operating segment before aggregation.
Therefore, goodwill has been allocated to the following operating segments within the Food retailing segment:
Sobeys National
Farm Boy
Longo's
Total
May 6, 2023
May 7, 2022
$
$
1,069.0
541.4
457.4
2,067.8
$
$
1,066.0
541.4
451.6
2,059.0
Impairment testing of goodwill and indefinite life intangibles
The Company tests goodwill and indefinite-life intangible assets for impairment annually or more frequently if indicators
of impairment are identified. Goodwill arising on business acquisitions is not amortized but is tested for impairment on
an annual basis, or more frequently if indicators that goodwill may be impaired exist.
81
31
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The Company completed its impairment test of goodwill and indefinite life intangibles for all CGUs during the third
quarter of fiscal 2023 and concluded there was no impairment (2022 - $ nil).
In performing the impairment test, the Company determined the recoverable amount of the CGU to which goodwill
relates based on FVLCD, except for Farm Boy which was estimated using a VIU model. The cash flow projections used
to calculate the fair value less costs to sell are revenue and gross margin forecasts for five to ten years and terminal
growth rates to extrapolate cash flow projections beyond the period covered by the most recent forecasts. The key
assumptions used by management to determine the fair value of the CGU for the Sobeys National operating segment
includes industry earnings multiples in a range from 6.0 to 13.0 (2022 - 7.0 to 14.0).
Farm Boy and Longo’s goodwill operating segments were measured using discounted cash flow projections, based on
pre-tax cash flow forecasts for the next fiscal year. Cash flow growth for Farm Boy is based on projections for new retail
sites as well as growth rates of 2.0% to 6.0% over a 10-year timeline for existing sites. Cash flow growth for Longo’s is
based on growth rates of 2.0% to 5.0% over a 5-year timeline for existing sites.
The key assumptions used in the estimation of the recoverable amount for all CGUs are as follows:
Pre-tax discount rate
Terminal growth rate
2023
9.3% to 10.3%
2.0%
2022
9.6%
2.0%
These assumptions are considered to be Level 3 in the fair value hierarchy.
Sensitivity of each key assumption has been calculated independently. Simultaneous changes to more than one
assumption may increase or reduce the impact on excess carrying value. If the discount rate were to increase for the
Farm Boy CGU and Longo’s CGU by 0.5%, the carrying value of the CGU would exceed the reasonable range for the
recoverable amounts.
13.
Income taxes
Income tax expense varies from the amount that would be computed by applying the combined federal and provincial
statutory tax rate as a result of the following:
Earnings before income taxes
Effective combined statutory income tax rate
Income tax expense according to combined statutory
$
income tax rate
Income taxes resulting from:
Non-deductible items
Non-taxable items
Change in tax rates and tax rate differential
Benefit of investment tax credits
Revaluation of tax estimates
Other
May 6, 2023
May 7, 2022
965.4
26.3%
$
253.9
0.9
(3.1)
(7.2)
-
(6.8)
-
1,081.6
26.5%
286.6
1.2
(7.8)
(6.3)
(3.4)
1.1
(1.1)
Total income tax expense, combined effective tax rate of 24.6%
(2022 - 25.0%)
$
237.7
$
270.3
Current year income tax expense attributable to net earnings consists of:
May 6, 2023
May 7, 2022
Current tax expense
Deferred tax expense:
Origination and reversal of temporary differences
Change in tax rates
Total
82
$
212.1
$
23.8
1.8
237.7
$
$
230.8
38.8
0.7
270.3
32
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Deferred taxes arising from temporary differences and unused tax losses can be summarized as follows:
Recognized in:
May 6, 2023
Accounts payable and accrued liabilities
Employee future benefits
Goodwill and intangibles
Inventory
Investments
Lease liabilities
Long-term debt
Other assets
Other long-term liabilities
Property, equipment and investment property
Provisions
Partnership deferral reserve
Right-of-use assets and lease receivables
Tax loss carry forwards
Other
Recognized as:
Deferred tax assets
Deferred tax liabilities
May 7, 2022
Accounts payable and accrued liabilities
Employee future benefits
Goodwill and intangibles
Inventory
Investments
Lease liabilities
Long-term debt
Other assets
Other long-term liabilities
Property, equipment and investment property
Provisions
Partnership deferral reserve
Right-of-use assets and lease receivables
Tax loss carry forwards
Other
Recognized as:
Deferred tax assets
Deferred tax liabilities
$
$
$
$
$
$
$
$
Opening
Balance
OCI and
Equity Acquisitions Earnings
Business
Net
Closing
Balance
16.9 $
47.0
(20.0)
5.3
(39.0)
1,662.5
1.5
(1.3)
1.4
(103.1)
22.0
3.9
(1,468.7)
37.4
(0.4)
165.4 $
- $
(2.0)
-
-
(0.7)
-
-
-
(1.6)
-
-
-
-
-
-
(4.3) $
425.4 $
(260.0) $
(4.3) $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
- $
- $
(4.3) $
(1.3)
(29.1)
0.8
5.2
(36.0)
(1.9)
-
3.1
16.9
(2.2)
1.0
41.0
(19.3)
0.5
(25.6) $
12.6
43.7
(49.1)
6.1
(34.5)
1,626.5
(0.4)
(1.3)
2.9
(86.2)
19.8
4.9
(1,427.7)
18.1
0.1
135.5
(16.8) $
(8.8) $
404.3
(268.8)
Recognized in:
Opening
Balance
OCI and
Equity Acquisitions Earnings
Business
Net
Closing
Balance
6.0 $
65.3
66.9
5.6
(41.9)
1,565.7
(0.9)
(2.3)
12.0
(83.0)
35.2
8.7
(1,383.2)
29.6
0.5
284.2 $
- $
(17.7)
-
-
(0.7)
-
-
-
1.0
-
-
-
-
-
-
(17.4) $
0.5 $
-
(72.3)
-
-
70.5
-
-
1.9
2.4
-
-
(70.4)
5.5
-
(61.9) $
10.4 $
(0.6)
(14.6)
(0.3)
3.6
26.3
2.4
1.0
(13.5)
(22.5)
(13.2)
(4.8)
(15.1)
2.3
(0.9)
(39.5) $
16.9
47.0
(20.0)
5.3
(39.0)
1,662.5
1.5
(1.3)
1.4
(103.1)
22.0
3.9
(1,468.7)
37.4
(0.4)
165.4
474.9 $
(190.7) $
(17.4) $
- $
7.8 $
(69.7) $
(39.9) $
0.4 $
425.4
(260.0)
As at May 6, 2023, the Company had approximately $64.9 of Canadian non-capital tax loss carry forwards which expire
between fiscal 2035 and 2043. The remaining deductible temporary differences do not expire under current income tax
legislation. All deferred tax assets (including tax losses and other tax credits) have been recognized in the consolidated
balance sheets as it is probable that future taxable income will be available to the Company to utilize the benefits of
those assets. The amount of deferred tax assets and deferred tax liabilities that are expected to be recovered or settled
beyond the next 12 months is $149.9.
83
33
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Income tax expense (benefit) recognized in other comprehensive income is as follows:
May 6, 2023
May 7, 2022
Unrealized gains (losses) on derivatives designated as
cash flow hedges
Share of other comprehensive income of investments, at equity
Exchange differences on translation of foreign operations
Actuarial gains on defined benefit plans
Total
$
$
$
1.5
0.7
(0.1)
2.0
4.1
$
(0.7)
0.7
(0.1)
17.7
17.6
14. Provisions
May 6, 2023
Opening balance
Provisions made
Provisions used
Provisions reversed
Change due to discounting
Closing balance
Current
Non-current
Total
Legal
Environmental Restructuring
Total
$
$
$
$
6.6 $
5.1
(3.0)
(2.8)
-
5.9 $
5.9 $
-
5.9 $
41.0 $
0.6
(0.7)
(3.0)
0.9
38.8 $
- $
38.8
38.8 $
29.3 $
21.1
(15.3)
(7.7)
0.5
27.9 $
24.0 $
3.9
27.9 $
76.9
26.8
(19.0)
(13.5)
1.4
72.6
29.9
42.7
72.6
Legal costs
As at May 6, 2023, legal provisions relate to claims of $5.9 that arose in the ordinary course of business.
