2022 Annual Report
25%
10%
On average savings by
switching from comparable
brand to no name®
Amount fully-engaged
PC Optimum™ members
can save on their grocery bills
$1 billion +
Value of PC Optimum™ Points
redeemed by customers
4.4 million
COVID vaccinations
administered
3.7 million
COVID tests and screenings
administered
250
Carbon reduction
projects completed
$3 billion
E-commerce revenue
for the year
50%
PC Express™ Delivery
coverage across the country
30 minutes
Launched PC Express™ Rapid
Delivery, with delivery in as little
as 30 minutes
Table of Contents
2 Our Stores, Our Colleagues,
Our Strategy
4 Financial Highlights
5 Chairman’s Message
8 Environmental, Social and
Governance
10 Our Divisions
12 Our Leading Assets
14 Corporate Governance Practices
16 Board of Directors
16 Leadership
17 Financial Review
Helping Canadians
Live Life Well ®
In 2022, we once again proved that our business is uniquely positioned to help address
the prevailing forces of the day. As Canadians demonstrated an eagerness to return to
school, work and play, we were there – with cosmetic, cough and cold sales reaching
record levels. As Canadians faced an inflationary crisis unseen in decades, we were there
– with an unprecedented freeze on no name® prices and over 1 billion in PC Optimum™
point awards and redemptions. As Canadians continued to demand more engagement
around the issues that matter most to them and their families, we were there – actively
fighting climate change and advancing social equity. Being a purpose-led organization is
tough but important work, and we’re unapologetically proud of our efforts.
None of this is possible without our 221,000 colleagues and employees, who serve their
communities with pride and passion every day, and the millions of Canadians who offer
us their trust each and every week. To all of you, we say thank you.
1
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Our Stores
Our Colleagues
Our Strategy
As a purpose-driven organization, we exist to help Canadians Live Life Well®.
This commitment factors into how we operate our stores and pharmacies
day-to-day, and how we deliver on our long-term organizational strategy.
Our strategy keeps us intently focused on the realities of today,
the opportunities of tomorrow, and the needs and expectations
of consumers decades from now. Our efforts are underpinned by
a solid foundation – an energetic colleague base working in great
stores and pharmacies that operate efficiently and effectively from
one day to the next. From there, we layer on value – everyday digital
retail solutions, meaningful payment options, and outstanding
loyalty offerings. And looking to the future, we envision connecting
Canadians to healthcare solutions, both in our stores and online.
Retail Excellence
Through disciplined execution within our core retail operations,
and by leveraging our scale and strategic assets, we are able to
grow sales, optimize gross margins, and reduce operating costs
– all while captivating and engaging customers. This requires
promotional effectiveness, personalized value, quality service, and
continued network investment and optimization to not only meet
customer needs but improve overall profitability.
Driving Business Growth
We continue to invest in three targeted growth areas to further
differentiate our portfolio of assets and generate competitive
advantage: Digital Retail, Loblaw Media™, and PC Optimum™.
Investing for the Future
Capital investments in the modernization and automation of our
supply chain, the expansion of our retail network, and the evolution
of our Connected Healthcare strategy are all examples of Loblaw
investing for long-term success.
Environment, Social and Governance (ESG)
We have a number of commitments within our two ESG priorities
– fighting climate change and advancing social equity – that guide
our support for the communities we serve.
Colleagues, Culture and CORE Values
An engaged and collaborative workforce is a key to our success,
which is why we welcome authenticity, encourage strong
connections, value trust, and make daily decisions with our CORE
values – Care, Ownership, Respect, Excellence – top of mind.
Our CORE values
guide how we think, act and
interact with one another.
2
care ownership respect excellence
CORE values
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Adarsh’s
Curiosity Makes
a Big Impact
Adarsh Soomal, Senior Regional Maintenance Manager for
the Western Region noticed plastic wrap was getting caught
in the gears on loading machines, melting, and causing drive
train units to fail. He designed a small deflector piece that
could be added to the loading machine and prevent plastic
from getting sucked into the gears. The next year’s avoidable
cost dropped from $70,000 to $24,000 and in the next two
years there were no single drive train unit failures at all.
“ Look at a different way to fix a problem
– that’s the way I approach things,”
he says. “I always recommend being
curious. Ask questions, look at
other possibilities.”
ADARSH SOOMAL
3
Shirley’s Dream
Comes True
When Shirley Ibe started Madeup Beauty, an inclusive, Black-
owned cosmetics brand aimed at women of colour, getting
it on shelves at Shoppers Drug Mart® was an ambitious
goal. Shirley attended a session where the Black Business
Professionals Association connected small businesses with
Loblaw, from there she had several presentations to Loblaw.
All of her hard work paid off. Shirley is proud to see her line
of makeup that prioritizes Black and other women of colour
stocked alongside some of the biggest names in makeup.
“ From the time I started Madeup
Beauty, I’ve always said I would love
to be in Shoppers Drug Mart® stores.
It was one of my top choices because
it’s Canadian owned,” she says.
“And I’m always at Shoppers! I have
about a million PC Optimum™ points.”
SHIRLEY IBE
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Financial
Highlights
+4.7%
+6.9%
+ 8.2%
+ 5.7%
FOOD RETAIL
SAME STORE SALES
DRUG RETAIL
SAME STORE SALES
FRONT OF STORE
PHARMACY
+6.3%
REVENUE2
($ millions)
30.9%
+10.6%
10.9%
ADJUSTED RETAIL
SEGMENT GROSS PROFIT
MARGIN1,2
CONSOLIDATED
ADJUSTED EBITDA1,2
($ millions)
CONSOLIDATED ADJUSTED
EBITDA MARGIN1,2
2020
51,836
2021
53,170
2022
56,504
2020
29.5%
2021
30.7%
2022
30.9%
2020
4,937
2021
5,587
2022
6,181
2020
9.5%
2021
10.5%
2022
10.9%
+ 22.0%
+12.9%
ADJUSTED DILUTED NET
EARNINGS PER COMMON
SHARE1,2
($)
DIVIDEND DECLARED
PER COMMON SHARE
($)
2020
4.09
2021
5.59
2022
6.82
2020
1.28
2021
1.40
2022
1.58
1 See the Non-GAAP Financial Measures section of the 2022 Annual Report –
Financial Review
2 Excluding the impact of the 53rd week in 2020
4
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Chairman’s
Message
More than ever, our businesses are
well positioned to serve the everyday
needs of Canadians. In a challenging
year of inflationary pressures, each of
our businesses delivered value, care
and convenience while performing at the
high-end of expectations. Collectively,
our stores, our colleagues and our
employees achieved our purpose
– to help Canadians Live Life Well ® –
in unique and impactful ways.
Galen G. Weston
Chairman and President
Fellow Shareholders,
Our business entered 2022 with momentum, optimism, and a
focus on the fundamentals.
A year later, we remain confident. Our supermarkets are doing
more than ever to offer consumers value. The convenience of
our e-commerce platforms drove $3 billion in revenue, stabilizing
well above pre-pandemic levels. Joe Fresh® made essential style
accessible to everyone. We continued to grow Canada’s most
rewarding no-fee financial services with more than 2 million
PC® Mastercard® and PC Money™ account holders. And, our
pharmacy business is stronger than ever, providing patients
with greater access and choice through new services and
enhanced care.
As we go, we are making meaningful progress against our
Environmental, Social and Governance (ESG) goals, executing
our strategy in pursuit of our purpose.
Supporting Canadians Today
In 2022, we enhanced our core through a commitment to retail
excellence. More specifically, we drove day-to-day operating
efficiency, and focused on being the best buyers in Canada.
This improved our performance, drawing more customers while
delivering solid financial results.
Those successes showed up in many ways. Our no name® price
freeze, which capped the price of 1,500 iconic yellow no name
products for over three months, led to increases in both market
share and customer satisfaction. Our Shoppers Drug Mart®
division had record performance, answering the demand for
cough, cold and cosmetic products while expanding Canadians’
access to primary care.
That retail excellence drove results. We achieved same store
sales growth of +4.7 per cent in food retail and +6.9 per cent in
drug retail, with revenue of $56.5 billion, growing +6.3 per cent.
Consolidated adjusted EBITDA was $6.18 billion, or +10.6 per cent.
Adjusted diluted net earnings per share were $6.82 or +22.0 per
cent. We generated $1.53 billion in free cash flow and continued
to return capital to shareholders by increasing our dividend
+12.9 per cent and by repurchasing 12.1 million shares under
a common share repurchase program.
5
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED In 2022, we enhanced our
core through a commitment
to retail excellence.
Investing for the Future
While delivering today, we invested for tomorrow.
Expanded pharmacy services, the launch of pharmacist-led
clinics, the acquisition of Lifemark, and the growth in PC Health™
app users, all give us increased confidence in our Connected
Healthcare strategy and its ability to improve care for patients.
Our business is also increasingly digital. We integrated our
retail platforms, adding new functionality to improve customer
experiences. And, we advanced Loblaw Media™, providing
more targeted opportunities for our suppliers to reach customers
online and in-store.
PC Optimum™ continues to evolve. Already recognized as a
powerful tool for delivering value, we’re increasing our ability to
engage customers with more meaningful personalized offers
and more effective promotions. As a result, PC Optimum held
its place among the nation’s top 10 most influential brands,
according to an Ipsos survey of Canadians. We were the
highest-ranking Canadian name, alongside many global giants.
6
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Looking ahead, we’ll continue to move our business forward.
We’ll invest over $2 billion to grow and improve our store
network, provide more health and wellness care to Canadians,
create jobs, reduce waste and meet our ESG commitments.
And we will do so while delivering consistently against our
long-term financial framework.
We are proud of all that we accomplished in 2022, and with
221,000 committed and hard-working colleagues standing
ready to help Canadians Live Life Well ®, we are well-positioned
for the year ahead.
Galen G. Weston
Chairman and President
Focused on the Communities We Serve
For decades, Canadians have offered us their trust and confidence.
We know this is a privilege and we take our responsibility to the
communities we serve to heart. That shows up in many ways.
Notably, it underpins our approach to fighting climate change
and advancing social equity – our two Environmental, Social and
Governance (ESG) priorities. These are challenges that matter to
Canadians, and where our efforts can have an impact. We are
well on our way, having already made specific commitments and
progress towards meaningful change.
While the pages that follow offer more detail on our ESG efforts,
our ambitions are clear:
Fighting Climate Change
• Achieve net-zero greenhouse gas emissions for our scope 1
and 2 by the end of 2040, and scope 3 by 2050
• Ensure all of our control brand and in-store plastic packaging
is either reusable or recyclable by 2025
• Send zero food waste to landfill by the end of 2030
Advancing Social Equity
• Be Canada’s most diverse and inclusive employer by deploying
inclusion training across our entire workforce by 2024
• Support the health of women and children, by feeding 1 million
kids a year by 2025, and providing nation-leading support for
women’s health and access to care
For more specifics, visit our Responsibility page at loblaw.ca.
Looking ahead, we’ll invest over
$2 billion to grow and improve our
store network, provide more health
and wellness care to Canadians,
create jobs, reduce waste and meet
our ESG commitments.
7
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Environmental,
Social and
Governance
Our purpose-led approach has strong relevance to our Environmental,
Social and Governance (ESG) priorities, guiding us as we work to fight
climate change and advance social equity.
Fighting Climate Change
Eliminating Food Waste Sent to Landfill By 2030
Net-zero scope 1 and 2 by 2040, and scope 3 by 2050
In 2020, we met our goal of a 30% reduction in our carbon
footprint, ten years early. We have since extended our
focus to net-zero, which includes eliminating our enterprise
green-house gas (GHG) emissions by 2050. In 2022 we:
• Completed 250 carbon reduction projects.
• Completed our climate risk assessment, evaluating our risk
exposure and opportunities across multiple climate scenarios.
After reaching our goal of cutting food waste by 50% by 2025
(five years early), we set a new target: send zero food to landfill
by 2030 and achieve measurable food waste reductions in every
one of our stores by the end of 2023. In 2022 we:
• Ensured 100% of our corporate, food franchise, associate-
owned Shoppers Drug Mart® stores, and distribution centres
were partnered with a food recovery agency and were actively
donating to that partner.
• Published our inaugural TCFD-aligned report.
Advancing Social Equity
Be Canada’s most diverse and inclusive employer
We’ve set goals to achieve industry-leading representation for
Management, Executives and our Board of Directors by 2024.
We have excellent momentum, the specifics of which will be
reported in our 2022 ESG Report.
Support the health and well-being of children and women
We recognize that women and children are the building blocks of
healthy communities, and we are proud to support programs
and partners who work tirelessly to support them. In 2022 we:
• Raised and donated more than $110 million to support research,
charities and non-profits across Canada.
• Announced our commitment to Feed More Families™, with a
pledge to donate one billion pounds of food to charities by 2028.
• Supported Canadians experiencing period poverty though our
LOVE YOU by Shoppers Drug Mart™ program; in partnership
with Ontario’s Ministry of Education donated 7,000,000
period products, and an additional 3,250,000 to Manitoba
school divisions.
Tackling Plastic Waste
Loblaw has a longstanding commitment to tackling plastic waste,
working both at home and internationally on solutions. In 2022 we:
• Assessed over 10,000 control brand and in-store packaging
products relative to the Golden Design Rules; we established
35% compliance and a plan to achieve 100% compliance
by 2025.
• Replaced plastic box corners from banana shipping boxes,
eliminating 220,000 kilograms of plastic waste.
Our progress in diverse representation
earned us spots on The Globe and Mail’s
Top 100 Employers for
Young People, and
Best Diversity Employers.
8
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED How We Diverted
the Weight of an
Airplane in Plastics
Sebastian Kmiecik, Director of Bananas, Melons, and
Tropical worked with four banana vendors to replace plastic
cornerboards with cardboard ones. The project required
collaboration and testing but in the end the cardboard
cornerboards were durable, supported the cases of bananas
through transit and could withstand the humidity of the tropics.
When they calculated the savings they found they had already
diverted approximately 220,000 kilograms of plastic from landfill
in less than a year – a little bit heavier than a large airplane.
“ It’s extraordinary how you can make
such a big impact,” says Sebastian.
“Especially when you work for a
company the size of Loblaw—anything
you do, can have a big, positive
impact on the environment. Cardboard
cornerboards is just one example –
we should all strive to look for
more sustainable solutions across
the enterprise.”
SEBASTIAN KMIECIK
9
Empowering
Communities
to Give Food a
Second Life
“Loblaw operates in virtually every community across
Canada, and as such, we have a responsibility to the
communities we serve,” says Alain Brandon, Vice President,
Sustainability, Social Impact and Government Relations.
Loblaw has partnered with Food Banks Canada to distribute
a series of grants totaling $200,000 that have helped five
local food banks purchase refrigeration equipment and
community garden equipment. In October, select Ontario
banners helped raise $174,000 for Second Harvest,
helping to provide fresh, healthy food to social services and
food organizations in our local communities equating to
approximately 348,000 meals. In November the Flashfood®
program reached a milestone of diverting 40 million pounds
of food from landfill while saving Canadians $110 million
on groceries, since launching in 2019. Loblaw remains
committed to zero food waste to landfill by 2030.
“ Unlocking access to perishable
food – whether it’s meals made by
volunteers, fresh produce, meat,
or frozen items – is critical in a time
where food bank use has soared.”
ALAIN BRANDON
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Our
Divisions
We operate more than 2,500 stores across Canada, employing directly or
through our franchisees approximately 221,000 Canadians in full-time and
part-time positions. With 90% of Canadians living within 10 kilometers of one
of our stores, we are immersed in the communities we serve, and welcome
the opportunity to help our customers lead better and healthier lives.
Passionate about food and about creating exceptional customer
experiences, our Market division operates a variety of banners
– including Loblaws®, Loblaw City Market®, Your Independent
Grocer®, Atlantic Superstore®, Zehrs®, Provigo®, Provigo
Le Marché®, Real Canadian Wholesale Club®, Real Canadian
Liquorstore™, Fortinos® and T&T® stores – and ultimately helps
Canadians bring the best to their tables.
Shoppers Drug Mart® is Canada’s leading drug store retailer,
offering customers incredible convenience and the products
and services they need throughout all stages of life. We operate
more than 1,300 Associate-owned locations that deliver care
and wellness to millions of Canadians weekly – both in-store and
virtually making healthcare accessible, convenient and seamless.
We also operate home healthcare and luxury beauty retail outlets,
a specialty drug distribution network, pharmacy services for
long-term care and retirement communities, a generic drug
manufacturer, a unique health app, and an electronic medical
records platform.
Our Discount division – including Real Canadian Superstore®,
Maxi®, Extra Foods® and No Frills® – proudly offers Canadian
families easy, affordable essentials and stands ready to Feed
Everyone by providing fresh, quality products at fantastic value.
Joe Fresh® provides uniquely accessible shopping to Canadians,
mixing modern designs with incredible value. With collections for
women, men and children, shopping is made more convenient and
cost-effective for the entire family.
1 Billion
Customer transactions annually across
grocery, pharmacy and financial services.
10
PC Financial® brings value and innovation to Canadians. More
than 2 million PC® Mastercard® cardholders have collectively saved
billions in bank fees while earning trillions of points to redeem
for groceries and other essentials. And in 2022, the PC Money™
Account continued to grow, with Canadians valuing this no monthly
fee account that gets them even more PC Optimum™ points. We
also offer digital verification for authentication, in-platform spend
insights, automatic savings goals, and sophisticated analysis of
how Canadians earn and redeem PC Optimum™ points.
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED How the Pandemic
Deepened Canada’s
Relationship with
Pharmacists
Ruchi Kumar, Senior Director of Pharmacy Services at
Shoppers Drug Mart® says she’s seen a change in how
Canadians view pharmacists and their services coming out
of the pandemic. “More often, patients are seeing Shoppers
Drug Mart® pharmacists as healthcare professionals they
have easy access to, and I think through the pandemic,
pharmacists have demonstrated that they can really help
patients achieve their care goals. The relationship between
patient and pharmacist, and the loyalty that exists there, has
continued to build. Patients’ adoption of digital tools, like
the PC Health™ app, has also accelerated, and I’m looking
forward to seeing how this trend will shape the future delivery
of services in our stores.”
“ I’m proud to have played a role in
helping millions of people access
these services, while at the same
time, keeping Canadians and our
pharmacy teams safe and healthy.”
RUCHI KUMAR
11
Alessandra
Mentors the
Business Leaders
of Tomorrow
Alessandra Bisaillon, Director of Marketing, Customer
Management at PC® Bank volunteers with PC Financial’s®
Resilience Project Accelerator which partners six teams
of university students across Canada with an Advisor
and together they are tasked with creating a project that
promotes financial literacy and education in underserved
populations. Alessandra’s team from Capilano University
in Vancouver developed an online platform of financial
modules to educate young people about the fundamentals
of budgeting, taxes, saving, credit and understanding
a balance sheet. The team is actively pitching to school
boards across the country and is coming up on their final
presentation for the ten judges from PC Financial®.
“ Knowing that I’m helping to make
a difference in terms of building
financial literacy for students
and really supporting Canada’s
future leaders is very inspiring
and motivating.”
ALESSANDRA BISAILLON
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Our
Leading Assets
We deliver on our purpose – to help Canadians Live Life Well® – through an
exceptional internal infrastructure, a unique and customer-centric culture,
and a clear set of expectations for colleagues at all levels of the organization.
Brands
Supply Chain
Our control brands – including President’s Choice®, no name®,
Farmer’s Market™ and Life Brand® – are trusted by Canadians.
Our product developers surprise and delight our customers
with new and unique experiences and innovations.
PC Optimum™
With over 15.5 million active annual members, PC Optimum™ is
unique in its reach and customer engagement. The program
is continually refined and enhanced, to provide our customers
with greater value and the personalization they seek.
Technology & Analytics
We use technology and analytics to connect our customers to the
things that matter most: food, health, and money. We enable our
business strategy with world class data products and services,
including: our agile framework, artificial intelligence and machine
learning programs, and an ongoing journey to the cloud – all in
an attempt to enhance our customers’ experience.
As one of the largest supply chain networks in North America,
we are committed to efficiency, responsiveness, and serving
the evolving needs of our stores and customers. Continually
adopting new technology, embracing automation, and refining
our processes allow us to increase our capacity, source with
integrity, and reliably serve Canadians across the country.
Compliance and Ethical Conduct
Our commitment to compliance ensures our colleagues
understand our regulatory and legal obligations and have
the knowledge they need to comply with those rules.
We encourage colleagues and vendors to speak up and
take action when necessary, and our policies and training
ensure they can conduct themselves in an ethical and
compliant manner.
3
Of the country’s top 10 brands
– President’s Choice®,
no name®, Farmer’s Market™.
12
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Les Becomes More
Independent at Work
When Les Alexander works part-time in the health and beauty
department at the East Village Real Canadian Superstore®,
he is usually found with his support worker Brent. Les has a
lifelong learning disability that means he cannot read or write,
so Brent – through an organization called Vecova – helps Les
navigate his tasks. Recently Brent discovered the OrCam
Read, a small pen-shaped device that reads and then recites
any printed type. Les’ store bought one in the hopes it would
better accommodate Les’s disability at work, and it has been
a game-changer. Now, Les wears the OrCam Read on a
lanyard around his neck throughout his whole shift, pulling it
out when he needs to read something. It works so well he
feels much closer to working his shifts solo.
“ I like having a tool that allows me to
do things myself instead of having
to ask for help because it makes me
feel like I have more ownership over
my responsibilities.”
LES ALEXANDER
13
Driverless Vehicles
Hit the Road
In our company’s century-long history, we have led the
way with many ground-breaking innovations aimed at
serving Canadians. Recently, we added to our list of firsts,
making history by deploying the first fully driverless delivery
on a public road, in partnership with Gatik, a technology
company specializing in autonomous vehicles (AVs).
In our journey to build and operate a customer-centred
supply chain, embracing cutting-edge technology plays a
key role in improving our day-to-day function. We believe
autonomous delivery enables Loblaw to operate more
routes and make more frequent trips, establishing a supply
chain that is safer, more sustainable and more resilient.
“ Working with Gatik, we’ve
demonstrated that autonomous
driving technology enables supply
chain efficiency, moving more orders
more frequently for our customers.”
DAVID MARKWELL
CHIEF TECHNOLOGY AND ANALYTICS OFFICER
LOBLAW COMPANIES LIMITED
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Corporate Governance
Practices
The Board of Directors and senior executives of Loblaw Companies Limited
are committed to strong corporate governance practices as a foundation to
the effective management of the Company and its achievement of strategic,
financial, and operational objectives.
Board Responsibilities and Duties
The Board, directly and through its committees, supervises
and oversees the management of the business and affairs
of the Company. A copy of the Board’s mandate can be found
on the Company’s website, loblaw.ca. The Board reviews
the Company’s strategic direction, assigns responsibility to
management for the achievement of the strategy, approves
major policy decisions, delegates to management the authority
and responsibility of handling day-to-day affairs, and reviews
management’s performance and effectiveness. The Board’s
expectations of management are communicated to
management directly and through committees of the Board.
The Board regularly receives reports on the operating results
of the Company as well as reports on certain non-operational
matters, including insurance, pensions, corporate governance,
environmental, social, workplace health and safety, legal,
compliance and treasury matters. The Board also oversees
the enterprise risk management (ERM) process, which is
designed to assist all areas of the business in managing
appropriate levels of risk tolerance by bringing a systematic
approach, a methodology and tools for evaluating, measuring
and monitoring key risks. The results of the ERM program
and other business planning processes are used to identify
emerging risks to the Company, prioritize risk management
activities and develop a risk-based internal audit plan.
The Governance Committee regularly reviews the Company’s
corporate governance practices to ensure they reflect evolving
best practices in a rapidly changing environment. The Company’s
website, loblaw.ca, includes additional governance information,
including the Company’s Code of Conduct (the “Code”), Disclosure
Policy, Majority Voting Policy, the position description for the
Chairman and President and mandates of the Board of Directors
(the “Board”) and of its committees.
Director Independence
The Canadian Securities Administrators’ Corporate Governance
Guidelines provide that a director is independent if he or she
has no material relationship with the Company or its affiliates that
could reasonably be expected to interfere with the exercise of
the director’s independent judgment. Approximately 82% of the
directors on the Board are independent. The independent directors
meet separately following each Board meeting. Information
relating to each of the directors, including their independence,
committee memberships, other public company boards on which
they serve, as well as their attendance record for all Board and
committee meetings, can be found in the Company’s Management
Proxy Circular.
Board Leadership
Galen G. Weston is the Chairman of the Board. The Chairman
directs the operations of the Board. He chairs each meeting of
the Board, is responsible for the management and effective
functioning of the Board generally and provides leadership to
the Board in all matters. These and other key responsibilities of
the Chairman are set out in a position description established
by the Board. The Board has also appointed an independent
director, William A. Downe, to serve as lead director. The lead
director provides leadership to the Board and particularly to
the independent directors. He ensures that the Board operates
independently of management and that directors have an
independent leadership contact.
14
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Ethical Business Conduct
The Code reflects the Company’s long-standing commitment to
high standards of ethical conduct and business practices. The
Code is reviewed annually to ensure it is current and reflects best
practices in the area of ethical business conduct and integrity
and includes a strong “tone from the top” message. All directors,
officers and employees of the Company are required to comply
with the Code and must acknowledge their commitment to abide
by the Code on a periodic basis. The Company encourages
the reporting of violations and potential violations and has
established an Integrity Action Line, a toll-free number that any
director, officer, supplier or employee may use to report conduct
which he or she feels violates the Code or otherwise constitutes
fraudulent or unethical conduct. A fraud reporting protocol has
also been implemented to ensure that fraud is reported to senior
management in a timely manner. In addition, the Audit Committee
has endorsed procedures for the anonymous receipt, retention
and handling of complaints regarding accounting, internal control
or auditing matters. These procedures are available on the
Company’s website, loblaw.ca.
Board Committees
The following is a brief summary of some of the responsibilities
of each committee of the Board.
Audit Committee
The Audit Committee is responsible for the oversight of the
integrity of the Company’s financial statements and related
public disclosure, as well as the adequacy and effectiveness of
applicable controls related to its ESG disclosures. In doing so,
the Audit Committee reviews management’s administration of the
Company’s internal controls over financial reporting, disclosure
controls and procedures and internal audit function and related
party transactions. The Audit Committee also oversees procedures
for the receipt, retention and follow-up of any complaints regarding
the Company’s accounting, internal controls and auditing matters.
Governance, Employee Development, Nominating and
Compensation Committee
The Governance Committee is responsible for the oversight of the
Company’s governance practices, including the development and
implementation of good governance principles, consistent with high
standards of corporate governance. The Governance Committee
oversees the succession planning and compensation for the Board
and Senior Management. The Chair of the Governance Committee,
who is an independent director, has also been appointed by the
Board to serve as lead director.
Pension Committee
The Pension Committee is responsible for the oversight of the
administration, management, design and governance of the
Company’s pension plans, as well as the administration and
management of the Company’s benefit programs.
Risk and Compliance Committee
The Risk and Compliance Committee is responsible for the
oversight of the Company’s legal and regulatory compliance and
ethics compliance program, ERM program, ESG program, policy,
pharmacy and drug safety matters, food safety and product
safety matters and information systems and technology matters.
ESG Governance
The Board oversees and monitors the Corporation’s approach,
policies and practices related to ESG matters. Management has
established an ESG Steering Committee, comprised of senior
leaders, responsible for setting priorities, tracking metrics and
championing program initiatives across the Corporation. Various
management committees are responsible for setting priorities
and implementing and monitoring ESG-related initiatives across
the organization.
15
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED Board
of Directors
CHRISTIE J.B. CLARK, B. COMM.,
M.B.A., F.C.A., F.C.P.A.1*,3, 4
Corporate Director; Former Chief
Executive Officer and Senior Partner,
PricewaterhouseCoopers LLP;
Director, Air Canada, SNC-Lavalin
Group Inc.; Trustee, Choice Properties
Real Estate Investment Trust; Former
Director, Hydro One Inc., Hydro One
Limited; Board Member, Canadian
Olympic Committee, Canadian
Olympic Foundation, Own the Podium,
the Sunnybrook Foundation.
DANIEL DEBOW, B.A., J.D./M.B.A., L.L.M.2, 4
Vice President, Product, Shopify Inc.;
Former founder and Chief Executive
Officer, Helpful.com; Co-founder and
former Co-Chief Executive Officer
of Rypple; Founding team member
of Workbrain.
GALEN G. WESTON, B.A., M.B.A.
Chairman and President, Loblaw
Companies Limited; Chairman
and Chief Executive Officer, George
Weston Limited; Chairman of
President’s Choice Bank; Chairman,
Wittington Investments Limited;
and is President of the Weston
Family Foundation.
SCOTT B. BONHAM, B.Sc., M.B.A.1, 4
Corporate Director; Co-founder
of Intentional Capital Corp.;
Former Co-Founder of GGV Capital;
Former Vice-President, Capital
Group Companies; Director, The
Bank of Nova Scotia; Board Member
of Canadian Institute of Advanced
Research and the DenmarkBridge.
SHELLEY G. BROADER, B.A.1, 4
Corporate Director; Former President
and Chief Executive Officer of Chicos
FAS, Inc.; former President and
Chief Executive Officer of Walmart
EMEA Ltd. and Walmart Canada;
former President and Chief Operating
Officer of The Michaels Companies,
Inc.; Director, IFCO Systems US LLC;
member of the U.S. Advisory Board
of Amoobi SA; and former director
of Walmart Canada Corporation and
Walmart Mexico.
WILLIAM A. DOWNE, C.M., M.B.A.2*
Corporate Director; Former Chief
Executive Officer, Chief Operating
Officer, Head of BMO Capital Markets,
BMO Financial Group; Former Director,
Bank of Montreal and its subsidiaries,
BMO Nesbitt Burns Holding
Corporation and BMO Financial Corp.;
Lead Director, ManpowerGroup
Inc.; Chairman, Trans Mountain
Corporation; Director, Rush University
System for Health; Board Member,
Social and Economic Policy Advisory
Board, Rand Corporation.
JANICE FUKAKUSA, F.C.P.A., F.C.A.,
B.A., M.B.A.1, 4*
Corporate Director; Former
Chief Financial Officer and Chief
Administrative Officer, Royal Bank
Of Canada; Director, Cineplex Inc.,
Brookfield Asset Management Inc.,
RioCan REIT; Chancellor, Toronto
Metropolitan University.
M. MARIANNE HARRIS, B.Sc., J.D.,
M.B.A.1, 2, 3
Corporate Director; Former Managing
Director and President, Corporate
and Investment Banking, Merrill Lynch
Canada Inc., Former Head of Financial
Institutions Group Americas, Merrill
Lynch Pierce Fenner & Smith; Director,
George Weston Limited, Sun Life
Financial Inc., Public Sector Pension
Investment Board; Former Director,
Hydro One Inc./ Hydro One Limited;
Former Chair, Investment Industry
Regulatory Organization of Canada
(IIROC); Member of Dean’s Advisory
Council, Schulich School of Business;
Advisory Council, Hennick Centre for
Business and Law.
CLAUDIA KOTCHA, B.B.A., C.P.A.2, 4
Corporate Director; Former Vice President,
Design Innovation & Strategy, Procter &
Gamble; Former Trustee, Cooper Hewitt
Smithsonian Design Museum; Director,
American Red Cross, Los Angeles Region;
Former Director, American Red Cross,
Greater Miami and the Keys; Former
Trustee of the Cooper Hewitt Smithsonian
Design Museum.
SARAH RAISS, B.S., M.B.A.2, 3*
Corporate Director; Former Executive,
TransCanada Corporation; Lead Director,
Commercial Metals Company; Director,
Ritchie Bros Auctioneers Inc.; Former
Chair, Alberta Electric Systems; Former
Director, Canadian Oil Sands Limited,
Shoppers Drug Mart Corporation,
Vermillion Energy Inc.
CORNELL WRIGHT, B.A., J.D., M.B.A.4
President and Director of Wittington
Investments, Limited; Director, George
Weston Limited, BCE, Inc.; Trustee,
Choice Properties Real Estate Investment
Trust, Former Partner, Torys LLP; Board
Chair, the National Ballet of Canada;
Trustee of University Health Network;
and Executive in Residence at the
University of Toronto’s Rotman School
of Management.
Notes
1 Audit Committee
2 Governance, Employee Development,
Nominating and Compensation Committee
3 Pension Committee
4 Risk and Compliance Committee
* Chair of the Committee
Leadership
GALEN G. WESTON
President and Chairman
RICHARD DUFRESNE
Chief Financial Officer
ROBERT SAWYER
Chief Operating Officer
ROBERT WIEBE
Chief Administrative Officer
NICK HENN
Executive Vice President,
Chief Legal Officer and Secretary
DAVID MARKWELL
Executive Vice President,
Chief Technology and Analytics Officer
MARK WILSON
Executive Vice President and
Chief Human Resources Officer
BARRY K. COLUMB
President, President’s Choice Financial
GREG RAMIER
President, Market Division
IAN FREEDMAN
President, Joe Fresh
FRANK GAMBIOLI
President, Discount Division
JEFF LEGER
President, Shoppers Drug Mart
KEVIN GROH
Senior Vice President,
Corporate Affairs and Communication
MARY MACISAAC
Senior Vice President, Marketing
LAUREN STEINBERG
Senior Vice President, Loblaw Digital
16
2022 ANNUAL REPORT LOBLAW COMPANIES LIMITED 2022 Annual Report –
Financial Review
2022 Annual Report - Financial Review
Financial Highlights
Management’s Discussion and Analysis
Financial Results
Notes to the Consolidated Financial Statements
Three Year Summary
Glossary of Terms
1
3
69
80
141
143
Financial Highlights(1)
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Consolidated Results of Operations
Revenue
Revenue growth
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(2)
Income taxes
Adjusted income taxes(2)
Adjusted effective tax rate(2)
Net earnings
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company(i)
Adjusted net earnings available to common shareholders of the Company(2)
Consolidated per Common Share ($)
Diluted net earnings
Adjusted diluted net earnings(2)
Dividends
Dividends declared per common share ($)
Consolidated Financial Position and Cash Flows
Cash and cash equivalents and short term investments
Cash flows from operating activities
Capital investments
Free cash flow(2)
Financial Measures
Retail debt to retail adjusted EBITDA(2)
Adjusted return on equity(2)
Adjusted return on capital(2)
2022
(52 weeks)
2021
(52 weeks)
$ 56,504
$ 53,170
6.3 %
0.9 %
$ 3,342
$ 2,937
$
$
6,181
10.9 %
683
694
665
841
26.4 %
1,994
1,921
1,909
2,263
$
$
5,587
10.5 %
495
684
466
721
26.3 %
1,976
1,875
1,863
1,911
$
$
5.75
6.82
$
$
5.45
5.59
$
1.580
$
1.400
$
1,934
$ 2,440
4,755
1,571
1,528
2.4 x
20.2 %
10.8 %
4,827
1,183
1,959
2.6 x
17.3 %
9.8 %
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
2022 Annual Report - Financial Review Loblaw Companies Limited 1
Financial Highlights(1)
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail Results of Operations
Sales
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Retail Operating Statistics
Food retail same-store sales growth
Drug retail same-store sales growth
Drug retail same-store pharmacy sales growth
Drug retail same-store front store sales growth
Total retail square footage (in millions)
Number of corporate stores(4)
Number of franchise stores
Number of Associate-owned drug stores
Financial Services Results of Operations
Revenue
Earnings (Losses) before income taxes
Financial Services Operating Measures and Statistics
Average quarterly net credit card receivables
Credit card receivables
Allowance for credit card receivables
Annualized yield on average quarterly gross credit card receivables
Annualized credit loss rate on average quarterly gross credit card receivables
2022
(52 weeks)
2021
(52 weeks)
$ 55,492
$ 52,269
3,260
17,165
2,713
16,041
30.9 %
30.7 %
$ 5,939
$ 5,322
10.7 %
10.2 %
$ 2,746
$ 2,623
4.7 %
6.9 %
5.7 %
8.2 %
71.2
547
551
1,346
0.3 %
5.0 %
8.4 %
2.1 %
71.2
548
551
1,342
$
1,338
$
1,182
(2)
160
$ 3,607
$
3,128
3,954
3,443
206
13.0 %
2.7 %
205
12.7 %
2.5 %
2 2022 Annual Report - Financial Review Loblaw Companies Limited
Management's Discussion and Analysis
1. Forward-Looking Statements
2. Overview
3. Strategic Framework
4. Key Financial Performance Indicators
5. Overall Financial Performance
5.1
5.2
Consolidated Results of Operations
Selected Financial Information
6. Reportable Operating Segments Results of Operations
6.1
6.2
Retail Segment
Financial Services Segment
7. Liquidity and Capital Resources
Cash Flows
Liquidity and Capital Structure
Components of Total Debt
Financial Condition
Credit Ratings
Share Capital
7.1
7.2
7.3
7.4
7.5
7.6
7.7 Off-Balance Sheet Arrangements
7.8
Contractual Obligations
8. Financial Derivative Instruments
9. Quarterly Results of Operations
9.1
9.2
Results by Quarter
Fourth Quarter Results
10. Disclosure Controls and Procedures
11.