Environmental costs
In accordance with legal and environmental policy requirements, the Company has recorded provisions for locations
requiring environmental restoration. These provisions relate to decommissioning liabilities recorded for fuel station
locations owned by the Company and other sites where restoration will be incurred at the net present value of the
estimated future remediation costs. Discounting of environmental-related provisions has been calculated using pre-tax
discount rate of 6.0%.
Restructuring
Restructuring provisions made and reversed for the year ended May 6, 2023 were $21.1 and $7.7, respectively. Of this
amount, $7.6 provisions made and $6.0 provisions reversed related to store closures and conversions. These costs
have been recorded in selling and administrative expenses on the consolidated statements of earnings. Discounting of
restructuring provisions has been calculated using a pre-tax discount rate of 7.0%.
84
34
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
15. Long-term debt
First mortgage loan, interest rate 5.11%, due 2033
Medium term notes, Series D, interest rate 6.06%,
due October 29, 2035
Medium term notes, Series E, interest rate 5.79%,
due October 6, 2036
Medium term notes, Series F, interest rate 6.64%, due June 7, 2040
Series 2013-2 Notes, interest rate 4.70%, early redemption
committed, due August 8, 2023
Notes payable and other debt primarily at interest rates fluctuating
with the prime rate, due 2024 - 2036 (May 7, 2022 due 2023 - 2036)
Credit facility, due on demand, interest rate fluctuates with the
prime rate
Credit facilities, expiring November 4, 2027, floating interest rate tied
to prime rate or bankers' acceptance rates
Unamortized transaction costs
Less amount due within one year
May 6, 2023
May 7, 2022
$
3.7
$
175.0
125.0
150.0
-
160.3
44.5
355.7
1,014.2
(1.9)
1,012.3
101.0
911.3
$
$
3.8
175.0
125.0
150.0
500.0
163.1
15.1
47.3
1,179.3
(2.6)
1,176.7
581.0
595.7
First mortgage loans are secured by land, buildings and specific charges on certain assets. Medium term notes and
Series 2013-2 Notes are unsecured. On May 3, 2022, Sobeys announced it would redeem its Series 2013-2 Notes on
June 2, 2022. This resulted in an early redemption premium of $9.2 being recorded in finance costs on the consolidated
statements of earnings for the year ended May 7, 2022.
Through the acquisition of Longo’s on May 10, 2021, Sobeys assumed their existing $75.0 demand operating line of
credit. As of May 6, 2023, the outstanding amount of the facility was $44.5 (2022 - $15.1). Interest payable on this
facility fluctuates with changes in the Canadian prime rate.
Pursuant to an agreement dated November 3, 2022, the Company amended and restated its senior, unsecured
revolving term credit agreement, extending the maturity date to November 4, 2027. The principal amount available was
reduced from $250.0 to $150.0. As of May 6, 2023, the outstanding amount of this facility was $48.8 (May 7, 2022 -
$47.3). Interest payable on this facility fluctuates with changes in the Canadian prime rate or bankers’ acceptance rates.
Pursuant to an agreement dated November 3, 2022, Sobeys amended and restated its senior, unsecured revolving
term credit agreement in the amount of $650.0, extending the maturity date to November 4, 2027. As of May 6, 2023,
the outstanding amount of this facility was $306.9 (May 7, 2022 - $ nil) and the Company has issued $70.4 (May 7,
2022 - $71.5) in letters of credit against the facility. Interest payable on this facility fluctuates with changes in the
Canadian prime rate or bankers’ acceptance rates.
85
35
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The following table reconciles the changes in cash flows from financing activities for long-term debt:
May 6, 2023
May 7, 2022
Opening balance
Issuance of debt
Repayments of long-term debt
Advances (repayments) on credit facilities, net
Total cash flow used in long-term debt financing activities
Assumed through business acquisitions (Note 23)
Deferred financing costs
Closing balance
Current
Non-current
Total
$
$
$
$
Principal debt retirement in each of the next five fiscal years is as follows:
1,176.7
87.1
(590.2)
337.9
(165.2)
-
0.8
1,012.3
101.0
911.3
1,012.3
$
$
$
$
$
1,225.3
94.6
(96.8)
(83.2)
(85.4)
35.8
1.0
1,176.7
581.0
595.7
1,176.7
101.0
8.9
7.1
6.3
323.7
567.2
May 6, 2023
May 7, 2022
$
$
335.0
8.2
7.4
1.6
352.2
73.0
279.2
$
$
342.1
8.1
9.2
6.6
366.0
-
366.0
2024
2025
2026
2027
2028
Thereafter
16. Other long-term liabilities
Non-controlling interest liabilities
Deferred vendor allowances
Deferred revenue
Other
Less amount due within one year
17. Employee future benefits
The Company has several defined contribution, defined benefit and multi-employer plans providing pension and other
post-retirement benefits to most of its employees.
Defined contribution pension plans
The contributions required by the employee and the employer are included in the plan terms in the plan text. The
employee’s pension depends on the level of retirement income achieved with the combined total of employee and
employer contributions and investment income over the period of plan membership and annuity purchase rates at the
time of the employee’s retirement.
Defined benefit pension plans
The ultimate retirement benefit is defined by a formula that provides a unit of benefit for each year of service. Employee
contributions, if required, fund part of the cost of the benefit and employer contributions fund the balance. The employer
contributions are not specified or defined within the pension plan text, but are based on the result of actuarial valuations
which determine the level of funding required to meet the total obligation as estimated at the time of the valuation.
The defined benefit plans typically expose the Company to actuarial risks such as interest rate risk, mortality risk and
salary risk.
86
36
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Interest rate risk
The present value of the defined benefit liability is calculated using a discount rate that reflects the average yield, as at
the measurement date, on high-quality corporate bonds of similar duration to the plans’ liabilities. A decrease in the
market yield on high-quality corporate bonds will increase the Company’s defined benefit liability.
Mortality risk
The present value of the defined benefit plan is calculated by reference to the best estimate of the mortality of plan
participants both during and after their employment. An increase in the life expectancy of the plan participants will
increase the plan’s liability.
Salary risk
The present value of the defined benefit plan liability is calculated by reference to the future salary of the plan
participants. An increase in the salary of plan participants will increase the plan’s liability.
The Company uses either January 1, June 30 or December 31 as an actuarial valuation date and May 1 as a
measurement date for accounting purposes, for its defined benefit pension plans.
Retirement pension plans
Senior management pension plans
Other benefit plans
Most Recent Valuation Date
December 31, 2021
June 30, 2021
January 1, 2022
Next Valuation Date
December 31, 2022
June 30, 2024
January 1, 2025
Multi-employer plans
The Company participates in various multi-employer pension plans which are administered by independent boards of
trustees generally consisting of an equal number of union and employer representatives. Approximately 11% of
employees in the Company and of its franchisees and affiliates participate in these plans. Defined benefit multi-
employer pension plans are accounted for as defined contribution plans as adequate information to account for the
Company’s participation in the plans is not available due to the size and number of contributing employers in the plans.
The Company’s responsibility to make contributions to these plans is limited by amounts established pursuant to its
collective agreements. The contributions made by the Company to multi-employer plans are expensed as contributions
are due.
During the year ended May 6, 2023, the Company recognized an expense of $38.0 (2022 - $38.4) in selling and
administrative expense which represents the contributions made in connection with multi-employer pension plans.
During fiscal 2024, the Company expects to continue to make contributions to these multi-employer pension plans.
Other benefit plans
The Company also offers certain employee post-retirement and post-employment benefit plans which are not funded
and include health care, life insurance and dental benefits.
Defined contribution plans
The total expense, and cash contributions, for the Company’s defined contribution plans was $33.7 for the year ended
May 6, 2023 (2022 - $33.3).
87
37
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Defined benefit plans
Information about the Company’s defined benefit plans, in aggregate, is as follows:
Pension Benefit
Plans
Other Benefit
Plans
Total
May 6
2023
May 7
2022
May 6
2023
May 7
2022
May 6
2023
May 7
2022
$
612.3 $
750.2 $
88.8 $
107.5 $
701.1 $
857.7
0.8
26.5
(44.9)
1.2
22.3
(53.6)
1.9
3.9
(4.6)
2.6
3.4
(5.2)
2.7
30.4
(49.5)
3.8
25.7
(58.8)
(13.2)
581.5 $
(107.8)
612.3 $
(3.0)
87.0 $
(19.5)
88.8 $
(16.2)
668.5 $
(127.3)
701.1
522.9 $
22.6
603.7 $
17.9
- $
-
- $
-
522.9 $
22.6
603.7
17.9
(8.5)
11.0
(44.9)
(1.2)
501.9 $
(63.5)
20.1
(53.6)
(1.7)
522.9 $
-
4.6
(4.6)
-
- $
-
5.2
(5.2)
-
- $
(8.5)
15.6
(49.5)
(1.2)
501.9 $
(63.5)
25.3
(58.8)
(1.7)
522.9
$
$
$
Pension Benefit
Plans
Pension Benefit
Plans
Total
May 6
2023
May 7
2022
May 6
2023
May 7
2022
May 6
2023
May 7
2022
$
501.9 $
522.9 $
- $
- $
501.9 $
522.9
(75.2)
(77.8)
(87.0)
(88.8)
(162.2)
(166.6)
Defined benefit obligation
Balance, beginning of year
Current service costs, net of
employee contributions
Interest costs
Benefits paid
Remeasurement - actuarial
gains included in other
comprehensive income (loss)
Balance, end of year
Plan assets
Fair value, beginning of year
Interest income on plan assets
Remeasurement loss on plan
assets (excluding amount in
net interest)
Employer contributions
Benefits paid
Administrative costs
Fair value, end of year
Funded status
Total fair value of plan assets
Present value of unfunded
obligations
Present value of partially
funded obligations
Accrued benefit liabilities
$
(79.6) $
(89.4) $
(506.3)
(534.5)
-
(87.0) $
-
(88.8) $
(506.3)
(166.6) $
(534.5)
(178.2)
Pension Benefit
Plans
Other Benefit
Plans
Total
May 6
2023
May 7
2022
May 6
2023
May 7
2022
May 6
2023
May 7
2022
Expenses
Current service costs, net of
employee contributions
Net interest on net defined
benefit liability
Administrative costs
Expenses
$
$
0.8 $
1.2 $
1.9 $
2.6 $
2.7 $
3.8
3.9
1.2
5.9 $
4.4
1.7
7.3 $
3.9
-
5.8 $
3.4
-
6.0 $
7.8
1.2
11.7 $
7.8
1.7
13.3
Current and past service costs have been recognized in selling and administrative expenses, whereas interest costs
and return on plan assets (excluding amounts in net interest costs) have been recognized in finance costs, net on the
consolidated statements of earnings.
88
38
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Remeasurement effects recognized in other comprehensive income (loss):
Loss on plan assets
(excluding amounts in
net interest)
Actuarial loss (gain) -
experience changes
Actuarial gain - financial
assumptions
Total
Pension Benefit
Plans
Other Benefit
Plans
Total
May 6
2023
May 7
2022
May 6
2023
May 7
2022
May 6
2023
May 7
2022
$
8.5 $
63.5 $
- $
- $
8.5 $
63.5
1.2
4.3
-
(5.6)
1.2
(1.3)
(14.4)
(112.1)
$
(4.7) $
(44.3) $
(3.0)
(3.0) $
(13.9)
(19.5) $
(17.4)
(7.7) $
(126.0)
(63.8)
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations are as follows
(weighted-average assumptions as of May 6, 2023):
Discount rate
Rate of compensation increase
Pension Benefit Plans
Other Benefit Plans
May 6, 2023 May 7, 2022 May 6, 2023 May 7, 2022
4.70%
3.50%
4.50%
3.50%
4.80%
4.50%
For measurement purposes, a 4.50% 2023 annual rate of increase in the per capita cost of covered health care benefits
was assumed (2022 - 4.50%). The cumulative rate expectation to 2024 and thereafter is 4.50%.
These assumptions were developed by management with consideration of expert advice provided by independent
actuarial appraisers. These assumptions are used in the determination of the Company’s defined benefit obligations
and should be regarded as management’s best estimate. The actual outcome may vary. Estimation uncertainties exist,
in particular regarding medical cost trends, which may vary significantly in future appraisals of the Company’s
obligations.
The following table outlines the sensitivity of the fiscal 2023 key economic assumptions used in measuring the accrued
benefit plan obligations and related expenses of the Company’s pension and other benefit plans. The sensitivity of each
key assumption has been calculated independently. Changes to more than one assumption simultaneously may amplify
or reduce the impact on accrued benefit obligations or benefit plan expenses.
Benefit
Obligations
Benefit
Cost(1)
Benefit
Obligations
Benefit
Cost(1)
Discount rate(2)
Impact of: 1% increase
Impact of: 1% decrease
Growth rate of health care costs
$
$
4.70%
(59.3) $
67.1 $
4.70%
(2.7) $
1.7 $
4.80%
(9.3) $
10.8 $
4.50%
Impact of: 1% increase
Impact of: 1% decrease
(1) Reflects the impact on the current service cost, interest cost and net interest on defined benefit liability (asset).
(2) Based on weighted average of discount rates related to all plans.
3.5 $
(3.1) $
$
$
4.70%
0.1
(0.2)
4.50%
0.3
(0.2)
The asset mix of the defined benefit pension plans as at year end is as follows:
Canadian equity funds
Foreign equity funds
Fixed income funds
Net working capital
Total investments
May 6, 2023 May 7, 2022
4.1%
19.3%
76.2%
0.4%
100.0%
7.2%
17.4%
75.1%
0.3%
100.0%
89
39
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
All the securities are valued based on quoted prices (unadjusted) in active markets for identical assets or liabilities, or
based on inputs other than quoted prices in active markets that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices).
The actual return (loss) on plan assets was $12.8 for the year ended May 6, 2023 (2022 - ($47.4)).
Management’s estimate of contributions expected to be paid to the defined benefit pension plans during the annual
period beginning on May 7, 2023 and ending on May 4, 2024 is $17.1. The actual amount of contributions may vary
from the estimated depending on the funded positions of the plan, filing of any actuarial valuations, and any new
regulatory requirements or other factors.
18. Capital stock
On June 22, 2021, the Company renewed its normal course issuer bid (“NCIB”) by filing a notice of intention with the
TSX to purchase for cancellation up to 8,468,408 Non-Voting Class A shares representing 5.0% of the 169,368,174
Non-Voting Class A shares outstanding. As of July 1, 2022, under this filing, the Company purchased 5,659,764 Non-
Voting Class A shares at a weighted average price of $39.11 (July 1, 2021 - $38.00) for a total consideration of $221.3
(July 1, 2021 - $230.4).
On June 21, 2022, the Company renewed its NCIB by filing a notice of intention with the TSX to purchase for
cancellation up to 10,500,000 Non-Voting Class A shares representing 7.0% of the public float of 150,258,764 Non-
Voting Class A shares outstanding as of June 17, 2022. The purchases will be made through the facilities of the TSX
and/or any alternative Canadian trading systems to the extent they are eligible. The price the Company will pay for any
such shares will be the market price at the time of acquisition. Purchases were eligible to commence on July 2, 2022
and terminate not later than July 1, 2023.