Internal Control over Financial Reporting
12. Enterprise Risks and Risk Management
12.1 Operating Risks and Risk Management
12.2 Financial Risks and Risk Management
13. Related Party Transactions
14. Critical Accounting Estimates and Judgments
Inventories
Impairment of Non-Financial Assets
Impairment of Credit Card Receivables
Income and Other Taxes
14.1 Consolidation
14.2 Business Combinations - Valuation of Intangible Assets
14.3
14.4
14.5
14.6
14.7 Segment Information
14.8 Provisions
14.9
Leases
15. Accounting Standards
16. Strategic Update and Outlook
17. Non-GAAP Financial Measures
18. Additional Information
4
6
6
7
8
8
12
14
14
16
17
17
19
20
22
22
22
24
25
25
27
27
29
37
37
38
39
47
48
52
52
52
52
52
53
53
53
54
54
54
55
56
68
2022 Annual Report - Financial Review Loblaw Companies Limited 3
Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) for Loblaw Companies Limited and its subsidiaries
(collectively, the “Company” or “Loblaw”) should be read in conjunction with the audited annual consolidated
financial statements and the accompanying notes included on page 69 to 140 of this Annual Report – Financial
Review (“Annual Report”).
The Company’s annual audited consolidated financial statements and the accompanying notes for the year ended
December 31, 2022 have been prepared in accordance with International Financial Reporting Standards (“IFRS” or
“GAAP”) as issued by the International Accounting Standards Board (“IASB”) and include the accounts of the
Company and other entities that the Company controls and are reported in Canadian dollars, except when
otherwise noted.
Management uses non-GAAP financial measures to exclude the impact of certain expenses and income that must
be recognized under GAAP when analyzing consolidated and segment underlying operating performance, as the
excluded items are not necessarily reflective of the Company’s underlying operating performance and make
comparisons of underlying financial performance between periods difficult. The Company adjusts for these items if
it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of
certain items does not imply that they are non-recurring. See Section 17 “Non-GAAP Financial Measures”, of this
MD&A for more information on the Company’s non-GAAP financial measures.
The information in this MD&A is current to February 22, 2023, unless otherwise noted. A glossary of terms used
throughout this Annual Report can be found on page 143.
Unless otherwise indicated, all comparisons of results for the fourth quarter of 2022 (12 weeks ended December 31,
2022) are against results for the fourth quarter of 2021 (12 weeks ended January 1, 2022) and all comparisons of
results for the full-year of 2022 (52 weeks ended December 31, 2022) are against the results for the full-year of
2021 (52 weeks ended January 1, 2022).
1. Forward-Looking Statements
This Annual Report, including this MD&A, contains forward-looking statements about the Company’s objectives,
plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects,
opportunities and legal and regulatory matters. Specific forward-looking statements in this Annual Report include,
but are not limited to, statements with respect to the Company’s anticipated future results, events and plans,
strategic initiatives and restructuring, regulatory changes including further healthcare reform, future liquidity,
planned capital investments, and the status and impact of information technology (“IT”) systems implementations.
These specific forward-looking statements are contained throughout this Annual Report including, without
limitation, Section 3 “Strategic Framework”, Section 5.1 “Consolidated Results of Operations”, Section 6.1 “Retail
Segment”, Section 6.2 “Financial Services Segment”, Section 7 “Liquidity and Capital Resources”, Section 9
“Quarterly Results of Operations”, Section 12 “Enterprise Risks and Risk Management”, Section 14 “Critical
Accounting Estimates and Judgments”, Section 15 “Accounting Standards”, Section 16 “Strategic Update and
Outlook” and Section 17 “Non-GAAP Financial Measures”. Forward-looking statements are typically identified by
words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”,
“strive”, “will”, “may”, “should” and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company’s estimates, beliefs and assumptions, which are based on
management’s perception of historical trends, current conditions and expected future developments, as well as
other factors it believes are appropriate in the circumstances. The Company’s estimates, beliefs and assumptions
are inherently subject to significant business, economic, competitive and other uncertainties and contingencies
regarding future events and, as such, are subject to change. The Company can give no assurance that such
estimates, beliefs and assumptions will prove to be correct.
4 2022 Annual Report - Financial Review Loblaw Companies Limited
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those
expressed, implied or projected in the forward-looking statements, including those described in the Company’s
MD&A in the 2022 Annual Report, and the Company’s 2022 Annual Information Form (“AIF”) for the year ended
December 31, 2022. Such risks and uncertainties include:
• changes in economic conditions, including inflation, levels of employment, costs of borrowing, household debt,
political uncertainty and government regulation, the impact of natural disasters, war or acts of terrorism,
pandemics, changes in interest rates, tax rates, or exchange rates, and access to consumer credit;
•
•
•
failure to attract and retain colleagues may impact the Company’s ability to effectively operate and achieve
financial performance goals;
inability of the Company’s IT infrastructure to support the requirements of the Company’s business, or the
occurrence of any internal or external security breaches, denial of service attacks, viruses, worms and other
known or unknown cybersecurity or data breaches;
failure to maintain an effective supply chain and consequently an appropriate assortment of available product
at the store and digital retail level;
• changes to the regulation of generic prescription drug prices, the reduction of reimbursements under public
drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
• changes to any of the laws, rules, regulations or policies applicable to the Company’s business;
• public health events including those related to food and drug safety;
• errors made through medication dispensing or errors related to patient services or consultation;
•
failure to adapt to environmental and social risks, including failure to execute against the Company’s climate
change and social equity initiatives;
•
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining
agreements;
• adverse outcomes of legal and regulatory proceedings and related matters;
•
failure to effectively respond to consumer trends or heightened competition, whether from current competitors
or new entrants to the marketplace;
•
•
•
•
•
failure to execute the Company’s e-commerce initiatives or to adapt its business model to shifts in the retail
landscape caused by digital advances;
failure to realize the anticipated benefits associated with the Company’s strategic priorities and major
initiatives, including revenue growth, anticipated cost savings and operating efficiencies, or organizational
changes that may impact the relationships with franchisees and Associates (as defined within);
failure to realize benefits from investments in the Company’s new IT systems and related processes;
inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory or control
shrink; and
reliance on the performance and retention of third party service providers, including those associated with the
Company’s supply chain and apparel business and located in both advanced and developing markets.
This is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Other risks
and uncertainties not presently known to the Company or that the Company presently believes are not material
could also cause actual results or events to differ materially from those expressed in its forward-looking statements.
Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian securities
regulatory authorities (“securities regulators”) from time to time, including, without limitation, the section entitled
"Risks" in the Company's 2022 AIF (for the year ended December 31, 2022). Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect the Company’s expectations only as of the date
of this MD&A. Except as required by law, the Company does not undertake to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
2022 Annual Report - Financial Review Loblaw Companies Limited 5
Management’s Discussion and Analysis
2. Overview
Loblaw Companies Limited is a Canadian public company incorporated in 1956 and is Canada's food and pharmacy
leader, and the nation's largest retailer. The Company has two operating segments: Retail and Financial Services.
The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug
stores, which includes in-store pharmacies, health care services and other health and beauty products, apparel and
other general merchandise. The Company’s Financial Services segment provides credit card and everyday banking
services, the PC Optimum™ Program, insurance brokerage services, and telecommunication services. The
businesses are underpinned by the PC Optimum Program, a customer loyalty program that provides more than a
billion dollars in annual rewards and is unique to each consumer across their network-wide purchases.
3. Strategic Framework
Loblaw is driven by its purpose to help Canadians Live Life Well® which guides the Company's strategic framework.
This framework centres around a passion for customers and drives investments in three key strategic priorities:
Everyday Digital Retail, Payments and Rewards, and Connected Healthcare. Enabling these investments comes
from a sharp focus on leveraging data driven insights and process efficiency excellence to deliver strong financial
performance. The framework is supported by colleagues with a shared set of CORE values and culture principles
that encourages colleagues to be authentic, build trust and make connections.
The Company strives to be the "best in food, health and beauty" and with its focus on retail excellence, it is
constantly improving its retail operations to differentiate its customer offerings and deliver scale through its national
logistics infrastructure. Building for the future, its purpose guides its investments in strategic growth initiatives to
further differentiate its portfolio of assets, generate competitive advantages in products, services and price,
improve its operational efficiencies, and create new areas of growth. Retail operations benefit from more than one
billion customer touchpoints annually and deliver a unique customer experience driven by industry leading control
brands, healthy alternatives and a choice of in-store shopping, pick-up and delivery. The approach to being “best in
food” is driven by fresh food selection, competitive value and customized assortments across banners. The
approach to being “best in health and beauty” is supported by high quality health and wellness products, an
expanding offer of healthcare services, and a diverse and differentiated beauty offering.
Loblaw's purpose-led approach to addressing environmental, social and governance issues focuses on two
priorities: fighting climate change and advancing social equity. Environmental, social and governance (“ESG”)
considerations are central to decisions made across the Company. By integrating consideration of environmental
and social risks and good governance practices in its day-to-day business activities, implementing robust
compliance and ethics programs and supporting its colleagues and the communities in which it operates, the
Company aims to be a leading contributor to Canadian society both today and for generations to come.
Together, each of these components forms a part of the strategic framework that guides our direction now and into
the future.
6 2022 Annual Report - Financial Review Loblaw Companies Limited
4. Key Financial Performance Indicators(1)
The Company has identified key financial performance indicators to measure the progress of short and long term
objectives. Certain key financial performance indicators are set out below:
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Consolidated
Revenue growth
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Net earnings
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company(i)
Adjusted net earnings available to common shareholders of the Company(2)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(2) ($)
Cash and cash equivalents and short term investments
Cash flows from operating activities
Free cash flow(2)
Financial Measures
Retail debt to retail adjusted EBITDA(2)
Adjusted return on equity(2)
Adjusted return on capital(2)
Retail Segment
Food retail same-store sales growth
Drug retail same-store sales growth
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Financial Services Segment
Earnings (Losses) before income taxes
Annualized yield on average quarterly gross credit card receivables
Annualized credit loss rate on average quarterly gross credit card receivables
2022
(52 weeks)
2021
(52 weeks)
6.3 %
0.9 %
$ 3,342
$ 2,937
6,181
10.9 %
$
1,994
$
5,587
10.5 %
1,976
1,875
1,863
1,911
5.45
5.59
$
$
$ 2,440
4,827
1,959
1,921
1,909
2,263
5.75
6.82
1,934
4,755
1,528
$
$
$
2.4 x
20.2 %
10.8 %
4.7 %
6.9 %
2.6 x
17.3 %
9.8 %
0.3 %
5.0 %
$ 3,260
$
2,713
17,165
30.9 %
16,041
30.7 %
$ 5,939
$ 5,322
10.7 %
10.2 %
$
$
(2)
13.0 %
2.7 %
160
12.7 %
2.5 %
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
2022 Annual Report - Financial Review Loblaw Companies Limited 7
Management’s Discussion and Analysis
5. Overall Financial Performance
5.1 Consolidated Results of Operations
The following is a summary of selected consolidated financial information for 2022:
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Revenue
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(2)
Income taxes
Adjusted income taxes(2)
Adjusted effective tax rate(2)
Net earnings attributable to non-controlling interests
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the
Company(i)
Adjusted net earnings available to common shareholders of
the Company(2)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(2) ($)
Diluted weighted average common shares outstanding
(in millions)
2022
(52 weeks)
2021
(52 weeks)
$ 56,504
$ 53,170
3,342
6,181
10.9 %
2,937
5,587
10.5 %
$ 3,334
$ Change % Change
6.3 %
13.8 %
10.6 %
405
594
$ 2,795
$ 2,664
$
683
694
665
841
26.4 %
73
1,921
1,909
2,263
5.75
6.82
$
$
$
$
$
$
$
$
495
684
466
721
26.3 %
101
1,875
1,863
1,911
5.45
5.59
331.7
341.8
131
188
10
199
120
4.9 %
38.0 %
1.5 %
42.7 %
16.6 %
$
$
(28)
46
(27.7) %
2.5 %
46
2.5 %
352
$ 0.30
$
1.23
18.4 %
5.5 %
22.0 %
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
Loblaw continued to deliver strong and consistent financial and operating results across its various businesses in
2022. Global inflationary pressures and lessened impact from COVID-19 influenced consumer behaviours and
positively impacted Retail sales. Loblaw’s portfolio of best in class assets was well positioned to meet customer’s
everyday needs across food, health and wellness, further bolstered by its acquisition of Lifemark Health Group
(“Lifemark”) during the year. The Company’s relentless focus on retail excellence leveraged these assets to deliver
strong sales growth, gross margin improvements, and leverage its operating costs.
8 2022 Annual Report - Financial Review Loblaw Companies Limited
◦
partially offset by,
◦
Net Earnings Available to Common Shareholders of the Company and Diluted Net Earnings Per Common Share
Net earnings available to common shareholders of the Company were $1,909 million ($5.75 per common share) in
2022. This represented an increase of $46 million ($0.30 per common share) or 2.5% when compared to 2021. The
increase included an improvement in underlying operating performance of $352 million which was partially offset
by the unfavourable change in adjusting items totaling $306 million, as described below:
•
the improvement in underlying operating performance of $352 million ($1.03 per common share) was primarily
due to the following:
◦ an improvement in the underlying operating performance in the Retail segment driven by an increase in
adjusted gross profit(2), partially offset by an increase in selling, general and administrative expenses
(“SG&A”) and depreciation and amortization; and
the favourable impact from non-controlling interests;
◦
partially offset by,
◦
a decline in the Financial Services segment primarily due to the year-over-year impact of the expected
credit loss provision from lapping a larger prior year release versus the current year increase and from
lapping a prior year reversal of certain commodity tax accrued.
•
the unfavourable change in adjusting items totaling $306 million ($0.93 per common share) was primarily due
to the following:
◦
the year-over-year unfavourable impact of the recovery related to Glenhuron Bank Limited (“Glenhuron”)
of $271 million ($0.79 per common share);
◦
the unfavourable impact of the charge related to a President’s Choice Bank (“PC Bank”) commodity tax
matter of $86 million ($0.25 per common share); and
the unfavourable impact of the Lifemark transaction costs of $12 million ($0.04 per common share);
the year-over-year favourable impact from the gains on the sale of non-operating properties of
$35 million ($0.11 per common share); and
◦
the year-over-year favourable change in restructuring and other related costs of $24 million ($0.07 per
common share).
• diluted net earnings per common share also included the favourable impact of the repurchase of common
shares over the last 12 months ($0.20 per common share).
In July 2022, the Tax Court of Canada (“Tax Court”) released a decision relating to PC Bank, a subsidiary of the
Company. The Tax Court ruled that PC Bank is not entitled to claim notional input tax credits for certain payments it
made to Loblaws Inc. in respect of redemptions of loyalty points. On September 29th, 2022, PC Bank filed a Notice
of Appeal with the Federal Court of Appeal. Although the Company believes in the merits of its position, the
Company recorded a charge of $111 million, inclusive of interest, in the second quarter of 2022. The Company
believes that this provision is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron, a wholly owned Barbadian subsidiary of the
Company that was wound up in 2013, should be treated, and taxed, as income in Canada. In the fourth quarter of
2021, the Supreme Court of Canada (“Supreme Court”) ruled in favour of the Company on the Glenhuron matter
and the Company reversed $301 million of previously recorded charges, of which $173 million was recorded as
interest income and $128 million was recorded as income tax recovery, and an additional $16 million, before taxes,
was also recorded in respect of interest income earned on expected cash tax refunds. As a result of related
reassessments received during the first quarter of 2022, the Company reversed another $35 million of previously
recorded charges, of which $2 million was recorded as interest income and $33 million was recorded as an income
tax recovery, and an additional $9 million, before taxes, was recorded in respect of interest income earned on
expected cash tax refunds.
Adjusted net earnings available to common shareholders of the Company(2) were $2,263 million, an increase of
$352 million or 18.4% compared to 2021. Adjusted net earnings per common share(2) in 2022 were $6.82 per
common share, an increase of $1.23 or 22.0%. The increase includes the favourable impact of the repurchase of
common shares.
2022 Annual Report - Financial Review Loblaw Companies Limited 9
Management’s Discussion and Analysis
Revenue
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail
Financial Services
Eliminations
Revenue
2022
(52 weeks)
$ 55,492
1,338
(326)
2021
(52 weeks)
$ 52,269 $
1,182
(281)
$ 56,504
$
53,170 $
3,223
$ Change % Change
6.2 %
13.2 %
(16.0) %
6.3 %
3,334
(45)
156
Revenue was $56,504 million in 2022, an increase of $3,334 million, or 6.3% compared to 2021. The increase was
primarily driven by an increase in Retail segment sales of $3,223 million, due to positive same-store sales growth
and Lifemark revenue since the date of acquisition. Furthermore, there was an improvement in Financial Services
segment sales of $156 million.
Operating Income Operating income was $3,342 million in 2022, an increase of $405 million, or 13.8% compared
to 2021. The increase in operating income was driven by an improvement in underlying operating performance of
$454 million, partially offset by an unfavourable change in certain adjusting items totaling $49 million as described
below:
•
the improvement in the underlying operating performance of $454 million was primarily due to the following:
◦ an improvement in the underlying operating performance of the Retail segment due to an increase in
adjusted gross profit(2), partially offset by an increase in SG&A and depreciation and amortization;
partially offset by,
◦ a decline in the Financial Services segment primarily due to the year-over-year impact of the expected
credit loss provision from lapping a larger prior year release versus the current year increase and from
lapping a prior year reversal of certain commodity tax accrued.
•
the unfavourable year-over-year impact of certain adjusting items totaling $49 million was primarily due to the
following:
◦
◦
partially offset by,
◦
the unfavourable impact of the charge related to a PC Bank commodity tax matter of $111 million; and
the unfavourable impact of the Lifemark transaction costs of $16 million;
the year-over-year favourable impact from the gains on the sale of non-operating properties of
$45 million; and
◦
the year-over-year favourable change in restructuring and other related costs of $28 million.
Adjusted EBITDA(2)
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail
Financial Services
Adjusted EBITDA(2)
2022
(52 weeks)
5,939
242
6,181
$
$
$
$
2021
(52 weeks)
$ Change % Change
11.6 %
(8.7) %
10.6 %
617
(23)
594
5,322 $
265
5,587 $
Adjusted EBITDA(2) was $6,181 million in 2022, an increase of $594 million, or 10.6% compared to 2021. The
increase in adjusted EBITDA(2) was primarily due to an increase in the Retail segment of $617 million which was
partially offset by a decrease in the Financial Services segment of $23 million.
Depreciation and Amortization Depreciation and amortization was $2,795 million in 2022, an increase of
$131 million or 4.9% compared to 2021. The increase in depreciation and amortization in 2022 was primarily driven
by an increase in IT assets and leased assets. Included in depreciation and amortization was accelerated
depreciation of $24 million (2021 – nil) due to the reassessment of the estimated useful life of certain IT assets, and
the amortization of intangible assets related to the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug
Mart”) and Lifemark of $497 million (2021 – $506 million).
10 2022 Annual Report - Financial Review Loblaw Companies Limited
Net Interest Expense and Other Financing Charges Net interest expense and other financing charges were
$683 million in 2022, an increase of $188 million or 38.0% compared to 2021. The increase was primarily driven by
prior year interest income related to Glenhuron as discussed in the Income Taxes section below, an increase in
interest expense from higher interest rates, and an increase in long term debt and borrowings related to credit card
receivables. This was partially offset by higher interest income on certain short term investments and post-
employment and other long term employee benefits due to higher interest rates. Included in interest expense from
long term debt is an early repayment premium charge of $7 million recorded in 2022.
Income Taxes
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Income taxes
Add impact of the following
Tax impact of items included in adjusted earnings
before taxes
Recovery related to Glenhuron
Adjusted income taxes(2)
Effective tax rate
Adjusted effective tax rate(2)
2022
(52 weeks)
2021
(52 weeks)
$
665
$
466
$ Change % Change
42.7 %
199
$
$
143
33
841
25.0 %
26.4 %
$
127
128
$
721
19.1 %
26.3 %
16
(95)
120
12.6 %
(74.2) %
16.6 %
Income tax expense was $665 million (2021 – $466 million) and the effective tax rate was 25.0% (2021 – 19.1%).
The increase in the effective tax rate was primarily attributable to the recovery of income taxes related to
Glenhuron in 2021 and the impact of the reversal of the non-deductible interest related to Glenhuron in 2021.
Adjusted income tax expense(2) in 2022 was $841 million (2021 – $721 million) and the adjusted effective tax rate(2)
was 26.4% (2021 – 26.3%). The increase in the adjusted effective tax rate(2) was primarily attributable to the impact
of certain non-deductible items.
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron, a wholly owned Barbadian subsidiary of the
Company that was wound up in 2013, should be treated, and taxed, as income in Canada. In the fourth quarter of
2021, the Supreme Court ruled in favour of the Company on the Glenhuron matter and the Company reversed
$301 million of previously recorded charges, of which $173 million was recorded as interest income and
$128 million was recorded as income tax recovery, and an additional $16 million, before taxes, was also recorded in
respect of interest income earned on expected cash tax refunds. As a result of related reassessments received
during the first quarter of 2022, the Company reversed another $35 million of previously recorded charges, of
which $2 million was recorded as interest income and $33 million was recorded as an income tax recovery, and an
additional $9 million, before taxes, was recorded in respect of interest income earned on expected cash tax
refunds.
Net Earnings Attributable to Non-Controlling Interests Net earnings attributable to non-controlling interests were
$73 million in 2022, a decrease of $28 million or 27.7% compared to 2021. Non-controlling interests represent the
share of earnings that relates to the Company’s Food Retail franchisees and is impacted by the timing of when
profit sharing with franchisees is agreed and finalized under the terms of the agreements. The decrease in non-
controlling interests was primarily driven by the normalizing of franchisee earnings after profit sharing.
2022 Annual Report - Financial Review Loblaw Companies Limited 11
Management’s Discussion and Analysis
5.2 Selected Financial Information
The selected information presented below has been derived from and should be read in conjunction with the
annual consolidated financial statements of the Company dated December 31, 2022, January 1, 2022, and
January 2, 2021. The analysis of the data contained in the table focuses on the trends and significant events or
items affecting the financial condition and results of the Company’s operations over the most recent three years.
For the years ended December 31, 2022 and January 1, 2022 and January 2, 2021
(millions of Canadian dollars except where otherwise indicated)
Revenue
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Adjusted net interest expense and other financing charges(2)
Adjusted effective tax rate(2)
Net earnings
Net earnings attributable to the shareholders of the Company
Net earnings available to common shareholders of the Company(i)
Adjusted net earnings available to common shareholders of the
Company(2)
Basic net earnings per common share ($)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(2) ($)
Diluted weighted average common shares (in millions)
Dividends declared per common share ($)
Dividends declared per Second Preferred Share, Series B ($)
Total assets
Total long term debt
Lease liabilities
Long term financial liabilities
2022
(52 weeks)
2021
(52 weeks)
2020
(53 weeks)
$ 56,504
$ 53,170
$ 52,714
3,342
6,181
10.9 %
2,937
5,587
2,365
5,004
10.5 %
9.5 %
$ 2,795
$ 2,664
$ 2,596
694
26.4 %
1,994
1,921
1,909
2,263
5.82
5.75
6.82
331.7
1.580
1.325
$
$
$
$
$
$
684
26.3 %
1,976
$
742
26.7 %
1,192
1,875
1,863
1,911
5.49
5.45
5.59
341.8
1.400
1.325
1,108
1,096
1,499
3.08
3.06
4.18
$
$
$
$ 358.2
$
$
1.280
1.325
$
$
$
$
$
$
$ 38,147
$ 7,783
$ 36,614
$ 35,873
$
7,213
$ 7,046
9,115
8,839
8,901
$ 16,898
$ 16,052
$ 15,947
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
Revenue Revenue was $56,504 million in 2022, an increase of $3,334 million when compared to 2021. Food retail
same-store sales growth was 4.7% (2021 – 0.3%). Drug retail same-store sales growth was 6.9% (2021 – 5.0%).
Revenue was $53,170 million in 2021, an increase of $456 million when compared to 2020, which was negatively
impacted by $878 million due to the 53rd week in 2020. Food retail same-store sales growth was 0.3% (2020 –
8.6%). Drug retail same-store sales growth was 5.0% (2020 – 4.9%).
12 2022 Annual Report - Financial Review Loblaw Companies Limited
The Company’s Retail segment sales have continued to grow despite the pressure of a competitive retail market,
impacts of global economic uncertainties, and regulatory environment over the last three years. In 2020, the
COVID-19 pandemic had a significant impact on the Company’s colleagues, customers, suppliers and other
stakeholders. The Company experienced sales volatility and changes in sales mix as the pandemic impacted
consumer behaviour throughout the year. In 2021, COVID-19 continued to have a significant impact on the
Company, continuing to accelerate some long-term trends, enabling the Company to advance its strategic growth
areas of Everyday Digital Retail, Connected Healthcare and Payments and Rewards. In Food Retail, sales remained
strong as eat-at-home trends remained elevated even in period where social restrictions loosened. In Drug Retail,
sales benefited from growth in pharmacy services as COVID-19 testing and vaccinations ramped up throughout the
year. Higher margin front-store categories within Drug Retail, that had previously negatively impacted earnings,
increased sales momentum as the economy opened up. In 2022, COVID-19 continued to impact Retail segment
sales through the first half of the year. Food Retail benefited from elevated eat-at-home trends, and Drug Retail
from strong cosmetics and over-the-counter (“OTC”) product sales, as customers returned to pre-pandemic
activities, while COVID-19 related testing and vaccines continued at elevated levels. Retail segment sales growth in
the second half of 2022 benefited from global inflationary pressures and reflected continued strength in cosmetics
and OTC sales in Drug Retail.
The Financial Services segment sales have continued to grow, however, have been impacted by the COVID-19
pandemic. During 2020, the Company’s Financial Services segment sales were negatively impacted by the
COVID-19 pandemic from lower credit card related revenues from lower customer spending and lower sales
attributable to the partial closure of The Mobile Shop™ kiosks during the second quarter of 2020. The Financial
Services segment also launched the PC Money™ Account in the third quarter of 2020, an everyday banking product
that allows account holders to earn PC Optimum points by making payments. The underlying operating
performance of the Company’s Financial Services segment improved in 2021. In 2021, the Financial Services
segment benefited from an increase in customer spending and higher sales attributable to The Mobile Shop kiosks.
In 2022, the Financial Services segment continued to benefit from an increase in customer spending. Further, the
segment benefited from growing credit card receivables in 2022 driven by growth in the active customer base.
Net Earnings Available to Common Shareholders of the Company and Diluted Net Earnings Per Common Share
Net earnings available to common shareholders of the Company and diluted net earnings per common share
fluctuated over the past three years and were impacted by certain adjusting items set out in Section 17 “Non-GAAP
Financial Measures,” and the changes in the underlying operating performance of the Company. The fluctuations in
net earnings available to common shareholders of the Company and diluted net earnings per common share were
primarily due to:
•
• changes in underlying operating performance of the Retail segment due to COVID-19. The Company’s financial
results for the year ended December 31, 2022 and January 1, 2022 had higher revenue and cost of sales when
compared to 2020. In addition, SG&A increased in 2020 as a result of the incremental cost of COVID-19 related
investments to benefit and protect colleagues and customers which have stabilized in 2021 and 2022;
the impact of the 53rd week in fiscal year 2020;
• cost savings and operating efficiencies and investments in and benefits from strategic initiatives;
•
fluctuations in the performance of the Financial Services segment driven by the impact of the increase in
customer spending, the reversal of certain commodity taxes accrued, and year-over-year movement of the
expected credit loss provision;
•
•
the favourable impact of the repurchase of common shares for cancellation; and
the impact of certain adjusting items, including:
the recovery relating to Glenhuron;
◦ charge related to PC Bank commodity tax matter;
◦ Lifemark transaction costs;
◦
◦
◦
◦
◦
the gain on sale of non-operating properties.
fair value adjustment on non-operating properties;
fair value adjustment on fuel and foreign currency;
restructuring and other related recoveries and costs; and
2022 Annual Report - Financial Review Loblaw Companies Limited 13
Management’s Discussion and Analysis
Total Assets and Long Term Financial Liabilities In 2022, total assets of $38,147 million increased by 4.2%
compared to 2021. The increase was primarily driven by an increase in inventory, credit card receivables, and
goodwill. This was partially offset by a decrease in cash and cash equivalents and a decrease in income tax
recoverable due to collection of income tax refunds from Glenhuron. Long term financial liabilities of $16,898
million, increased by 5.3% compared to 2021. This was primarily driven by an increase in lease liability and long
term debt driven by an increase in guaranteed investment certificates (“GIC”).
In 2021, total assets of $36,614 million increased by 2.1% compared to 2020. The increase was primarily driven by
an increase in receivables due to the recovery of taxes and interest from Glenhuron, an increase in credit card
receivables and an increase in cash and cash equivalents. Long term financial liabilities of $16,052 million
increased by 0.7% compared to 2020. This was primarily driven by an increase in long term debt due to
Eagle Credit Card Trust® (“Eagle”) Eagle issuance of $300 million of senior and subordinated term notes with a
maturity date of June 17, 2026 at a weighted average interest rate of 1.61%. The increase was also due to an
increase in the independent funding trust, partially offset by a decrease in GICs.
6. Reportable Operating Segments Results of Operations
The Company has two reportable operating segments, with all material operations carried out in Canada:
• The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug
stores, which includes in-store pharmacies, health care services and other health and beauty products, apparel
and other general merchandise. This segment is comprised of several operating segments that are aggregated
primarily due to similarities in the nature of products and services offered for sale in the retail operations and
the customer base; and
• The Financial Services segment provides credit card and everyday banking services, the PC Optimum Program,
insurance brokerage services, and telecommunication services.
6.1 Retail Segment
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Sales
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
2022
(52 weeks)
2021
(52 weeks)
$ 55,492
$ 52,269
3,260
17,165
2,713
16,041
30.9 %
30.7 %
$ 3,223
$ Change % Change
6.2 %
20.2 %
7.0 %
1,124
547
$ 5,939
$ 5,322
$
617
11.6 %
10.7 %
10.2 %
$ 2,746
$ 2,623
$
123
4.7 %
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Food retail
Drug retail
Pharmacy and healthcare services
Front store
2022
(52 weeks)
Same-store
sales
4.7 %
6.9 %
5.7 %
8.2 %
2021
(52 weeks)
Same-store
sales
0.3 %
5.0 %
8.4 %
2.1 %
Sales
$ 37,481
14,788
7,224
7,564
Sales
$ 39,398
16,094
7,944
8,150
14 2022 Annual Report - Financial Review Loblaw Companies Limited
Sales Retail segment sales were $55,492 million in 2022, an increase of $3,223 million, or 6.2% compared to 2021,
primarily driven by the following factors:
• Food retail same-store sales growth was 4.7% (2021 – 0.3%) for 2022.
◦ Sales growth in food was strong, mainly due to higher than normal inflation;
◦ Sales growth in pharmacy was modest;
◦ The Consumer Price Index as measured by The Consumer Price Index for Food Purchased From Stores
was 9.7% (2021 – 2.2%) which was generally in line with the Company’s internal food inflation; and
◦ Food Retail traffic increased and basket size decreased.
• Drug retail same-store sales growth was 6.9% (2021 – 5.0%).
◦ Pharmacy same-store sales growth was 5.7% (2021 – 8.4%). Pharmacy and healthcare services same-
store sales growth benefited from an increase in acute and chronic prescription volumes from the
economic re-opening. The number of prescriptions dispensed increased by 2.5% (2021 – 0.9%). On a
same-store basis, the number of prescriptions dispensed increased by 2.6% (2021 – 2.7%) and the
average prescription value increased by 2.4% (2021 – 4.7%);
◦ Pharmacy and healthcare services sales include Lifemark revenues of $279 million. Lifemark revenues
are excluded from same-store sales; and
◦ Front store same-store sales growth was 8.2% (2021 – 2.1%). Front store same-store sales growth
benefited from the economic re-opening and higher consumer spending.
In 2022, 13 food and drug stores were opened, and 10 food and drug stores were closed, and net retail square
footage has remained constant at 71.2 million square feet.
Operating Income Operating income was $3,260 million in 2022, an increase of $547 million, or 20.2% compared
to 2021. The increase was driven by an improvement in underlying operating performance of $485 million and the
favourable change in adjusting items totaling $62 million, as described below:
•
the improvement in underlying operating performance of $485 million was primarily from an increase in
adjusted gross profit(2), partially offset by an increase in SG&A and an increase in depreciation and
amortization; and
•
the favourable change in adjusting items totaling $62 million was primarily due to the following:
◦
the year-over-year favourable impact from the gains on the sale of non-operating properties of
$45 million; and
the year-over-year favourable change in restructuring and other related costs of $28 million;
◦
partially offset by,
◦
the unfavourable impact of the Lifemark transaction costs of $16 million.
Adjusted Gross Profit(2) Adjusted gross profit(2) was $17,165 million in 2022, an increase of $1,124 million, or 7.0%
compared to 2021. Adjusted gross profit percentage(2) of 30.9% increased by 20 basis points when compared to
2021, driven by growth in higher margin Drug Retail front store categories. Compared to 2021, when inflation
started to accelerate, Food Retail gross margins were flat.
Adjusted EBITDA(2) Adjusted EBITDA(2) was $5,939 million in 2022, an increase of $617 million, or 11.6% compared
to 2021. The increase was driven by an increase in adjusted gross profit(2) of $1,124 million, partially offset by an
increase in SG&A of $507 million. SG&A as a percentage of sales was 20.2%, a decrease of 30 basis points when
compared to 2021. The favourable decrease of 30 basis points was primarily due to operating leverage gained
from higher sales and lower COVID-19 related expenses.
Depreciation and Amortization Depreciation and amortization was $2,746 million in 2022, an increase of
$123 million when compared to 2021. The increase in depreciation and amortization was primarily driven by an
increase in IT and leased assets. Included in depreciation and amortization in 2022 was accelerated depreciation
of $24 million (2021 – nil) due to the reassessment of the estimated useful life of certain IT assets, and the
amortization of intangibles assets related to the acquisitions of Shoppers Drug Mart and Lifemark of $497 million
(2021 – $506 million).
2022 Annual Report - Financial Review Loblaw Companies Limited 15
Management’s Discussion and Analysis
Lifemark Health Group On May 10, 2022, the Company acquired all of the outstanding common shares of Lifemark
for total cash purchase consideration of $829 million. Lifemark is the Canadian leading provider of outpatient
physiotherapy, massage therapy, occupational therapy, chiropractic, mental health, and other ancillary
rehabilitation services through its more than 300 clinics across Canada. The acquisition of Lifemark adds to the
Company’s growing role as a healthcare service provider, with a network of health and wellness solutions,
accessible in-person and digitally. Revenue of $279 million and nominal net earnings were contributed by Lifemark
from the date of acquisition. In 2022, net earnings includes amortization related to the acquired intangible assets of
$8 million.
6.2 Financial Services Segment
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Revenue
Earnings (Losses) before income taxes
2022
(52 weeks)
2021
(52 weeks)
$
1,338
$
1,182 $
(2)
160
$ Change % Change
13.2 %
(101.3) %
(162)
156
(millions of Canadian dollars except where otherwise indicated)
Average quarterly net credit card receivables
Credit card receivables
Allowance for credit card receivables
Annualized yield on average quarterly gross credit
card receivables
Annualized credit loss rate on average quarterly
gross credit card receivables
As at
December 31, 2022
As at
January 1, 2022
$
$
3,607
3,954
206
13.0 %
2.7 %
3,128
3,443
205
12.7 %
2.5 %
$
479
$ Change % Change
15.3 %
14.8 %
0.5 %
511
1
Revenue Revenue was $1,338 million in 2022, an increase of $156 million compared to 2021. The increase was
primarily driven by:
• higher interest income from growth in credit card receivables; and
• higher interchange income and credit card related fees from an increase in customer spending;
partially offset by,
•
Earnings (Losses) before income taxes Losses before income taxes were $2 million in 2022, a decrease of
$162 million compared to 2021. The decrease was primarily driven by:
• a charge related to a commodity tax matter of $111 million recorded in the second quarter of 2022;
• higher loyalty program costs, operating costs, contractual charge-off and funding costs from an increase in
lower sales attributable to The Mobile Shop.
customer spending and an increase in interest rates;
• prior year reversal of certain commodity tax accrued in the amount of $37 million; and
•
the year-over-year impact of the expected credit loss provision from lapping a larger prior year release of
$32 million versus the current year increase of $1 million;
partially offset by,
• higher revenue as described above.
In July 2022, the Tax Court released a decision relating to PC Bank, a subsidiary of the Company. The Tax Court
ruled that PC Bank is not entitled to claim notional input tax credits for certain payments it made to Loblaws Inc. in
respect of redemptions of loyalty points. On September 29th, 2022, PC Bank filed a Notice of Appeal with the
Federal Court of Appeal. Although the Company believes in the merits of its position, the Company recorded a
charge of $111 million, inclusive of interest, in the second quarter of 2022. The Company believes that this provision
is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
Credit Card Receivables As at December 31, 2022, credit card receivables were $3,954 million, an increase of
$511 million compared to January 1, 2022. This increase was primarily driven by growth in the active customer base
and an increase in customer spending. The allowance for credit card receivables was $206 million, an increase of
$1 million compared to January 1, 2022.
16 2022 Annual Report - Financial Review Loblaw Companies Limited
7. Liquidity and Capital Resources
7.1 Cash Flows
Major Cash Flow Components
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Cash and cash equivalents, beginning of year
Cash flows from (used in):
Operating activities
Investing activities
Financing activities
Effect of foreign currency exchange rate changes on
cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents, end of year
$
$
$
$
2022
(52 weeks)
1,976
$
2021
(52 weeks)
$ Change % Change
18.5 %
308
1,668 $
4,755
$
4,827 $
(72)
(2,368)
(2,751)
(1,271)
(1,097)
(3,249)
498
(1.5) %
(86.3) %
15.3 %
(4)
(368) $
$
1,608
1
308 $
1,976 $
(5)
(676)
(368)
(500.0) %
(219.5) %
(18.6) %
Cash Flows from Operating Activities Cash flows from operating activities were $4,755 million, a decrease of
$72 million compared to 2021. The decrease in cash flows from operating activities was primarily driven by an
unfavourable change in non-cash working capital and growth in credit card receivables from a rise in customer
spending, partially offset by higher cash earnings and net lower income taxes paid due to the recovery of cash
taxes related to Glenhuron.