The following table reflects shares repurchased under the NCIB:
Number of shares
Weighted average price
Reduction of share capital
Premium charged to retained earnings
Cash consideration paid
May 6, 2023
May 7, 2022
$
$
$
9,444,902
37.06
111.8
238.2
350.0
$
$
$
6,378,983
39.02
77.4
171.5
248.9
The Company engages in an automatic share purchase plan with its designated broker allowing the purchases of Non-
Voting Class A shares for cancellation under its NCIB program during trading black-out periods.
Subsequent to the year ended May 6, 2023, the Company purchased for cancellation 2,240,069 Non-Voting Class A
shares at a weighted average price of $34.87 for a total consideration of $78.1.
90
40
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The Company’s authorized, issued and outstanding shares are as follows:
Authorized
2002 Preferred shares, par value of $25 each, issuable in series
Non-Voting Class A shares, without par value
Class B common shares, without par value, voting
Number of Shares
May 6, 2023
991,980,000
745,160,121
122,400,000
May 7, 2022
991,980,000
754,605,023
122,400,000
Number of Shares
Share Capital
May 6, 2023
Issued and outstanding
Balance, beginning of period, Non-Voting
Class A shares
Repurchase of common shares
Issuance of shares on business acquisition
Issuance of shares for stock-based
compensation
46,130
Balance, end of period, Non-Voting Class A shares 155,164,908
164,563,680
(9,444,902)
-
May 7, 2022
May 6, 2023 May 7, 2022
167,323,301 $
(6,378,983)
3,187,348
2,019.6 $
(111.8)
-
1,963.4
(77.4)
129.6
432,014
164,563,680 $
0.4
1,908.2 $
4.0
2,019.6
Class B common shares, without par value
Shares held in trust
Total capital stock
98,138,079
(24,034)
98,138,079 $
(39,027)
$
7.3 $
(0.8)
1,914.7 $
7.3
(0.8)
2,026.1
Under certain circumstances, where an offer (as defined in the share conditions) is made to purchase Class B common
shares, the holders of the Non-Voting Class A shares shall be entitled to receive a follow-up offer at the highest price
per share paid, pursuant to such offer to purchase Class B common shares.
During the year ended May 6, 2023, the Company paid common dividends of $170.2 (2022 - $156.8) to its equity
holders. This represents a payment of $0.67 per share (2022 - $0.60 per share) for common shareholders.
The Company has established a trust fund to facilitate the purchase of Non-Voting Class A shares for the future
settlement of vested units under the Company’s equity settled stock-based compensation plans. Contributions to the
trust fund and the Non-Voting Class A shares purchased are held by TSX Trust Company as trustee. The trust fund is
an SE and as such the accounts of the trust fund are included on the consolidated financial statements of the Company.
The following represents the activity of shares held in trust, recorded at cost:
Number of Shares
Share Capital
May 6, 2023
39,027
30,403
(45,396)
24,034
Shares held in trust
Balance, beginning of year
Purchased
Issued
Balance, end of year
19. Other income
Net gain on disposal of assets
Lease income from owned property
Net gain on lease terminations
Total
May 7, 2022 May 6, 2023
46,512 $
305
(7,790)
39,027 $
May 7, 2022
0.9
-
(0.1)
0.8
0.8 $
1.1
(1.1)
0.8 $
May 6, 2023
May 7, 2022
$
$
44.7
16.1
-
60.8
$
$
23.1
16.7
47.0
86.8
91
41
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
20. Employee benefits expense
Wages, salaries and other short-term employment benefits
Post-employment benefits
Termination benefits
Total
21. Finance costs, net
Finance income
Interest income on lease receivables
Interest income from cash and cash equivalents
Fair value gains on forward contracts
Accretion income on leases and other receivables
Total finance income
Finance costs
Interest expense on lease liabilities
Interest expense on other financial liabilities at amortized cost
Pension finance costs, net
Accretion expense on provisions
Total finance costs
Finance costs, net
22. Earnings per share
May 6, 2023
May 7, 2022
3,743.4
37.6
3.8
3,784.8
$
$
3,731.4
38.8
7.2
3,777.4
May 6, 2023
May 7, 2022
20.9
2.9
2.2
0.2
26.2
230.2
53.8
7.8
1.4
293.2
267.0
$
$
22.2
3.9
3.1
0.3
29.5
231.6
70.3
7.8
1.9
311.6
282.1
$
$
$
$
Basic earnings per share and diluted earnings per share were calculated using the following number of shares:
Weighted average number of shares - basic
Shares deemed to be issued for no consideration in
respect of stock-based payments
Weighted average number of shares - diluted
Earnings per share
Earnings attributable to Owners of the Company
Basic weighted average number of shares outstanding
(in millions)
Basic earnings per share
Diluted weighted average number of shares outstanding
(in millions)
Diluted earnings per share
23. Business acquisitions
May 6, 2023
May 7, 2022
258,824,231
265,170,624
610,298
259,434,529
1,005,859
266,176,483
$
$
$
686.0
$
745.8
258.8
2.65
259.4
2.64
$
$
265.2
2.81
266.2
2.80
During the year ended May 6, 2023, the Company completed the acquisitions of certain franchise and non-franchise
stores. The results of these acquisitions have been included in the consolidated financial results of the Company since
their acquisition dates and were accounted for through the use of the acquisition method.
92
42
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The following table represents the amounts of identifiable assets and liabilities resulting from these acquisitions for the
year ended:
May 6, 2023
May 7, 2022
Assumed cash
Receivables
Inventories
Prepaid expenses
Income taxes receivable
Property, equipment and investment property
Right-of-use assets
Intangibles
Goodwill
Accounts payable and accrued liabilities
Income taxes payable
Lease liabilities
Long-term debt
Other assets and liabilities
Deferred tax liabilities
Non-controlling interest
Total consideration
$
$
-
0.1
6.6
-
-
6.3
6.4
-
8.8
(3.0)
(0.1)
(6.4)
-
-
-
-
18.7
$
$
0.6
12.9
54.5
7.4
1.1
84.2
265.6
272.4
483.9
(76.7)
-
(267.1)
(35.8)
(25.5)
(61.9)
(333.3)
382.3
From the date of acquisition, the businesses acquired, contributed sales of $77.4 (2022 - $1,108.7) and net earnings,
net of non-controlling interest, of $1.4 (2022 - $6.2) which are included in the consolidated financial statements.
During the year ended May 6, 2023, the Company finalized the purchase price allocation for Longo’s, a long-standing,
family-built network of specialty grocery stores in the Greater Toronto Area, and its Grocery Gateway e-commerce
business, acquired on May 10, 2021. No adjustments were made to the provisional amounts recognized in the annual
audited consolidated financial statements for the fiscal year ended May 7, 2022.
Goodwill recorded on the acquisitions of franchise and non-franchise stores and other businesses relates to the
acquired work force and customer base of the existing store location, along with the synergies expected from combining
the efforts of the acquired stores with existing stores. The estimated fair value of identifiable net assets and goodwill
acquired have been determined provisionally and are subject to adjustment pending the finalization of the valuations
and related accounting.
On August 2, 2021, concurrent with the Company’s 75% acquisition of a business, Sobeys and the non-controlling
shareholders entered into put and call options such that non-controlling shareholders have an option to sell and Sobeys
has the ability to purchase the remaining 25% interest in the business either five or seven years subsequent to the
acquisition. A financial liability of $6.9 has been recognized at the date of acquisition based on the present value of the
amount payable on exercise of the non-controlling interest put liability in accordance with IFRS 9.
On May 10, 2021, the Company, through a wholly-owned subsidiary, acquired 51% of Longo’s, a long-standing, family-
built network of specialty grocery stores in the Greater Toronto Area, and its Grocery Gateway e-commerce business.
After the fifth anniversary of the transaction, the Longo’s 49% non-controlling shareholders have an option to sell up to
a 12.25% per annum interest in Longo’s to Sobeys, at a multiple applied to the last 12 months earnings before interest,
taxes, depreciation and amortization (“EBITDA”). The multiple will vary depending on achievement of certain business
results. If Longo’s non-controlling shareholders exercise an option to sell, Sobeys will have a corresponding call option
for the same percentage in the following year. After the tenth anniversary of the transaction, both Sobeys and Longo’s
have mutual put and call options for any remaining minority shares outstanding.
93
43
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
24. Guarantees and contingencies
Guarantees
Franchisees and affiliates
Sobeys is party to several franchise and operating agreements as part of its business model. These agreements contain
clauses which require Sobeys to provide support to franchisee and affiliate operators to offset or mitigate retail store
losses, reduce store rental payments, minimize the impact of promotional pricing and assist in covering other store
related operating expenses. Not all of the financial support noted above will apply in each instance as the provisions of
the agreements vary. Sobeys will continue to provide financial support pursuant to the franchise and operating
agreements in future years.
During fiscal 2009, Sobeys entered into an additional credit enhancement contract in the form of a standby letter of
credit for certain franchisees and affiliates for the purchase and installation of equipment. Under the terms of the
contract, should franchisees and affiliates be unable to fulfil their lease obligations or provide an acceptable remedy,
Sobeys would be required to fund the greater of $6.0 or 10.0% (2022 - $6.0 or 10.0%) of the authorized and outstanding
obligation annually. Under the terms of the contract, Sobeys is required to provide a letter of credit in the amount of the
outstanding guarantee, to be renewed each calendar year. This credit enhancement allows Sobeys to provide
favourable financing terms to certain franchisees and affiliates. As at May 6, 2023, the amount of the guarantee was
$6.0 (2022 - $6.0).
Other
At May 6, 2023, the Company had entered into letters of credit issued in an aggregate amount of $82.9 (2022 - $82.4)
to support the Company’s obligations.
Sobeys, through its subsidiaries, has guaranteed the payment of obligations under certain commercial development
agreements. As at May 6, 2023, Sobeys has guaranteed $40.0 (2022 - $40.0) in obligations related to these
agreements.
Contingencies
The Company has submitted insurance claims in connection with losses incurred related to a cybersecurity event which
occurred on November 4, 2022. The amount and timing of receipt for the insurance recoveries are uncertain and subject
to approval by the insurance companies. As a result, recoveries will only be recognized on the consolidated statements
of earnings when the amount and timing are virtually certain.
On June 21, 2005, Sobeys received a notice of reassessment from Canada Revenue Agency ("CRA") for fiscal years
1999 and 2000 related to Lumsden Brothers Limited, a wholesale subsidiary of Sobeys, and the Goods and Service
Tax ("GST"). The reassessment related to GST on sales of tobacco products to eligible Indigenous peoples. CRA
asserts that Sobeys was obliged to collect GST on sales of tobacco products to eligible Indigenous peoples. The total
tax, interest and penalties in the reassessment was $13.6 (2022 - $13.6). Sobeys has reviewed this matter, has
received legal advice, and believes it was not required to collect GST. During fiscal 2006, Sobeys filed a Notice of
Objection with CRA. The matter is still under dispute and accordingly, Sobeys has not recorded on its statements of
earnings any of the tax, interest or penalties in the notice of reassessment. Sobeys has deposited with CRA funds
equal to the total tax, interest and penalties in the reassessment and has recorded this amount as an other long-term
receivable from CRA pending resolution of the matter. Final arguments of the Appeal hearing were held in July 2021,
the court has not yet released its judgement.
There are various claims and litigation, with which the Company is involved, arising out of the ordinary course of
business operations. The Company's management does not consider the exposure to such litigation to be material,
although this cannot be predicted with certainty.
In the ordinary course of business, the Company is subject to ongoing audits by tax authorities. While the Company
believes that its tax filing positions are appropriate and supportable, from time to time certain matters are reviewed and
challenged by the tax authorities.
94
44
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
25. Financial instruments
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. The Company’s financial instruments that are exposed to concentrations of credit risk are
primarily cash and cash equivalents, receivables, leases and other receivables, derivative contracts and guarantees.
The Company’s maximum exposure to credit risk corresponds to the carrying amount for all cash and cash equivalents,
loans and receivables, and guarantee contracts for franchisees and affiliates (Note 24).
The Company mitigates credit risk associated with its trade receivables and loans receivables through established
credit approvals, limits and a regular monitoring process. The Company generally considers the credit quality of its
financial assets that are neither past due or impaired to be solid. The Company regularly monitors collection
performance and pledged security for all of its receivables, and leases and other receivables to ensure adequate
payments are being received and adequate security is available. Pledged security can vary by agreement, but generally
includes inventory, fixed assets including land and/or building as well as personal guarantees. Credit risk is further
mitigated due to the large number of customers and their dispersion across geographic areas. The Company only
enters into derivative contracts with counterparties that are dual rated by recognized credit rating agencies and have a
credit rating of “A” or better to minimize credit risk.
Receivables are substantially comprised of balances due from independent accounts, franchisee or affiliate locations
as well as rebates and allowances from vendors. The due date of these amounts can vary by agreement but in general
balances over 30 days are considered past due. The aging of the receivables is as follows:
0 - 30 days
31 - 90 days
Greater than 90 days
Total receivables before allowance for credit losses
Less allowance for credit losses
Receivables
May 6, 2023
May 7, 2022
$
$
549.8
54.0
101.0
704.8
21.4
683.4
$
$
456.4
36.5
90.1
583.0
24.2
558.8
Interest earned on past due accounts is recorded as a reduction to selling and administrative expenses on the
consolidated statements of earnings. Receivables are classified as current on the consolidated balance sheets as of
May 6, 2023.
Allowance for credit losses is reviewed at each balance sheet date. An allowance is taken on receivables from
independent accounts, as well as receivables, leases and other receivables from franchisee or affiliate locations and is
recorded as a reduction to its respective receivable account on the consolidated balance sheets. The change in
allowance for credit losses is recorded as selling and administrative expenses on the consolidated statements of
earnings and is presented as follows:
Allowance, beginning of year
Provision for losses
Recoveries
Write-offs
Allowance, end of year
May 6, 2023
May 7, 2022
$
$
24.2
4.1
(0.5)
(6.4)
21.4
$
$
36.3
4.4
(1.0)
(15.5)
24.2
Liquidity risk
Liquidity risk is the risk that the Company may not have cash available to satisfy financial liabilities as they come due.
The Company actively maintains a committed credit facility to ensure that it has sufficient available funds to meet
current and foreseeable future financial requirements at a reasonable cost.
The Company monitors capital markets and the related conditions, and monitors its cash flows in order to assist in
optimizing its cash position and evaluate longer term cash and funding requirements. Market conditions allowing, the
Company will access debt capital markets for various long-term debt maturities and as other liabilities come due, or as
assessed to be appropriate, in order to minimize risk and optimize pricing.
95
45
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The following table summarizes the amount and the contractual maturities of both the interest and principal portion of
significant financial liabilities on an undiscounted basis as at May 6, 2023:
Derivative financial liabilities
Foreign currency swaps
Non-controlling interest
liabilities
Non-derivative financial liabilities
Accounts payable and
accrued liabilities
Long-term debt
Total
2024
2025
2026
2027
2028
Thereafter
Total
$
55.0 $
9.3 $
- $
- $
- $
- $
64.3
73.0
-
1.9
12.5
7.4
240.2
335.0
3,028.6
128.6
$ 3,285.2 $
-
37.1
-
35.2
46.4 $
37.1 $
-
34.4
-
400.5
3,028.6
1,572.9
46.9 $ 407.9 $ 1,177.3 $ 5,000.8
-
937.1
Fair value of financial instruments
The fair value of a financial instrument is the estimated amount that the Company would receive to sell financial assets
or pay to transfer financial liabilities in an orderly transaction between market participants at the measurement date.