Cash Flows used in Investing Activities Cash flows used in investing activities were $2,368 million, an increase of
$1,097 million compared to 2021. The increase in cash flows used in investing activities was primarily driven by the
acquisition of Lifemark and an increase in investments in fixed and intangible assets, partially offset by a decrease
in short term investments.
Capital Investments and Store Activity
As at or for the periods ended December 31, 2022 and January 1, 2022
Corporate square footage (in millions)
Franchise square footage (in millions)
Associate-owned drug store square footage (in millions)
Total retail square footage (in millions)
Number of corporate stores
Number of franchise stores
Number of Associate-owned drug stores
Total number of stores
Average store size (square feet)
Corporate
Franchise
Associate-owned drug store
2022
(52 weeks)
2021(i)
(52 weeks)
34.9
17.3
19.0
71.2
547
551
1,346
2,444
63,800
31,400
14,100
35.1
17.2
18.9
71.2
548
551
1,342
2,441
64,100
31,200
14,100
% Change
(0.6) %
0.6 %
0.5 %
— %
(0.2) %
— %
0.3 %
0.1 %
(0.5) %
0.6 %
— %
(i)
Comparative figures for the number of corporate stores has been restated to conform with current year presentation, which separately
counts in-store health clinics.
2022 Annual Report - Financial Review Loblaw Companies Limited 17
Management’s Discussion and Analysis
Capital Investments Capital investments were $1,571 million, an increase of $388 million or 32.8%, compared
to 2021.
Cash Flows used in Financing Activities Cash flows used in financing activities were $2,751 million, a decrease of
$498 million compared to 2021. The decrease in cash flows used in financing activities was primarily driven by
higher net issuances of long term debt and an increase in short term debt, partially offset by higher repurchases of
common shares in the current year.
The Company’s significant long term debt transactions are set out in Section 7.3 “Components of Total Debt”.
Free Cash Flow(2)
For the years ended December 31, 2022
and January 1, 2022
(millions of Canadian dollars)
Cash flows from (used in)
operating activities
Less:
Capital investments
Interest paid
Lease payments, net
Free cash flow(2)
2022
(52 weeks)
2021
(52 weeks)
Retail
Financial
Services Eliminations(i)
Total
Retail
Financial
Services Eliminations(i)
Total
$ 5,133 $ (444) $
66 $ 4,755 $ 4,775 $
(16) $
68 $ 4,827
1,538
278
1,312
33
—
—
—
66
—
1,571
344
1,312
1,154
271
1,346
29
—
—
—
68
—
1,183
339
1,346
$ 2,005 $ (477) $
— $ 1,528 $ 2,004 $
(45) $
— $ 1,959
(i)
Interest paid is included in cash flows from operating activities under the Financial Services segment.
Free cash flow(2) from the Retail segment was $2,005 million in 2022, in line with 2021.
Free cash flow(2) used in the Financial Services segment was $477 million in 2022, an increase of $432 million
compared to the same period in 2021. The increase was primarily driven by growth in credit card receivables from
an increase in the active customer base and a rise in customer spending, and lower cash earnings.
18 2022 Annual Report - Financial Review Loblaw Companies Limited
7.2 Liquidity and Capital Structure
The Company expects that cash and cash equivalents, short term investments, future operating cash flows and the
amounts available to be drawn against committed credit facilities will enable the Company to finance its capital
investment program and fund its ongoing business requirements over the next 12 months, including working
capital, pension plan funding requirements and financial obligations.
PC Bank expects to obtain long term financing for its credit card portfolio through the issuance of Eagle notes
and GICs.
The Company manages its capital structure on a segmented basis to ensure that each of the reportable operating
segments is employing a capital structure that is appropriate for the industry in which it operates. The following
table presents total debt by reportable operating segment:
(millions of Canadian dollars)
Bank indebtedness
Demand deposits from customers
Short term debt
Long term debt due within one year
Long term debt
Certain other liabilities(i)
Total debt excluding lease liabilities
Lease liabilities due within one year
Lease liabilities
Total debt including total lease liabilities
As at
December 31, 2022
Financial
Services
Total
Retail
As at
January 1, 2022
Retail
Financial
Services
$
8 $
— $
8 $
52 $
— $
—
—
—
125
700
727
125
700
727
4,866
2,190
7,056
153
—
153
—
—
570
4,297
131
75
450
432
1,914
—
Total
52
75
450
1,002
6,211
131
$ 5,027 $ 3,742 $ 8,769 $ 5,050 $ 2,871 $ 7,921
1,401
7,714
—
—
1,401
7,714
1,297
7,542
—
—
1,297
7,542
$ 14,142 $ 3,742 $ 17,884 $ 13,889 $ 2,871 $ 16,760
(i) As at December 31, 2022, certain other liabilities include financial liabilities of $73 million related to the sale of retail properties to
Choice Properties Real Estate Investment Trust (January 1, 2022 – $57 million).
Retail The Company manages its capital structure with the objective of maintaining Retail segment credit metrics
consistent with those of investment grade retailers. The Company calculates the Retail segment’s debt to retail
adjusted EBITDA(2) ratio to measure the leverage being employed.
Retail debt to retail adjusted EBITDA(2)
As at
December 31, 2022
2.4 x
As at
January 1, 2022
2.6 x
The Retail debt to retail adjusted EBITDA(2) ratio as at December 31, 2022 decreased compared to January 1, 2022,
primarily due to an improvement in adjusted EBITDA(2) of the retail segment.
President’s Choice Bank PC Bank’s capital management objectives are to maintain a consistently strong capital
position while considering the economic risks generated by its credit card receivables portfolio and to meet all
regulatory requirements as defined by the Office of the Superintendent of Financial Institutions (“OSFI”).
Covenants and Regulatory Requirements The Company is required to comply with certain financial covenants for
various debt instruments. As at December 31, 2022 and throughout the year, the Company was in compliance with
such covenants. As at December 31, 2022 and throughout the year, PC Bank has met all applicable regulatory
requirements.
2022 Annual Report - Financial Review Loblaw Companies Limited 19
Management’s Discussion and Analysis
7.3 Components of Total Debt
Debentures The following table summarizes the debentures issued in 2022. There were no debentures issued
in 2021.
(millions of Canadian dollars except where otherwise indicated)
Loblaw Companies Limited Notes(i)
Loblaw Companies Limited Notes(i)
Total debentures issued
Interest
Rate
5.01%
5.34%
Maturity Date
September 13, 2032
September 13, 2052
Principal
Amount
2022
$
$
400
400
800
(i) During 2022, the Company completed a dual-tranche issuance of $800 million aggregate principal amount of senior unsecured notes. In
connection with this issuance, the Company used the net proceeds of the issuance to redeem $800 million outstanding principal amount of
its Series 2023 unsecured notes.
The following table summarizes the debentures repaid in 2022. There were no debentures repaid in 2021.
(millions of Canadian dollars except where otherwise indicated)
Loblaw Companies Limited Notes(i)
Total debentures repaid
Interest
Rate
4.86%
Maturity Date
September 12, 2023
Principal
Amount
2022
$
$
800
800
(i) The Company recorded an early repayment premium charge of $7 million in net interest expense and other financing charges when the
Company redeemed the $800 million outstanding principal amount of its Series 2023 senior unsecured notes with original maturity date of
September 12, 2023 on September 21, 2022.
Committed Credit Facility The Company has a $1.0 billion committed credit facility with a maturity date of
July 15, 2027, provided by a syndicate of lenders. The Company extended the maturity date during 2022 with all
other terms and conditions remaining substantially the same. This committed credit facility contains certain financial
covenants. As at December 31, 2022 and January 1, 2022, there were no amounts drawn under this facility.
Independent Securitization Trusts The Company, through PC Bank, participates in various securitization programs
that provide a source of funds for the operation of its credit card business. PC Bank maintains and monitors a co-
ownership interest in credit card receivables with independent securitization trusts, including Eagle and Other
Independent Securitization Trusts, in accordance with its financing requirements.
The following table summarizes the amounts securitized to independent securitization trusts:
(millions of Canadian dollars)
Securitized to independent securitization trusts:
Securitized to Eagle Credit Card Trust®
Securitized to Other Independent Securitization Trusts
Total securitized to independent securitization trusts
As at
December 31, 2022
As at
January 1, 2022
$
$
1,350
700
2,050
$
$
1,350
450
1,800
Under its securitization programs, PC Bank is required to maintain, at all times, a credit card receivable pool
balance equal to a minimum of 107% of the outstanding securitized liability. PC Bank was in compliance with this
requirement as at December 31, 2022 and throughout 2022.
During 2022, Eagle filed a Short Form Base Shelf Prospectus, which allows for the issuance of up to $1.25 billion of
notes over a 25-month period.
20 2022 Annual Report - Financial Review Loblaw Companies Limited
During 2022, Eagle issued $250 million (2021 – $300 million) of senior and subordinated term notes with a
maturity date of July 17, 2027 (2021 – June 17, 2026). These notes have a weighted average interest rate of 4.89%
(2021 – 1.61%). In connection with this issuance, $140 million (2021 – $175 million) of bond forward agreements were
settled, resulting in a realized fair value gain of $8 million (2021 – loss of $1 million) before income taxes, which was
cumulatively recorded in other comprehensive loss as unrealized prior to the settlement of the agreement. The
gain will be reclassified to net earnings over the life of the Eagle notes. This settlement resulted in a net effective
interest rate of 4.24% (2021 – 1.65%) on the Eagle notes issued.
During 2022, $250 million of senior and subordinated term notes at weighted average interest rate of 2.71%,
previously issued by Eagle, matured and were repaid on October 17, 2022. As a result, during 2022, there was no
net change in the balances related to Eagle notes.
There were no repayments of notes issued by Eagle in 2021.
Independent Funding Trusts As at December 31, 2022, the independent funding trusts had drawn $574 million
(January 1, 2022 – $570 million) from the revolving committed credit facility that is the source of funding to the
independent funding trusts. The Company provides credit enhancement in the form of a standby letter of credit for
the benefit of the independent funding trusts. As at December 31, 2022, the Company provided a credit
enhancement of $64 million (January 1, 2022 – $64 million) for the benefit of the independent funding trusts
representing not less than 10% (January 1, 2022 – not less than 10%) of the principal amount of loans outstanding.
The Company has a $700 million revolving committed credit facility that is the source of funding to the
independent funding trusts that has a maturity date of April 14, 2025. The Company extended the maturity date
during 2022 with all other terms and conditions remaining substantially the same.
Guaranteed Investment Certificates The following table summarizes PC Bank’s GICs activity, before commissions
in 2022 and 2021:
(millions of Canadian dollars)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
December 31, 2022
(52 weeks)
January 1, 2022
(52 weeks)
$
$
$
996
764
(193)
1,567
$
1,185
414
(603)
996
As at December 31, 2022, $477 million in GICs were recorded as long term debt due within one year
(January 1, 2022 – $182 million).
Associate Guarantees The Company has arranged for its pharmacist owners of corporations licensed to operate
retail drug stores at specific locations using the Company’s trademarks (“Associates”) to obtain financing to
facilitate their inventory purchases and fund their working capital requirements by providing guarantees to various
Canadian chartered banks that support Associate loans. As at December 31, 2022, the Company’s maximum
obligation in respect of such guarantees was $580 million (January 1, 2022 – $580 million) with an aggregate
amount of $473 million (January 1, 2022 – $469 million) in available lines of credit allocated to the Associates by
the various banks. As at December 31, 2022, Associates had drawn an aggregate amount of $8 million
(January 1, 2022 – $52 million) against these available lines of credit. Any amounts drawn by the Associates are
included in bank indebtedness on the Company’s consolidated balance sheets. As recourse, in the event that any
payments are made under the guarantees, the Company holds a first-ranking security interest on all assets of
Associates, subject to certain prior-ranking statutory claims.
2022 Annual Report - Financial Review Loblaw Companies Limited 21
Management’s Discussion and Analysis
7.4 Financial Condition
Adjusted return on equity(2) and Adjusted return on capital(2)
Adjusted return on equity(2)
Adjusted return on capital(2)
As at
December 31, 2022
20.2 %
10.8 %
As at
January 1, 2022
17.3 %
9.8 %
Adjusted return on equity(2) as at December 31, 2022 increased compared to January 1, 2022, primarily due to an
improvement in the underlying operating performance of the Retail segment.
Adjusted return on capital(2) as at December 31, 2022 increased compared to January 1, 2022, primarily due to an
improvement in tax-effected adjusted operating income(2).
7.5 Credit Ratings
The following table sets out the current credit ratings of the Company:
Credit Ratings (Canadian Standards)
Issuer rating
Medium term notes
Other notes and debentures
Second Preferred Shares, Series B
Dominion Bond Rating Service
Credit Rating
BBB (high)
BBB (high)
BBB (high)
Pfd-3 (high)
Trend
Stable
Stable
Stable
Stable
Standard & Poor’s
Credit Rating
BBB
BBB
BBB
P-3 (high)
Outlook
Stable
n/a
n/a
n/a
During 2022, Dominion Bond Rating Service Morningstar confirmed the credit ratings and trend of the Company,
and Standard and Poor’s Global Ratings confirmed the credit ratings and outlook of the Company.
7.6 Share Capital
First Preferred Shares (authorized - 1.0 million shares) There were no First Preferred Shares outstanding as at
December 31, 2022 and January 1, 2022.
Second Preferred Shares (authorized - unlimited) The Company has outstanding 9.0 million 5.30% non-voting
Second Preferred Shares, Series B, with a face value of $225 million, which were issued for net proceeds of
$221 million. These preferred shares are presented as a component of equity on the consolidated balance sheets.
Common Shares (authorized – unlimited) Common shares issued are fully paid and have no par value. The
activities in the common shares issued and outstanding were as follows:
Number of
Common
Shares
2022
(52 weeks)
Common
Share
Capital
333,527,369 $ 6,643
100
(254)
324,062,608 $ 6,489
(12)
(23)
11
(24)
(595,495) $
(1,172,000)
545,217
(1,222,278) $
1,487,377
(10,952,138)
Number of
Common
Shares
2021
(52 weeks)
Common
Share
Capital
347,361,480 $ 6,837
116
(310)
333,527,369 $ 6,643
(13)
(10)
11
(12)
(672,784) $
(510,000)
587,289
(595,495) $
1,829,170
(15,663,281)
322,840,330 $ 6,465
328,068,749
332,931,874 $ 6,631
339,097,833
(millions of Canadian dollars except where otherwise indicated)
Issued and outstanding, beginning of period
Issued for settlement of stock options
Purchased and cancelled
Issued and outstanding, end of period
Shares held in trust, beginning of period
Purchased for future settlement of RSUs and PSUs
Released for settlement of RSUs and PSUs
Shares held in trust, end of period
Issued and outstanding, net of shares held in trust,
end of period
Weighted average outstanding, net of shares held in trust
22 2022 Annual Report - Financial Review Loblaw Companies Limited
Dividends The declaration and payment of dividends on the Company’s common shares and the amount thereof
are at the discretion of the Board of Directors (“Board”), which takes into account the Company’s financial results,
capital requirements, available cash flow, future prospects of the Company’s business and other factors considered
relevant from time to time. Over the long term, it is the Company’s intention to increase the amount of the dividend
while retaining appropriate free cash flow to finance future growth. In the second quarter of 2022 and in the third
quarter of 2021, the Board raised the quarterly dividend by $0.04 to $0.405 and $0.03 to $0.365 per common
share, respectively.
The following table summarizes the Company’s cash dividends declared for the periods as indicated:
Dividends declared per share ($)
Common Share
Second Preferred Share, Series B
2022(i)
$
$
1.580
1.325
$
$
2021
1.400
1.325
(i) The Common Share dividends declared in the fourth quarter of 2022 of $0.405 per share had a payment date of December 30, 2022.
The Second Preferred Shares, Series B dividends declared in the fourth quarter of 2022 of $0.33125 per share had a payment date of
December 31, 2022.
(millions of Canadian dollars)
Dividends declared
Common Share
Second Preferred Share, Series B
Total dividends declared
2022
$
$
517
$
12
529
$
2021
472
12
484
Subsequent to December 31, 2022, the Board declared a quarterly dividend of $0.405 per common share, payable
on April 1, 2023 to shareholders of record on March 15, 2023 and a quarterly dividend of $0.33125 per share on the
Second Preferred Shares, Series B payable on March 31, 2023 to shareholders of record on March 15, 2023.
Normal Course Issuer Bid Activities under the Company’s Normal Course Issuer Bid (“NCIB”) during the periods
were as follows:
(millions of Canadian dollars except where otherwise indicated)
Common shares repurchased under the NCIB for cancellation
(number of shares)(i)
Cash consideration paid
Premium charged to retained earnings(ii)
Reduction in common share capital(iii)
Common shares repurchased under the NCIB and held in trust
(number of shares)
Cash consideration paid
Premium charged to retained earnings
Reduction in common share capital
2022
2021
10,952,138
15,647,886
$
$
1,258
1,204
254
$
1,200
890
310
1,172,000
510,000
$
138
115
23
50
40
10
(i) Common shares repurchased and cancelled as at December 31, 2022 do not include the shares that may be repurchased subsequent to the
end of the quarter under the automatic share repurchase plan, as described below.
(ii) Includes $166 million related to the automatic share purchase plan, as described below.
(iii) Includes $34 million related to the automatic share purchase plan, as described below.
2022 Annual Report - Financial Review Loblaw Companies Limited 23
Management’s Discussion and Analysis
In the second quarter of 2022, the Company renewed its NCIB to purchase on the Toronto Stock Exchange (“TSX”)
or through alternative trading systems up to 16,647,384 of the Company’s common shares, representing
approximately 5% of issued and outstanding common shares. In accordance with the rules of the TSX, the
Company may purchase its common shares from time to time at the then market price of such shares. As at
December 31, 2022, the Company had purchased 9,609,720 common shares for cancellation under its current
NCIB.
During 2020, the TSX accepted an amendment to the Company’s NCIB. The amendment permitted the Company
to purchase its common shares from George Weston Limited (“Weston”) under its NCIB, pursuant to an automatic
disposition plan agreement among the Company’s broker, the Company and Weston, in order for Weston to
maintain its proportionate ownership interest in the Company. The maximum number of common shares that may
be purchased pursuant to the NCIB will be reduced by the number of common shares purchased from Weston.
During 2022, 10,952,138 common shares (2021 – 15,647,886) were purchased under the NCIB program for
cancellation, for aggregate consideration of $1,258 million (2021 – $1,200 million), including 4,868,949 common
shares (2021 – 7,399,437) purchased from Weston, for aggregate consideration of $558 million (2021 –
$563 million).
From time to time, the Company participates in an automatic share purchase plan (“ASPP”) with a broker in order to
facilitate the repurchase of the Company’s common shares under its NCIB. During the effective period of the ASPP,
the Company’s broker may purchase common shares at times when the Company would not be active in the
market. As at December 31, 2022, an obligation to repurchase shares of $200 million was recognized under the
ASPP in trade payables and other liabilities.
7.7 Off-Balance Sheet Arrangements
The following is a summary of the Company’s off-balance sheet arrangements. Certain significant arrangements
have also been discussed in Section 7.3 “Components of Total Debt”.
Letters of Credit Standby and documentary letters of credit are used in connection with certain obligations mainly
related to real estate transactions, benefit programs, purchase orders and other performance guarantees, surety
bond, securitization of PC Bank’s credit card receivables, letter of credit and third party financing made available to
the Company’s franchisees. The gross potential liability related to the Company’s letters of credit is approximately
$450 million as at December 31, 2022 (January 1, 2022 – $518 million).
Guarantees In addition to the letters of credit mentioned above, the Company has entered into various guarantee
arrangements including obligations to indemnify third parties in connection with leases and other transactions in
the normal course of business.
Lease Obligations In connection with historical dispositions of certain of its assets, the Company has assigned
leases to third parties. The Company remains contingently liable for these lease obligations in the event any of the
assignees are in default of their lease obligations. The Company has guaranteed lease obligations of a third party
distributor in the amount of $4 million (January 1, 2022 – $2 million).
Financial Services The Company has provided a guarantee on behalf of PC Bank to MasterCard International
Incorporated (“MasterCard”) for accepting PC Bank as a card member and licensee of MasterCard. As at
December 31, 2022, the guarantee on behalf of PC Bank to MasterCard was USD $190 million (January 1, 2022 –
USD $190 million).
Cash Collateralization As at December 31, 2022, the Company had agreements to cash collateralize certain of its
uncommitted credit facilities up to an amount of $93 million (January 1, 2022 – $93 million), of which a nominal
amount (January 1, 2022 – nominal) was deposited with major financial institutions and classified as security
deposits, which is included in other assets.
24 2022 Annual Report - Financial Review Loblaw Companies Limited
7.8 Contractual Obligations
The following illustrates certain of the Company’s significant contractual obligations and discusses other
obligations as at December 31, 2022:
Summary of Contractual Obligations
2023
(millions of Canadian dollars)
Total debt (including interest payments(i)) $ 1,886 $ 1,393 $
Foreign exchange forward contracts
Financial Liabilities(ii)
Lease payments
Contracts for purchases of investment
543
4
1,426
157
4
1,352
2024
Payments due by year
2025
1,413 $
—
5
1,291
2026
2027 Thereafter
Total
761 $ 803 $ 5,428 $ 11,684
700
65
9,238
—
5
1,058
—
42
3,201
—
5
910
projects(iii)
Purchase obligations(iv)
Total contractual obligations
325
900
172
707
125
554
40
523
$ 5,084 $ 3,785 $ 3,388 $ 2,387 $
157
16
866
47
2,716
16
1,891 $ 8,734 $ 25,269
(i) Fixed interest payments are based on the maturing face values and annual interest for each instrument, including GICs, long term
independent securitization trusts and an independent funding trust, as well as annual payment obligations for structured entities. Variable
interest payments are based on the forward rates as of December 31, 2022.
(ii) These are the contractual payments that the Company is committed to related to the sale of retail properties to Choice Properties Real
Estate Investment Trust.
(iii) These obligations include agreements for the purchase of equipment, real property and capital commitments for construction, expansion
and renovation of buildings. These agreements may contain conditions that may or may not be satisfied. If the conditions are not satisfied, it
is possible the Company will no longer have the obligation to proceed with the underlying transactions.
(iv) These obligations include contractual obligations to purchase goods or services of a material amount where the contract prescribes fixed or
minimum volumes to be purchased or payments to be made within a fixed period of time for a set or variable price. These are only estimates
of anticipated financial commitments under these arrangements and the amount of actual payments will vary. These purchase obligations do
not include purchase orders issued or agreements made in the ordinary course of business which are solely for goods which are meant for
resale, nor do they include any contracts which may be terminated on relatively short notice or with relatively insignificant cost or liability to
the Company.
At year end, the Company had additional long term liabilities which included post-employment and other long term
employee benefit plan liabilities, deferred vendor allowances, deferred income tax liabilities and provisions,
including insurance liabilities. These long term liabilities have not been included above as the timing and amount of
future payments are uncertain.
8. Financial Derivative Instruments
The Company uses derivative instruments to offset certain of its financial risks. The Company uses bond forwards
and interest rate swaps, to manage its anticipated exposure to fluctuations in interest rates on future debt
issuances. The Company also uses futures, options and forward contracts to manage its anticipated exposure to
fluctuations in commodity prices and exchange rates in its underlying operations.
The following is a summary of the fair values recognized on the consolidated balance sheets and the net realized
and unrealized gains (losses) before income taxes related to the Company’s financial derivative instruments
designated as cash flow hedges:
(millions of Canadian dollars)
Derivatives designated as cash flow hedges
Foreign Exchange Forwards(i)
Bond Forwards(ii)
Interest Rate Swaps(iii)
Total derivatives designated as cash flow hedges $
$
December 31, 2022
(52 weeks)
Gain/(loss)
recorded in
operating
income
Net asset/ Gain/(loss)
recorded
in OCI
(liability)
Fair value
January 1, 2022
(52 weeks)
Gain/(loss)
recorded in
operating
income
Net asset/ Gain/(loss)
recorded
in OCI
(liability)
Fair value
4 $
1
1
6 $
4 $
18
(1)
21 $
2 $
(5)
4
1 $
— $ — $
(1)
1
— $
6
1
7 $
(1)
(7)
—
(8)
(i) PC Bank uses foreign exchange forwards, with a notional value of $37 million USD, to manage its foreign exchange risk related to certain
U.S. payables. The fair value of the derivatives is included in trade payables and other liabilities. During the first quarter of 2022, the
Company entered into foreign exchange forwards, as described below.
(ii) PC Bank uses bond forwards, with notional value of $25 million, to manage its interest risk related to future debt issuances. The fair value of
the derivatives is included in trade payables and other liabilities. During 2022, PC Bank settled $140 million of bond forwards.
(iii) PC Bank uses interest rate swaps, with notional value of $180 million to mitigate the impact of increases in interest rate. The fair value of the
derivatives is included in prepaid expenses and other assets.
2022 Annual Report - Financial Review Loblaw Companies Limited 25
Management’s Discussion and Analysis
Foreign Exchange Forwards In the fourth quarter of 2022, PC Bank entered into foreign exchange forward
agreements with a notional value of $20 million USD (2021 – $19 million USD) to hedge its exposure to certain USD
payables. The Company has assessed that these hedge agreements were effective at at year-end and has
included any fluctuations relating to foreign exchange forwards in other comprehensive income.
In the first quarter of 2022, the Company entered into foreign exchange forwards. The purpose of these forward
exchange forwards was to hedge the risk that the future cash flows of an anticipated fixed asset purchase
transaction will fluctuate because of changes in foreign exchange rates. The Company concluded that these
hedges were effective and accordingly, the gains or losses on these foreign exchange forwards are recognized in
other comprehensive income. Upon settlement of these foreign exchange forwards, the accumulated other
comprehensive income will be included in the initial cost of the fixed asset.
The Company also uses futures, options and forward contracts to manage its anticipated exposure to fluctuations
in commodity prices and exchange rates on its underlying operations. These derivative instruments are not
designated in a formal hedging relationship. For further details on the impact of these instruments during 2022 see
Section 17 “Non-GAAP Financial Measures” of the MD&A.
The following is a summary of the fair values recognized on the consolidated balance sheets and the net realized
and unrealized gains (losses) before income taxes related to the Company’s financial derivative instruments not
designated in a formal hedging relationship:
(millions of Canadian dollars)
Derivatives not designated in a formal hedging
relationship
Foreign Exchange and Other Forwards
Other Non-Financial Derivatives
Total derivatives not designated in a formal
hedging relationship
December 31, 2022
(52 weeks)
January 1, 2022
(52 weeks)
Net asset/ Gain/(loss)
recorded
in OCI
(liability)
Fair value
Gain/(loss)
recorded in
operating
income
Net asset/ Gain/(loss)
recorded
in OCI
(liability)
Fair value
Gain/(loss)
recorded in
operating
income
$
13 $ — $
32 $
2 $ — $
1
—
24
3
—
$
14 $ — $
56 $
5 $ — $
1
18
19
26 2022 Annual Report - Financial Review Loblaw Companies Limited
9 Quarterly Results of Operations
9.1 Results by Quarter
The Company follows a 52-week reporting cycle which periodically necessitates a fiscal year of 53 weeks due to
an accounting convention common in the retail industry. Fiscal years 2022 and 2021 were both 52 weeks.
The 52-week reporting cycle is divided into four quarters of 12 weeks each except for the third quarter, which is
16 weeks in duration.
The following is a summary of selected unaudited consolidated financial information for each of the eight most
recently completed quarters:
Summary of Consolidated Quarterly Results
(millions of Canadian
dollars except where
otherwise indicated)
First
Quarter
(12 weeks)
Second
Quarter
(12 weeks)
Third
Quarter
(16 weeks)
Fourth
Quarter
(12 weeks)
Total
(52 weeks)
First
Quarter
(12 weeks)
Second
Quarter
(12 weeks)
Third
Quarter
(16 weeks)
Fourth
Quarter
(12 weeks)
Total
(52 weeks)
2022
2021
Revenue
Adjusted EBITDA(2)
Net earnings
available to
common
shareholders of
the Company
Adjusted net
earnings available
to common
shareholders of
the Company(2)
Net earnings per
common share:
Basic ($)
Diluted ($)
$ 12,262
$ 12,847
$ 17,388
$ 14,007
$ 56,504
$ 11,872
$ 12,491
$ 16,050 $ 12,757
$ 53,170
1,343
1,499
1,846
1,493
6,181
1,218
1,371
1,674
1,324
5,587
437
387
556
529
1,909
313
375
431
744
1,863
459
566
663
575
2,263
392
464
540
515
1,911
$
1.31
$ 1.30
$
$
1.17
1.16
$
1.71
$ 1.63
$ 5.82
$ 0.91
$ 1.69
$ 1.62
$ 5.75
$ 0.90
$
$
1.10
1.09
$ 1.28
$ 2.23
$ 5.49
$ 1.27
$ 2.20
$ 5.45
Adjusted diluted net
earnings per
common share(2) ($) $ 1.36
Food Retail same-
store sales growth/
(decline)
2.1 %
$ 1.69
$ 2.01
$ 1.76
$ 6.82
$
1.13
$
1.35
$ 1.59
$ 1.52
$ 5.59
0.9 %
6.9 %
8.4 %
4.7 %
0.1 %
(0.1) %
0.2 %
1.1 %
0.3 %
Drug Retail same-
store sales growth/
(decline)
5.2 %
5.6 %
7.7 %
8.7 %
6.9 %
(1.7) %
9.6 %
4.4 %
7.9 %
5.0 %
2022 Annual Report - Financial Review Loblaw Companies Limited 27
Management’s Discussion and Analysis
seasonality, which was greatest in the fourth quarter and least in the first quarter;
Revenue Revenue for the last eight quarters was impacted by various factors including the following:
• COVID-19 pandemic related impacts;
•
•
• macro-economic conditions impacting food and drug retail prices; and
• changes in net retail square footage. Over the past eight quarters, net retail square footage has increased by
the timing of holidays;
0.2 million square feet to 71.2 million square feet.
seasonality, which was greatest in the fourth quarter and least in the first quarter;
Net Earnings Available to Common Shareholders of the Company and Diluted Net Earnings Per Common Share
Net earnings available to common shareholders of the Company and diluted net earnings per common share for
the last eight quarters were impacted by the following items:
• COVID-19 pandemic related impacts;
•
•
• cost savings and operating efficiencies and benefits from strategic initiatives;
•
•
•
the impact of certain adjusting items, as set out in Section 17 “Non-GAAP Financial Measures”, including:
the favourable impact of the repurchase of common shares for cancellation; and
the 2021 reversal of certain commodity taxes accrued;
the timing of holidays;
fair value adjustment on fuel and foreign currency;
◦ charge related to PC Bank commodity tax matter;
◦ Lifemark transaction costs;
◦
◦
◦
◦
◦
fair value adjustment on non-operating properties;
the recovery relating to Glenhuron.
restructuring and other related recoveries and costs;
the gain and loss on sale of non-operating properties; and
28 2022 Annual Report - Financial Review Loblaw Companies Limited
9.2 Fourth Quarter Results
The following is a summary of selected consolidated unaudited financial information for the fourth quarter of 2022:
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Revenue
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Net interest expense (recovery) and other financing charges
Adjusted net interest expense and other financing charges(2)
Income taxes
Adjusted income taxes(2)
Adjusted effective tax rate(2)
Net loss attributable to non-controlling interests
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the
Company(i)
Adjusted net earnings available to common shareholders
of the Company(2)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(2) ($)
Diluted weighted average common shares outstanding
(in millions)
Cash flows from (used in)(i):
Operating activities
Investing activities
Financing activities
2022
(12 weeks)
$ 14,007
$
871
1,493
10.7 %
667
$
$
2021
12,757
(12 weeks) $ Change % Change
9.8 %
23.5 %
12.8 %
$ 1,250
705
169
166
1,324
10.4 %
623
172
172
181
205
26.7 %
(14)
532
529
575
1.62
1.76
$
$
$
(29)
160
15
168
25.5 %
(28)
747
744
515
2.20
1.52
327.4
338.1
$
$
$
$
7.1 %
44
201 693.1 %
7.5 %
166 1,106.7 %
22.0 %
37
12
14
(215)
(50.0) %
(28.8) %
$
(215)
(28.9) %
60
$ (0.58)
$ 0.24
11.7 %
(26.4) %
15.8 %
$
1,148
$
1,024
$
124
(416)
(539)
(249)
(578)
(167)
39
12.1 %
(67.1) %
6.7 %
11.0 %
—
Dividends declared per common share ($)
Dividends declared per Second Preferred Share, Series B ($)
$ 0.405
$ 0.365
$ 0.04
$ 0.33125
$ 0.33125
—
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
Loblaw continued to deliver strong financial and operating results in the fourth quarter. Retail segment sales grew
9.7% reflecting strong growth in both Food and Drug businesses. Drug Retail sales growth was driven by continued
strong demand for cough and cold products and strength in high margin beauty and cosmetics categories. Food
Retail sales reflected the Company’s efforts to provide value to its customers. The Company’s Discount stores
outperformed, benefiting from an increased consumer focus on price. Market stores extended strong performance
relative to peers with impactful promotional strategies. Gross margins were slightly lower, largely related to the
no name® price freeze and increased commitment to promotional activity, partially offset by continued strength in
higher margin front-store sales in the Drug business. Higher sales and leverage from focused cost control
measures drove earnings growth in the quarter.
2022 Annual Report - Financial Review Loblaw Companies Limited 29
Management’s Discussion and Analysis
Net Earnings Available to Common Shareholders of the Company and Diluted Net Earnings Per Common Share
Net earnings available to common shareholders of the Company in the fourth quarter of 2022 were $529 million
($1.62 per common share). When compared to the fourth quarter of 2021, this represented a decrease of
$215 million ($0.58 per common share) or 28.9%. The decrease included an unfavourable change in adjusting
items totaling $275 million, partially offset by an improvement in underlying operating performance of $60 million
as described below:
•
the unfavourable change in adjusting items totaling $275 million ($0.82 per common share) was primarily due
to the following:
◦
◦
◦
the unfavourable impact of the prior year recovery related to Glenhuron of $313 million ($0.92 per
common share);
the unfavourable impact of the prior year restructuring and other related recoveries of $6 million ($0.02
per common share); and
the year-over-year unfavourable change in fair value adjustment on fuel and foreign currency contracts
of $4 million ($0.02 per common share);
partially offset by:
◦
the favourable impact from the gains on the sale of non-operating properties of $41 million ($0.13 per
common share).
partially offset by,
•
the improvement in underlying operating performance of $60 million ($0.18 per common share) was primarily
due to the following:
◦ an improvement in the underlying operating performance in the Retail segment driven by an increase in
adjusted gross profit(2), partially offset by an increase in SG&A and an increase in depreciation and
amortization.
• diluted net earnings per common share also included the favourable impact of the repurchase of common
shares over the last 12 months ($0.06 per common share).
Adjusted net earnings available to common shareholders of the Company(2) in the fourth quarter of 2022 was
$575 million, an increase of $60 million or 11.7% compared to the fourth quarter of 2021. Adjusted net earnings per
common share(2) in the fourth quarter of 2022 was $1.76, an increase of $0.24 or 15.8% compared to the fourth
quarter of 2021. The increase includes the favourable impact from the repurchase of common shares.
Revenue
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail
Financial Services
Eliminations
Revenue
2022
(12 weeks)
2021
(12 weeks)
$
13,694
$
12,486 $
417
(104)
360
(89)
$
14,007
$
12,757 $
1,208
$ Change % Change
9.7 %
15.8 %
(16.9) %
9.8 %
57
(15)
1,250
Revenue was $14,007 million in the fourth quarter of 2022. When compared to the fourth quarter of 2021, this
represented an increase of $1,250 million, or 9.8%. The increase was primarily driven by an increase in Retail
segment sales of $1,208 million due to positive same-store sales growth and Lifemark revenues. Furthermore,
there was an improvement in Financial Services segment sales of $57 million.
30 2022 Annual Report - Financial Review Loblaw Companies Limited
Operating Income Operating income was $871 million in the fourth quarter of 2022. When compared to the fourth
quarter of 2021, this represented an increase of $166 million, or 23.5%. The increase included improvements in the
underlying operating performance of $123 million, and a favourable change in adjusting items totaling $43 million,
as described below:
•
the improvements in underlying operating performance of $123 million was primarily due to the following:
◦ an improvement in the underlying operating performance of the Retail Segment due to an increase in
adjusted gross profit(2), partially offset by an increase in SG&A and depreciation and amortization.
•
the favourable change in net gain on the sale of non-operating properties of $50 million;
the favourable change in adjusting items totaling $43 million was primarily due to the following:
◦
partially offset by,
◦
the unfavourable impact of the prior year restructuring and other related recoveries of $8 million.
Adjusted EBITDA(2)
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail
Financial Services
Adjusted EBITDA(2)
$
$
2022
(12 weeks)
2021
(12 weeks)
1,418
$
1,244 $
75
80
1,493
$
1,324 $
174
$ Change % Change
14.0 %
(6.3) %
12.8 %
169
(5)
Adjusted EBITDA(2) was $1,493 million in the fourth quarter of 2022. When compared to the fourth quarter of 2021,
this represented an increase of $169 million, or 12.8%. The increase in adjusted EBITDA(2) was primarily due to an
improvement in the Retail segment of $174 million, partially offset by a decrease in the Financial Services segment
of $5 million.
Depreciation and Amortization Depreciation and amortization was $667 million in the fourth quarter of 2022, an
increase of $44 million or 7.1%. The increase in depreciation and amortization was primarily driven by an increase in
IT assets and leased assets. Included in depreciation and amortization was accelerated depreciation of $10 million
due to the reassessment of the estimated useful life of certain IT assets, and the amortization of intangibles assets
related to the acquisitions of Shoppers Drug Mart and Lifemark of $115 million (2021 – $117 million).
Net Interest Expense and Other Financing Charges Net interest expense was $172 million in the fourth quarter of
2022. When compared to the fourth quarter of 2021, this represented an increase of $201 million. The increase in
net interest expense and other financing charges in the fourth quarter of 2022 was primarily driven by the prior
year interest income related to Glenhuron as discussed in the Income Taxes section below, an increase in interest
expense from higher interest rates, and an increase in long term debt. This was partially offset by higher interest
income on certain short term investments and post-employment and other long term employee benefits due to
higher interest rates.
Income Taxes
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Income taxes
Add impact of the following:
Tax impact of items included in adjusted earnings
before taxes
Recovery related to Glenhuron
Adjusted income taxes(2)
Effective tax rate
Adjusted effective tax rate(2)
2022
(12 weeks)
2021
(12 weeks)
$
181
$
15
$ Change % Change
1,106.7 %
166
$
$
24
—
205
25.9 %
26.7 %
$
25
128
168
2.0 %
25.5 %
(1)
(128)
37
(4.0) %
(100.0) %
22.0 %
$
2022 Annual Report - Financial Review Loblaw Companies Limited 31
Management’s Discussion and Analysis
Income tax expense in the fourth quarter of 2022 was $181 million (2021 – $15 million) and the effective tax rate
was 25.9% (2021 – 2.0%). The increase in the effective tax rate was primarily attributable to the recovery of income
taxes related to Glenhuron in 2021 and the impact of the reversal of the non-deductible interest related to
Glenhuron in 2021.
Adjusted income tax expense(2) in the fourth quarter of 2022 was $205 million (2021 – $168 million) and the
adjusted effective tax rate(2) was 26.7% (2021 – 25.5%). The increase in the adjusted effective tax rate(2) was
primarily attributable to the impact of certain non-deductible items.
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron, a wholly owned Barbadian subsidiary of the
Company that was wound up in 2013, should be treated, and taxed, as income in Canada. In the fourth quarter of
2021, the Supreme Court ruled in favour of the Company on the Glenhuron matter and the Company reversed
$301 million of previously recorded charges, of which $173 million was recorded as interest income and
$128 million was recorded as income tax recovery, and an additional $16 million, before taxes, was also recorded in
respect of interest income earned on expected cash tax refunds.
Net Loss Attributable to Non-Controlling Interests Net loss attributable to non-controlling interests was $14 million
in the fourth quarter of 2022, a decrease of $14 million or 50.0% compared to the fourth quarter of 2021. Non-
controlling interests represents the share of earnings that relates to the Company’s Food Retail franchisees and is
impacted by the timing of when profit sharing with franchisees is agreed and finalized under the terms of the
agreements. On a full year basis, net earnings attributable to non-controlling interests of $73 million decreased by
$28 million or 27.7% when compared to 2021, primarily driven by the normalizing of franchisee earnings after profit
sharing.
Cash Flow
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Cash and cash equivalents, beginning of period
Cash flows from (used in):
Operating activities
Investing activities
Financing activities
Effect of foreign currency exchange rate changes on
cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents, end of period
$
$
$
$
2022
(12 weeks)
2021
(12 weeks)
1,414
$
1,780 $
$ Change % Change
(20.6) %
(366)
1,148
$
1,024 $
(416)
(539)
1
194
1,608
$
$
(249)
(578)
(1)
196 $
124
(167)
39
2
(2)
12.1 %
(67.1) %
6.7 %
200.0 %
(1.0) %
(18.6) %
1,976 $
(368)
Cash Flows from Operating Activities Cash flows from operating activities in the fourth quarter of 2022 were
$1,148 million, an increase of $124 million compared to the fourth quarter of 2021. The increase in cash flows from
operating activities was primarily driven by higher cash earnings, partially offset by an unfavourable change in non-
cash working capital.
Cash Flows used in Investing Activities Cash flows used in investing activities in the fourth quarter of 2022 were
$416 million, an increase of $167 million compared to the fourth quarter of 2021. The increase in cash flows used in
investing activities was primarily driven by an increase in fixed asset and short term investments, partially offset by
the release of $250 million in security deposits to repay Eagle notes maturing in the fourth quarter of 2022.
Cash Flows used in Financing Activities Cash flows used in financing activities in the fourth quarter of 2022 were
$539 million, a decrease of $39 million compared to the fourth quarter of 2021. The decrease in cash flows used in
financing activities was primarily driven by lower repayment of bank indebtedness in the current year, partially
offset by a decrease in short-term debt issuances and lower net issuance of long term debt.
Capital Investments In the fourth quarter of 2022, the Company invested $651 million (2021 – $392 million) in fixed
asset purchases and intangible asset additions.
32 2022 Annual Report - Financial Review Loblaw Companies Limited
Free Cash Flow(2)
For the periods ended December 31, 2022
and January 1, 2022
(millions of Canadian dollars)
Cash flows from (used in)
operating activities
Less:
Capital investments
Interest paid
Lease payments, net
Free cash flow(2)
2022
(12 weeks)
2021
(12 weeks)
Retail
Financial
Services Eliminations(i)
Total
Retail
Financial
Services
Eliminations(i)
Total
$ 1,347 $ (218) $
19 $
1,148 $ 1,193 $ (186) $
17 $
1,024
640
66
233
11
—
—
—
19
—
651
85
233
381
58
294
11
—
—
—
17
—
$ 408 $ (229) $
— $
179 $ 460 $ (197) $
— $
392
75
294
263
(i)
Interest paid is included in cash flows used in operating activities under the Financial Services segment.
Free cash flow(2) from the Retail segment in the fourth quarter of 2022 was $408 million, a decrease of $52 million
compared to the fourth quarter of 2021. The decrease in free cash flow(2) from the Retail segment was primarily
driven by unfavourable change in non-cash working capital and an increase in fixed asset investments, partially
offset by higher cash earnings.
Free cash flow(2) used in the Financial Services segment in the fourth quarter of 2022 was $229 million, an increase
of $32 million compared to the fourth quarter of 2021. The increase in free cash flow(2) used in the Financial
Services segment was primarily driven by a cash payment made in relation to the PC Bank commodity tax matter.
Segment Information
unaudited
(millions of Canadian dollars)
Revenue(ii)
Operating income
Net interest expense and other
financing charges
Earnings before income taxes
Operating income
Depreciation and amortization
Adjusting items(iii)
Less: amortization of intangible
assets acquired with
Shoppers Drug Mart and
Lifemark
Adjusted EBITDA(iii)
Depreciation and amortization(iv)
Adjusted operating income
December 31, 2022
(12 weeks)
January 1, 2022
(12 weeks)
Retail
Financial
Services Eliminations(i)
Total
Retail
Financial
Services Eliminations(i)
Total
$ 13,694 $ 417 $
(104) $ 14,007 $ 12,486 $ 360 $
(89) $ 12,757
$ 810 $ 61 $
— $ 871 $ 636 $ 69 $
— $ 705
144
28
—
172
(45)
16
—
(29)
$ 666 $ 33 $
— $ 699 $ 681 $ 53 $
— $ 734
$ 810 $ 61 $
— $ 871 $ 636 $ 69 $
— $ 705
653
70
14
—
—
—
667
70
612
113
11
—
—
—
623
113
(115)
—
—
(115)
(117)
—
—
(117)
$ 1,418 $ 75 $
— $ 1,493 $ 1,244 $ 80 $
— $ 1,324
538
14
—
552
495
11
—
506
$ 880 $ 61 $
— $ 941 $ 749 $ 69 $
— $ 818
Eliminations includes the reclassification of revenue related to PC® Mastercard® loyalty awards in the Financial Services segment.
Included in Financial Services revenue is $141 million (January 1, 2022 – $111 million) of interest income.
(i)
(ii)
(iii) Certain items are excluded from operating income to derive adjusted EBITDA(2). Adjusted EBITDA(2) is used internally by management when
analyzing segment underlying performance.
(iv) Depreciation and amortization for the calculation of adjusted EBITDA(2) excludes $115 million (January 1, 2022 – $117 million) of amortization
of intangible assets acquired with Shoppers Drug Mart and Lifemark.
2022 Annual Report - Financial Review Loblaw Companies Limited 33
Management’s Discussion and Analysis
Retail Segment Fourth Quarter Results of Operations
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Sales
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Food retail
Drug retail
Pharmacy and healthcare services
Front store
2022
(12 weeks)
2021
(12 weeks)
$ Change
$
13,694
$
12,486
$
1,208
810
4,188
30.6 %
1,418
10.4 %
653
$
$
636
3,859
174
329
30.9 %
1,244
10.0 %
612
$
$
$
$
174
14.0 %
41
6.7 %
% Change
9.7 %
27.4 %
8.5 %
2022
(12 weeks)
Same-store
sales
8.4 %
8.7 %
5.4 %
11.5 %
Sales
$ 9,514
4,180
1,941
2,239
2021
(12 weeks)
Same-store
sales
1.1 %
7.9 %
10.2 %
6.1 %
Sales
$ 8,742
3,744
1,728
2,016
Sales Retail segment sales were $13,694 million in the fourth quarter of 2022, an increase of $1,208 million, or 9.7%
compared to the fourth quarter of 2021, primarily driven by the following factors:
• Food retail same-store sales grew by 8.4% (2021 – 1.1%) for the quarter.
◦ Sales growth in food was strong, mainly due to higher than normal inflation;
◦ Sales growth in pharmacy was moderate;
◦ The Consumer Price Index as measured by The Consumer Price Index for Food Purchased From Stores
was 11.2% (2021 – 4.8%) in the fourth quarter of 2022 which was generally in line with the Company’s
internal food inflation; and
◦ Food Retail traffic increased and basket size decreased slightly in the quarter when compared to the
fourth quarter of 2021.
• Drug retail same-store sales grew by 8.7% (2021 – 7.9%).
◦ Pharmacy and healthcare services same-store sales growth was 5.4% (2021 – 10.2%). Pharmacy and
healthcare services same-store sales growth benefited from an increase in prescription volumes from the
economic re-opening. The number of prescriptions dispensed increased by 2.0% (2021 – decreased by
0.5%). On a same-store basis, the number of prescriptions dispensed increased by 2.2% (2021 – 8.8%) and
the average prescription value increased by 2.3% (2021 – 1.1%);
◦ Pharmacy and healthcare services sales include Lifemark revenues of $110 million. Lifemark revenues are
excluded from same-store sales; and
◦ Front store same-store sales increased by 11.5% (2021 – 6.1%). Front store same-store sales growth
benefited from the economic re-opening and higher consumer spending.
In 2022, 13 food and drug stores were opened, and 10 food and drug stores were closed, net retail square footage
has remained constant at 71.2 million square feet.
34 2022 Annual Report - Financial Review Loblaw Companies Limited
Operating Income Operating income was $810 million in the fourth quarter of 2022, an increase of $174 million, or
27.4% compared to the fourth quarter of 2021. The increase in operating income was driven by an improvement in
underlying operating performance of $131 million and the favourable change in adjusting items totaling $43 million,
as described below:
•
the improvement in underlying operating performance of $131 million was driven by an increase in adjusted
gross profit(2), partially offset by an increase in SG&A and depreciation and amortization; and
the favourable change in adjusting items totaling $43 million was primarily due to the following:
◦
partially offset by,
◦
the unfavourable impact of the prior year restructuring and other related recoveries of $8 million.
the year-over-year favourable change in net gain on the sale of non-operating properties of $50 million;
•
Adjusted Gross Profit(2) Adjusted gross profit(2) in the fourth quarter of 2022 was $4,188 million, an increase of
$329 million compared to the fourth quarter of 2021. Adjusted gross profit percentage(2) of 30.6% decreased by
30 basis points (2021 – increased by 150 basis points), primarily driven by a decrease in Food Retail margin
partially offset by growth in higher margin Drug Retail front store categories.
Adjusted EBITDA(2) Adjusted EBITDA(2) was $1,418 million in the fourth quarter of 2022, an increase of $174 million,
or 14.0% compared to the fourth quarter of 2021. The increase was driven by a favourable increase in adjusted
gross profit(2) of $329 million, partially offset by an unfavourable increase in SG&A of $155 million. SG&A as a
percentage of sales was 20.2%, a favorable decrease of 70 basis points. The favourable decrease of 70 basis
points was primarily due to operating leverage from higher sales.
Depreciation and Amortization Depreciation and amortization in the fourth quarter of 2022 was $653 million, an
increase of $41 million compared to the fourth quarter of 2021. The increase in depreciation and amortization in the
fourth quarter of 2022 was primarily driven by an increase in IT assets and leased assets. Included in depreciation
and amortization was accelerated depreciation of $10 million (2021 – nil) due to the reassessment of the estimated
useful life of certain IT assets, and the amortization of intangibles assets related to the acquisitions of Shoppers
Drug Mart and Lifemark of $115 million (2021 – $117 million).
Lifemark Health Group On May 10, 2022, the Company acquired Lifemark for $829 million. Lifemark is the leading
provider of outpatient physiotherapy, massage therapy, occupational therapy, chiropractic, mental health, and other
ancillary rehabilitation services through its more than 300 clinics across Canada. Revenue of $110 million and
nominal net earnings were contributed by Lifemark in the quarter. In the fourth quarter of 2022, net earnings
includes amortization related to the acquired intangible assets of $3 million.
Network Optimization In the fourth quarter of 2022, the Company finalized network optimization plans that will
result in banner conversions and right-sizing of an additional 34 underperforming retail locations across a range of
banners and formats. Charges associated with network optimization will be recorded as incurred and are expected
to include equipment, severance, lease related and other costs and will not be considered an adjusting item. The
Company expects to realize approximately $40 million in annualized EBITDA run-rate savings related to these
plans. In the fourth quarter of 2022, the Company recorded charges of $11 million as a result of this network
optimization project and expects to record additional charges of approximately $50 million to $60 million as they
are incurred throughout 2023.
2022 Annual Report - Financial Review Loblaw Companies Limited 35
Management’s Discussion and Analysis
Financial Services Segment Fourth Quarter Results of Operations
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Revenue
Earnings before income taxes
(millions of Canadian dollars except where otherwise indicated)
Average quarterly net credit card receivables
Credit card receivables
Allowance for credit card receivables
Annualized yield on average quarterly gross
credit card receivables
Annualized credit loss rate on average quarterly
gross credit card receivables
2022
(12 weeks)
2021
(12 weeks)
$
$
417
33
$ Change % Change
15.8 %
(37.7) %
(20)
57
360 $
53
As at
December 31, 2022
$
$
3,607
3,954
206
As at
3,128
January 1, 2022 $ Change % Change
15.3 %
14.8 %
0.5 %
3,443
205
479
511
$
1
13.0 %
2.7 %
12.7 %
2.5 %
Revenue Revenue was $417 million in the fourth quarter of 2022, an increase of $57 million compared to the fourth
quarter of 2021. The increase in the fourth quarter of 2022 was primarily driven by:
• higher interest income from growth in credit card receivables; and
• higher interchange income and credit card related fees from an increase in customer spending.
Earnings before income taxes Earnings before income taxes were $33 million, a decrease of $20 million
compared to the fourth quarter of 2021. The decrease was primarily driven by:
• higher loyalty program costs, operating costs, contractual charge-off and funding costs from an increase in
customer spending and an increase in interest rates; and
• prior year reversal of certain commodity tax accrued in the amount of $27 million.
partially offset by,
• higher revenue as described above.
Credit Card Receivables As at December 31, 2022, credit card receivables were $3,954 million, an increase of
$511 million compared to January 1, 2022. This increase was primarily driven by growth in the active customer base
and an increase in customer spending. The allowance for credit card receivables was $206 million, an increase of
$1 million compared to January 1, 2022.
36 2022 Annual Report - Financial Review Loblaw Companies Limited
10. Disclosure Controls and Procedures
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to
provide reasonable assurance that all material information relating to the Company and its subsidiaries is gathered
and reported to senior management on a timely basis so that appropriate decisions can be made regarding public
disclosure.
As required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings
(“NI 52-109”), the Chairman and President and the Chief Financial Officer (“CFO”) have caused the effectiveness of
the disclosure controls and procedures to be evaluated. Based on that evaluation, they have concluded that the
design and operation of the system of disclosure controls and procedures were effective as at December 31, 2022.
11. Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with IFRS.
As required by NI 52-109, the Chairman and President, and the CFO have caused the effectiveness of the internal
controls over financial reporting to be evaluated using the framework established in ‘Internal Control - Integrated
Framework (COSO Framework)’ published by The Committee of Sponsoring Organizations of the Treadway
Commission (COSO), 2013. Based on that evaluation, they have concluded that the design and operation of the
Company’s internal controls over financial reporting were effective as at December 31, 2022.
In designing such controls, it should be recognized that due to inherent limitations, any control, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives and
may not prevent or detect misstatements. Additionally, management is required to use judgment in evaluating
controls and procedures.
Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control
over financial reporting in 2022 that materially affected, or are reasonably likely to materially affect the Company’s
internal control over financial reporting.
2022 Annual Report - Financial Review Loblaw Companies Limited 37
Management’s Discussion and Analysis
12. Enterprise Risks and Risk Management
The Company is committed to maintaining a framework that ensures risk management is an integral part of its
activities. The Company’s Enterprise Risk Management (“ERM”) program assists all areas of the business in
managing risks within appropriate levels of tolerance by bringing a systematic approach and methodology for
evaluating, measuring and monitoring key risks. The results of the ERM program and other business planning
processes are used to identify emerging risks to the Company, prioritize risk mitigation activities and develop a
risk-based internal audit plan.
Risks are not eliminated through the ERM program, but rather, are identified and managed in line with the
Company’s Risk Appetite Statement and within approved risk tolerances. The Risk Appetite Statement articulates
key aspects of the Company’s businesses, values, and brands and provides directional guidance on risk taking.
RESPONSIBILITIES / OUTCOMES
KEY ACTIVITIES
Oversight of the ERM program and the
alignment between strategy and risk
The
Board
Based on risk ownership assigned by the
Board, responsible for managing risk
and implementing risk mitigation strategies
Management
and operating within the approved risk
appetite thresholds
The ERM Program
« Facilitate effective corporate governance by
providing a consolidated view of risks
•
Focus on key risks that could impact
strategic objectives
(ii)
Ensure risk appetite and tolerances are
defined and understood
•
« Promote a culture of awareness of risk
management and compliance
« Assist in developing risk management tools
and methodologies
•
Anticipate and provide early warnings of
risks through key risk indicators
ERM Program
Review of strategy plans, including
capital allocation
Review enterprise risks and
mitigation plans
Annual approval of the ERM policy
and Risk Appetite Statement
•
•
•
•
•
•
Periodic updates to the Board by the
ERM function on the status of key risks
Long-term risk levels are assessed to
monitor potential long-term risk impacts
ERM assessment:
Continuous update and risk identification
Carried out in parallel with strategic
planning
Includes interviews surveys, workshops
with management and the Board
Monitor changes to enterprise risk
Mitigation plan updates and review key
risk indicators against tolerances
•
•
•
•
•
•
Mitigation of risks®™
Risk Owners
•
•
Managing risk and implementation of risk
mitigation strategies for Operating and
Financial Risks
(i) Risks are assessed and evaluated based on the Company’s vulnerability to the risk and the potential impact that the underlying risks would
have on the Company’s ability to execute on its strategies and achieve its objectives.
(ii) Any of the key risks have the potential to negatively affect the Company and its financial performance. The Company has risk management
strategies in place for key risks. However, there can be no assurance that the risks will be mitigated or will not materialize or that events or
circumstances will not occur that could adversely affect the reputation, operations or financial condition or performance of the Company.
38 2022 Annual Report - Financial Review Loblaw Companies Limited
12.1 Operating Risks and Risk Management
The following discussion of risks identifies significant factors that could have a material adverse effect on the
Company’s business, operations, financial condition or future financial performance. The COVID-19 pandemic may
continue to affect the operations and financial performance of the Company, including as a result of uncertain
economic conditions, volatile debt and equity markets, and impacts to its workforce, supply chain, and distribution
channels that affect the products and services it is able to offer and/or its ability to engage in cross-border
commerce.
The following risks are a subset of the key risks identified through the ERM program. They should be read in
conjunction with the full set of risks inherent in the Company’s business, as included in the Company’s AIF for the
year ended December 31, 2022, which is hereby incorporated by reference:
Economic Conditions
Legal Proceedings
Colleague Attraction, Development and Succession
Planning
Cybersecurity, Privacy and Data Breaches
Competitive Environment and Strategy
Electronic Commerce and Disruptive Technology
Distribution and Supply Chain
Change Management, Process and Efficiency
Healthcare Reform
Regulatory Compliance
Business Continuity
IT Systems Implementations and Data Management
Inventory Management
Service Providers
Food, Drug, Product and Services Safety
Franchisee Relationships
Environmental and Social
Labour Relations
Associate-owned Drug Store Network and
Relationships with Associates
Economic Conditions The Company’s revenue and profitability are impacted by general economic conditions.
These economic conditions include inflation, levels of employment, costs of borrowing, household debt, political
uncertainty and government regulation, the impact of natural disasters, war or acts of terrorism, pandemics,
changes in interest rates, tax rates, or exchange rates, and access to consumer credit. A number of these
conditions could negatively impact consumer spending. As a result, these economic conditions may adversely
impact demand for the Company’s products and services which could adversely affect the Company’s operations
or financial performance.
Colleague Attraction, Development and Succession Planning The Company’s operations and continued growth
are dependent on its ability to hire, retain and develop colleagues, including leaders. Any failure to effectively
attract and retain colleagues and leaders, including those with scarce and/or specialized skills, and to establish
adequate leadership succession planning, could result in a lack of requisite knowledge, skill and experience. This
could erode the Company’s competitive position or result in increased costs due to the competition for, or high
turn-over of, colleagues. Any of the foregoing could negatively affect the Company’s ability to operate its business,
which in turn could adversely affect the Company’s reputation, operations or financial performance.
Cybersecurity, Privacy and Data Breaches The Company depends on the uninterrupted operation of its IT
systems, networks and services including internal and public internet sites, data hosting and processing facilities
and cloud-based services and hardware, such as point-of-sale processing at stores, to operate its business.
In the ordinary course of business, the Company collects, processes, transmits and retains confidential, sensitive
and personal information (“Confidential Information”), including payment card industry data and personal health
and financial information regarding the Company and its employees, franchisees, Associates, vendors, customers,
patients, credit card and PC Money Account holders and loyalty program members (“members”). Some of this
Confidential Information is held and managed by third party service providers. As with other large companies, the
Company is regularly subject to cyberattacks and such attempts are occurring more frequently, are constantly
evolving in nature and are becoming more sophisticated.
2022 Annual Report - Financial Review Loblaw Companies Limited 39
Management’s Discussion and Analysis
The Company has implemented security measures, including employee training, monitoring and testing,
maintenance of protective systems and contingency plans, to protect and to prevent unauthorized access of
Confidential Information and to reduce the likelihood of disruptions to its IT systems. The Company continues to
make strategic investments in this area in order to mitigate cyber threats. The Company also has security
processes, protocols and standards that are applicable to its third party service providers.
Despite these measures, all of the Company’s information systems, including its back-up systems and any third
party service provider systems that it employs, are vulnerable to damage, interruption, disability or failures due to a
variety of reasons, including physical theft, electronic theft, fire, power loss, computer and telecommunication
failures or other catastrophic events, as well as from internal and external security breaches, denial of service
attacks, viruses, worms and other known or unknown disruptive events.
The Company or its third party service providers may be unable to anticipate, timely identify or appropriately
respond to one or more of the rapidly evolving and increasingly sophisticated means by which computer hackers,
cyber terrorists and others may attempt to breach the Company’s security measures or its third party service
providers’ information systems.
As cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber
threats might defeat the Company’s security measures or those of its third party service providers. Moreover,
employee error or malfeasance, faulty password management or other irregularities may result in a breach of the
Company’s or its third party service providers’ security measures, which could result in a breach of employee,
franchisee, Associate, customer, patient, credit card or PC Money Account holder or loyalty program member
privacy or Confidential Information.
If the Company does not allocate and effectively manage the resources necessary to build and sustain reliable IT
infrastructure, fails to timely identify or appropriately respond to cybersecurity incidents, or the Company’s or its
third party service providers’ information systems are damaged, destroyed, shut down, interrupted or cease to
function properly, the Company’s business could be disrupted and the Company could, among other things, be
subject to: transaction errors; processing inefficiencies; the loss of or failure to attract new customers; the loss of
revenue; the loss or unauthorized access to Confidential Information or other assets; the loss of or damage to
intellectual property or trade secrets; damage to its reputation; litigation; regulatory enforcement actions; violation
of privacy, security or other laws and regulations; and remediation costs. Any such occurrences could adversely
affect the reputation, operations or financial performance of the Company.
Distribution and Supply Chain The Company’s ability to satisfy its customers’ demands and achieve its cost
objectives depends on its ability to maintain key logistic and transport arrangements. The Company’s distribution
and supply chain could be negatively affected by unforeseen disruptions due to fire, severe weather conditions,
natural disasters or other catastrophic events, public health events, labour disagreements, or other transportation
problems. The loss of or disruption to these types of arrangements could interrupt product supply, which in turn
could adversely affect the assortment and product availability at the store and digital retail level. If not effectively
managed or remedied, these events could negatively impact customer experience and the Company’s ability to
attract and retain customers, and could adversely affect the Company’s operations or financial performance.
Healthcare Reform The Company is reliant on prescription drug sales for a significant portion of its sales and
profits. Prescription drugs and their sales are subject to numerous federal, provincial, territorial and local laws and
regulations. Changes to these laws and regulations, including the potential implementation of a national
pharmacare system, changes in the models used to fund prescription drugs such as the introduction of a
pharmacare system, or non-compliance with these laws and regulations, could adversely affect the reputation,
operations or financial performance of the Company.
Federal and provincial laws and regulations that establish public drug plans typically regulate prescription drug
coverage, patient eligibility, pharmacy reimbursement, drug product eligibility and drug pricing. With respect to
pharmacy reimbursement, such laws and regulations typically regulate the allowable drug cost of a prescription
drug product, the permitted mark-up on a prescription drug product and the professional or dispensing fees that
may be charged on prescription drug sales to patients eligible under the public drug plan. With respect to drug
product eligibility, such laws and regulations typically regulate the requirements for listing the manufacturer’s
products as a benefit or partial benefit under the applicable governmental drug plan, drug pricing and, in the case
of generic prescription drug products, the requirements for designating the product as interchangeable with a
branded prescription drug product. In addition, other federal, provincial, territorial and local laws and regulations
govern the approval, packaging, labeling, sale, marketing, advertising, handling, storage, distribution, dispensing
and disposal of prescription drugs.
40 2022 Annual Report - Financial Review Loblaw Companies Limited
Sales of prescription drugs, pharmacy reimbursement and drug prices may be affected by changes to the health
care industry, including legislative or other changes that impact patient eligibility, drug product eligibility, the
allowable cost of a prescription drug product, the mark-up permitted on a prescription drug product, the amount of
professional or dispensing fees paid by payers or the provision or receipt of manufacturer allowances by
pharmacies and pharmacy suppliers.
The majority of prescription drug sales are reimbursed or paid by three types of payers: (i) government or public,
(ii) private insurers or employers, and (iii) out-of-pocket by the patient. These payers have pursued and continue to
pursue measures to manage the costs of their drug plans. Canada and each of the provinces has implemented
legislative and/or other measures directed towards managing pharmacy service costs and controlling increasing
drug costs incurred by public drug plans and private payers, which impact pharmacy reimbursement levels and the
availability of manufacturer allowances. Legislative measures to control drug costs include lowering of generic drug
pricing. Additionally, the pan-Canadian Pharmaceutical Alliance continues its work regarding cost reduction
initiatives for pharmaceutical products and services.
Legislation in certain provincial jurisdictions establishes listing requirements that ensure that the selling price for a
prescription drug product will not be higher than any selling price established by the manufacturer for the same
prescription drug product under other provincial drug insurance programs. In some provinces, elements of the laws
and regulations that impact pharmacy reimbursement and manufacturer allowances for sales to the public drug
plans are extended by legislation to sales to private payers. Also, private payers (such as corporate employers and
their insurers) are looking or may look to benefit from any measures implemented by government payers to reduce
prescription drug costs for public plans by attempting to extend these measures to prescription drug plans they
own or manage. Accordingly, changes to pharmacy reimbursement and manufacturer allowances for a public drug
plan could also impact pharmacy reimbursement and manufacturer allowances for private payers. In addition,
private payers could reduce pharmacy reimbursement for prescription drugs provided to their members or could
elect to reimburse members only for products included on closed formularies or available from preferred providers.
Changes impacting pharmacy reimbursement programs and prescription drug pricing, legislative or otherwise, are
expected to continue to put downward pressure on the value of prescription drug sales. These changes may have
a material adverse effect on the Company’s business, sales and profitability. In addition, the Company could incur
significant costs in the course of complying with any changes in the regulatory regime affecting prescription drugs
and pharmacy services. Non-compliance with any such existing or proposed laws or regulations, particularly those
that provide for the licensing and conduct of wholesalers, the licensing and conduct of pharmacists, the regulation
and ownership of pharmacies, the advertising of pharmacies and prescription services, the provision of information
concerning prescription drug products, the pricing of prescription drugs, privacy and confidentiality and interactions
with provincial drug and eHealth systems, could result in audits, civil or regulatory proceedings, fines, penalties,
injunctions, recalls or seizures, any of which could adversely affect the reputation, operations or financial
performance of the Company.
Regulatory Compliance The Company is subject to a wide variety of laws, regulations and orders across all
countries in which it does business, including those laws involving product liability, labour and employment, anti-
trust and competition, pharmacy, food safety, intellectual property, privacy, environmental and other matters. The
Company is subject to taxation by various taxation authorities in Canada and a number of foreign jurisdictions.
Changes to any of the laws, rules, regulations or policies applicable to the Company’s business, including tax laws,
minimum wage laws, and laws affecting the production, processing, preparation, distribution, packaging and
labelling of food, pharmaceuticals and general merchandise products, could adversely affect the operations,
financial condition or performance of the Company.
Failure by the Company to comply with applicable laws, regulations and orders could subject the Company to civil
or regulatory actions, investigations or proceedings, including fines, assessments, injunctions, recalls or seizures,
which in turn could adversely affect the reputation, operations or financial condition or performance of the
Company. In the course of complying with changes to laws, the Company could incur significant costs. Changing
laws or interpretations of such laws or enhanced enforcement of existing laws could restrict the Company’s
operations or profitability and thereby threaten the Company’s competitive position and ability to efficiently
conduct business. The Company is subject to tax audits from various tax authorities on an ongoing basis. As a
result, from time to time, tax authorities may disagree with the positions and conclusions taken by the Company in
its tax filings or legislation could be amended or interpretations of current legislation could change, any of which
events could lead to reassessments.
2022 Annual Report - Financial Review Loblaw Companies Limited 41
Management’s Discussion and Analysis
The Company is subject to capital requirements from the OSFI, the primary regulator of PC Bank. PC Bank’s capital
management objectives are to maintain a consistently strong capital position while considering the economic risks
generated by its credit card receivables portfolio and to meet all regulatory capital requirements as defined by
OSFI. PC Bank uses Basel III as its regulatory capital management framework which includes a target common
equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5% and a total capital ratio of 10.5%. In addition to the
regulatory capital ratios requirement, PC Bank is subject to the Basel III Leverage ratio and OSFI’s Guideline on
Liquidity Adequacy Requirements (“LARs”). The LARs guideline establishes standards based on the Basel III
framework. PC Bank would be assessed fines and other penalties for non-compliance with these and other
regulations. In addition, failure by PC Bank to comply, understand, acknowledge and effectively respond to
applicable regulations could result in regulatory intervention and reputational damage.
Business Continuity The Company’s ability to continue critical operations and processes could be negatively
impacted by adverse events resulting from various incidents, including severe weather, work stoppages, prolonged
IT systems failure, terrorist activity, power failures, border closures or a pandemic or other national or international
catastrophe. The Company has business continuity plans in place to manage any such events. Despite this,
ineffective contingency planning, business interruptions, crises or potential disasters could adversely affect the
reputation, operations or financial performance of the Company.
Food, Drug, Product and Services Safety The Company’s products may expose it to risks associated with product
safety and defects and product handling in relation to the manufacturing, design, packaging and labeling, storage,
distribution, and display of products. The Company cannot be certain that active management of these risks,
including maintaining strict and rigorous controls and processes in its manufacturing facilities and distribution
systems, will eliminate all the risks related to food and product safety. The Company could be adversely affected in
the event of a significant outbreak of food-borne illness or food safety issues including food tampering or
contamination. In addition, failure to trace or locate any contaminated or defective products could affect the
Company’s ability to be effective in a recall situation. The Company is also subject to risk associated with the
distribution of drug products, errors related to medication dispensing, or compounding, injections, patient services
or consultation. The occurrence of such events or incidents, as well as any failure to maintain the cleanliness and
health standards at store level, could result in harm to customers and negative publicity, could adversely affect the
Company’s brands, reputation, operations or financial performance and could lead to unforeseen liabilities from
legal claims or otherwise.
Environmental and Social As a leading Canadian food and pharmacy retailer, Loblaw is committed to creating
positive environmental and social change by focusing on issues that matter most to the Company’s customers,
employees, communities and other stakeholders, with a particular focus on combatting climate change and
advancing social equity. Any failure or perceived failure to advance the ESG priorities of the Company or its
stakeholders may negatively affect the Company’s reputation, operations or financial performance.
Environmental The Company faces environmental risks that could, directly or indirectly, negatively impact the
Company’s reputation, operations or performance over the short or long term.
In particular, the Company is confronted with issues relating to climate change. As a large company, Loblaw has the
opportunity to make a significant positive impact on the environment. To address this opportunity, Loblaw is
focused on several strategic initiatives, including reducing emissions, food and plastic waste. Federal and provincial
governments are also striving to combat climate change, including through the consideration and/or
implementation of carbon reduction targets and financial mechanisms to reduce carbon emissions, such as carbon
taxes, carbon pricing and caps and trade. In addition to its own initiatives, the Company may be required to make
operational changes and/or incur significant financial costs to comply with the various governmental reforms, which
may differ across jurisdictions. Additionally, certain global climate change patterns (e.g. rising sea levels, changing
rain fall) may impact sourcing of food and food ingredients. Any failure to meet its strategic objectives, adhere to
climate change reforms or to adapt to the impacts of climate change, such as failure to reduce emissions, eliminate
food and plastic waste or mitigate sourcing and supply chain disruptions, could result in fines or could adversely
affect the Company’s reputation, operations or financial performance.
42 2022 Annual Report - Financial Review Loblaw Companies Limited
The Company maintains a portfolio of real estate and other facilities and is subject to environmental risks
associated with the contamination of such properties and facilities, whether by previous owners or occupants,
neighbouring properties or by the Company itself. In particular, the Company has a number of underground fuel
storage tanks, the majority of which are used for its supply chain transport fleets. Contamination resulting from
leaks from these tanks is possible. Additional environmental issues relating to matters or sites may require the
Company to incur significant additional costs. The Company also operates refrigeration equipment in its stores and
distribution centres to preserve perishable products as they pass through the supply chain and ultimately to
consumers. These systems contain refrigerant gases which could be released if equipment fails or leaks. A release
of these gases could have adverse effects on the environment. 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, brand owners and importers 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. In
addition, the Company could be subject to increased or unexpected costs associated with environmental incidents
and the related remediation activities, including litigation and regulatory related costs, all of which could adversely
affect the reputation or financial performance of the Company.
Social The Company faces risks associated with social issues and has established certain priorities in response,
including achieving adequate representation of traditionally under-represented groups in management positions
and the colleague population as a whole, building a culture of inclusion and investing in communities, particularly
by supporting women’s and children’s health. In the event that the Company is not perceived to have robust
diversity and inclusion programs, its ability to attract, develop and retain colleagues could be compromised. The
Company recognizes its responsibility to respect and protect the human rights of all people who support and
intersect with the business, and is committed to not tolerating abuse, discrimination or harassment in any form.
Ineffective action or inaction in response to social matters, including a failure or perceived failure to adequately
address its priorities, could adversely affect the Company’s reputation or financial performance.
Labour Relations The Company’s workforce is comprised of both unionized and non-unionized colleagues. With
respect to those colleagues that are covered by collective agreements, there can be no assurance as to the
outcome of any labour negotiations or the timing of their completion. Renegotiating collective agreements or the
failure to successfully renegotiate collective agreements and changes to business operations could result in strikes,
work stoppages or business interruptions, and if any of these events were to occur, they could adversely affect the
reputation, operations and financial performance of the Company. If non-unionized colleagues become unionized,
the terms of the resulting collective agreements would have implications for the affected operations, such as higher
labour costs.
Legal Proceedings In the ordinary course of business, the Company is involved in and potentially subject to legal
proceedings. The proceedings may involve suppliers, customers, patients, Associates, franchisees, regulators, tax
authorities or other persons. The potential outcome of legal proceedings and claims is uncertain.