The book value of cash and cash equivalents, receivables, current portion of leases and other receivables, and
accounts payable and accrued liabilities approximates fair value at the balance sheet dates due to the short-term
maturity of these instruments.
The book value of the long-term portion of leases and other receivables approximates fair value at the balance sheet
dates due to the current market rates associated with these instruments.
The fair value of the variable rate long-term debt approximates its carrying amount based on current market rates and
consistency of credit spread. The fair value of long-term debt has been estimated by discounting future cash flows at a
rate offered for borrowings of similar maturities and credit quality.
The fair value of derivative financial assets and liabilities, classified as Level 2, is estimated using valuation models that
utilize market based observable inputs. Management believes that its valuation technique is appropriate.
The fair value of the non-controlling interest put liabilities associated with the acquisitions of Farm Boy and other
acquisitions is equivalent to the present value of the non-controlling interest buyout price which is based on
the estimated future earnings of these entities at a predetermined date. The fair value of the non-controlling interest
put liability associated with the acquisition of Longo’s was determined through a statistical simulation, which is based
on the estimated future earnings of Longo’s at a predetermined date. The fair value of these options is classified as
Level 3 within the three-level hierarchy of IFRS 13. There are many inputs used to calculate the fair value, the most
sensitive of which is EBITDA.
There were no transfers between classes of the fair value hierarchy during the year ended May 6, 2023.
The carrying amount of the Company’s financial instruments approximates their fair values with the following exception:
Long-term debt
Total carrying amount
Total fair value
May 6, 2023
May 7, 2022
$
$
1,012.3
1,061.9
$
$
1,176.7
1,210.3
As at May 6, 2023, the fair value hierarchy includes financial assets at FVTPL of $ nil, $2.2 and $ nil for Levels 1, 2 and
3, respectively (2022 - $ nil, $0.9 and $ nil).
As at May 6, 2023, the fair value hierarchy includes financial liabilities at FVTPL of $ nil, $ nil and $335.0 for Levels 1,
2 and 3, respectively (2022 - $ nil, $4.2 and $342.1).
96
46
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Derivative financial instruments
Derivative financial instruments are recorded on the consolidated balance sheets at fair value unless the derivative
instrument is a contract to buy or sell a non-financial item in accordance with the Company’s expected purchase, sale
or usage requirements, referred to as a “normal purchase” or “normal sale”. Changes in the fair values of derivative
financial instruments are recognized in net earnings or loss unless it qualifies and is designated as an effective cash
flow hedge or a normal purchase or normal sale. Normal purchases and normal sales are exempt from the application
of the standard and are accounted for as executory contracts. Changes in fair value of a derivative financial instrument
designated as a cash flow hedge are recorded in other assets and other long-term liabilities with the effective portion
recorded in other comprehensive income or loss.
Cash flow hedges
The Company’s cash flow hedges consist principally of foreign currency swaps, electricity sales agreements and natural
gas sales agreements. Foreign exchange contracts are used to hedge future purchases or expenditures of foreign
currency denominated goods or services. Electricity and natural gas sales agreements are used to mitigate the risk of
changes in market prices of electricity and natural gas. Gains and losses are initially recognized directly in other
comprehensive income or loss and are transferred to net earnings or loss when the forecast cash flows affect income
or expense for the year.
As of May 6, 2023, the fair values of the outstanding derivatives designated as cash flow hedges of forecast transactions
were assets of $2.2 (2022 - $0.9) and liabilities of $ nil (2022 - $4.2).
Cash flows from cash flow hedges are expected to flow over the next two years until fiscal 2025 and are expected to
be recognized in net earnings or loss over this period, and, in the case of foreign currency swaps, over the life of the
related debt in which a portion of the initial cost is being hedged.
Interest rate risk
Interest rate risk is the potential for financial loss arising from changes in interest rates. Financial instruments that
potentially subject the Company to interest rate risk include financial liabilities with floating interest rates.
The Company manages interest rate risk by monitoring market conditions and the impact of interest rate fluctuations
on its debt. The majority of the Company’s long-term debt is at fixed interest rates. Approximately 32.1% (2022 - 17.5%)
of the Company’s long-term debt is exposed to interest rate risk due to floating rates.
Net earnings or loss is impacted by a change in interest rates on the average balance of interest-bearing financial
liabilities during the year. For the year ended May 6, 2023, the Company’s average outstanding unhedged floating rate
debt was $1,094.3 (2022 - $210.7). An increase (decrease) of 25 basis points would have impacted net earnings by
$0.6 ($0.6) (2022 - $0.4 ($0.4)) as a result of the Company’s exposure to interest rate fluctuations on its unhedged
floating rate debt.
Foreign currency exchange risk
The Company conducts the vast majority of its business in Canadian dollars. The Company’s foreign currency
exchange risk principally relates to purchases made in U.S. dollars, Great British pounds and European euros. In
addition, the Company also uses forward contracts to fix the exchange rate on some of its expected requirements for
foreign currencies. Amounts received or paid related to instruments used to hedge foreign exchange, including any
gains and losses, are recognized in the cost of purchases. The Company does not consider its exposure to foreign
currency exchange risk to be material.
The Company has entered into foreign currency forward contracts and foreign currency swaps for the primary purpose
of limiting exposure to exchange rate fluctuations relating to expenditures denominated in foreign currencies. These
contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective portion of the
change in the fair value of the forward contracts are accumulated in other comprehensive income or loss until the
variability in cash flows being hedged is recognized in net earnings or loss in future accounting periods.
The Company estimates that a 10% increase (decrease) in applicable foreign currency exchange rates for these
forwards and swaps would impact net earnings by $ nil ($ nil) (2022 - $ nil ($ nil)) and other comprehensive income
(loss) by $4.9 ($4.9) (2022 - $6.5 ($6.5)) for foreign currency derivatives in place at year end.
97
47
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
26. Segmented information
The Company’s reportable segments are Food retailing and Investments and other operations. The Food retailing
segment is comprised of three operating segments: Sobeys National, Farm Boy, and Longo’s. These operating
segments have been aggregated into one reportable segment, Food retailing, as they all share similar economic
characteristics such as: product offerings, customer base and distribution methods. The Investments and other
operations segment principally consists of investments in Crombie REIT, real estate partnerships and various other
corporate operations.
Segment results and assets include items directly attributable to a segment as well as those that can be allocated on
a reasonable basis.
All inter-segment transfers are carried out at arm's length prices. The measurement policies the Company uses for
segment reporting under IFRS 8, “Operating segments”, are the same as those used on its consolidated financial
statements.
No asymmetrical allocations of income, expense or assets have been applied between segments.