Shoppers Drug Mart was previously served with an Amended Statement of Claim in a class action proceeding that
has been filed in the Ontario Superior Court of Justice (“Superior Court”) by two licensed Associates, claiming
various declarations and damages resulting from Shoppers Drug Mart’s alleged breaches of the Associate
Agreement. The class action comprises all of Shoppers Drug Mart’s current and former licensed Associates
residing in Canada, other than in Québec, who were parties to Shoppers Drug Mart’s 2002 and 2010 forms of the
Associate Agreement. On July 9, 2013, the Superior Court certified as a class proceeding portions of the action. A
summary judgment trial of the matter was held in December 2022 and on February 17, 2023, the Superior Court
released its decision in relation to those summary judgment motions (the “Decision”). The Superior Court dismissed
the plaintiffs’ claims on the majority of the issues including a request for damages at this stage of proceedings. The
Court also held that Shoppers Drug Mart breached the 2002 form of Associate Agreement when it did not remit
certain amounts that it received from generic drug manufacturers to Associates. The Company is still assessing the
Decision and has not yet determined whether it plans to appeal any aspect of it. Accordingly, the Company has not
recorded any amounts related to the potential liability associated with this lawsuit. The Company does not believe
that the ultimate resolution of this matter will have a material adverse impact on its financial condition or prospects.
2022 Annual Report - Financial Review Loblaw Companies Limited 43
Management’s Discussion and Analysis
In 2017, the Company and Weston announced actions taken to address their role in an industry-wide price-fixing
arrangement involving certain packaged bread products. The arrangement involved the coordination of retail and
wholesale prices of certain packaged bread products over a period extending from late 2001 to March 2015. Under
the arrangement, the participants regularly increased prices on a coordinated basis. Class action lawsuits have
been commenced against the Company and Weston as well as a number of other major grocery retailers and
another bread wholesaler. It is too early to predict the outcome of such legal proceedings. Neither the Company
nor Weston believes that the ultimate resolution of such legal proceedings will have a material adverse impact on
its financial condition or prospects. The Company’s cash balances far exceed any realistic damages scenario and
therefore it does not anticipate any impacts on its dividend, dividend policy or share buyback plan. The Company
has not recorded any amounts related to the potential civil liability associated with the class action lawsuits in 2022
or prior on the basis that a reliable estimate of the liability cannot be determined at this time. The Company will
continue to assess whether a provision for civil liability associated with the class action lawsuits can be reliably
estimated and will record an amount in the period at the earlier of when a reliable estimate of liability can be
determined or the matter is ultimately resolved. As a result of admission of participation in the arrangement and
cooperation in the Competition Bureau’s investigation, the Company and Weston will not face criminal charges or
penalties.
In August 2018, the Province of British Columbia filed a class action against numerous opioid manufacturers and
distributors, including the Company and its subsidiaries, Shoppers Drug Mart Inc. and Sanis Health Inc. The claim
contains allegations of breach of the Competition Act, fraudulent misrepresentation and deceit and negligence, and
seeks unquantified damages for the expenses incurred by the federal government, provinces, and territories of
Canada in paying for opioid prescriptions and other healthcare costs related to opioid addiction and abuse in
Canada. During the second quarter of 2021, the claim against Loblaw Companies Limited was discontinued. In May
2019, two further opioid-related class actions were commenced in each of Ontario and Quebec against a large
group of defendants, including Sanis Health Inc. In February 2022, the plaintiff and Sanis Health Inc. agreed to
settle the Quebec action for a nominal amount, with no admission of liability and for the express purpose of
avoiding the delays, disruption, and expenses associated with the litigation. The settlement has been approved by
the court and is now final. In December 2019, a further opioid-related class action was commenced in British
Columbia against a large group of defendants, including Sanis Health Inc., Shoppers Drug Mart Inc. and the
Company. The allegations in the Ontario, Quebec, and the civil British Columbia class actions are similar to the
allegations against manufacturer defendants in the Province of British Columbia class action, except that these May
2019 and December 2019 claims seek recovery of damages on behalf of opioid users directly. In April 2021, the
Company, Shoppers Drug Mart Inc. and Sanis Health Inc. were served with another opioid-related class action that
was started in Alberta against multiple defendants. The claim seeks damages on behalf of municipalities and local
governments in relation to public safety, social service, and criminal justice costs allegedly incurred due to the
opioid crisis. In September 2021, the Company, Shoppers Drug Mart Inc. and Sanis Health Inc. were served with a
class action started in Saskatchewan by Peter Ballantyne Cree Nation and Lac La Ronge Indian Band on behalf of
all Indigenous, Metis, First Nation and Inuit communities and governments in Canada to recover costs they have
incurred as a result of the opioid crisis, including healthcare costs, policing costs and societal costs. The Company
believes these proceedings are without merit and is vigorously defending them. The Company does not currently
have any significant accruals or provisions for these matters recorded in the consolidated financial statements.
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron, a wholly owned Barbadian subsidiary of the
Company that was wound up in 2013, should be treated, and taxed, as income in Canada. In the fourth quarter of
2021, the Supreme Court ruled in favour of the Company on the Glenhuron matter and the Company reversed $301
million of previously recorded charges, of which $173 million was recorded as interest income and $128 million was
recorded as income tax recovery, and an additional $16 million, before taxes, was also recorded in respect of
interest income earned on expected cash tax refunds. As a result of related reassessments received during the first
quarter of 2022, the Company reversed another $35 million of previously recorded charges, of which $2 million
was recorded as interest income and $33 million was recorded as an income tax recovery, and an additional $9
million, before taxes, was recorded in respect of interest income earned on expected cash tax refunds.
In July 2022, the Tax Court released a decision relating to PC Bank, a subsidiary of the Company. The Tax Court
ruled that PC Bank is not entitled to claim notional input tax credits for certain payments it made to Loblaws Inc. in
respect of redemptions of loyalty points. On September 29th, 2022, PC Bank filed a Notice of Appeal with the
Federal Court of Appeal. Although the Company believes in the merits of its position, the Company recorded a
charge of $111 million, inclusive of interest, in the second quarter of 2022. The Company believes that this provision
is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
44 2022 Annual Report - Financial Review Loblaw Companies Limited
Competitive Environment and Strategy The retail industry in Canada is highly competitive. The Company
competes against a wide variety of retailers including supermarket and retail drug store operators, as well as mass
merchandisers, warehouse clubs, online retailers, mail order prescription drug distributors, limited assortment
stores, discount stores, convenience stores and specialty stores. Many of these competitors offer a selection of
food, drug and general merchandise, while others remain focused on supermarket-type merchandise. In addition,
the Company is subject to competitive pressures from new entrants into the marketplace and from the expansion
or renovation of existing competitors, particularly those expanding into the grocery and retail drug markets and
those offering e-commerce retail platforms. The Company’s loyalty program is a valuable offering to customers and
provides a key differentiating marketing tool for the business. The marketing, promotional and other business
activities related to the Company’s loyalty program must be well managed and coordinated to preserve positive
customer perception. The Company has made significant investments in support of its strategic growth areas of
Everyday Digital Retail, Payments and Rewards and Connected Healthcare, which are all subject to competitive
pressures. Failure to achieve these or other strategic priorities could adversely affect the Company’s financial
position and its competitiveness.
The Company’s inability to effectively predict market activity, leverage customer preferences and spending
patterns and respond in a timely manner to trends, or compete effectively with its current or future competitors
could result in, among other things, reduced market share and reduced profitability. If the Company is ineffective in
responding to consumer trends or in executing its strategic plans, its financial performance could be adversely
affected. The failure to effectively respond to customer trends may adversely impact the Company’s relationship
with its customers. The Company closely monitors market developments and market share trends. Failure by the
Company to sustain its competitive position could adversely affect the Company’s financial performance.
Electronic Commerce and Disruptive Technologies The Company’s e-commerce strategy is a growing business
initiative. Customers expect innovative concepts and a positive customer experience, including a user-friendly
website, customer offerings that are integrated with the Company’s loyalty program, reliable data, safe and reliable
processing of payments and a well-executed merchandise pick up or delivery process. If systems are damaged or
cease to function properly, capital investment may be required. The Company is also vulnerable to various
additional uncertainties associated with e-commerce including website downtime and other technical failures,
changes in applicable federal and provincial regulations, security breaches, and consumer privacy concerns. If
these technology-based systems and related processes do not function effectively, or if the Company is unable to
identify and adapt to technological efficiencies, such as artificial/cognitive intelligence or automation in a timely
manner, the Company’s ability to grow its e-commerce business could be adversely affected. The Company has
increased its investment in improving the digital customer experience, but there can be no assurances that the
Company will be able to recover the costs incurred to date.
Change Management, Process and Efficiency Many initiatives are underway to reduce the complexity and cost of
the Company’s business operations, ensuring a low cost operating structure that allows for continued investments
in the Company’s strategic growth areas. These efforts include initiatives focused on improving processes and
generating efficiencies across the Company’s administrative, store and distribution network infrastructures. The
success of these initiatives is dependent on effective leadership and realizing intended benefits. Ineffective change
management could result in a lack of integrated processes and procedures, unclear accountabilities and decision-
making rights, decreased colleague engagement, ineffective communication and training or a lack of requisite
knowledge. Any of the foregoing could disrupt operations, increase the risk of customer dissatisfaction, adversely
affect the Company’s reputation or financial performance or adversely affect the ability of the Company to
implement and achieve its long-term strategic objectives.
IT Systems Implementations and Data Management The operations of the Company are reliant on the continuous
and uninterrupted operations of critical technology systems. Any technology failure/outage pertaining to the
availability, capacity or sustainability of the Company’s IT systems may result in disruptions impacting the
Company’s customers or financial performance, or may negatively impact the Company’s reputation. The Company
continues to make investments in new IT systems to improve the operating effectiveness of the organization.
Failure to successfully migrate from legacy systems to new IT systems or a significant disruption in the Company’s
current IT systems during the implementation of new systems could result in a lack of accurate data to effectively
manage day-to-day operations of the business or achieve its operational objectives, causing significant disruptions
to the business and potential financial losses.
2022 Annual Report - Financial Review Loblaw Companies Limited 45
Management’s Discussion and Analysis
Failure to successfully adopt or implement appropriate processes to support the new IT systems, or failure to
effectively leverage or convert data from one system to another, may preclude the Company from optimizing its
overall performance and could result in inefficiencies and duplication in processes, which in turn could adversely
affect the reputation, operations or financial performance of the Company. Failure to realize the anticipated
strategic benefits including revenue growth, anticipated cost savings or operating efficiencies associated with new
IT systems could adversely affect the reputation, operations or financial performance of the Company.
The Company also depends on relevant and reliable information to operate its business. As the volume of data
being generated and reported continues to increase across the Company, data accuracy, quality and governance
are required for effective decision making. Failure by the Company to leverage data, including customer data, in a
timely manner may adversely affect the Company’s ability to execute its strategy and therefore its financial
performance. Moreover, lack of sensitive data classification, protection and use case approval may result in
operational or reputational risk.
Inventory Management The Company is subject to risks associated with managing its inventory. Failure to
successfully manage such risks could result in shortages of inventory, excess or obsolete inventory which cannot
be sold profitably or increases in levels of inventory shrink. Any of these outcomes could adversely affect the
financial performance of the Company. Although the Company has implemented new IT systems, which are
intended to provide increased visibility to integrated inventory and sales information at store level, the Company’s
failure to effectively implement such new IT systems and applicable processes may increase the risks associated
with managing inventory, including the risk that inaccurate inventory could result in inaccurate financial statements.
The Company’s Retail segment is also examining its fundamental processes related to article lifecycle
management, with the goal of making existing processes more efficient. This will impact existing workflow and
system processes across procurement, supply chain and merchandising. Such simplification and efficiency
processes are critical to the organization’s ability to implement longer term system solutions and achieve
efficiencies across the Retail divisions. Any failure to effectively deliver this enterprise core solution could
negatively impact the Company’s operations or financial performance.
Service Providers The Company has a wide range of key business relationships with third parties including
vendors, suppliers, distributors and contractors. The Company relies on vendors, including offshore vendors in both
mature and developing markets, to provide the Company with goods and services. Offshore sourcing increases
certain risks to the Company, including risks associated with food safety and general merchandise product defects,
non-compliance with ethical and safe business practices and inadequate supply of products. The Company has no
direct influence over how vendors are managed. Negative events affecting vendors or inefficient, ineffective or
incomplete vendor management strategies, policies and/or procedures, including those related to ethical sourcing,
could adversely impact the Company’s reputation and impair the Company’s ability to meet customer needs or
control costs and quality, which could adversely affect the reputation, operations or financial performance of the
Company.
The Company relies on service providers including transport carriers or other delivery service providers, logistic
service providers and operators of warehouses and distribution facilities. Ineffective selection, contractual terms or
relationship management could impact the Company’s ability to source products (both national brand and control
brand products), to have products available for customers, to market to customers or to operate efficiently and
effectively. Disruption in services from suppliers could interrupt the delivery of merchandise to stores or customers,
which in turn could adversely affect the operations or financial performance of the Company.
PC Bank uses third party service providers to process credit card transactions, operate call centres and
operationalize certain risk management strategies for the PC® Mastercard® and PC Money Account. A significant
disruption in the services provided by third party service providers could adversely affect the financial performance
of PC Bank and the Company.
The Company has outsourced certain administrative functions of its business to service providers including account
payments, payroll services, IT support, investment management and custodial relationships, and benefit plan
administration. Any disruption in the services provided by these suppliers could adversely affect the return on
these assets or liquidity of the Company.
46 2022 Annual Report - Financial Review Loblaw Companies Limited
Franchisee Relationships The Company has entered into agreements with third party franchisees that permit the
franchisees to own and operate retail stores in accordance with prescribed procedures and standards.
A substantial portion of the Company’s revenues and earnings comes from amounts paid by franchisees in
connection with their store operations and leased property. Franchisees are independent operators and their
operations may be negatively affected by factors beyond the Company’s control. If franchisees do not operate their
stores in accordance with the Company’s standards or otherwise in accordance with good business practices,
franchisee fees and rent paid to the Company could be negatively affected, which in turn could adversely affect the
Company’s reputation, operations or financial performance. In addition, the Company’s reputation could be harmed
if a significant number of franchisees were to experience operational failures, health and safety exposures or were
unable to pay the Company for products, fees or rent.
The Company’s franchise system is also subject to franchise legislation enacted by a number of provinces. Any
new legislation or failure to comply with existing legislation could adversely affect operations and could add
administrative costs and burdens, any of which could affect the Company’s relationship with its franchisees.
Supply chain or system changes by the Company could cause or be perceived to cause disruptions to franchised
store operations and could result in negative effects on the financial performance of franchisees. Relationships with
franchisees could pose significant risks if they are disrupted, which could adversely affect the reputation,
operations or financial performance of the Company.
Associate-owned Drug Store Network and Relationships with Associates The success of the Company and the
reputation of its brands are closely tied to the performance of the Shoppers Drug Mart Associate-owned drug
stores. Accordingly, the Company relies on Associates to successfully operate, manage and execute retail
programs and strategies at their respective drug store locations. Associates are independent business operators
that have entered into agreements with the Company to own and operate retail stores in accordance with
prescribed procedures and standards. The success of the operations and financial performance of their respective
drug stores may be beyond the Company’s control. In addition, Associates are subject to franchise legislation.
Disruptions to the Company’s relationships with Shoppers Drug Mart Associate-owned drug stores or changes in
legislation could negatively affect revenue from Associates, which in turn could adversely affect the reputation,
operations or financial performance of the Company.
12.2 Financial Risks and Risk Management
The Company is exposed to a number of financial risks, including those associated with financial instruments, which
have the potential to affect its operating and financial performance. The Company uses OTC derivative instruments
to offset certain of these risks. Policies and guidelines prohibit the use of any derivative instrument for trading or
speculative purposes. The fair value of derivative instruments is subject to changing market conditions which could
adversely affect the financial performance of the Company.
The following is a list of the Company’s financial risks which are discussed in detail below:
Liquidity
Commodity Prices
Currency Exchange Rates
Credit
Interest Rates
Credit Ratings
Liquidity Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its equivalents
in a cost effective manner to fund its obligations as they come due. The Company is exposed to liquidity risk
through, among other areas, PC Bank, which requires a reliable source of funding for its credit card business.
PC Bank relies on its securitization programs, demand deposits from customers and the acceptance of guaranteed
investment certificate deposits to fund the receivables of its credit cards. The Company would experience liquidity
risks if it fails to maintain appropriate levels of cash and short-term investments, is unable to access sources of
funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could
adversely affect the financial performance of the Company.
Liquidity risk is mitigated by maintaining appropriate levels of cash and cash equivalents and short term
investments, actively monitoring market conditions, and by diversifying sources of funding, including the
Company’s committed credit facilities, and maintaining a well diversified maturity profile of debt and capital
obligations.
2022 Annual Report - Financial Review Loblaw Companies Limited 47
Management’s Discussion and Analysis
Commodity Prices The Company is exposed to increases in the prices of commodities in operating its stores and
distribution networks, as well as to the indirect effect of changing commodity prices on the price of consumer
products. Rising commodity prices could adversely affect the financial performance of the Company. To manage a
portion of this exposure, the Company uses purchase commitments and derivative instruments in the form of
exchange traded futures contracts and forward contracts to minimize cost volatility related to commodities.
Currency Exchange Rates The Company is exposed to foreign currency exchange rate variability, primarily on its
USD denominated purchases in trade payables and other liabilities. A depreciating Canadian dollar relative to the
USD will have a negative impact on year-over-year changes in reported operating income and net earnings, while
an appreciating Canadian dollar relative to the USD will have the opposite impact. To manage a portion of this
exposure, the Company uses derivative instruments in the form of futures contracts and forward contracts to
minimize cost volatility related to foreign exchange.
Credit The Company is exposed to credit risk resulting from the possibility that counterparties could default on
their financial obligations to the Company, including derivative instruments, cash and cash equivalents, short term
investments, security deposits, PC Bank’s credit card receivables, finance lease receivable, pension assets held in
the Company’s defined benefit plans and accounts receivable, including amounts due from government and third-
party drug plans arising from prescription drug sales, independent accounts and amounts owed from vendors.
Failure to manage credit risk could adversely affect the financial performance of the Company.
The risk related to derivative instruments, cash and cash equivalents and short term investments is reduced by
policies and guidelines that require that the Company enters into transactions only with counterparties or issuers
that have a minimum long term “A-” credit rating from a recognized credit rating agency and place minimum and
maximum limits for exposures to specific counterparties and instruments.
PC Bank manages its credit card receivable risk by employing stringent credit scoring techniques, actively
monitoring the credit card portfolio and reviewing techniques and technology that can improve the effectiveness of
the collection process. In addition, these receivables are dispersed among a large, diversified group of credit card
customers.
Finance lease receivable and accounts receivable, including amounts due from governments and third-party drug
plans arising from prescription drug sales, independent accounts and amounts owed from vendors and tenants, are
actively monitored on an ongoing basis and settled on a frequent basis in accordance with the terms specified in
the applicable agreements.
Interest Rates The Company is exposed to interest rate risk from fluctuations in interest rates on its floating rate
debt, and from the refinancing of existing financial instruments. An increase in interest rates could adversely affect
the operations or financial performance of the Company. The Company manages interest rate risk by monitoring
the respective mix of fixed and floating rate debt and by taking action as necessary to maintain an appropriate
balance considering current market conditions, with the objective of maintaining the majority of its debt at fixed
interest rates.
Credit Ratings Credit ratings assigned to the Company and any of its securities may be changed at any time based
on the judgment of the credit rating agencies and may also be impacted by a change in the credit rating of Weston,
Choice Properties Real Estate Investment Trust (“Choice Properties”) and their respective affiliates. In addition, the
Company, Weston, Choice Properties and their respective affiliates may incur additional indebtedness in the future,
which could impact current and future credit ratings. A reduction in credit ratings could materially adversely affect
the market value of the Company’s outstanding securities and the Company’s access to and cost of financing.
13. Related Party Transactions
The Company’s controlling shareholder is Weston, which owns, directly and indirectly, 170,606,070 of the
Company’s common shares, representing approximately 52.6% of the Company’s outstanding common shares.
Galen G. Weston beneficially owns or controls, directly and indirectly, including through Wittington Investments,
Limited (“Wittington”), a total of 78,650,662 of Weston’s common shares, representing approximately 55.9% of
Weston’s outstanding common shares. Galen G. Weston also beneficially owns 473,636 of the Company’s common
shares, representing approximately 0.1% of the Company’s outstanding common shares.
Weston is the controlling shareholder of Choice Properties. Therefore, Choice Properties is a related party by virtue
of common control. As at December 31, 2022, Weston’s ownership interest in Choice Properties was approximately
61.7% (January 1, 2022 – 61.7%). The Company is Choice Properties’ largest tenant, representing approximately
57.5% (January 1, 2022 – 55.9%) of Choice Properties’ rental revenue as at December 31, 2022. The Company also
executes various agreements and transactions with Choice Properties.
48 2022 Annual Report - Financial Review Loblaw Companies Limited
The Company also made related party purchases from Weston Foods, a former subsidiary of Weston. In 2021,
Weston completed the sale of the Weston Foods business comprised of the fresh, frozen and ambient bakery
businesses. The sale of the fresh and frozen business was completed on December 10, 2021 and the ambient
business on December 29, 2021, at which time Weston Foods no longer met the criteria for a related party. As a
result, the Company has reflected all transactions with Weston Foods below until the dates of sale. In addition,
upon closing of each of these sales, the Company entered into a supply agreement with the purchasers of each of
those businesses.
In the ordinary course of business, the Company enters into various transactions with related parties. These
transactions are measured at the exchange amount, which is the amount of consideration established and agreed
upon by the related parties.
Transactions with Related Parties
(millions of Canadian dollars)
Included in cost of sales
Inventory purchases from a subsidiary of Weston(vi)
Inventory sold to a subsidiary of Weston(vi)
Inventory purchases from a related party(i)
Operating income
Transactions with Weston and Wittington
Cost sharing agreements with Weston(ii)
Net administrative services provided by Weston(iii)
Transactions with Choice Properties
Lease payments to Choice Properties(iv)
Lease surrender payments paid to Choice Properties
Site intensification payments received from Choice Properties(v)
Transaction Value
2022
2021
$
$
$
$
$
$
—
—
39
71
16
753
—
(3)
541
1
32
54
19
751
2
(2)
(i) Associated British Foods plc is a related party by virtue of a common director of such entity’s parent company and Wittington. Total balance
outstanding owing to Associated British Foods plc as at December 31, 2022 was $6 million (January 1, 2022 – $1 million).
(ii) The Company and Weston have each entered into certain contracts with third parties for administrative and corporate services, including
telecommunication services and IT related matters on behalf of itself and the related party. Through cost sharing agreements that have been
established between the Company and Weston concerning these costs, the Company has agreed to be responsible to Weston for the
Company’s proportionate share of the total costs incurred.
(iii) The Company and Weston have entered into an agreement whereby certain administrative services are provided by one party to the other.
The services to be provided under this agreement include those related to commodity management, pension and benefits, information
systems, risk management, treasury, certain accounting functions and legal. Payments are made quarterly based on the actual costs of
providing these services. Where services are provided on a joint basis for the benefit of the Company and Weston together, each party pays
the appropriate proportion of the costs. Fees paid under this agreement are reviewed each year by the Audit Committee.
(iv) During 2022, lease payments paid to Choice Properties included base rent of $528 million (2021 – $528 million) and operating expenses of
$225 million (2021 – $223 million).
(v) During 2022, the Company received site intensification payments from Choice Properties of $3 million (2021 – $2 million). Included in
certain investment properties sold to Choice Properties is excess land with development potential. Choice Properties will compensate the
Company, over time, with site intensification payments, as Choice Properties pursues development, intensification or redevelopment of such
excess lands. The payments the Company receives are calculated in accordance with a payment grid, set out in the Strategic Alliance
Agreement, that takes into account the region, market ranking and type of use for the property.
(vi) In 2021, Weston completed the sale of the Weston Foods business comprised of the fresh, frozen and ambient bakery businesses. The sale
of the fresh and frozen business was completed on December 10, 2021 and the ambient business on December 29, 2021, at which time
Weston Foods no longer met the criteria for a related party. As a result, the Company has reflected all transactions with Weston Foods until
the dates of sale. In addition, upon closing of each of these sales, the Company entered into a supply agreement with the purchasers of
each of those businesses.
2022 Annual Report - Financial Review Loblaw Companies Limited 49
Management’s Discussion and Analysis
The net balances due to (from) related parties are comprised as follows:
(millions of Canadian dollars)
Weston(i)
Choice Properties(ii)
As at
December 31, 2022
As at
January 1, 2022
$
$
116
(18)
10
3
(i) Balances relate to trade payables and other liabilities due to Weston, net of receivables from Weston.
(ii) Balances relate to other receivables, net of other payables to Choice Properties.
Other Transactions and Agreements with Choice Properties
Strategic Alliance Agreement The Strategic Alliance Agreement established on the initial public offering (“IPO”) of
Choice Properties creates a series of rights and obligations between Choice Properties and the Company, intended
to establish a preferential and mutually beneficial business and operating relationship. The initial term of the
Strategic Alliance Agreement expires on July 5, 2023, ten years from the IPO. Upon expiry of the initial term, the
Strategic Alliance Agreement will be automatically renewed until the earlier of July 5, 2033 or the date on which
George Weston Limited and its affiliates own less than 50% effective interest in Choice Properties (on a fully diluted
basis).
Commitments The following is a summary of the Company’s future undiscounted contractual lease payments to
Choice Properties:
(millions of Canadian dollars)
Lease payments
Payments due by year
2025
2024
2026
2023
2027 Thereafter
As at
December 31, 2022
Total
As at
January 1, 2022
Total
$ 531 $ 534 $ 543 $ 466 $ 418 $ 1,659 $
4,151
$
4,122
Financial Liabilities During 2022, the Company disposed of two retail properties (2021 – one retail property) to
Choice Properties for total proceeds of $15 million (2021 – $12 million). The properties were leased back by the
Company. The transactions did not meet the criteria for sale of asset in accordance with IFRS 15, “Revenue from
Contracts with Customers” as the Company did not relinquish control of the properties under the terms of the
leases. Total proceeds were recognized as financial liabilities and as at December 31, 2022, $4 million (January 1,
2022 – $3 million) was recorded in trade payables and other liabilities and $69 million (January 1, 2022 –
$54 million) was recorded in other liabilities. During 2022, $5 million (2021 – $3 million) of interest expense was
recognized in net interest expense and other financing charges and repayments of $4 million (2021 – $4 million)
were made on the financial liabilities.
Disposition of Properties to Choice Properties Real Estate Investment Trust In the first quarter of 2022, the
Company disposed of a property to Choice Properties for proceeds of $26 million and recognized a gain of
$19 million. This property was not leased back by the Company. There were no dispositions of property to
Choice Properties in 2021.
Leases with Choice Properties During 2022, the Company renewed 42 retail leases which would have expired in
2023. Upon renewal, the Company recorded right-of-use assets and lease liabilities of $133 million.
In the second quarter of 2022, the Company announced that it intends to build an industrial facility on part of a
property in East Gwillimbury, Ontario owned by a joint venture in which Choice Properties has an ownership
interest. The Company expects to bring the industrial facility into its operations in the first quarter of 2024. For the
first phase of the development, the Company entered into a 25-year land lease with the joint venture. The
Company took possession of the land on October 1, 2022, and as a result recorded a right-of-use asset and lease
liability of $120 million. The land lease includes a 15-month construction period with lease payments commencing in
2024.
50 2022 Annual Report - Financial Review Loblaw Companies Limited
Other Transactions
Venture Fund During 2020, Loblaw, Weston and a wholly owned subsidiary of Wittington became limited partners
in a limited partnership formed by Wittington (“Venture Fund I”). A wholly owned subsidiary of Wittington is the
general partner of the Venture Fund, which hired an external fund manager to oversee it. The purpose of the
Venture Fund I is to pursue venture capital investing in innovative businesses that are in technology-oriented
companies at all stages of the start-up life cycle that operate in commerce, healthcare, and food sectors and are
based in North America. Each of the three limited partners have 33% interest in the Venture Fund I. The Company
has a total capital commitment of $33 million over a 10-year period. To date, the Company has invested $23 million
in the Venture Fund I, of which $8 million was invested in 2022 (2021 – $9 million) (see note 18).
During the third quarter of 2022, Loblaw became a limited partner in another limited partnership formed by
Wittington (“Venture Fund II”). A wholly owned subsidiary of Wittington is also the general partner of Venture Fund
II, and the general purpose of Venture Fund II is consistent with Venture Fund I. The Company has a 50% interest in
Venture Fund II and has a total capital commitment of $60 million over a 10-year period. To date, the Company has
invested nil in Venture Fund II.
Post-Employment Benefit Plans The Company sponsors a number of post-employment plans, which are related
parties. Contributions made by the Company to these plans are disclosed in the notes to the consolidated financial
statements. Effective November 21, 2022, Loblaw became the sponsor of a group plan which was previously
sponsored by the parent company, Weston. As a participant of the group plan, the Company will continue to make
contributions for its share of defined benefit costs, including interest, service and administrative costs. In 2022 and
2021, the Company did not make any contributions to the group plan.
Income Tax Matters From time to time, the Company, Weston and its affiliates may enter into agreements to make
elections that are permitted or required under applicable income tax legislation with respect to affiliated
corporations.
Key Management Personnel The Company’s key management personnel are comprised of the Board and certain
members of the executive team of the Company, as well as both the Board and certain members of the executive
team of Weston and Wittington to the extent that they have the authority and responsibility for planning, directing
and controlling the day-to-day activities of the Company.
Compensation of Key Management Personnel Annual compensation of key management personnel that is
directly attributable to the Company was as follows:
(millions of Canadian dollars)
Salaries, director fees and other short term employee benefits
Equity-based compensation
Total compensation
2022
8
2
$
10
$
$
$
2021
9
9
18
2022 Annual Report - Financial Review Loblaw Companies Limited 51
Management’s Discussion and Analysis
14. Critical Accounting Estimates and Judgments
The preparation of the consolidated financial statements requires management to make estimates and judgments
in applying the Company’s accounting policies that affect the reported amounts and disclosures made in the
consolidated financial statements and accompanying notes.
Within the context of this Annual Report, a judgment is a decision made by management in respect of the
application of an accounting policy, a recognized or unrecognized financial statement amount and/or note
disclosure, following an analysis of relevant information that may include estimates and assumptions. Estimates and
assumptions are used mainly in determining the measurement of balances recognized or disclosed in the
consolidated financial statements and are based on a set of underlying data that may include management’s
historical experience, knowledge of current events and conditions and other factors that are believed to be
reasonable under the circumstances. Management continually evaluates the estimates and judgments it uses.
The following are the accounting policies subject to judgments and key estimation uncertainty that the Company
believes could have the most significant impact on the amounts recognized in the consolidated financial
statements.
14.1 Consolidation
Judgments Made in Relation to Accounting Policies Applied The Company uses judgment in determining the
entities that it controls and therefore consolidates. The Company controls an entity when the Company has the
existing rights that give it the current ability to direct the activities that significantly affect the entity’s returns. The
Company consolidates all of its wholly owned subsidiaries. Judgment is applied in determining whether the
Company controls the entities in which it does not have ownership rights or does not have full ownership rights.
Most often, judgment involves reviewing contractual rights to determine if rights are participating (giving power
over the entity) or protective rights (protecting the Company’s interest without giving it power).
14.2 Business Combinations - Valuation of Intangible Assets
Key Estimations The Company applies significant judgment in estimating the fair value of intangible assets. In
determining the fair value of customer relationships and brands, various valuation techniques are used.
Specifically, the Company used the multi-period excess earnings method to fair value customer relationships and
the royalty relief method to fair value brands using a discounted cash flow model. Under these valuation
approaches, the Company developed assumptions related to revenue and gross margin forecasts, attrition rate,
royalty rate and discount rates.
14.3 Inventories
Key Estimations Inventories are carried at the lower of cost and net realizable value which requires the Company
to utilize estimates related to fluctuations in shrink, future retail prices, the impact of vendor rebates on cost,
seasonality and costs necessary to sell the inventory.
14.4 Impairment of Non-Financial Assets (Goodwill, Intangible Assets, Fixed Assets and Right-of-Use Assets)
Judgments Made in Relation to Accounting Policies Applied The Company uses judgment in determining cash
generating units (“CGUs”) for the purpose of testing fixed assets, right-of-use assets and intangible assets for
impairment. Judgment is also used to determine the goodwill CGUs for the purpose of testing goodwill for
impairment. The Company has determined that each retail location is a separate CGU. Intangible assets are
allocated to the CGUs (or groups of CGUs) to which they relate. Goodwill is allocated to CGUs (or groups of CGUs)
based on the level at which management monitors goodwill, which cannot be higher than an operating segment.
The allocation of goodwill is made to CGUs (or groups of CGUs) that are expected to benefit from the synergies
and future growth of the business combination from which they arose. In addition, judgment is used to determine
whether a triggering event has occurred requiring an impairment test to be completed. In applying this judgment
management considers profitability of the CGU and other qualitative factors. If the the Company cannot estimate
the recoverable amount of an individual tangible or intangible asset because it does not generate independent
cash inflows, the Company is required to test the entire CGU to which it belongs for impairment.
52 2022 Annual Report - Financial Review Loblaw Companies Limited
Key Estimations In determining the recoverable amount of a CGU or a group of CGUs, various estimates are
employed. The Company determines fair value less costs to sell using such estimates as market rental rates for
comparable properties, discount rates and capitalization rates. The Company determines value in use by using
estimates including projected future sales and earnings, and discount rates consistent with external industry
information reflecting the risk associated with the specific cash flows.
14.5 Impairment of Credit Card Receivables
Judgments Made in Relation to Accounting Policies Applied and Key Sources of Estimation In each stage of the
expected credit loss (“ECL”) model, impairment is determined based on the probability of default, loss given
default, and expected exposures at default on drawn and undrawn exposures on credit card receivables. The
application of the ECL model requires management to apply the following significant judgments, assumptions and
estimations:
• Movement of impairment measurement between the three stages of the ECL model, based on the assessment
of the increase in credit risks on credit card receivables. The assessment of changes in credit risks includes
qualitative and quantitative factors of the accounts, such as historical credit loss experience and external credit
scores;
• Thresholds for significant increase in credit risk based on changes in probability of default over the expected
life of the instrument relative to initial recognition; and
• Forecasts of future economic conditions, namely the unemployment rate. Management uses an average of
unemployment rate forecasts published by major Canadian Chartered Banks and the Conference Board of
Canada to establish the base case scenario and other representative ranges of possible forecast scenarios.
14.6 Income and Other Taxes
Judgments Made in Relation to Accounting Policies Applied The calculation of current and deferred income taxes
requires management to make certain judgments including expectations about future operating results, the timing
and reversal of temporary differences, and the interpretation of tax rules in jurisdictions where the Company
performs activities. 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.
14.7 Segment Information
Judgments Made in Relation to Determining the Aggregation of Operating Segments The Company uses
judgment in assessing the criteria used to determine the aggregation of operating segments. The Retail reportable
operating segment consists of several operating segments comprised primarily of food retail and Associate-owned
drug stores, and also includes in-store pharmacies and healthcare services and other health and beauty products,
apparel and other general merchandise. The Company has aggregated its retail operating segments on the basis
of their similar economic characteristics, customers and nature of products. This similarity in economic
characteristics reflects the fact that the Company’s retail operating segments operate primarily in Canada and are
therefore subject to the same economic market pressures and regulatory environment. The Company’s retail
operating segments are subject to similar competitive pressures such as price and product innovation and
assortment from existing competitors and new entrants into the marketplace. The similar economic characteristics
also include the provision of centralized, common functions such as marketing and IT across all retail operating
segments.
The retail operating segments’ customer profile is primarily individuals who are purchasing goods for their own or
their family’s personal needs and consumption. The nature of products and the product assortment sold by each of
the retail operating segments is also similar and includes grocery, pharmaceuticals, cosmetics, electronics and
housewares. The aggregation of the retail operating segments reflects the nature and financial effects of the
business activities in which the Company engages and the economic environment in which it operates.
2022 Annual Report - Financial Review Loblaw Companies Limited 53
Management’s Discussion and Analysis
14.8 Provisions
Judgments made in Relation to Accounting Policies Applied and Key Estimations The recording of provisions
requires management to make certain judgments regarding whether there is a present legal or constructive
obligation as a result of a past event, it is probable that the Company will be required to settle the obligation and if
a reliable estimate of the amount of the obligation can be made. The Company has recorded provisions primarily in
respect of restructuring, environmental and decommissioning liabilities, certain onerous costs on leased properties
and legal claims. The Company reviews the merits, risks and uncertainties of each provision, based on current
information, and the amount expected to be required to settle the obligation. Provisions are reviewed on an
ongoing basis and are adjusted accordingly when new facts and events become known to the Company.
14.9 Leases
Judgments Made in Relation to Accounting Policies Applied Management exercises judgment in determining
the appropriate lease term on a lease by lease basis. Management considers all facts and circumstances that
create an economic incentive to exercise a renewal option or to not exercise a termination option including
investments in major leaseholds, store performances, past business practice and the length of time remaining
before the option is exercisable. The periods covered by renewal options are only included in the lease term if
management is reasonably certain to renew. Management considers reasonably certain to be a high threshold.
Changes in the economic environment or changes in the retail industry may impact management’s assessment of
lease term, and any changes in management’s estimate of lease terms may have a material impact on the
Company’s consolidated balance sheets and statements of earnings.
Key Estimations In determining the carrying amount of right-of-use assets and lease liabilities, the Company is
required to estimate the incremental borrowing rate specific to each leased asset or portfolio of leased assets if
the interest rate implicit in the lease is not readily determined. Management determines the incremental borrowing
rate using a base risk-free interest rate estimated by reference to the Government of Canada bond yield with an
adjustment that reflects the Company’s credit rating, the security, lease term and value of the underlying leased
asset, and the economic environment in which the leased asset operates. The incremental borrowing rates are
subject to change due to changes in the business and macroeconomic environment.
15. Accounting Standards
Future Accounting Standard
IFRS 17 In 2017, the IASB issued IFRS 17, “Insurance Contracts” (“IFRS 17”) replacing IFRS 4. IFRS 17 introduces
consistent accounting for all insurance contracts. The standard requires a company to measure insurance contracts
using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to these
contracts. Additionally, IFRS 17 requires an entity to recognize profits as it delivers insurance services, rather than
when it receives premiums. The standard is effective for annual reporting periods beginning on or after
January 1, 2023 and is to be applied retrospectively. The Company has assessed the impact of the standard on its
consolidated financial statements and determined that the impact will not be material.
54 2022 Annual Report - Financial Review Loblaw Companies Limited
16. Strategic Update and Outlook(3)
Strategic Update Loblaw’s portfolio of businesses remains strong and well-positioned as global factors continue to
cause unprecedented inflationary pressures and higher food costs. The Company’s best in class assets continue to
meet customers’ everyday needs for food, health and wellness – supporting Loblaw’s purpose: helping Canadians
Live Life Well. In an evolving and challenging landscape, in 2023 the Company will focus on three strategic pillars:
delivering retail excellence; driving growth; and investing for the future.
Retail Excellence Loblaw creates value through disciplined execution of core retail operations and by leveraging
its scale and strategic assets. This retail excellence is underpinned by process and efficiency initiatives and helps
grow sales, optimize gross margins, and reduce operating costs. The Company remains focused on strategic
procurement opportunities to deliver reliability, improve product selection and drive economies of scale across its
grocery and pharmacy network. Leveraging its customer loyalty program and more than one billion customer
transactions across food, pharmacy, apparel, and financial services, Loblaw will increase its promotional
effectiveness while delivering personalized value and unmatched service to Canadians. The Company will continue
to invest in and optimize its retail network to better meet customer needs and improve its overall profitability.
Management’s clear commitment to food and drug retail excellence, together with a sense of urgency, is focused
on delivering consistent strong operational and financial performance.
Driving Growth Loblaw continues to invest in targeted growth areas to further differentiate its portfolio of assets
and generate competitive advantage. The three priority areas are: Digital Retail, Loblaw Media, and PC Optimum.
The Company will focus on enhancing and integrating its Digital Retail platforms across each of its businesses and
improving the customer experience and functionality. The Loblaw Media platform provides expanded advertising
opportunities on the Company’s digital platforms and in-stores, delivering an unmatched value proposition to
vendors. The Company’s PC Optimum loyalty program continues to evolve, with increasing customer digital
engagement, more meaningful personalized offers, and more effective promotions, all toward strengthening the
loyalty loop and increasing the share of customer wallet.
Investing For The Future Loblaw will continue to make capital investments towards the modernization and
automation of its supply chain and the expansion of its retail network. These investments will be partially funded by
proceeds from real estate dispositions. Loblaw will continue to invest in its Connected Healthcare strategy with the
goal of growing its healthcare ecosystem by connecting patients and providers through an unmatched network of
pharmacies, healthcare professionals and technology solutions. Pharmacies will play an increasing role in the
delivery of healthcare services to Canadians through expanded scope of practice changes and the expansion of
pharmacist led clinics.
Outlook(3) Loblaw will continue to execute on retail excellence while advancing its growth initiatives in 2023. The
Company’s businesses remain well placed to service the everyday needs of Canadians. However, the Company
cannot predict the precise impacts of global economic uncertainties, including the inflationary environment, on its
2023 financial results.
its Retail business to grow earnings faster than sales;
For the full-year 2023, the Company expects:
•
• adjusted net earnings per common share(2) growth in the low double digits;
•
to increase investments in our store network and distribution centres by investing a net amount of $1.6 billion
in capital expenditures, which reflects gross capital investments of approximately $2.1 billion offset by
approximately $500 million of proceeds from real estate dispositions; and
to return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
•
2022 Annual Report - Financial Review Loblaw Companies Limited 55
Management’s Discussion and Analysis
17. Non-GAAP Financial Measures
The Company uses the following non-GAAP financial measures and ratios: Retail segment gross profit; Retail
segment adjusted gross profit; Retail segment adjusted gross profit percentage; adjusted earnings before income
taxes, net interest expense and other financing charges and depreciation and amortization (“adjusted EBITDA”);
adjusted EBITDA margin; adjusted operating income; adjusted net interest expense and other financing charges;
adjusted income taxes; adjusted effective tax rate; adjusted net earnings available to common shareholders;
adjusted diluted net earnings per common share, free cash flow; retail debt to retail adjusted EBITDA; adjusted
return on equity; and adjusted return on capital. The Company believes these non-GAAP financial measures and
ratios provide useful information to both management and investors in measuring the financial performance and
financial condition of the Company for the reasons outlined below.
Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and
income that must be recognized under GAAP when analyzing underlying consolidated and segment operating
performance, as the excluded items are not necessarily reflective of the Company’s underlying operating
performance and make comparisons of underlying financial performance between periods difficult. The Company
adjusts for these items if it believes doing so would result in a more effective analysis of underlying operating
performance. The exclusion of certain items does not imply that they are non-recurring.
These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be
comparable to similarly titled measures presented by other publicly traded companies and should not be construed
as an alternative to other financial measures determined in accordance with GAAP.
Retail Segment Gross Profit, Retail Segment Adjusted Gross Profit and Retail Segment Adjusted Gross Profit
Percentage The following tables reconcile adjusted gross profit by segment to gross profit by segment, which is
reconciled to revenue and cost of sales measures as reported in the consolidated statements of earnings for the
periods ended as indicated. The Company believes that Retail segment gross profit and Retail segment adjusted
gross profit are useful in assessing the Retail segment’s underlying operating performance and in making decisions
regarding the ongoing operations of the business.
Retail segment adjusted gross profit percentage is calculated as Retail segment adjusted gross profit divided by
Retail segment revenue.
2022
(12 weeks)
2021
(12 weeks)
For the periods ended December 31, 2022
and January 1, 2022
(millions of Canadian dollars)
Revenue
Cost of sales
Gross profit
Adjusted gross profit
Financial
Retail Services Eliminations
Total
Retail
Financial
Services Eliminations
Total
$ 13,694 $ 417 $
(104) $ 14,007
$ 12,486 $ 360 $
(89) $ 12,757
9,506
81
—
9,587
8,627
78
—
8,705
$ 4,188 $ 336 $
(104) $ 4,420
$ 3,859 $ 282 $
(89) $ 4,052
$ 4,188 $ 336 $
(104) $ 4,420
$ 3,859 $ 282 $
(89) $ 4,052
2022
(52 weeks)
2021
(52 weeks)
For the years ended December 31, 2022
and January 1, 2022
Financial
(millions of Canadian dollars)
Revenue
Cost of sales
Gross profit
Adjusted gross profit
Retail Services Eliminations
Total
Retail
Financial
Services Eliminations
Total
$ 55,492 $ 1,338 $
(326) $ 56,504
$ 52,269 $
1,182 $
(281) $ 53,170
38,327
201
— 38,528
36,228
208
— 36,436
$ 17,165 $ 1,137 $
$ 17,165 $ 1,137 $
(326) $ 17,976
(326) $ 17,976
$ 16,041 $ 974 $
$ 16,041 $ 974 $
(281) $ 16,734
(281) $ 16,734
56 2022 Annual Report - Financial Review Loblaw Companies Limited
Adjusted Operating Income, Adjusted EBITDA and Adjusted EBITDA Margin The following tables reconcile
adjusted operating income and adjusted EBITDA to operating income, which is reconciled to net earnings
attributable to shareholders of the Company as reported in the consolidated statements of earnings for the periods
ended as indicated. The Company believes that adjusted EBITDA is useful in assessing the performance of its
ongoing operations and its ability to generate cash flows to fund its cash requirements, including the Company’s
capital investment program.
Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue.
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars)
Net earnings attributable to shareholders of
the Company
Add (deduct) impact of the following:
Non-controlling interests
Net interest expense (recovery) and other
financing charges
Income taxes
Operating income
Add (deduct) impact of the following:
Amortization of intangible assets acquired
with Shoppers Drug Mart
Amortization of intangible assets acquired with
Lifemark
Fair value adjustment on fuel and foreign currency
contracts
Restructuring and other related recoveries
Fair value adjustment on non-operating properties
Gain on sale of non-operating properties
Adjusting items
Adjusted operating income
Depreciation and amortization
Less: Amortization of intangible assets acquired with
Shoppers Drug Mart and Lifemark
Adjusted EBITDA
2022
(12 weeks)
2021
(12 weeks)
Retail
Financial
Services
Total
Retail
Financial
Services
Total
$ 532
$ 747
(14)
172
181
(28)
(29)
15
$ 810 $
61 $ 871 $ 636 $
69 $ 705
$
111 $ — $
111 $
117 $
— $
117
4
11
—
(6)
(50)
—
—
—
—
—
4
11
—
(6)
(50)
—
6
(8)
(2)
—
—
—
—
—
—
—
6
(8)
(2)
—
$
70 $ — $
70 $
113 $
— $
113
$ 880 $
61 $ 941 $ 749 $
69 $ 818
653
(115)
14
—
667
612
(115)
(117)
11
—
623
(117)
$ 1,418 $
75 $ 1,493 $ 1,244 $
80 $ 1,324
2022 Annual Report - Financial Review Loblaw Companies Limited 57
Management’s Discussion and Analysis
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars)
Net earnings attributable to shareholders of the
Company
Add impact of the following:
Non-controlling interests
Net interest expense and other
financing charges
Income taxes
Operating income
Add (deduct) impact of the following:
2022
(52 weeks)
2021
(52 weeks)
Retail
Financial
Services
Total
Retail
Financial
Services
Total
$ 1,921
$ 1,875
73
683
665
101
495
466
$ 3,260 $
82 $ 3,342 $ 2,713 $ 224 $ 2,937
Amortization of intangible assets acquired with
Shoppers Drug Mart
Amortization of intangible assets acquired with
Lifemark
Charge related to PC Bank commodity tax matter
Lifemark transaction costs
Fair value adjustment on fuel and foreign
currency contracts
Fair value adjustment on non-operating
properties
Restructuring and other related (recoveries) costs
Gain on sale of non-operating properties
Adjusting items
Adjusted operating income
Depreciation and amortization
Less: Amortization of intangible assets acquired
with Shoppers Drug Mart and Lifemark
Adjusted EBITDA
$ 486 $ — $ 486 $ 506 $
— $ 506
11
—
16
(5)
(6)
(15)
(57)
—
111
—
—
—
—
—
11
111
16
(5)
(6)
(15)
(57)
—
—
—
(13)
(2)
13
(12)
—
—
—
—
—
—
—
—
—
—
(13)
(2)
13
(12)
$ 430 $
111 $ 541 $ 492 $
— $ 492
$ 3,690 $
193 $ 3,883 $ 3,205 $ 224 $ 3,429
2,746
49
2,795
2,623
41
2,664
(497)
—
(497)
(506)
—
(506)
$ 5,939 $ 242 $ 6,181 $ 5,322 $ 265 $ 5,587
58 2022 Annual Report - Financial Review Loblaw Companies Limited
In addition to the items described in the Retail segment adjusted gross profit section above, when applicable,
adjusted EBITDA was impacted by the following:
Amortization of intangible assets acquired with Shoppers Drug Mart The acquisition of Shoppers Drug Mart in
2014 included approximately $6,050 million of definite life intangible assets, which are being amortized over their
estimated useful lives. Annual amortization associated with the acquired intangibles will be approximately
$500 million until 2024 and will decrease thereafter.
Amortization of intangible assets acquired with Lifemark The acquisition of Lifemark in the second quarter of
2022 included approximately $299 million of definite life intangible assets, which are being amortized over their
estimated useful lives.
Charge related to PC Bank commodity tax matter In the second quarter of 2022, the Company recorded a
charge of $111 million, inclusive of interest. On July 19, 2022, the Tax Court released its decision and ruled that
PC Bank is not entitled to claim notional input tax credits for certain payments it made to Loblaws Inc. in respect of
redemptions of loyalty points. On September 29, 2022, PC Bank filed a Notice of Appeal with the Federal Court of
the Appeal.
Lifemark transaction costs In connection with the acquisition of Lifemark, the Company recorded acquisition costs
of $16 million in operating income during 2022.
Fair value adjustment on fuel and foreign currency contracts The Company is exposed to commodity price and
U.S. dollar exchange rate fluctuations. In accordance with the Company’s commodity risk management policy, the
Company enters into exchange traded futures contracts and forward contracts to minimize cost volatility relating to
fuel prices and the U.S. dollar exchange rate. These derivatives are not acquired for trading or speculative
purposes. Pursuant to the Company’s derivative instruments accounting policy, changes in the fair value of these
instruments, which include realized and unrealized gains and losses, are recorded in operating income. Despite the
impact of accounting for these commodity and foreign currency derivatives on the Company’s reported results, the
derivatives have the economic impact of largely mitigating the associated risks arising from price and exchange
rate fluctuations in the underlying commodities and U.S. dollar commitments.
Fair value adjustment on non-operating properties The Company measures non-operating properties, which are
investment properties and assets held for sale that were transferred from investment properties, at fair value.
Under the fair value model, non-operating properties are initially measured at cost and subsequently measured at
fair value. Fair value using the income approach include assumptions as to market rental rates for properties of
similar size and condition located within the same geographical areas, recoverable operating costs for leases with
tenants, non-recoverable operating costs, vacancy periods, tenant inducements and terminal capitalization rates.
Gains and losses arising from changes in the fair value are recognized in operating income in the period in which
they arise.
Restructuring and other related (recoveries) costs The Company continuously evaluates strategic and cost
reduction initiatives related to its store infrastructure, distribution networks and administrative infrastructure with
the objective of ensuring a low cost operating structure. Only restructuring activities that are publicly announced
related to these initiatives are considered adjusting items.
In the fourth quarter of 2022, the Company did not record any restructuring and other related recoveries or
charges (2021 – recovery of $8 million). Year-to-date, the Company recorded approximately $15 million (2021 –
charges of $13 million) of restructuring and other related recoveries mainly in connection to the previously
announced closure of two distribution centres in Laval and Ottawa. In the first quarter of 2022, the Company
disposed of one of the distribution centres for proceeds of $26 million and recognized a gain of $19 million, which
was partially offset by $4 million of restructuring and other related charges. The Company invested to build a
modern and efficient expansion to its Cornwall distribution centre to serve its food and drug retail businesses in
Ontario and Quebec and volumes have been transferred.
Gain on sale of non-operating properties In the fourth quarter of 2022, the Company recorded a gain related to
the sale of non-operating properties of $50 million (2021 – nil). Year-to-date, the Company disposed of non-
operating properties and recorded a gain of $57 million (2021 – $12 million).
2022 Annual Report - Financial Review Loblaw Companies Limited 59
Management’s Discussion and Analysis
Adjusted Net Interest Expense and Other Financing Charges The following table reconciles adjusted net interest
expense and other financing charges to net interest expense (recovery) and other financing charges as reported in
the consolidated statements of earnings for the periods ended as indicated. The Company believes that adjusted
net interest expense and other financing charges is useful in assessing the Company’s underlying financial
performance and in making decisions regarding the financial operations of the business.
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars)
Net interest expense (recovery) other
financing charges
Add: Recovery related to Glenhuron
Adjusted net interest expense and other
financing charges
2022
(12 weeks)
2021
(12 weeks)
2022
(52 weeks)
2021
(52 weeks)
$
172
$
(29)
$
683
$
—
189
11
495
189
$
172
$
160
$
694
$
684
Recovery related to Glenhuron Between 2015 and 2019, the Company was reassessed by the Canada Revenue
Agency and the Ontario Ministry of Finance on the basis that certain income earned by Glenhuron, a wholly owned
Barbadian subsidiary of the Company that was wound up in 2013, should be treated, and taxed, as income in
Canada. In the fourth quarter of 2021, the Supreme Court ruled in favour of the Company on the Glenhuron matter
and the Company reversed $301 million of previously recorded charges, of which $173 million was recorded as
interest income and $128 million was recorded as income tax recovery, and an additional $16 million, before taxes,
was also recorded in respect of interest income earned on expected cash tax refunds. As a result of related
reassessments received during the first quarter of 2022, the Company reversed another $35 million of previously
recorded charges, of which $2 million was recorded as interest income and $33 million was recorded as an income
tax recovery, and an additional $9 million, before taxes, was recorded in respect of interest income earned on
expected cash tax refunds.
Adjusted Income Taxes and Adjusted Effective Tax Rate The following table reconciles adjusted income taxes to
income taxes as reported in the consolidated statements of earnings for the periods ended as indicated. The
Company believes that adjusted income taxes is useful in assessing the Company’s underlying operating
performance and in making decisions regarding the ongoing operations of its business.
Adjusted effective tax rate is calculated as adjusted income taxes divided by the sum of adjusted operating income
less adjusted net interest expense and other financing charges.
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Adjusted operating income(i)
Adjusted net interest expense and other
financing charges(i)
Adjusted earnings before taxes
Income taxes
Add impact of the following:
Tax impact of items included in adjusted
earnings before taxes(ii)
Recovery related to Glenhuron
Adjusted income taxes
Effective tax rate
Adjusted effective tax rate
2022
(12 weeks)
2021
(12 weeks)
2022
(52 weeks)
2021
(52 weeks)
$
941
$
818
$ 3,883
$ 3,429
$
$
$
172
769
181
24
—
205
25.9 %
26.7 %
$
$
$
160
658
15
694
684
$ 3,189
$ 2,745
$
665
$
466
25
128
168
2.0 %
25.5 %
$
143
33
841
25.0 %
26.4 %
$
127
128
721
19.1 %
26.3 %
(i) See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges in the tables above.
(ii) See the adjusted operating income, adjusted EBITDA and adjusted EBITDA margin table and the adjusted net interest expense and other
financing charges table above for a complete list of items included in adjusted earnings before taxes.
60 2022 Annual Report - Financial Review Loblaw Companies Limited
Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net Earnings Per Common
Share The following table reconciles adjusted net earnings available to common shareholders of the Company and
adjusted net earnings attributable to shareholders of the Company to net earnings attributable to shareholders of
the Company and then to net earnings available to common shareholders of the Company for the periods ended as
indicated. The Company believes that adjusted net earnings available to common shareholders and adjusted
diluted net earnings per common share are useful in assessing the Company’s underlying operating performance
and in making decisions regarding the ongoing operations of its business.
For the periods ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Net earnings attributable to shareholders
of the Company
Prescribed dividends on preferred shares in
share capital
Net earnings available to common shareholders
of the Company
Net earnings attributable to shareholders of the
Company
Adjusting items (refer to the following table)
Adjusted net earnings attributable to shareholders
of the Company
Prescribed dividends on preferred shares in
share capital
Adjusted net earnings available to common
shareholders of the Company
Diluted weighted average common shares
outstanding (millions)
2022
(12 weeks)
2021
(12 weeks)
2022
(52 weeks)
2021
(52 weeks)
$
532
$
747
$
1,921
$
1,875
(3)
(3)
(12)
(12)
$
$
$
$
529
532
46
744
$
1,909
747
$
(229)
1,921
354
$
$
1,863
1,875
48
$
578
$
518
$
2,275
$
1,923
(3)
(3)
(12)
(12)
$
575
$
515
$
2,263
$
1,911
327.4
338.1
331.7
341.8
2022 Annual Report - Financial Review Loblaw Companies Limited 61
Management’s Discussion and Analysis
The following table reconciles adjusted net earnings available to common shareholders of the Company and
adjusted diluted net earnings per common share to net earnings available to common shareholders of the
Company and diluted net earnings per common share for the periods ended as indicated.
2022
(12 weeks)
2021
(12 weeks)
2022
(52 weeks)
2021
(52 weeks)
For the periods ended December 31, 2022
and January 1, 2022
(millions of Canadian dollars/Canadian dollars)
As reported
Add (deduct) impact of the
following:
Amortization of intangible
assets acquired with
Shoppers Drug Mart
Amortization of intangible
assets acquired with
Lifemark
Fair value adjustment on
fuel and foreign currency
contracts
Charge related to PC Bank
commodity tax matter
Lifemark transaction costs
Restructuring and other
related (recoveries) costs
Recovery related to
Glenhuron
Fair value adjustment on
non-operating properties
Gain on sale of non-
operating properties
Net Earnings
Available to
Common
Shareholders
Diluted
Net
Earnings
Per
of the Common
Share
Company
Net Earnings
Available to
Common
Shareholders
Diluted
Net
Earnings
Per
of the Common
Share
Company
Net Earnings
Available to
Diluted
Net
Common Earnings
Per
of the Common
Share
Company
Shareholders
Net Earnings
Available to
Common
Shareholders
Diluted
Net
Earnings
Per
of the Common
Share
Company
$
529 $ 1.62 $
744 $ 2.20 $ 1,909 $ 5.75 $
1,863 $ 5.45
$
80 $ 0.24
$
87 $ 0.25
$
357 $ 1.08
$
372 $ 1.09
3
0.01
—
—
8
0.03
—
—
8
0.03
4
0.01
(4)
(0.01)
(10)
(0.03)
—
—
—
—
—
—
—
—
—
—
—
—
86
12
0.25
0.04
—
—
—
—
(6)
(0.02)
(14)
(0.04)
10
0.03
(313)
(0.92)
(42)
(0.13)
(313)
(0.92)
(4)
(0.01)
(41)
(0.13)
(1)
—
—
—
(4)
(0.01)
(1)
—
(45)
(0.14)
(10)
(0.03)
Adjusting items
Adjusted
$
$
46 $ 0.14 $
(229) $ (0.68) $
354 $ 1.07 $
48 $ 0.14
575 $ 1.76 $
515 $ 1.52 $ 2,263 $ 6.82 $
1,911 $ 5.59
62 2022 Annual Report - Financial Review Loblaw Companies Limited
Free Cash Flow The following table reconciles, by reportable operating segments, free cash flow to cash flows
from operating activities as reported in the consolidated statements of cash flows for the periods ended as
indicated. The Company believes that free cash flow is the appropriate measure in assessing the Company’s cash
available for additional financing and investing activities.
2022
(12 weeks)
2021
(12 weeks)
For the periods ended December 31, 2022
and January 1, 2022
(millions of Canadian dollars)
Cash flows from (used in)
operating activities
Less:
Capital investments
Interest paid
Lease payments, net
Free cash flow(2)
Retail
Financial
Services Eliminations(i)
Total
Retail
Financial
Services Eliminations(i)
Total
$ 1,347 $ (218) $
19 $
1,148 $ 1,193 $ (186) $
17 $
1,024
640
66
233
11
—
—
—
19
—
651
85
233
381
58
294
11
—
—
—
17
—
$ 408 $ (229) $
— $
179 $ 460 $ (197) $
— $
392
75
294
263
(i)
Interest paid is included in cash flows from operating activities under the Financial Services segment.
2022
(52 weeks)
2021
(52 weeks)
For the years ended December 31, 2022
and January 1, 2022
(millions of Canadian dollars)
Cash flows from (used in)
operating activities
Less:
Capital investments
Interest paid
Lease payments, net
Free cash flow(2)
Retail
Financial
Services Eliminations(i)
Total
Retail
Financial
Services Eliminations(i)
Total
$ 5,133 $ (444) $
66 $ 4,755 $ 4,775 $
(16) $
68 $ 4,827
1,538
278
1,312
33
—
—
—
66
—
1,571
344
1,312
1,154
271
1,346
29
—
—
—
68
—
1,183
339
1,346
$ 2,005 $ (477) $
— $ 1,528 $ 2,004 $
(45) $
— $
1,959
(i)
Interest paid is included in cash flows from operating activities under the Financial Services segment.
Retail Debt to Retail Adjusted EBITDA, Adjusted Return on Equity and Adjusted Return on Capital The Company
uses the following metrics to measure its leverage and profitability. The definitions of these ratios are presented
below.
• Retail Debt to Retail Adjusted EBITDA Retail segment total debt divided by Retail segment adjusted EBITDA
for the last four quarters. Please refer to section “7.2 Liquidity and Capital Structure” of this MD&A.
• Adjusted Return on Equity Adjusted net earnings available to common shareholders of the Company for the
last four quarters divided by average total equity attributable to common shareholders of the Company. Please
refer to section “7.4 Financial Condition” of this MD&A.
• Adjusted Return on Capital Tax-effected adjusted operating income for the last four quarters divided by
average capital where capital is defined as total debt, plus equity attributable to shareholders of the Company,
less cash and cash equivalents, and short term investments. Please refer to section “7.4 Financial Condition” of
this MD&A.
2022 Annual Report - Financial Review Loblaw Companies Limited 63
Management’s Discussion and Analysis
Non-GAAP Financial Measures - Selected Quarterly and Three Year Summary Reconciliations to GAAP
Measures
Adjusted Operating Income, Adjusted EBITDA and Adjusted EBITDA Margin The following table provides a
reconciliation of adjusted EBITDA to operating income, which is reconciled to GAAP net earnings attributable to
shareholders of the Company reported for the quarters and years ended as indicated.
2022
2021 2020
First Second
Fourth
Quarter Quarter Quarter Quarter
Third
Fourth
Total Quarter Quarter Quarter Quarter
First Second
Third
(12 weeks)
(12 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(52 weeks)
(unaudited)
($ millions)
Net earnings attributable to
shareholders of the Company $ 440 $ 390 $ 559 $ 532 $ 1,921 $ 316 $ 378 $ 434 $ 747 $ 1,875 $ 1,108
Add (deduct) impact of the
following:
Non-controlling interests
Net interest (recovery)/
expense and other
financing charges
Income taxes
(12 weeks) 52 weeks 53 weeks
(16 weeks)
(12 weeks)
683
203
495
(29)
(28)
742
152
142
(14)
217
172
160
101
161
38
56
33
54
84
73
16
19
665
466
199
162
123
122
431
157
172
181
15
Total
Total
Operating income
Add (deduct) impact of the
following:
Amortization of intangible
assets acquired with
Shoppers Drug Mart
Amortization of intangible
assets acquired with Lifemark
Charge related to PC bank
commodity tax matter
Lifemark transaction costs
Fair value adjustment on fuel
and foreign currency
contracts
Fair value adjustment on non-
operating properties
Restructuring and other
related (recoveries) costs
Gain on sale of non-operating
properties
Adjusting items
Adjusted operating income
Depreciation and amortization
Less: Amortization of intangible
assets acquired with
Shoppers Drug Mart and
Lifemark
Adjusted EBITDA
$ 738 $ 742 $ 991 $ 871 $ 3,342 $ 617 $ 752 $ 863 $ 705 $ 2,937 $ 2,365
$
117 $
111 $ 147 $
111 $ 486 $
117 $
117 $ 155 $
117 $ 506 $ 509
—
—
3
(14)
—
(15)
3
111
13
4
—
—
4
—
—
4
—
—
11
111
16
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
11
(5)
(8)
(3)
(8)
6
(13)
—
—
—
5
9
—
—
(6)
(6)
—
(15)
—
4
—
9
(2)
(8)
(2)
13
38
—
8
—
—
(4)
(3)
(50)
(57)
(5)
(7)
—
(12)
(9)
$ 91 $ 238 $ 142 $ 70 $ 541 $ 108 $
122 $
149 $
113 $ 492 $ 552
$ 829 $ 980 $ 1,133 $ 941 $ 3,883 $ 725 $ 874 $ 1,012 $ 818 $ 3,429 $ 2,917
631
633
864
667 2,795
610
614
817
623 2,664 2,596
(117)
(114)
(151)
(115)
(497)
(117)
(117)
(155)
(117)
(506)
(509)
$ 1,343 $ 1,499 $ 1,846 $ 1,493 $ 6,181 $ 1,218 $ 1,371 $ 1,674 $ 1,324 $ 5,587 $ 5,004
(i) Depreciation and amortization for the calculation of adjusted EBITDA excludes the amortization of intangible assets, acquired with
Shoppers Drug Mart and Lifemark, recorded by Loblaw.
64 2022 Annual Report - Financial Review Loblaw Companies Limited
Adjusted Net Interest Expense and Other Financing Charges The following table reconciles adjusted net interest
expense and other financing charges to GAAP net interest expense and other financing charges reported for the
periods ended as indicated.
(unaudited)
(millions of Canadian dollars)
Net interest expense and other financing charges
Add: Recovery related to Glenhuron
Adjusted net interest expense and other financing charges
2022
(52 weeks)
2021
(52 weeks)
2020
(53 weeks)
$
$
683
$
11
694
$
495
189
684
$
$
742
—
742
Adjusted Income Taxes and Adjusted Effective Tax Rate The following table reconciles the effective tax rate
applicable to adjusted earnings before taxes to the GAAP effective tax rate applicable to earnings before taxes as
reported for the periods ended as indicated.
(unaudited)
(millions of Canadian dollars)
Adjusted operating income(i)
Adjusted net interest expense and other financing charges(i)
Adjusted earnings before taxes
Income taxes
Add impact of the following:
Tax impact of items included in adjusted earnings before taxes(ii)
Recovery related to Glenhuron
Adjusted income taxes
Effective tax rate
Adjusted effective tax rate
2022
(52 weeks)
2021
(52 weeks)
2020
(53 weeks)
$ 3,883
$ 3,429
$
2,917
694
684
$ 3,189
$ 2,745
$
665
$
466
$
143
33
841
25.0 %
26.4 %
$
127
128
721
19.1 %
26.3 %
$
$
$
742
2,175
431
149
—
580
26.6%
26.7%
See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges above.
(i)
(ii) See the adjusted EBITDA table and the adjusted net interest expense and other financing charges table above for a complete list of items
excluded from adjusted earnings before taxes.
2022 Annual Report - Financial Review Loblaw Companies Limited 65
Management’s Discussion and Analysis
Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net Earnings Per Common
Share The following tables reconcile adjusted net earnings available to common shareholders of the Company and
adjusted diluted net earnings per common share to GAAP net earnings available to common shareholders of the
Company and diluted net earnings per common share as reported for the quarters and years ended as indicated.
(unaudited)
($ millions)
As reported
Add (deduct) impact
of the following(i):
Amortization of
intangible assets
acquired
with Shoppers
Drug Mart
Amortization of
intangible assets
acquired with
Lifemark
Charge related to
PC bank
commodity tax
matter
Lifemark transaction
costs
Restructuring and
other related
(recoveries) costs
Fair value
adjustment on fuel
and foreign
currency contracts
Fair value
adjustment on non-
operating
properties
Gain on sale of non-
operating
properties
Recovery related to
Glenhuron
Adjusting items
Adjusted(i)
First
Fourth
Quarter Quarter Quarter Quarter
Second
Third
2022
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2021
2020
Total
Total
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(53 weeks)
$ 437 $ 387 $ 556 $ 529 $ 1,909 $ 313 $ 375 $ 431 $ 744 $ 1,863 $ 1,096
$ 87 $ 81 $ 109 $ 80 $ 357 $ 86 $ 86 $
113 $ 87 $ 372 $ 373
—
2
3
3
8
—
—
—
—
—
—
—
2
86
10
—
—
—
—
86
12
—
—
—
—
—
—
—
—
—
—
—
—
(14)
—
—
—
(14)
3
5
8
(6)
10
27
(11)
3
(4)
8
(4)
(6)
(2)
(6)
4
(10)
4
—
—
—
(4)
(4)
—
—
—
(1)
(1)
7
—
(3)
(1)
(41)
(45)
(4)
—
(6)
—
(10)
(8)
(42)
—
$ 22 $ 179 $ 107 $ 46 $ 354 $
(42)
—
—
—
—
79 $ 89 $ 109 $ (229) $ 48 $ 403
(313)
(313)
—
—
$ 459 $ 566 $ 663 $ 575 $ 2,263 $ $ 392 $ 464 $ 540 $ 515 $ 1,911 $ 1,499
(i) Net of income taxes and non-controlling interests, as applicable.
66 2022 Annual Report - Financial Review Loblaw Companies Limited
(unaudited)
($)
As reported
Add (deduct) impact
of the following(i):
Amortization of
intangible assets
acquired
with Shoppers
Drug Mart
Amortization of
intangible assets
acquired with
Lifemark
Charge related to PC
bank commodity tax
matter
Lifemark transaction
costs
Restructuring and
other related
(recoveries) costs
Fair value adjustment
on fuel and foreign
currency contracts
Fair value adjustment
on non-operating
properties
Gain on sale of non-
operating properties
Recovery related to
Glenhuron
Adjusting items
Adjusted(i)
Diluted weighted
average common
shares outstanding
(millions)
First
Fourth
Quarter Quarter Quarter Quarter
Second
Third
2022
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2021 2020
Total
Total
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(53 weeks)
$ 1.30 $ 1.16 $ 1.69 $ 1.62 $ 5.75 $ 0.90 $ 1.09 $ 1.27 $ 2.20 $ 5.45 $ 3.06
$ 0.25 $ 0.24 $ 0.33 $ 0.24 $ 1.08 $ 0.25 $ 0.25 $ 0.33 $ 0.25 $ 1.09 $ 1.03
—
0.01
0.01
0.01
0.03
—
—
—
—
—
—
—
0.25
0.01
0.03
—
—
—
0.25
—
0.04
—
—
—
—
—
—
—
—
—
—
—
—
(0.04)
—
—
—
(0.04)
0.01
0.01
0.03
(0.02) 0.03 0.08
(0.03) 0.01
(0.02) 0.03
(0.01)
(0.02)
—
(0.02)
0.01
(0.03) 0.01
—
—
—
(0.01)
(0.01)
—
—
—
—
— 0.02
—
(0.01)
—
(0.13)
(0.14)
(0.01)
—
(0.02)
—
(0.03) (0.02)
(0.13)
—
—
—
(0.13)
—
—
—
(0.92)
(0.92)
—
$ 0.06 $ 0.53 $ 0.32 $ 0.14 $ 1.07 $ 0.23 $ 0.26 $ 0.32 $ (0.68) $ 0.14 $ 1.12
1.13 $ 1.35 $ 1.59 $ 1.52 $ 5.59 $ 4.18
$ 1.36 $ 1.69 $ 2.01 $ 1.76 $ 6.82 $
336.7 334.4 329.6 327.4 331.7
348.2 342.9 340.1 338.1 341.8 358.2
(i) Net of income taxes and non-controlling interests, as applicable.
2022 Annual Report - Financial Review Loblaw Companies Limited 67
Management’s Discussion and Analysis
18. Additional Information
Additional information about the Company has been filed electronically with various securities regulators in Canada
through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online at sedar.com
and with OSFI as the primary regulator for the Company’s subsidiary, PC Bank.
February 22, 2023
Toronto, Canada
MD&A Endnotes
(1) For financial definitions and ratios refer to the Glossary of Terms on page 143 of the Company’s 2022 Annual Report.
(2) See Section 17 “Non-GAAP Financial Measures”, which includes the reconciliation of such non-GAAP measures to the most directly
comparable GAAP measures.
(3) To be read in conjunction with Section 1 “Forward-Looking Statements”.
(4) Comparative figures have been restated to conform with current year presentation.
68 2022 Annual Report - Financial Review Loblaw Companies Limited
Financial Results
Management’s Statement of Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Financial Statements
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10.
Note 11.
Note 12.
Note 13.
Note 14.
Note 15.
Note 16.
Note 17.
Note 18.
Note 19.
Note 20.
Note 21.
Note 22.
Note 23.
Note 24.
Note 25.
Note 26.
Note 27.
Note 28.
Note 29.
Note 30.
Note 31.
Note 32.
Note 33.
Nature and Description of the Reporting Entity
Significant Accounting Policies
Critical Accounting Estimates and Judgments
Future Accounting Standards
Business Acquisitions
Net Interest Expense and Other Financing Charges
Income Taxes
Basic and Diluted Net Earnings per Common Share
Cash and Cash Equivalents and Short Term Investments
Accounts Receivable
Credit Card Receivables
Inventories
Assets Held for Sale
Fixed Assets
Investment Properties
Intangible Assets
Goodwill
Other Assets
Provisions
Long Term Debt
Other Liabilities
Share Capital
Capital Management
Post-Employment and Other Long Term Employee Benefits
Equity-Based Compensation
Employee Costs
Leases
Financial Instruments
Financial Risk Management
Contingent Liabilities
Financial Guarantees
Related Party Transactions
Segment Information
70
71
75
76
77
78
79
80
80
80
93
96
96
97
98
99
100
100
101
103
103
104
105
106
107
108
109
110
113
113
115
117
122
124
125
128
130
132
134
135
139
2022 Annual Report - Financial Review Loblaw Companies Limited 69
Management’s Statement of Responsibility for Financial Reporting
Management of Loblaw Companies Limited is responsible for the preparation, presentation and integrity of the
accompanying consolidated financial statements, Management’s Discussion and Analysis and all other information
in the Annual Report – Financial Review. This responsibility includes the selection and consistent application of
appropriate accounting principles and methods in addition to making the judgments and estimates necessary to
prepare the consolidated financial statements in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board. It also includes ensuring that the financial information
presented elsewhere in the Annual Report – Financial Review is consistent with that in the consolidated financial
statements.