All sales are generated by the Food retailing segment. Management assesses performance based on operating income
generated by each of the Company's business segments which is summarized as follows:
Segmented operating income
Food retailing
Investments and other operations
Crombie REIT
Real estate partnerships
Other operations, net of corporate expenses
May 6, 2023
May 7, 2022
$
1,140.1
$
1,277.0
77.3
16.5
(1.5)
92.3
1,232.4
$
61.0
32.4
(6.7)
86.7
1,363.7
Total
$
Segment operating income can be reconciled to the Company’s earnings before income taxes as follows:
Total operating income
Finance costs, net
Earnings before income taxes
Total assets by segment
Food retailing
Investments and other operations
Total
May 6, 2023
May 7, 2022
$
$
$
$
1,232.4
267.0
965.4
May 6, 2023
15,694.9
788.8
16,483.7
$
$
$
$
1,363.7
282.1
1,081.6
May 7, 2022
15,827.7
765.9
16,593.6
98
48
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
27. Stock-based compensation
Performance share unit plan
The Company awards PSUs to certain employees. The number of PSUs that vest under an award, for the most part,
is dependent on service over time and the achievement of specific performance measures. Upon vesting, each
employee is entitled to receive Non-Voting Class A shares equal to the number of their vested PSUs. During the year
ended May 6, 2023, the Company granted 390,082 (2022 - 276,144) PSUs. The weighted average fair value of $39.56
(2022 - $37.71) per PSU issued during the current year was determined using the Black-Scholes model with the
following weighted average assumptions:
Share price
Expected life
Risk-free interest rate
Expected volatility
Dividend yield
$41.37
2.73 years
3.37%
29.06%
1.65%
At May 6, 2023, there were 886,321 (2022 - 701,195) PSUs outstanding. The compensation expense for the year
ended May 6, 2023 related to PSUs was $11.1 (2022 - $8.0).
Stock option plan
During the year ended May 6, 2023, the Company granted 471,847 (2022 - 610,692) options under the stock option
plan for employees of the Company whereby options are granted to purchase Non-Voting Class A shares. The weighted
average fair value of $9.98 (2022 - $10.06) per option issued during the year was determined using the Black-Scholes
model with the following weighted average assumptions:
Share price
Expected life
Risk-free interest rate
Expected volatility
Dividend yield
$40.39
4.64 years
3.27%
27.93%
1.62%
The compensation expense for the year ended May 6, 2023 related to the issuance of options was $6.2 (2022 - $6.6).
The outstanding options at May 6, 2023 were granted at prices between $18.70 and $42.60 and expire between June
2023 and June 2030 with a weighted average remaining contractual life of 4.67 years. Stock option transactions during
fiscal 2023 and 2022 were as follows:
Balance, beginning of year
Granted
Exercised
Expired
Forfeited
Balance, end of year
Stock options exercisable, end of year
2023
2022
Number of
Options
4,007,326 $
471,847
(161,334)
(6,046)
(88,961)
4,222,832 $
1,731,502
Weighted
Average
Exercise
Price
31.33
40.39
26.82
34.58
31.56
32.44
Weighted
Average
Exercise
Price
27.96
42.05
22.55
26.39
37.69
31.33
Number of
Options
4,361,032 $
610,692
(936,807)
(9,582)
(18,009)
4,007,326 $
1,212,083
99
49
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The following table summarizes information related to stock options outstanding at May 6, 2023:
Options Outstanding
Options Exercisable
Number of
Outstanding
Options
21,157
103,710
162,600
451,808
1,614,666
836,583
579,731
452,577
4,222,832
Weighted
Average
Remaining
Contractual
Life(1)
0.15 $
1.15
2.15
3.15
4.15
5.15
6.15
7.15
4.67 $
Weighted
Average
Exercise
Price
30.13
20.64
19.99
26.17
31.38
30.87
42.04
40.38
32.44
Number
Exercisable at
May 6, 2023
21,157 $
103,710
162,600
451,808
447,014
400,316
144,897
-
1,731,502 $
Weighted
Average
Exercise
Price
30.13
20.64
19.99
26.17
31.47
30.88
42.04
-
29.09
Year Granted
2016
2017
2018
2019
2020
2021
2022
2023
Total
(1) Weighted average remaining contractual life is expressed in years.
Deferred stock unit plans
Deferred stock units (“DSU”) issued to employees under the Executive DSU Plan vest dependent on service over time
and the achievement of specific performance measures. During the year ended May 6, 2023, the Company granted
128,618 (2022 - 94,839) DSUs. At May 6, 2023, there were 1,831,446 (2022 - 1,796,606) DSUs outstanding and the
total carrying amount of the liability was $64.0 (2022 - $72.2). The compensation (reversal) expense for the year ended
May 6, 2023 related to these DSUs was $(5.3) (2022 - $15.3).
Members of the Board of Directors may elect to receive all or any portion of their fees in DSUs in lieu of cash. The
number of DSUs received is determined by the market value of the Company’s Non-Voting Class A shares on each
directors’ or employees’ fee payment date. During the period ended May 6, 2023, the Company granted 65,726 (2022
- 50,858) DSUs. At May 6, 2023, there were 486,771 (2022 - 421,045) DSUs outstanding and the total carrying amount
of the liability was $17.1 (2022 - $17.7). During the year ended May 6, 2023, the compensation (reversal) expense
recorded related to these DSUs was $(0.6) (2022 - $3.6).
Under both DSU plans, vested DSUs cannot be redeemed until the employee has left the Company or the holder is no
longer a director of the Company. The redemption value of a DSU equals the market value of an Empire Non-Voting
Class A share at the time of redemption. On an ongoing basis, the Company values the DSU obligation at the current
market value of a corresponding number of Non-Voting Class A shares and records any increase or decrease in the
DSU obligation as selling and administrative expenses.
28. Related party transactions
The Company enters into related party transactions with Crombie REIT and key management personnel, including
ongoing leases and property management agreements. As at May 6, 2023, the Company holds a 41.5% (2022- 41.5%)
ownership interest in Crombie REIT and accounts for its investment using the equity method.
Crombie REIT has instituted a DRIP whereby Canadian resident REIT unitholders may elect to automatically have their
distributions reinvested in additional REIT units. The Company has enrolled in the DRIP to maintain its economic and
voting interest in Crombie REIT.
The Company leased certain real property from Crombie REIT during the year at amounts which in management’s
opinion approximate fair market value that would be incurred if leased from a third party. Management has determined
these amounts to be fair value based on the significant number of leases negotiated with third parties in each market it
operates. The aggregate net payments under these leases totalled approximately $261.3 (2022 - $213.5).
Crombie REIT provides administrative and property management services to the Company on a fee for service basis
pursuant to a Management Agreement.
100
50
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
Sobeys, through wholly-owned subsidiaries, engages in property sales and sale leaseback transactions with Crombie
REIT, based on fair market values. These transactions consist of the following:
May 6, 2023
Cash
Number of
sites
consideration gains
sites
Pre-tax Number of
May 7, 2022
Cash
Pre-tax
consideration gains
Properties sold and leased
back(1)
Properties sold
Lease modification terminations
Total
(1) May 7, 2022 includes a 50% sale leaseback of a distribution centre in which Crombie REIT now owns 100% of the property.
10 $
1
3
14 $
95.6 $
2.6
10.0
108.2 $
7.1
-
22.8
29.9
17.4 $
2.1
-
19.5 $
-
0.2
-
0.2
2 $
1
-
3 $
During the year ended May 6, 2023, Crombie REIT disposed of two properties to third parties (2022 - two properties).
These transactions resulted in the reversal of previously deferred pre-tax gains of $6.1 (2022 - $1.7) which has been
recognized in other income on the consolidated statements of earnings.
During the year ended May 6, 2023, Sobeys, through a wholly-owned subsidiary, received $16.5 (2022 - $19.5) for
reimbursements of lessor improvements from Crombie REIT. These payments are related to modernization and
efficiency improvements of existing properties, and construction allowances.
On January 31, 2022, Crombie REIT announced it had closed a bought-deal public offering of units at a price of $17.45
per unit for aggregate proceeds of $200.0. Concurrent with the public offering, a wholly-owned subsidiary of the
Company purchased, on a private placement basis, $83.0 of Class B LP units to maintain a 41.5% ownership interest
in Crombie REIT.
On May 19, 2021, Crombie REIT announced it had closed a bought-deal public offering of units at a price of $16.60
per unit for aggregate proceeds of $100.0. Concurrent with the public offering, a wholly-owned subsidiary of the
Company purchased, on a private placement basis, $41.5 of Class B LP units to maintain a 41.5% ownership interest
in Crombie REIT.