Management is also responsible for providing reasonable assurance that assets are safeguarded and that relevant
and reliable financial information is produced. Management is required to design a system of internal controls and
certify as to the design and operating effectiveness of internal control over financial reporting. A dedicated control
compliance team reviews and evaluates internal controls, the results of which are shared with management on a
quarterly basis.
PricewaterhouseCoopers LLP, whose report follows, were appointed as independent auditors by a vote of the
Company’s shareholders to audit the consolidated financial statements.
The Board of Directors, acting through an Audit Committee comprised solely of directors who are independent, are
responsible for determining that management fulfills its responsibilities in the preparation of the consolidated
financial statements and the financial control of operations. The Audit Committee recommends the independent
auditors for appointment by the shareholders. The Audit Committee meets regularly with senior and financial
management, internal auditors and the independent auditors to discuss internal controls, auditing activities and
financial reporting matters. The independent auditors and internal auditors have unrestricted access to the Audit
Committee. These consolidated financial statements and Management’s Discussion and Analysis have been
approved by the Board of Directors for inclusion in the Annual Report – Financial Review based on the review and
recommendation of the Audit Committee.
Toronto, Canada
February 22, 2023
[signed]
Galen G. Weston
Chairman and President
[signed]
Richard Dufresne
Chief Financial Officer
70 2022 Annual Report - Financial Review Loblaw Companies Limited
Independent Auditor’s Report
To the Shareholders of Loblaw Companies Limited
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Loblaw Companies Limited and its subsidiaries (together, the Company) as at December 31,
2022 and its financial performance and its cash flows for the 52-week year then ended 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 statement of earnings for the 52-week year ended December 31, 2022;
• the consolidated statement of comprehensive income for the 52-week year ended December 31, 2022;
• the consolidated statement of changes in equity for the 52-week year ended December 31, 2022;
• the consolidated balance sheet as at December 31, 2022;
• the consolidated statement of cash flows for the 52-week year ended December 31, 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.
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-week year ended December 31, 2022. 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.
Impairment assessment of fixed assets and right-of-use assets for retail locations
Refer to note 2 – Significant accounting policies, note 3 – Critical accounting estimates and judgments, note 14 –
Fixed assets and note 27 – Leases to the consolidated financial statements.
As at December 31, 2022, the Company had fixed assets of $5,696 million and right-of-use assets of $7,409
million. At each balance sheet date, management reviews the carrying amounts of its fixed assets and right-of-use
assets at the Cash Generating Unit (CGU) level to determine whether there is any indication of impairment.
Judgment is used to determine whether an indication of impairment exists; if any such indication exists, the CGU is
then tested for impairment. In applying this judgment, management considers profitability of the CGU and other
qualitative factors. Management determined that each retail location is a separate CGU for purposes of fixed asset
and right-of-use asset impairment testing. The fixed assets and right-of-use assets related to the retail location
CGUs represent a significant portion of the Company’s fixed assets and right-of-use assets.
Management identified indications of impairment for certain retail location CGUs and therefore an impairment test
was performed for these CGUs. An impairment loss is recognized for the amount by which the CGU’s carrying
value exceeds its recoverable amount.
The recoverable amount of each CGU is the higher of its value in use and its fair value less costs to sell (FVLCTS).
Value in use is based on the estimated future cash flows from the CGU discounted to their present value using a
pre-tax discount rate (discounted cash flow model). The FVLCTS reflects the amount that could be obtained from
the disposal of the CGU in an arm's length transaction between knowledgeable and willing parties, net of estimates
of the costs of disposal.
2022 Annual Report - Financial Review Loblaw Companies Limited 71
Independent Auditor’s Report
Assumptions utilized by management to determine the recoverable amount based on value in use include discount
rates, projected future sales and earnings. Assumptions utilized by management to determine the recoverable
amount based on FVLCTS include market rental rates, discount rates and capitalization rates.
For the year ended December 31, 2022, the Company recorded $22 million of impairment losses on fixed assets
and $14 million of impairment losses on right-of-use assets in respect of 18 retail location CGUs.
We considered this a key audit matter due to the judgments made by management in assessing the indications of
impairment and developing the assumptions to determine the recoverable amounts of the retail location CGUs.
This resulted in significant audit effort and subjectivity in performing procedures to assess the indications of
impairment and to test the recoverable amounts of the retail location CGUs. In addition, the audit effort involved the
use of professionals with specialized skill and knowledge in the field of valuation.
Our approach to addressing the matter included the following procedures, among others:
• Evaluated management’s assessment of indications of impairment, which included the following:
◦ Assessed the reasonableness of the profitability of the CGUs on a sample basis by considering the actual
historical performance of the CGUs.
◦ Assessed other qualitative factors by considering evidence obtained in other areas of the audit.
◦ Tested the underlying data used in the indications of impairment assessment on a sample basis by tracing to
supporting documentation and testing the mathematical accuracy.
◦ Performed a sensitivity analysis over indications of impairment.
• Tested how management determined the recoverable amounts for a sample of retail location CGUs that had
indications of impairment, which included the following:
◦ Evaluated the appropriateness of the methods used by management.
◦ Tested underlying data used in the recoverable amount calculations and tested the mathematical accuracy.
◦ Evaluated the reasonableness of the projected future sales and earnings used in the discounted cash flow
models by (i) comparing to actual historical sales and earnings generated by the retail location CGUs and
(ii) considering management’s budget and strategic plans.
◦ Professionals with specialized skill and knowledge in the field of valuation assisted in assessing the
reasonableness of the discount rates, the market rental rates and capitalization rates.
• Tested the disclosures made in the consolidated financial statements with regards to the impairment
assessments of the retail location CGUs.
Valuation of customer relationships and brands acquired in the Lifemark Health Group business combination
Refer to note 2 – Significant accounting policies, note 3 – Critical accounting estimates and judgments and note 5
– Business acquisitions to the consolidated financial statements.
The Company acquired Lifemark Health Group (Lifemark) for a total consideration of $829 million during 2022. The
fair value of the identifiable assets acquired included $564 million of intangible assets, which included customer
relationships and brands. Management applied significant judgment in estimating the fair value of the customer
relationships and brands. Management used the multi-period excess earnings method to fair value customer
relationships and the royalty relief method to fair value brands using discounted cash flow models. Management
developed assumptions which included revenue and gross margin forecasts, royalty rate and discount rates.
We considered this a key audit matter due to the significant judgment by management in estimating the fair value
of the customer relationships and brands, including the development of assumptions. This in turn led to a high
degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating
to the assumptions used by management. The audit effort involved the use of professionals with specialized skill
and knowledge in the field of valuation.
72 2022 Annual Report - Financial Review Loblaw Companies Limited
Independent Auditor’s Report
Our approach to addressing the matter included the following procedures, among others:
• Tested how management estimated the fair value of the acquired customer relationships and brands, which
included the following:
◦ Read the purchase agreement.
◦ Tested the underlying data used by management in the multi-period excess earnings and royalty relief
discounted cash flow models.
◦ Evaluated the reasonableness of the revenue and gross margin forecasts by considering the past
performance of Lifemark, as well as economic and industry data.
◦ Professionals with specialized skill and knowledge in the field of valuation assisted in evaluating the
appropriateness of the multi-period excess earnings and royalty relief methods, as well as the
reasonableness of certain assumptions such as the royalty rate and discount rates.
◦ Tested the mathematical accuracy of the discounted cash flow models.
Comparative information
The consolidated financial statements of the Company for the 52-week year ended January 1, 2022 were audited
by another auditor who expressed an unmodified opinion on those statements on February 23, 2022.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis and the information, other than the consolidated financial statements and our auditor’s
report thereon, included in the 2022 Annual Report – Financial Review, 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 2022 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 2022 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.
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.
2022 Annual Report - Financial Review Loblaw Companies Limited 73
Independent Auditor’s Report
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.
• 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 Anita McOuat.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 22, 2023
74 2022 Annual Report - Financial Review Loblaw Companies Limited
Consolidated Statements of Earnings
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Revenue
Cost of sales
Selling, general and administrative expenses
Operating income
Net interest expense and other financing charges (note 6)
Earnings before income taxes
Income taxes (note 7)
Net earnings
Attributable to:
Shareholders of the Company (note 8)
Non-controlling interests
Net earnings
Net earnings per common share ($) (note 8)
Basic
Diluted
Weighted average common shares outstanding (millions) (note 8)
Basic
Diluted
See accompanying notes to the consolidated financial statements.
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2022
56,504
38,528
14,634
3,342
683
2,659
665
1,994
1,921
73
1,994
5.82
5.75
328.1
331.7
2021
53,170
36,436
13,797
2,937
495
2,442
466
1,976
1,875
101
1,976
5.49
5.45
339.1
341.8
2022 Annual Report - Financial Review Loblaw Companies Limited 75
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars)
Net earnings
Other comprehensive income, net of taxes
Items that are or may be subsequently reclassified to profit or loss:
Foreign currency translation adjustment gains
Gains on cash flow hedges (note 28)
Items that will not be reclassified to profit or loss:
Net defined benefit plan actuarial (losses) gains (note 24)
Other comprehensive (loss) income, net of taxes
Total comprehensive income
Attributable to:
Shareholders of the Company
Non-controlling interests
Total comprehensive income
See accompanying notes to the consolidated financial statements.
2022
1,994
2
14
$
$
(227)
(211) $
$
1,783
1,710
73
1,783
$
$
2021
1,976
—
5
282
287
2,263
2,162
101
2,263
$
$
$
$
$
$
76 2022 Annual Report - Financial Review Loblaw Companies Limited
Consolidated Statements of Changes in Equity
(millions of Canadian dollars except where otherwise
indicated)
Common Preferred
Share
Capital
Share
Capital
Foreign
Total
Currency
Share Retained Contributed Translation
Capital
Earnings
Surplus Adjustment Hedges
Adjustment
to Fair Value
on Transfer
Accumulated
Other
Cash
Non-
Flow of Investment Comprehensive Controlling
Interests
Properties
Income
Total
Equity
Balance as at January 1, 2022
$ 6,631 $ 221 $ 6,852 $4,591 $
116 $
39 $ (29) $
Net earnings
$ — $ — $
— $ 1,921 $
— $
— $ — $
Other comprehensive (loss) income
—
—
—
(227)
—
2
14
Total comprehensive income
$ — $ — $
— $1,694 $
— $
2 $
14 $
4 $
— $
—
— $
14 $
164 $11,737
— $
73 $ 1,994
16
—
(211)
16 $
73 $ 1,783
Common shares purchased and
cancelled (note 22)
Effect of equity-based
compensation (notes 22 and 25)
Shares purchased and held in trust
(note 22)
Shares released from trust
(notes 22 and 25)
Dividends declared per common
share – $1.580 (note 22)
Dividends declared per preferred
share – $1.325 (note 22)
Net distribution to non-controlling
interests
(254)
—
(254) (1,204)
100
(23)
11
—
—
—
—
—
—
—
—
—
100
—
(23)
(115)
11
24
—
(517)
—
—
(12)
—
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,458)
—
106
—
(138)
—
35
—
(517)
—
(12)
(80)
(80)
Balance as at December 31, 2022 $ 6,465 $ 221 $ 6,686 $ 4,461 $
122 $
41 $ (15) $
$
(166) $ — $
(166) $ (130) $
6 $
2 $
14 $
— $
4 $
16 $
(7) $ (281)
30 $
157 $11,456
(millions of Canadian dollars except where otherwise
indicated)
Common
Share
Capital
Preferred
Share
Capital
Total
Share
Capital
Retained
Earnings
Contributed
Surplus
Foreign
Currency
Translation
Adjustment
Cash
Flow
Hedges
Adjustment
to Fair Value
on Transfer
of Investment
Properties
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
Equity
Balance as at January 2, 2021
$ 6,824 $ 221 $ 7,045 $ 3,813 $
109 $
39 $ (34) $
Net earnings
$
— $ — $
— $ 1,875 $
— $
— $ — $
Other comprehensive income
—
—
—
282
—
—
5
Total comprehensive income
$
— $ — $
— $ 2,157 $
— $
— $ 5 $
16 $
— $
—
— $
21 $
131 $ 11,119
— $
101 $ 1,976
5
—
287
5 $
101 $2,263
Common shares purchased and
cancelled (note 22)
Effect of equity-based
(310)
—
(310)
(890)
compensation (notes 22 and 25)
116
Shares purchased and held in trust
(note 22)
Shares released from trust
(notes 22 and 25)
Dividends declared per common
share – $1.400 (note 22)
Dividends declared per preferred
share – $1.325 (note 22)
Transfer of remeasurement gain on
sale of investment properties
Net distribution to non-controlling
interests
(10)
11
—
—
—
—
—
—
—
—
—
—
—
116
—
(10)
(40)
11
23
—
(472)
—
—
—
(12)
12
—
—
7
—
—
—
—
—
—
Balance as at January 1, 2022
$ 6,631 $ 221
$6,852 $4,591
$
116 $
39 $ (29) $
$
(193) $ — $
(193) $ 778 $
7 $
— $ 5 $
See accompanying notes to the consolidated financial statements.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12)
(12)
—
(1,200)
—
—
—
123
(50)
34
—
(472)
—
—
(12)
—
—
—
—
(12) $
4 $
—
(68)
(68)
(7) $
33 $ 618
14 $
164 $11,737
2022 Annual Report - Financial Review Loblaw Companies Limited 77
Consolidated Balance Sheets
(millions of Canadian dollars)
Assets
Current assets
Cash and cash equivalents (note 9)
Short term investments (note 9)
Accounts receivable (note 10)
Credit card receivables (note 11)
Inventories (note 12)
Income tax recoverable (note 7)
Prepaid expenses and other assets
Assets held for sale (note 13)
Total current assets
Fixed assets (note 14)
Right-of-use assets (note 27)
Investment properties (note 15)
Intangible assets (note 16)
Goodwill (note 17)
Deferred income tax assets (note 7)
Other assets (note 18)
Total assets
Liabilities
Current liabilities
Bank indebtedness (note 31)
Trade payables and other liabilities
Loyalty liability
Provisions (note 19)
Income taxes payable
Demand deposits from customers
Short term debt (note 11)
Long term debt due within one year (note 20)
Lease liabilities due within one year (note 27)
Associate interest
Total current liabilities
Provisions (note 19)
Long term debt (note 20)
Lease liabilities (note 27)
Deferred income tax liabilities (note 7)
Other liabilities (note 21)
Total liabilities
Equity
Share capital (note 22)
Retained earnings
Contributed surplus (note 25)
Accumulated other comprehensive income
Total equity attributable to shareholders of the Company
Non-controlling interests
Total equity
Total liabilities and equity
Contingent Liabilities (note 30).
See accompanying notes to the consolidated financial statements.
78 2022 Annual Report - Financial Review Loblaw Companies Limited
As at
December 31, 2022
As at
January 1, 2022
$
$
$
$
$
$
$
$
$
$
1,608
326
1,199
3,954
5,855
—
353
81
13,376
5,696
7,409
60
6,505
4,323
86
692
38,147
8
6,218
180
110
195
125
700
727
1,401
434
10,098
109
7,056
7,714
1,279
435
26,691
6,686
4,461
122
30
11,299
157
11,456
38,147
$
$
$
$
$
$
$
$
$
$
1,976
464
947
3,443
5,166
301
249
91
12,637
5,447
7,175
111
6,402
3,949
91
802
36,614
52
5,433
190
111
153
75
450
1,002
1,297
433
9,196
114
6,211
7,542
1,346
468
24,877
6,852
4,591
116
14
11,573
164
11,737
36,614
Consolidated Statements of Cash Flows
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars)
Operating activities
Net earnings
Add (deduct):
Income taxes (note 7)
Net interest expense and other financing charges (note 6)
Adjustments to investment properties (notes 13 and 15)
Depreciation and amortization
Asset impairments, net of recoveries
Change in allowance for credit card receivables (note 11)
Change in provisions (note 19)
Change in non-cash working capital
Change in gross credit card receivables (note 11)
Income taxes paid
Interest received
Interest received from finance leases (note 27)
Other
Cash flows from operating activities
Investing activities
Fixed asset purchases (note 14)
Intangible asset additions (note 16)
Proceeds from sale (purchase) of short term investments (note 9)
Acquisition of Lifemark, net of cash acquired (note 5)
Proceeds from disposal of assets
Lease payments received from finance leases
Purchase of long term securities (note 18)
Other
Cash flows used in investing activities
Financing activities
Decrease in bank indebtedness (note 31)
Increase (decrease) in short term debt (note 11)
Change in demand deposits from customers
Long term debt (note 20)
Issued
Repayments
Interest paid
Cash rent paid on lease liabilities - Interest (note 6 and 27)
Cash rent paid on lease liabilities - Principal (note 27)
Dividends paid on common and preferred shares
Common share capital
Issued (note 25)
Purchased and held in trust (note 22)
Purchased and cancelled (note 22)
Proceeds from other financing (note 32)
Other
Cash flows used in financing activities
Effect of foreign currency exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
2022
2021
$
1,994
$
1,976
665
683
(6)
2,795
34
1
(6)
(490)
(512)
(439)
35
3
(2)
4,755
(1,152)
(419)
138
(813)
164
15
(180)
(121)
(2,368)
(44)
250
50
1,818
(1,243)
(344)
(333)
(994)
(529)
88
(138)
(1,258)
15
(89)
(2,751)
(4)
(368)
1,976
1,608
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
466
495
(2)
2,664
54
(32)
12
90
(302)
(643)
4
4
41
4,827
(803)
(379)
(164)
—
80
14
—
(19)
(1,271)
(34)
(125)
51
772
(603)
(339)
(340)
(1,020)
(484)
102
(50)
(1,200)
12
9
(3,249)
1
308
1,668
1,976
2022 Annual Report - Financial Review Loblaw Companies Limited 79
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and January 1, 2022 (millions of Canadian dollars except where otherwise indicated)
Note 1. Nature and Description of the Reporting Entity
Loblaw Companies Limited is a Canadian public company incorporated in 1956 and is Canada's food and pharmacy
leader, and the nation's largest retailer. Loblaw Companies Limited provides Canadians with grocery, pharmacy and
healthcare services, health and beauty products, apparel, general merchandise, financial services, and wireless
mobile products and services. Its registered office is located at 22 St. Clair Avenue East, Toronto, Canada M4T 2S5.
Loblaw Companies Limited and its subsidiaries are together referred to, in these consolidated financial statements,
as the “Company” or “Loblaw”.
The Company’s controlling shareholder is George Weston Limited (“Weston”), which owns approximately 52.6% of
the Company’s outstanding common shares. The Company’s ultimate parent is Wittington Investments, Limited
(“Wittington”). The remaining common shares are widely held.
The Company has two reportable operating segments: Retail and Financial Services (see note 33).
Note 2. Significant Accounting Policies
Statement of Compliance The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS” or “GAAP”) as issued by the International Accounting Standards
Board (“IASB”) and using the accounting policies described herein.
These consolidated financial statements were approved for issuance by the Company’s Board of Directors
(“Board”) on February 22, 2023.
Basis of Presentation The consolidated financial statements were prepared on a historical cost basis except for the
following items that were measured at fair value:
•
• defined benefit pension plan assets with the obligations related to these pension plans measured at their
investment properties as described in note 15;
discounted present value as described in note 24;
liabilities for cash-settled equity-based compensation arrangements as described in note 25; and
•
• certain financial instruments as described in note 28.
The significant accounting policies set out below have been applied consistently in the preparation of the
consolidated financial statements for all years presented. Certain comparative amounts have been reclassified to
conform to the current year presentation.
The consolidated financial statements are presented in Canadian dollars.
Fiscal Year The fiscal year of the Company ends on the Saturday closest to December 31. Under an accounting
convention common in the retail industry, the Company follows a 52-week reporting cycle, which periodically
necessitates a fiscal year of 53 weeks. The years ended December 31, 2022 and January 1, 2022 both contained
52 weeks.
Basis of Consolidation The consolidated financial statements include the accounts of the Company and other
entities that the Company controls. Control exists when the Company has the existing rights that give it the current
ability to direct the activities that significantly affect the entities’ returns. The Company assesses control on an
ongoing basis.
Structured entities 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. Structured entities are consolidated if, based on an
evaluation of the substance of its relationship with the Company, the Company concludes that it controls the
structured entity. Structured entities controlled by the Company were established under terms that impose strict
limitations on the decision-making powers of the structured entities’ management and that results in the Company
receiving the majority of the benefits related to the structured entities’ operations and net assets, being exposed to
the majority of risks incident to the structured entities’ activities, and retaining the majority of the residual or
ownership risks related to the structured entities or their assets.
Transactions and balances between the Company and its consolidated entities have been eliminated on
consolidation.
80 2022 Annual Report - Financial Review Loblaw Companies Limited
Non-controlling interests are recorded in the consolidated financial statements and represent the non-controlling
shareholders’ equity in an entity consolidated by the Company for which the Company’s ownership is less than
100%. Transactions with non-controlling interests are treated as transactions with equity owners of the Company.
Changes in the Company’s ownership interest in its subsidiaries are accounted for as equity transactions.
Loblaw consolidates the Associates as well as the franchisees of its food retail stores that are subject to a simplified
franchise agreement implemented in 2015 (“Franchise Agreement”). An “Associate” is a pharmacist-owner of a
corporation that is licensed to operate a retail drug store at a specific location using the Company’s trademarks.
The consolidation of Associates and franchisees is based on the concept of control, for accounting purposes,
which was determined to exist through the agreements that govern the relationships between the Company and
the Associates and franchisees. Loblaw does not have any direct or indirect shareholdings in the corporations that
operate the Associates. Associate interest reflects the investment the Associates have in the net assets of their
businesses. Under the terms of the Associate Agreements, Shoppers Drug Mart Inc. (or an affiliate thereof) agrees
to purchase the assets that the Associates use in store operations, primarily at the carrying value to the Associate,
when Associate Agreements are terminated by either party. The Associates’ corporations and the franchisees
remain separate legal entities.
Business Combinations Business combinations are accounted for using the acquisition method as of the date
when control is transferred to the Company. The Company measures goodwill as the excess of the sum of the fair
value of the consideration transferred over the net identifiable assets acquired and liabilities assumed, all
measured as at the acquisition date. Transaction costs that the Company incurs in connection with a business
combination, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Net Earnings per Common Share Basic net earnings per common share (“EPS”) is calculated by dividing the net
earnings available to common shareholders by the weighted average number of common shares outstanding
during the period. Diluted EPS is calculated by adjusting the net earnings available to common shareholders and
the weighted average number of common shares outstanding for the effects of all dilutive instruments.
Revenue Recognition The Company recognizes revenue when control of the goods or services has been
transferred. Revenue is measured at the amount of consideration to which the Company expects to be entitled to,
including variable consideration to the extent that it is highly probable that a significant reversal will not occur.
Retail Retail segment revenue includes the sale of goods and services to customers through corporate, franchise-
owned retail food and Associate-owned drug stores, which includes in-store pharmacies, health care services and
other health and beauty products, apparel and other general merchandise. Revenue is measured at the amount of
consideration to which the Company expects to be entitled to, net of estimated returns and sales incentives. The
Company recognizes revenue made through corporate, franchise and Associate stores at the time the point of sale
is made or when service is delivered to the customers. The Company recognizes revenue made through
independent wholesale customers at the time of delivery of inventory and when administrative and management
services are rendered.
Customer loyalty awards are accounted for as a separate performance obligation of the sales transaction in which
they are granted. The Company defers revenue at the time the award is earned by loyalty program members based
on the relative fair value of the award. The relative fair value is determined by allocating consideration between the
fair value of the loyalty awards earned by loyalty program members, net of breakage, and the goods and services
on which the awards were earned, based on their relative stand-alone selling price. The deferred revenue is
recognized when redemptions occur.
For certain sale of goods in which the Company earns commissions, including but not limited to lottery and third
party gift cards, the Company records net revenue as an agent on the basis that the Company does not control
pricing or bear inventory risk.
Financial Services Financial Services revenue includes interest income on credit card loans, credit card service
fees, commissions, and other revenue related to financial services. Interest income is recognized using the
effective interest method. Credit card service fees are recognized when services are rendered. Commission
revenue is recorded on a net basis. Other revenue is recognized periodically or according to contractual provisions.
2022 Annual Report - Financial Review Loblaw Companies Limited 81
Notes to the Consolidated Financial Statements
Income Taxes Current and deferred taxes are recognized in the consolidated statement of earnings, except for
current and deferred taxes related to a business combination, or amounts charged directly to equity or other
comprehensive income, which are recognized in the consolidated balance sheet.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognized using the asset and liability method of accounting on temporary differences arising
between the financial statement carrying values of existing assets and liabilities and their respective income tax
bases. Deferred tax is measured using enacted or substantively enacted income tax rates expected to apply in the
years in which those temporary differences are expected to be recovered or settled. A deferred tax asset is
recognized for temporary differences as well as unused tax losses and credits to the extent that it is probable that
future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be
realized.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets and they relate to income taxes levied by the same taxation authority on the same taxable entity, or on
different taxable entities where the Company intends to settle its current tax assets and liabilities on a net basis.
Deferred tax is recorded on temporary differences arising on investments in subsidiaries, except where the timing
of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary
difference will not reverse in the foreseeable future.
Cash Equivalents Cash equivalents consist of highly liquid marketable investments with an original maturity date of
90 days or less from the date of acquisition.
Short Term Investments Short term investments are investments in highly liquid and rated certificates of deposit,
commercial paper or other securities, primarily Canadian and United States government securities and notes of
other creditworthy parties, with an original term to maturity of more than 90 days and remaining term to maturity of
less than one year from the date of acquisition.
Accounts Receivable Accounts receivable consists primarily of receivables from government and third-party drug
plans arising from prescription drug sales, independent accounts and amounts owed from vendors, and are
recorded net of allowances.
Credit Card Receivables The Company, through President’s Choice Bank (“PC Bank”), a wholly owned subsidiary
of the Company, has credit card receivables that are stated net of an allowance. Interest income is recorded in
revenue and interest expense is recorded in net interest expense and other financing charges using the effective
interest method. The effective interest rate is the rate that discounts the estimated future cash receipts through the
expected life of the credit card receivable (or, where appropriate, a shorter period) to the carrying amount. When
calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of
the financial instrument, but not future credit losses. For credit-impaired credit card receivables, a credit-adjusted
effective interest rate is calculated using estimated future cash flows including expected credit losses.
The Company applies the expected credit loss (“ECL”) model to assess impairment on its credit card receivables at
each balance sheet date. Credit card receivables are assessed collectively for impairment by applying the three-
stage approach. Refer to the Impairment of Financial Assets policy for details of each stage. The application of the
ECL model requires PC Bank to apply significant judgments, assumptions and estimations (see note 3 “Impairment
of Credit Card Receivables”).
Impairment losses and reversals are recorded in selling, general and administrative expenses (“SG&A”) in the
consolidated statements of earnings with the carrying amount of the credit card receivables adjusted through the
use of allowance accounts.
82 2022 Annual Report - Financial Review Loblaw Companies Limited
The Company, through PC Bank, participates in various securitization programs that provide the primary source of
funds for the operation of its credit card business. PC Bank maintains and monitors co-ownership interest in credit
card receivables with independent securitization trusts, in accordance with its financing requirements. PC Bank is
required to absorb a portion of the related credit losses. As a result, Loblaw has not transferred all of the risks and
rewards related to these assets and continues to recognize these assets in credit card receivables. The transferred
receivables are accounted for as financing transactions. The associated liabilities secured by these assets are
included in either short term debt or long term debt based on their characteristics and are carried at amortized
cost. Loblaw provides a standby letter of credit for the benefit of the independent securitization trusts.
Eagle Credit Card Trust® PC Bank participates in a single seller revolving co-ownership securitization program with
Eagle Credit Card Trust® (“Eagle”) and continues to service the credit card receivables on behalf of Eagle, but does
not receive any fee for its servicing obligations and has a retained interest in the securitized receivables
represented by the right to future cash flows after obligations to investors have been met. The Company
consolidates Eagle as a structured entity.
Other Independent Securitization Trusts The Other Independent Securitization Trusts administer multi-seller,
multi-asset securitization programs that acquire assets from various participants, including credit card receivables
from PC Bank. These trusts are managed by major Canadian chartered banks. PC Bank does not control the trusts
through voting interests and does not exercise any control over the trusts’ management, administration or assets.
The activities of these trusts are conducted on behalf of the participants and each trust is a conduit through which
funds are raised to purchase assets through the issuance of senior and subordinated short term and medium term
asset backed notes. These trusts are unconsolidated structured entities.
Inventories The Company values inventories at the lower of cost and net realizable value.
Cost includes the costs of purchases net of vendor allowances plus other costs, such as transportation, that are
directly incurred to bring inventories to their present location and condition. The cost of inventories are measured
at weighted average cost.
The Company estimates net realizable value as the amount that inventories are expected to be sold taking into
consideration fluctuations in retail prices 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 estimated to be unrecoverable
due to obsolescence, damage or declining 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 selling prices, the
amount of the write-down previously recorded is reversed. Storage costs, indirect administrative overhead and
certain selling costs related to inventories are expensed in the period that these costs are incurred.
Vendor Allowances The Company receives allowances from certain of its vendors whose products it purchases.
These allowances are received for a variety of buying and/or merchandising activities, including vendor programs
such as volume purchase allowances, purchase discounts, listing fees and exclusivity allowances. Allowances
received from a vendor are a reduction in the cost of the vendor’s products and services, and are recognized as a
reduction in the cost of sales and the related inventory in the consolidated statement of earnings and the
consolidated balance sheet, respectively, when it is probable that they will be received and the amount of the
allowance can be reliably estimated. Amounts received but not yet earned are presented in other liabilities as
deferred vendor allowances.
Certain exceptions apply if the consideration is a payment for goods or services delivered to the vendor or for
direct reimbursement of selling costs incurred to promote goods. The consideration is then recognized as a
reduction of the cost incurred in the consolidated statements of earnings.
Assets Held for Sale Non-current assets are classified as assets held for sale if their carrying amount will be
recovered principally through a sale transaction rather than through continuing use. To qualify as assets held for
sale, the sale must be highly probable, assets must be available for immediate sale in their present condition and
management must be committed to a plan to sell assets that should be expected to close within one year from the
date of classification. Assets classified as held for sale are measured at the lower of the carrying amount or fair
value less cost to sell and are not depreciated. The fair value measurement of assets held for sale is categorized
within Level 2 of fair value hierarchy. Assets that were previously classified as investment properties are measured
using the fair value model consistent with properties classified as investment properties.
2022 Annual Report - Financial Review Loblaw Companies Limited 83
Notes to the Consolidated Financial Statements
Fixed Assets Fixed assets are recognized and subsequently measured at cost less accumulated depreciation and
any net accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition
of the asset, including costs incurred to prepare the asset for its intended use and capitalized borrowing costs. The
commencement date for capitalization of costs occurs when the Company first incurs expenditures for the
qualifying assets and undertakes the required activities to prepare the assets for their intended use.
Borrowing costs directly attributable to the acquisition, construction or production of fixed assets that necessarily
take a substantial period of time to prepare for their intended use and a proportionate share of general borrowings,
are capitalized to the cost of those fixed assets, based on a quarterly weighted average cost of borrowing. All other
borrowing costs are expensed as incurred and recognized in net interest expense and other financing charges.
The cost of replacing a fixed asset component is recognized in the carrying amount if it is probable that the future
economic benefits embodied within the component will flow to the Company and the cost can be measured
reliably. The carrying amount of the replaced component is derecognized. The cost of repairs and maintenance of
fixed assets is expensed as incurred and recognized in SG&A.
Gains and losses on disposal of fixed assets are determined by comparing the fair value of proceeds from disposal
with the net book value of the assets and are recognized net, in operating income. For transactions in which the
sale of a fixed asset satisfies the requirements of IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”),
and the asset is leased back by the Company, the Company recognizes, in operating income, only the amount of
gains or losses that relate to the rights transferred to the purchaser.
Fixed assets are depreciated on a straight-line basis over their estimated useful lives to their estimated residual
value when the assets are available for use. When significant parts of a fixed asset have different useful lives, they
are accounted for as separate components and depreciated separately. Depreciation methods, useful lives and
residual values are reviewed annually and are adjusted for prospectively, if appropriate. Estimated useful lives are
as follows:
Buildings
Equipment and fixtures
Building improvements
Leasehold improvements
10 to 40 years
2 to 10 years
up to 10 years
Lesser of term of the lease and useful life up to 25 years(i)
(i)
If it is reasonably certain that the Company will obtain ownership of the leased asset by the end of the lease term, the associated leasehold
improvements are depreciated over the useful life of the asset on the same basis as owned assets.
Fixed assets are reviewed at each balance sheet date to determine whether there is any indication of impairment.
Refer to the Impairment of Non-Financial Assets policy.
84 2022 Annual Report - Financial Review Loblaw Companies Limited
Leases
As a Lessee At inception of a contract, the Company determines whether a contract is or contains a lease. A
contract is or contains a lease if the contract gives the Company the right to control the use of an identified asset
for the duration of the lease term in exchange for consideration. When a contract contains both lease and non-
lease components, the Company will allocate the consideration in the contract to each of the components on the
basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-
lease components. Relative stand-alone prices are determined by maximizing the most observable supplier
prices for a similar asset and/or service.
The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease
payments when the leased asset is available for use by the Company. Lease payments for assets that are exempt
through the short-term exemption and variable payments not based on an index or rate are recognized in cost of
sales and SG&A expenses on the most systematic basis.
The measurement of lease liabilities includes the fixed and in-substance fixed payments and variable lease
payments that depend on an index or a rate, less any lease incentives receivable. If applicable, lease liabilities
will also include a 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 at
amortized cost using the effective interest method. Lease liabilities are remeasured when there is a change in
management’s assessment of whether it will exercise a renewal or termination option or a change in future lease
payments due to a change in index or rate. Right-of-use assets are adjusted by the same remeasurement
amount.
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 net of lease incentives received, and decommissioning
costs. Subsequent to initial measurement, the Company applies the cost model with the exception of the fair
value model application to right-of-use assets that meet the definition of investment properties. Right-of-use
assets are measured at cost less accumulated depreciation, net accumulated impairment losses, and any
remeasurements of lease liabilities. The assets are depreciated on a straight-line basis over the earlier of the
assets’ useful lives or the end of the lease terms. Right-of-use assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. Refer to the Impairment of Non-Financial Assets policy.
Discount rates used in the present value calculation are the interest rates implicit in the leases, or if the rates
cannot be readily determined, the Company's incremental borrowing rates. Lease terms applied are the
contractual non-cancellable periods of the leases plus periods covered by an option to renew the leases if the
Company is reasonably certain to exercise that option and the periods covered by an option to terminate the
leases if the Company is reasonably certain not to exercise that option.
For sale and leaseback transactions, the Company applies the requirements of IFRS 15 to determine whether the
transfer of the asset should be accounted for as a sale. If the transfer of the asset is a sale in accordance with IFRS
15, the Company will measure the right-of-use asset arising from the leaseback at the proportion of the previous
carrying amount of the asset that relates to the right of use retained by the Company. If the transfer of the asset is
not a sale in accordance with IFRS 15, the Company will continue to account for the asset under IAS 16, “Property,
Plant and Equipment” and recognize the proceeds received as financial liabilities.
As a Lessor At the date the Company makes the underlying leased asset available for use to the lessee, the
Company classifies each lease as either an operating lease or a finance lease. A lease is a finance lease if it
transfers substantially all the risks and rewards of the underlying asset to the lessee; otherwise, the lease is an
operating lease. Rental income from operating leases is recognized on a straight-line basis over the lease term.
Rental income from finance leases is recognized on a systematic basis that reflects the Company's rate of return on
the net investment in the leased asset.
When the Company is an intermediate lessor, it will assess the sublease classification by reference to the right-of-
use asset. The Company considers factors such as whether the sublease term covers a major portion of the head
lease term.
2022 Annual Report - Financial Review Loblaw Companies Limited 85
Notes to the Consolidated Financial Statements
Investment Properties Investment properties are properties owned by the Company that are held to either earn
rental income, for capital appreciation, or both. The Company’s investment properties include single tenant
properties held to earn rental income and certain multiple tenant properties. Land and buildings leased to
franchisees are not accounted for as investment properties as these properties are related to the Company’s
operating activities.
Investment property assets are measured using the fair value model. Under the fair value model, investment
properties are initially measured at cost and subsequently measured at fair value. Gains and losses arising from
changes in the fair value are recognized in operating income in the period in which they arise. Gains and losses
from disposal of investment properties are determined by comparing the fair value of disposal proceeds and the
carrying amount and are recognized in operating income.
When a property changes from own use to investment property, the property is remeasured to fair value. Any gain
arising from the remeasurement is recognized in operating income to the extent that it reverses a previous
impairment loss on that property, with any remaining gain recognized in other comprehensive income. Any loss on
remeasurement is recognized in operating income. All subsequent changes in fair value of the property are
recognized in operating income. Upon sale of an investment property that was previously classified as fixed assets,
amounts included in the revaluation reserve are transferred to retained earnings.
When an investment property carried at fair value changes to own use, the property is recognized in fixed assets at
the fair value at the date of change in use. The property is subsequently accounted for under the significant
accounting policy for fixed assets.
Goodwill Goodwill arising in a business combination is recognized as an asset at the date that control is acquired.
Goodwill is subsequently measured at cost less accumulated impairment losses. Goodwill is not amortized but is
tested for impairment on an annual basis or more frequently if there are indicators that goodwill may be impaired as
described in the Impairment of Non-Financial Assets policy.