Key management personnel compensation
Key management personnel include the Board of Directors and members of the Company’s executive team that have
authority and responsibility for planning, directing and controlling the activities of the Company.
Key management personnel compensation is comprised of:
Salaries, bonus and other short-term employment benefits
Post-employment benefits
Share-based payments
Total
$
$
14.0
1.5
14.6
30.1
$
$
19.5
2.6
13.2
35.3
May 6, 2023
May 7, 2022
Indemnities
The Company has agreed to indemnify its directors, officers and particular employees in accordance with the
Company’s policies. The Company maintains insurance policies that may provide coverage against certain claims.
29. Capital management
The Company’s objectives when managing capital are: (i) to ensure sufficient liquidity to support its financial obligations
and execute its operating and strategic plans; (ii) to minimize the cost of capital while taking into consideration current
and future industry, market and economic risks and conditions; (iii) to maintain an optimal capital structure that provides
necessary financial flexibility while also ensuring compliance with any financial covenants; and (iv) to maintain an
investment grade credit rating with each rating agency that assesses the credit worthiness of the Company. There have
been no changes to the Company’s objectives during the year ended May 6, 2023.
The Company monitors and makes adjustments to its capital structure, when necessary, in light of changes in economic
conditions, the objectives of its shareholders, the cash requirements of the business and the condition of capital
markets.
101
51
CONSOLIDATED FINANCIAL STATEMENTS
Empire Company Limited
Notes to the Consolidated Financial Statements
May 6, 2023
(in millions of Canadian dollars, except share and per share amounts)
The Company considers its total capitalization to include all interest-bearing debt, including bank loans, long-term debt
(including the current portion thereof), lease liabilities and shareholders’ equity. The calculation is set out in the following
table:
Long-term debt due within one year
Long-term debt
Lease liabilities due within one year
Long-term lease liabilities
Funded debt, including lease liabilities
Shareholders' equity, net of non-controlling interest
Capital under management
May 6, 2023
May 7, 2022
$
$
101.0
911.3
563.7
5,620.9
7,196.9
5,200.4
12,397.3
$
$
581.0
595.7
509.5
5,775.9
7,462.1
4,991.5
12,453.6
The primary investments undertaken by the Company include additions to the retail square footage of its store network
through the construction of new, expanded and renovated stores, as well as additions from strategic acquisitions. These
additions and modifications to the store network include related leasehold improvements and the purchase of land bank
sites for future store construction. The Company makes capital investments in information technology, customer
fulfilment centres, and its distribution capabilities. The Company largely relies on its cash flow from operations to fund
its capital investment program as well as share repurchases and dividend distributions to its shareholders. The cash
flow is supplemented, when necessary, through the incurrence of additional debt or the issuance of additional capital
stock.
Under the terms of existing debt agreements, two financial covenants are monitored on a quarterly basis by
management to ensure compliance with the agreements. The covenants are: (i) net debt/EBITDA - calculated as net
funded debt plus letters of credit, guarantees and commitments, divided by EBITDA (as defined by the credit
agreements and for the previous 52 and 53 weeks); and (ii) debt service coverage ratio - calculated as EBITDA, divided
by interest expense plus repayments of long-term debt (as defined by the credit agreements and for the previous 52
and 53 weeks). The Company was in compliance with these covenants during the year.
30. Subsequent event
Subsequent to the year ended, on June 21, 2023, the Company renewed its NCIB by filing a notice of intention with
the TSX to purchase for cancellation up to 12,600,000 Non-Voting Class A shares representing approximately 9.0% of
the public float of Non-Voting Class A shares outstanding. Purchases under the renewed NCIB may commence on July
2, 2023 and shall terminate no later than July 1, 2024.
102
52
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
103
Shareholder and Investor Information
Dividend Record and Payment Dates for Fiscal 2024
Record Date
July 14, 2023
October 13, 2023*
January 15, 2024*
April 15, 2024*
Payment Date
July 31, 2023
October 31, 2023*
January 31, 2024*
April 30, 2024*
* Subject to approval by the Board of Directors.
Outstanding Shares
As at June 19, 2023
Non-Voting Class A shares
Class B common shares, voting
154,091,171
98,138,079
Stock Exchange Listing
The Toronto Stock Exchange
Stock Symbol
Non-Voting Class A shares – EMP.A
Solicitors
Stewart McKelvey
Halifax, Nova Scotia
Auditor
PricewaterhouseCoopers, LLP
Halifax, Nova Scotia
Empire Company Limited
115 King Street
Stellarton, Nova Scotia
B0K 1S0
Telephone: (902) 752-8371
Fax: (902) 755-6477
www.empireco.ca
Affiliated Company Web Address
www.sobeyscorporate.com
Investor Relations and Inquiries
Shareholders, analysts and investors should direct their
financial inquiries or requests to:
E-mail: investor.relations@empireco.ca
Communication regarding investor records including
changes of address or ownership, lost certificates or
tax forms, should be directed to the Company’s transfer
agent and registrar, TSX Trust Company
Transfer Agent
TSX Trust Company
Investor Correspondence
P.O. Box 700, Station B
Montreal, Québec
H3B 3K3
Telephone: 1-800-387-0825
E-mail: shareholderinquiries@tmx.com
Multiple Mailings
If you have more than one account, you may receive a
separate mailing for each. If this occurs, please contact
TSX Trust Company at 1-800-387-0825 to eliminate the
multiple mailings.
Shareholders’ Annual General Meeting
September 14, 2023 at 11:00 a.m. (ADT)
Cineplex Cinemas
612 East River Road
New Glasgow, Nova Scotia
104
EMPIRE COMPANY LIMITED 2023 ANNUAL REPORT
DIRECTORS OF EMPIRE COMPANY LIMITED
Directors of
Empire Company Limited
Michelle Banik(1)
Toronto, Ontario
Director since 2021
Corporate Director
Cynthia Devine (3)(5)(7)
Toronto, Ontario
Director since 2013
Interim President & CEO and
Chief Financial Officer, Maple Leaf
Sports & Entertainment
James M. Dickson(9)
Halifax, Nova Scotia
Director since 2015
Counsel, Stewart McKelvey
Sharon Driscoll (2)(5)(7)
Vancouver, British Columbia
Director since 2018
EVP & Special Advisor to the CEO,
RB Global Inc.
Gregory Josefowicz (4)
Fennville, Michigan, USA
Director since 2016
Corporate Director
Sue Lee (3)
Vancouver, British Columbia
Director since 2014
Corporate Director
William Linton (1)(5)(7)
Toronto, Ontario
Director since 2015
Corporate Director
Michael Medline
Toronto, Ontario
Director since 2017
President & Chief Executive Officer,
Empire Company Limited and
Sobeys Inc.
Martine Reardon(1)(6)(8)
New York, New York, USA
Director since 2017
Chief Marketing Officer & EVP
of Content and Membership,
National Retail Federation (U.S.)
Frank C. Sobey (5)
Pictou County, Nova Scotia
Director since 2007
Corporate Director
John R. Sobey
Pictou County, Nova Scotia
Director since 1979
Corporate Director
Karl R. Sobey (3)
Halifax, Nova Scotia
Director since 2001
Corporate Director
1 Audit Committee member
2 Audit Committee chair
3 Human Resources Committee member
4 Human Resources Committee chair
5 Corporate Governance & Social
Responsibility Committee member
6 Corporate Governance & Social
Responsibility Committee chair
7 Nominating Committee member
8 Nominating Committee chair
9 Chair of the Board
Paul D. Sobey (1)
Pictou County, Nova Scotia
Director since 1993
Corporate Director
Rob G.C. Sobey (3)(5)
Stellarton, Nova Scotia
Director since 1998
Corporate Director
Martine Turcotte (3)
Verdun, Québec
Director since 2012
Corporate Director
To learn more, please visit www.empireco.ca/board-of-directors
www.empireco.ca