Intangible Assets Intangible assets with finite lives are measured at cost less accumulated amortization and any
accumulated impairment losses. These intangible assets are amortized on a straight-line basis over their estimated
useful lives, ranging from three to 20 years, and are tested for impairment as described in the Impairment of Non-
Financial Assets policy. Useful lives, residual values and amortization methods for intangible assets with finite
useful lives are reviewed at least annually and are adjusted for prospectively, if appropriate. Amortization expense
for intangible assets is recognized in selling, general and administrative expenses. Estimated useful lives are as
follows:
Software
Prescription files
Loyalty program
Customer relationships
3 to 10 years
7 to 8 years
18 years
5 to 20 years
Indefinite life intangible assets are measured at cost less any accumulated impairment losses. These intangible
assets are tested for impairment on an annual basis or more frequently if there are indicators that intangible assets
may be impaired as described in the Impairment of Non-Financial Assets policy.
Impairment of Non-Financial Assets At each balance sheet date, the Company reviews the carrying amounts of its
non-financial assets at the cash generating unit level (“CGU”), other than inventories, deferred tax assets and
investment properties, to determine whether there is any indication of impairment. If any such indication exists, the
asset is then tested for impairment by comparing its recoverable amount to its carrying value. Goodwill and
indefinite life intangible assets are tested for impairment at least annually.
For the purpose of impairment testing, assets, including right-of-use assets, are grouped together into the smallest
group of assets that generate cash inflows from continuing use that are largely independent of cash inflows of
other assets or groups of assets. This grouping is referred to as a CGU. The Company has determined that each
retail location is a separate CGU for purposes of impairment testing.
Goodwill arising from a business combination is tested for impairment at the minimum grouping of CGUs that are
expected to benefit from the synergies of the business combination from which the goodwill arose.
86 2022 Annual Report - Financial Review Loblaw Companies Limited
The recoverable amount of a CGU or CGU grouping is the higher of its value in use and its fair value less costs to
sell. Value in use is based on the estimated future cash flows from the CGU or CGU grouping discounted to their
present value using a pre-tax discount rate in a discounted cash flow model that reflects current market
assessments of the time value of money and the risks specific to the CGU or CGU grouping. If the CGU or CGU
grouping includes right-of-use assets in its carrying amount, the pre-tax discount rate reflects the risks associated
with the exclusion of lease payments from the estimated future cash flows. The fair value less costs to sell reflects
the amount that could be obtained from the disposal of the CGU or CGU grouping in an arm’s length transaction
between knowledgeable and willing parties, net of estimates of the costs of disposal.
An impairment loss is recognized if the carrying amount of a CGU or CGU grouping exceeds its recoverable
amount. For asset impairments other than goodwill, the impairment loss reduces the carrying amounts of the non-
financial assets in the CGU on a pro-rata basis, up to an asset’s individual recoverable amount. Any loss identified
from goodwill impairment testing is first applied to reduce the carrying amount of goodwill allocated to the CGU
grouping, and then to reduce the carrying amounts of the other non-financial assets in the CGU or CGU grouping
on a pro-rata basis.
For assets other than goodwill, an impairment loss is reversed only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.
Impairment losses and reversals are recognized in SG&A.
Investments Accounted for Under the Equity Method An investment accounted for under the equity method is an
investment in an entity (“investee”) in which the Company has significant influence, but not control, over the
financial and operating policies. The investment is initially recognized in the consolidated balance sheets at cost,
which includes transaction costs. Subsequent to the initial recognition, the investment is adjusted to recognize the
Company's share of the profit or loss and other comprehensive income of the investee, until the date on which
significant influence ceases. The Company’s share of the investee’s profit or loss is recognized in SG&A. An
investment is considered to be impaired if there is objective evidence of impairments, as a result of one or more
events that occurred after the initial recognition, and those events have negative impacts on the future cash flows
of the investee that can be reliably estimated. The investment is reviewed at each balance sheet date to determine
whether there is any indication of impairment. Refer to the Impairment of Non-Financial Assets policy.
Bank Indebtedness Bank indebtedness is comprised of balances outstanding on bank lines of credit drawn by the
Company’s Associates.
Customer Loyalty Awards Programs The Company defers revenue at the time the award is earned by members
based on the relative fair value of the award. The relative fair value is determined by allocating consideration
between the fair value of the loyalty awards earned by loyalty program members, net of breakage, and the goods
and services on which the awards were earned, based on their relative stand-alone selling price. The estimated fair
value per point for the PC Optimum™ Program is determined based on the program reward schedule and is $1 for
every 1,000 points earned. The breakage rate of the program is an estimate of the amount of points that will never
be redeemed. The rate is reviewed on an ongoing basis and is estimated utilizing historical redemption activity and
anticipated earn and redeem behaviour of members. The majority of the Company’s loyalty liability, which is
contract liability, is expected to be redeemed and recognized as revenue within one year of issuance.
Provisions Provisions are recognized when there is a present legal or constructive obligation as a result of a past
event, it is probable that the Company will be required to settle the obligation and a reliable estimate of the amount
of the obligation can be made. The amount recognized as a provision is the present value of the best estimate of
the consideration required to settle the present obligation at the end of the reporting period, taking into account
the risks and uncertainties specific to the obligation. The unwinding of the discount rate for the passage of time is
recognized in net interest expense and other financing charges.
Demand Deposits from Customers Demand deposits from customers are comprised of balances in customers’
PC Money™ Account.
2022 Annual Report - Financial Review Loblaw Companies Limited 87
Notes to the Consolidated Financial Statements
Financial Instruments and Derivative Financial Instruments Financial assets and liabilities are recognized when
the Company becomes party to the contractual provisions of the financial instrument. Upon initial recognition,
financial instruments, including derivatives and embedded derivatives in certain contracts, are measured at fair
value plus or minus transaction costs that are directly attributable to the acquisition or issue of financial instruments
that are not classified as fair value through profit or loss.
Classification and Measurement The classification and measurement approach for financial assets reflect the
business model in which assets are managed and their cash flow characteristics. Financial assets are classified and
measured based on these categories: amortized cost, fair value through other comprehensive income (“FVOCI”), or
fair value through profit and loss (“FVTPL”). Derivatives embedded in contracts where the host is a financial asset in
the scope of the standard are not separated, but the hybrid financial instrument as a whole is assessed for
classification.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as
FVTPL:
• The financial asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at
FVTPL:
• The financial asset is held within a business model in which assets are managed to achieve a particular
objective by both collecting contractual cash flows and selling financial assets; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
A financial asset shall be measured at FVTPL unless it is measured at amortized cost or at FVOCI.
Financial assets are not reclassified subsequent to their initial recognition unless the Company identifies changes
in its business model in managing financial assets.
Financial liabilities are classified and measured based on two categories: amortized cost or FVTPL. A financial
liability is classified as FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on
initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses are recognized
in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest
method.
Fair values are based on quoted market prices where available from active markets, otherwise fair values are
estimated using valuation methodologies, primarily discounted cash flows taking into account external market
inputs where possible. The amortized cost of a financial asset or liability is the amount at which the financial asset
or liability is measured at initial recognition, minus principal payments, plus or minus the cumulative amortization
using the effective interest method of any difference between the initial amount recognized and the maturity
amount, minus any reduction for impairment.
88 2022 Annual Report - Financial Review Loblaw Companies Limited
The following table summarizes the classification and measurement of the Company’s financial assets and
liabilities:
Asset / Liability
Classification / Measurement
Cash and cash equivalents
Short term investments
Accounts receivable
Credit card receivables
Certain other assets
Long term securities
Bank indebtedness
Trade payables and other liabilities
Demand deposits from customers
Short term debt
Long term debt
Certain other liabilities
Derivatives
Amortized cost
Amortized cost / fair value through other comprehensive income
Amortized cost
Amortized cost
Amortized cost / fair value through profit and loss
Fair value through other comprehensive income
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss / fair value through other
comprehensive income
Financial derivative instruments in the form of forwards and futures, as well as non-financial derivatives in the form
of futures contracts, options contracts and forward contracts, are recorded at fair value on the consolidated
balance sheet. The Company does not use derivative instruments for speculative purposes. Embedded derivatives
are separated from the host contract and accounted for separately on the consolidated balance sheet at fair value
if the host contract is not a financial asset. Derivative instruments are recorded in current or non-current assets and
liabilities based on their remaining terms to maturity. All changes in fair values of the derivative instruments are
recorded in net earnings unless the derivative qualifies and is effective as a hedging item in a designated hedging
relationship.
The Company has cash flow hedges which are used to manage exposure to fluctuations in foreign currency
exchange and interest rates. The effective portion of the change in fair value of the hedging item is recorded in
other comprehensive income. If the change in fair value of the hedging item is not completely offset by the change
in fair value of the hedged item, the ineffective portion of the hedging relationship is recorded in net earnings.
Amounts accumulated in other comprehensive income are reclassified to net earnings when the hedged item is
recognized in net earnings. The Company ensures that the hedge accounting relationships are aligned with the
Company’s risk management objectives and strategy and applies a more qualitative and forward-looking approach
to assessing hedge effectiveness. The Company’s risk management strategy and hedging activities are disclosed
in note 28 “Financial Instruments” and note 29 “Financial Risk Management”.
Fair Value The Company measures financial assets and financial liabilities under the following fair value hierarchy.
The different levels have been defined as follows:
• Fair Value Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Fair Value Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Fair Value Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Determination of fair value and the resulting hierarchy requires the use of observable market data whenever
available. The classification of a financial instrument in the hierarchy is based upon the lowest level of input that is
significant to the measurement of fair value.
Gains and losses on FVTPL financial assets and financial liabilities are recognized in net earnings in the period in
which they are incurred. Settlement date accounting is used to account for the purchase and sale of financial
assets. Gains or losses between the trade date and settlement date on FVTPL financial assets are recorded in net
earnings.
2022 Annual Report - Financial Review Loblaw Companies Limited 89
Notes to the Consolidated Financial Statements
Valuation Process The determination of the fair value of financial instruments is performed by the Company’s
treasury and financial reporting departments on a quarterly basis. There was no change in the valuation techniques
applied to financial instruments during the current year. The following table describes the valuation techniques
used in the determination of the fair values of financial instruments:
Type
Valuation Approach
Cash and cash equivalents, short term investments,
accounts receivable, credit card receivables, bank
indebtedness, trade payables and other liabilities,
demand deposits from customers and short term debt
Derivatives
The carrying amount approximates fair value due to the
short term maturity of these instruments.
Specific valuation techniques used to value derivative
financial instruments include:
l Quoted market prices or dealer quotes for similar
instruments; and
l The fair values of other derivative instruments are
determined based on observable market information
as well as valuations determined by external
valuators with experience in financial markets.
Long term debt and certain other financial instruments The fair value is based on the present value of
contractual cash flows, discounted at the Company’s
current incremental borrowing rate for similar types of
borrowing arrangements or, where applicable, quoted
market prices.
Derecognition Financial assets are derecognized when the contractual rights to receive cash flows and benefits
from the financial asset expire, or if the Company transfers the control or substantially all the risks and rewards of
ownership of the financial asset to another party. The difference between the carrying amount of the financial asset
and the sum of the consideration received and receivable is recognized in earnings before income taxes.
Financial liabilities are derecognized when obligations under the contract expire, are discharged or cancelled. The
difference between the carrying amount of the financial liability derecognized and the consideration paid and
payable is recognized in earnings before income taxes.
Impairment of Financial Assets The Company applies a forward-looking ECL model at each balance sheet date to
financial assets measured at amortized cost or those measured at FVOCI, except for investments in equity
instruments.
The ECL model outlines a three-stage approach to reflect the increase in credit risks of a financial instrument:
• Stage 1 is comprised of all financial instruments that have not had a significant increase in credit risks since initial
recognition or that have low credit risk at the reporting date. The Company is required to recognize impairment
for Stage 1 financial instruments based on the expected losses over the expected life of the instrument arising
from loss events that could occur during the 12 months following the reporting date.
• Stage 2 is comprised of all financial instruments that have had a significant increase in credit risks since initial
recognition but that do not have objective evidence of a credit loss event. For Stage 2 financial instruments the
impairment is recognized based on the expected losses over the expected life of the instrument arising from
loss events that could occur over the expected life. The Company is required to recognize a lifetime ECL for
Stage 2 financial instruments.
• Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting
date. The Company is required to recognize impairment based on a lifetime ECL for Stage 3 financial
instruments.
The ECL model applied to financial assets requires judgment, assumptions and estimations on changes in credit
risks, forecasts of future economic conditions and historical information on the credit quality of the financial asset.
Consideration of how changes in economic factors affect ECLs are determined on a probability-weighted basis.
Impairment losses and reversals are recorded in SG&A with the carrying amount of the financial asset or group of
financial assets adjusted through the use of allowance accounts.
90 2022 Annual Report - Financial Review Loblaw Companies Limited
Foreign Currency Translation The functional currency of the Company is the Canadian dollar.
Transactions in foreign currencies are translated into the functional currency at the foreign currency exchange
rates that approximate the rates in effect at the dates when such items are transacted. Monetary assets and
liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the
balance sheet date. Non-monetary items that are measured based on historical cost in a foreign currency are
translated at the exchange rate at the date of the transaction. Foreign currency differences are recognized in
operating income.
The assets and liabilities of foreign operations that have a functional currency different from that of the Company,
including goodwill and fair value adjustments arising on acquisition, are translated into the functional currency at
the foreign currency exchange rate in effect at the balance sheet date. Revenues and expenses of foreign
operations are translated into Canadian dollars at the foreign currency exchange rates that approximate the rates
in effect at the dates when such items are transacted. The resulting foreign currency exchange gains or losses are
recognized in the foreign currency translation adjustment as part of other comprehensive income. When such
foreign operation is disposed of, the related foreign currency translation reserve is recognized in net earnings as
part of the gain or loss on disposal. On the partial disposal of such foreign operation, the relevant proportion is
reclassified to net earnings.
Short Term Employee Benefits Short term employee benefits include wages, salaries, compensated absences,
profit-sharing and bonuses. Short term employee benefit obligations are measured on an undiscounted basis and
are recognized in operating income as the related service is provided or capitalized if the service rendered is in
connection with the creation of a tangible or intangible asset. A liability is recognized for the amount expected to
be paid under short term cash bonus or profit sharing plans if the Company has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee and the obligation can be
estimated reliably.
Defined Benefit Post-Employment Plans The Company has a number of contributory and non-contributory defined
benefit post-employment plans providing pension and other benefits to eligible employees. The defined benefit
pension plans provide a pension based on length of service and eligible pay. The other defined benefits include
health care, life insurance and dental benefits provided to eligible employees who retire at certain ages having met
certain service requirements. The Company’s net defined benefit plan obligations (assets) for each plan are
actuarially calculated by a qualified actuary at the end of each annual reporting period using the projected unit
credit method pro-rated based on service and management’s best estimate of the discount rate, the rate of
compensation increase, retirement rates, termination rates, mortality rates and expected growth rate of health care
costs. The discount rate used to value the defined benefit plan obligation for accounting purposes is based on high
quality corporate bonds denominated in the same currency with cash flows that match the terms of the defined
benefit plan obligations. Past service costs (credits) arising from plan amendments are recognized in operating
income in the year that they arise. The actuarially determined net interest costs on the net defined benefit plan
obligation are recognized in net interest expense and other financing charges.
The fair values of plan assets are deducted from the defined benefit plan obligations to arrive at the net defined
benefit plan obligations (assets). For plans that result in a net defined benefit asset, the recognized asset is limited
to the present value of economic benefits available in the form of future refunds from the plan or reductions in
future contributions to the plan (“asset ceiling”). If it is anticipated that the Company will not be able to recover the
value of the net defined benefit asset, after considering minimum funding requirements, the net defined benefit
asset is reduced to the amount of the asset ceiling. When the payment in the future of minimum funding
requirements related to past service would result in a net defined benefit surplus or an increase in a surplus, the
minimum funding requirements are recognized as a liability to the extent that the surplus would not be fully
available as a refund or a reduction in future contributions.
Remeasurements including actuarial gains and losses, the effect of the asset ceiling (if applicable) and the impact of
any minimum funding requirements are recognized through other comprehensive income and subsequently
reclassified from accumulated other comprehensive income to retained earnings.
The Company also participates in pension plans with Weston. The Company has established a stated policy to
allocate the net defined benefit cost to the Company and Weston based on the obligation attributable to plan
participants, provided by a third-party actuary. Both the service cost and contribution to be paid are determined
based on the actuarial valuation.
2022 Annual Report - Financial Review Loblaw Companies Limited 91
Notes to the Consolidated Financial Statements
Other Long Term Employee Benefit Plans The Company offers other long term employee benefits including
contributory long term disability benefits and non-contributory continuation of health care and dental benefits to
employees who are on long term disability leave. As the amount of the long term disability benefit does not depend
on length of service, the obligation is recognized when an event occurs that gives rise to an obligation to make
payments. The accounting for other long term employee benefit plans is similar to the method used for defined
benefit plans except that all actuarial gains and losses are recognized in operating income.
Defined Contribution Plans The Company maintains a number of defined contribution pension plans for
employees in which the Company pays fixed contributions for eligible employees into a registered plan and has no
further significant obligation to pay any further amounts. The costs of benefits for defined contribution plans are
expensed as employees have rendered service.
Multi-Employer Pension Plans The Company participates in multi-employer pension plans (“MEPPs”) which are
accounted for as defined contribution plans. The Company’s responsibility to make contributions to these plans is
limited to amounts established pursuant to its collective agreements. Defined benefit MEPPs 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 contributions made by the
Company to MEPPs are expensed as contributions are due.
Termination Benefits Termination benefits are recognized as an expense at the earlier of when the Company can
no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. Benefits
payable are discounted to their present value when the effect of the time value of money is material.
Equity-Settled Equity-Based Compensation Plans Stock options, Restricted Share Units (“RSUs”), Performance
Share Units (“PSUs”), Director Deferred Share Units (“DSUs”) and Executive Deferred Share Units (“EDSUs”) issued
by the Company are substantially all settled in common shares and are accounted for as equity-settled awards.
Stock options outstanding have a seven year term to expiry, vest 20% cumulatively on each anniversary date of the
grant and are exercisable at the designated common share price, which is based on the greater of the volume
weighted average trading price of the Company’s common share for either the five trading days prior to the date of
grant or the trading day immediately preceding the grant date. The fair value of each tranche of options granted is
measured separately at the grant date using a Black-Scholes option pricing model, and includes the following
assumptions:
• The expected dividend yield is estimated based on the expected annual dividend prior to the option grant date
and the closing share price as at the option grant date;
• The expected share price volatility is estimated based on the Company’s historical volatility over a period
consistent with the expected life of the options;
• The risk-free interest rate is estimated based on the Government of Canada bond yield in effect at the grant
date for a term to maturity equal to the expected life of the options; and
• The effect of expected exercise of options prior to expiry is incorporated into the weighted average expected
life of the options, which is based on historical experience and general option holder behaviour.
RSUs and PSUs vest after the end of a three year performance period. The number of PSUs that vest is based on
the achievement of specified performance measures. The fair value of each RSU and PSU granted is measured
separately at the grant date based on the market value of a Loblaw common share. Dividends paid may be
reinvested in RSUs and PSUs and are treated as capital transactions.
The Company established a trust for each of the RSU and PSU plans to facilitate the purchase of shares for future
settlement upon vesting. The Company is the sponsor of the respective trusts and has assigned Computershare
Trust Company of Canada as the trustee. The trusts are considered structured entities and are consolidated in the
Company’s financial statements with the cost of the acquired shares recorded at book value as a reduction to
share capital. Any premium on the acquisition of the shares above book value is applied to retained earnings until
the shares are issued to settle RSU and PSU plan obligations.
Members of the Board, who are not management of the Company, may elect to receive a portion of their annual
retainers and fees in the form of DSUs. Eligible executives of the Company may elect to defer up to 100% of the
Short Term Incentive Plan earned in any year into the EDSU plan. Dividends paid earn fractional DSUs and EDSUs,
respectively and are treated as capital transactions. DSUs and EDSUs vest upon grant.
92 2022 Annual Report - Financial Review Loblaw Companies Limited
The compensation expense for equity-settled plans is prorated over the vesting or performance period, with a
corresponding increase to contributed surplus. Forfeitures are estimated at the grant date and are revised to reflect
changes in expected or actual forfeitures.
Upon exercise of options, the amount accumulated in contributed surplus for the award plus the cash received
upon exercise is recognized as an increase in share capital. Upon settlement of RSUs and PSUs, the amount
accumulated in contributed surplus for the award is reclassified to share capital, with any premium or discount
applied to retained earnings.
Cash-Settled Equity-Based Compensation Plans Certain DSUs are accounted for as cash-settled awards.
The fair value of the amount payable to the recipients in respect of these cash-settled equity-based compensation
plan is remeasured at each balance sheet date, and a compensation expense is recognized in SG&A over the
vesting period for each tranche with a corresponding change in the liability.
Employee Share Ownership Plan The Company’s contributions to the Employee Share Ownership Plan (“ESOP”)
are measured at cost and recorded as compensation expense in operating income when the contribution is made.
The ESOP is administered through a trust which purchases the Company’s common shares on the open market on
behalf of its employees.
Note 3. Critical Accounting Estimates and Judgments
The preparation of the consolidated financial statements requires management to make estimates and judgments
in applying the Company’s accounting policies that affect the reported amounts and disclosures made in the
consolidated financial statements and accompanying notes.
Within the context of these consolidated financial statements, a judgment is a decision made by management in
respect of the application of an accounting policy, a recognized or unrecognized financial statement amount and/or
note disclosure, following an analysis of relevant information that may include estimates and assumptions.
Estimates and assumptions are used mainly in determining the measurement of balances recognized or disclosed
in the consolidated financial statements and are based on a set of underlying data that may include management’s
historical experience, knowledge of current events and conditions and other factors that are believed to be
reasonable under the circumstances. Management continually evaluates the estimates and judgments it uses.
The following are the accounting policies subject to judgments and key estimation uncertainty that the Company
believes could have the most significant impact on the amounts recognized in the consolidated financial
statements. The Company’s significant accounting policies are disclosed in note 2.
Consolidation
Judgments Made in Relation to Accounting Policies Applied The Company uses judgment in determining the
entities that it controls and therefore consolidates. The Company controls an entity when the Company has the
existing rights that give it the current ability to direct the activities that significantly affect the entity’s returns. The
Company consolidates all of its wholly owned subsidiaries. Judgment is applied in determining whether the
Company controls the entities in which it does not have ownership rights or does not have full ownership rights.
Most often, judgment involves reviewing contractual rights to determine if rights are participating (giving power
over the entity) or protective rights (protecting the Company’s interest without giving it power).
Business Combinations - Valuation of Intangible Assets
Key Estimations The Company applies significant judgment in estimating the fair value of intangible assets. In
determining the fair value of customer relationships and brands, various valuation techniques are used.
Specifically, the Company used the multi-period excess earnings method to fair value customer relationships and
the royalty relief method to fair value brands using a discounted cash flow model. Under these valuation
approaches, the Company developed assumptions related to revenue and gross margin forecasts, attrition rate,
royalty rate and discount rates.
Inventories
Key Estimations Inventories are carried at the lower of cost and net realizable value which requires the Company
to utilize estimates related to fluctuations in shrink, future retail prices, the impact of vendor rebates on cost,
seasonality and costs necessary to sell the inventory.
2022 Annual Report - Financial Review Loblaw Companies Limited 93
Notes to the Consolidated Financial Statements
Impairment of Non-Financial Assets (Goodwill, Intangible Assets, Fixed Assets and Right-of-Use Assets)
Judgments Made in Relation to Accounting Policies Applied The Company uses judgment in determining CGUs
for the purpose of testing fixed assets, right-of-use assets and intangible assets for impairment. Judgment is also
used to determine the goodwill CGUs for the purpose of testing goodwill for impairment. The Company has
determined that each retail location is a separate CGU. Intangible assets are allocated to the CGUs (or groups of
CGUs) to which they relate. Goodwill is allocated to CGUs (or groups of CGUs) based on the level at which
management monitors goodwill, which cannot be higher than an operating segment. The allocation of goodwill is
made to CGUs (or groups of CGUs) that are expected to benefit from the synergies and future growth of the
business combination from which they arose. In addition, judgment is used to determine whether a triggering event
has occurred requiring an impairment test to be completed. In applying this judgment management considers
profitability of the CGU and other qualitative factors. If the the Company cannot estimate the recoverable amount of
an individual tangible or intangible asset because it does not generate independent cash inflows, the Company is
required to test the entire CGU to which it belongs for impairment.
Key Estimations In determining the recoverable amount of a CGU or a group of CGUs, various estimates are
employed. The Company determines fair value less costs to sell using such estimates as market rental rates for
comparable properties, discount rates and capitalization rates. The Company determines value in use by using
estimates including projected future sales and earnings, and discount rates consistent with external industry
information reflecting the risk associated with the specific cash flows.
Impairment of Credit Card Receivables
Judgments Made in Relation to Accounting Policies Applied and Key Estimations In each stage of the ECL
model, impairment is determined based on the probability of default, loss given default, and expected exposures at
default on drawn and undrawn exposures on credit card receivables. The application of the ECL model requires
management to apply the following significant judgments, assumptions and estimations:
• Movement of impairment measurement between the three stages of the ECL model, based on the assessment
of the increase in credit risks on credit card receivables. The assessment of changes in credit risks includes
qualitative and quantitative factors of the accounts, such as historical credit loss experience and external credit
scores;
• Thresholds for significant increase in credit risk based on changes in probability of default over the expected
life of the instrument relative to initial recognition; and
• Forecasts of future economic conditions, namely the unemployment rate. Management uses an average of
unemployment rate forecasts published by major Canadian Chartered Banks and the Conference Board of
Canada to establish the base case scenario and other representative ranges of possible forecast scenarios.
Income and Other Taxes
Judgments Made in Relation to Accounting Policies Applied The calculation of current and deferred income
taxes requires management to make certain judgments including expectations about future operating results, the
timing and reversal of temporary differences, and the interpretation of tax rules in jurisdictions where the Company
performs activities. 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.
94 2022 Annual Report - Financial Review Loblaw Companies Limited
Segment Information
Judgments Made in Relation to Determining the Aggregation of Operating Segments The Company uses
judgment in assessing the criteria used to determine the aggregation of operating segments. The Retail reportable
operating segment consists of several operating segments comprised primarily of food retail and Associate-owned
drug stores, and also includes in-store pharmacies and healthcare services and other health and beauty products,
apparel and other general merchandise. The Company has aggregated its retail operating segments on the basis
of their similar economic characteristics, customers and nature of products. This similarity in economic
characteristics reflects the fact that the Company’s retail operating segments operate primarily in Canada and are
therefore subject to the same economic market pressures and regulatory environment. The Company’s retail
operating segments are subject to similar competitive pressures such as price and product innovation and
assortment from existing competitors and new entrants into the marketplace. The similar economic characteristics
also include the provision of centralized, common functions such as marketing and information technology (“IT”)
across all retail operating segments.
The retail operating segments’ customer profile is primarily individuals who are purchasing goods for their own or
their family’s personal needs and consumption. The nature of products and the product assortment sold by each of
the retail operating segments is also similar and includes grocery, pharmaceuticals, cosmetics, electronics and
housewares. The aggregation of the retail operating segments reflects the nature and financial effects of the
business activities in which the Company engages and the economic environment in which it operates.
Provisions
Judgments made in Relation to Accounting Policies Applied and Key Estimations The recording of provisions
requires management to make certain judgments regarding whether there is a present legal or constructive
obligation as a result of a past event, it is probable that the Company will be required to settle the obligation and if
a reliable estimate of the amount of the obligation can be made. The Company has recorded provisions primarily in
respect of restructuring, environmental and decommissioning liabilities, certain onerous costs on leased properties
and legal claims. The Company reviews the merits, risks and uncertainties of each provision, based on current
information, and the amount expected to be required to settle the obligation. Provisions are reviewed on an
ongoing basis and are adjusted accordingly when new facts and events become known to the Company.
Leases
Judgments Made in Relation to Accounting Policies Applied Management exercises judgment in determining
the appropriate lease term on a lease by lease basis. Management considers all facts and circumstances that
create an economic incentive to exercise a renewal option or to not exercise a termination option including
investments in major leaseholds, store performances, past business practice and the length of time remaining
before the option is exercisable. The periods covered by renewal options are only included in the lease term if
management is reasonably certain to renew. Management considers reasonably certain to be a high threshold.
Changes in the economic environment or changes in the retail industry may impact management’s assessment of
lease term, and any changes in management’s estimate of lease terms may have a material impact on the
Company’s consolidated balance sheets and statements of earnings.
Key Estimations In determining the carrying amount of right-of-use assets and lease liabilities, the Company is
required to estimate the incremental borrowing rate specific to each leased asset or portfolio of leased assets if
the interest rate implicit in the lease is not readily determined. Management determines the incremental borrowing
rate using a base risk-free interest rate estimated by reference to the Government of Canada bond yield with an
adjustment that reflects the Company’s credit rating, the security, lease term and value of the underlying leased
asset, and the economic environment in which the leased asset operates. The incremental borrowing rates are
subject to change due to changes in the business and macroeconomic environment.
2022 Annual Report - Financial Review Loblaw Companies Limited 95
Notes to the Consolidated Financial Statements
Note 4. Future Accounting Standard
IFRS 17 In 2017, the IASB issued IFRS 17, “Insurance Contracts” (“IFRS 17”) replacing IFRS 4. IFRS 17 introduces
consistent accounting for all insurance contracts. The standard requires a company to measure insurance contracts
using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to these
contracts. Additionally, IFRS 17 requires an entity to recognize profits as it delivers insurance services, rather than
when it receives premiums. The standard is effective for annual reporting periods beginning on or after
January 1, 2023 and is to be applied retrospectively. The Company has assessed the impact of the standard on its
consolidated financial statements and determined that the impact will not be material.
Note 5. Business Acquisitions
Acquisition of Lifemark Health Group On May 10, 2022, the Company acquired all of the outstanding common
shares of Lifemark Health Group (“Lifemark”) for total cash purchase consideration of $829 million. Lifemark is the
Canadian leading provider of outpatient physiotherapy, massage therapy, occupational therapy, chiropractic,
mental health, and other ancillary rehabilitation services through its more than 300 clinics across Canada. The
acquisition of Lifemark adds to the Company’s growing role as a healthcare service provider, with a network of
health and wellness solutions, accessible in-person and digitally.
The Lifemark acquisition was accounted for using the acquisition method in accordance with IFRS 3, “Business
Combinations”, with the results of operations consolidated with those of the Company effective May 10, 2022.
In the third quarter of 2022, the Company finalized the purchase price allocation which is summarized as follows:
(millions of Canadian dollars)
Net Assets Acquired:
Cash and cash equivalents
Accounts receivable(i)
Prepaid expenses and other assets
Fixed assets
Right-of-use assets
Intangible assets
Goodwill
Trade payables and other liabilities
Lease liabilities
Deferred income tax liabilities
Other liabilities
Total Net Assets Acquired
$
$
15
54
2
16
75
564
365
(38)
(75)
(145)
(4)
829
(i)
Trade and other receivables is net of a loss allowance of $2 million.
Goodwill is attributable to expected growth in customers and expansion of the Lifemark footprint. The goodwill
arising from this acquisition is not deductible for tax purposes.
96 2022 Annual Report - Financial Review Loblaw Companies Limited
Intangible assets are comprised of the following:
(millions of Canadian dollars)
Intangible Assets:
Brand
Customer relationships
Computer software
Total Intangible Assets
Estimated Useful Life
Indefinite
10-20 years
3 years
$
$
265
295
4
564
Year-to-date selling, general and administrative expense includes $16 million of transaction costs related to the
acquisition.
Included in the consolidated statement of earnings for the year ended December 31, 2022 is $279 million of
revenue and nominal net earnings contributed by Lifemark since the date of acquisition. Net earnings includes
amortization related to the acquired intangible assets of $8 million. On a combined pro forma basis, the Company’s
revenue and net earnings available to common shareholders would have amounted to $56,657 million and
$1,909 million, respectively. This pro forma information incorporates the effect of the final purchase price equation
as if Lifemark had been acquired on January 2, 2022. Included in the pro forma net earnings is the amortization
related to the acquired intangible assets of $16 million.
Note 6. Net Interest Expense and Other Financing Charges
The components of net interest expense and other financing charges were as follows:
(millions of Canadian dollars)
Interest expense and other financing charges
Lease liabilities (note 27)
Long term debt(i)
Borrowings related to credit card receivables
Post-employment and other long term employee benefits (note 24)
Independent funding trusts
Financial liabilities (note 32)
Bank indebtedness
Interest income
Accretion income
Short term interest income
Post-employment and other long term employee benefits (note 24)
Recovery related to Glenhuron Bank Limited (note 7)
Net interest expense and other financing charges
2022
333
303
52
—
22
5
1
716
$
$
(4) $
(14)
(4)
(22) $
(11)
683
$
$
$
$
$
$
2021
340
286
37
8
13
3
4
691
(4)
(3)
—
(7)
(189)
495
(i)
Includes an early repayment premium charge of $7 million recorded in the year related to the early redemption of $800 million debenture
bearing interest at 4.86% with an original maturity date of September 12, 2023.
2022 Annual Report - Financial Review Loblaw Companies Limited 97
Notes to the Consolidated Financial Statements
Note 7. Income Taxes
The components of income taxes recognized in the consolidated statements of earnings were as follows:
(millions of Canadian dollars)
Current income taxes
Current period
Recovery related to Glenhuron Bank Limited
Adjustment in respect of prior periods
Deferred income taxes
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Income taxes
2022
2021
$
$
$
$
$
$
818
(33)
8
793
$
(113)
$
(15)
(128)
665
$
$
692
(128)
8
572
(100)
(6)
(106)
466
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron Bank Limited (“Glenhuron”), a wholly owned
Barbadian subsidiary of the Company that was wound up in 2013, should be treated, and taxed, as income in
Canada. In the fourth quarter of 2021, the Supreme Court of Canada (“Supreme Court”) ruled in favour of the
Company on the Glenhuron matter and the Company reversed $301 million of previously recorded charges, of
which $173 million was recorded as interest income and $128 million was recorded as income tax recovery, and an
additional $16 million, before taxes, was also recorded in respect of interest income earned on expected cash tax
refunds. As a result of related reassessments received during the first quarter of 2022, the Company reversed
another $35 million of previously recorded charges, of which $2 million was recorded as interest income and
$33 million was recorded as an income tax recovery, and an additional $9 million, before taxes, was recorded in
respect of interest income earned on expected cash tax refunds (see note 30).
Income tax (recovery) expense recognized in other comprehensive income was as follows:
(millions of Canadian dollars)
Net defined benefit plan actuarial (losses) gains (note 24)
Gains on cash flow hedges (note 28)
Net income tax (recovery) expense recognized in other comprehensive income
2022
(83)
$
5
(78)
$
$
$
2021
101
1
102
The effective income tax rate in the consolidated statement of earnings was reported at rates different than the
weighted average basic Canadian federal and provincial statutory income tax rates for the following reasons:
Weighted average basic Canadian federal and provincial statutory income tax rate
Net increase (decrease) resulting from:
Effect of tax rate differentials
Recovery related to Glenhuron
Non-deductible and non-taxable items
Adjustments in respect of prior periods
Other
Effective income tax rate applicable to earnings before income taxes
2022
26.5 %
— %
(1.2) %
0.3 %
(0.3) %
(0.3) %
25.0 %
2021
26.5 %
(0.1) %
(5.2) %
(1.7) %
0.1 %
(0.5) %
19.1 %
98 2022 Annual Report - Financial Review Loblaw Companies Limited
Unrecognized deferred income tax assets Deferred income tax assets were not recognized on the consolidated
balance sheets in respect of the following items:
(millions of Canadian dollars)
Deductible temporary differences
Non-capital loss carryforwards
Unrecognized deferred tax assets
2022
15
176
191
$
$
$
$
2021
12
156
168
The non-capital loss carryforwards expire in the years 2029 to 2042. The deductible temporary differences do not
expire under current income tax legislation. Deferred income tax assets were not recognized in respect of these
items because it is not probable that future taxable income will be available to the Company to utilize the benefits.
Recognized deferred income tax assets and liabilities Deferred income tax assets and liabilities were attributable
to the following:
(millions of Canadian dollars)
Trade payables and accrued liabilities
Other liabilities
Lease liabilities
Fixed assets
Right-of-use assets
Goodwill and intangible assets
Non-capital loss carryforwards (expiring 2029 to 2042)
Other
Net deferred income tax liabilities
Recorded on the consolidated balance sheets as follows:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax liabilities
Note 8. Basic and Diluted Net Earnings per Common Share
(millions of Canadian dollars except where otherwise indicated)
Net earnings attributable to shareholders of the Company
Dividends on preferred shares in equity (note 22)
Net earnings available to common shareholders
Weighted average common shares outstanding (note 22)
Dilutive effect of equity-based compensation
Dilutive effect of certain other liabilities
Diluted weighted average common shares outstanding
Basic net earnings per common share ($)
Diluted net earnings per common share ($)
As at
December 31, 2022
As at
January 1, 2022
$
$
$
$
$
74
217
2,405
(641)
(1,969)
(1,347)
43
25
78
131
2,307
(626)
(1,888)
(1,338)
48
33
(1,193)
$
(1,255)
86
$
(1,279)
(1,193)
$
91
(1,346)
(1,255)
2022
1,921
(12)
1,909
328.1
3.0
0.6
331.7
5.82
5.75
$
$
$
$
$
$
$
$
2021
1,875
(12)
1,863
339.1
2.0
0.7
341.8
5.49
5.45
In 2022, 1,106,204 (2021 – 210,157) potentially dilutive instruments were excluded from the computation of diluted
net earnings per common share as they were anti-dilutive.
2022 Annual Report - Financial Review Loblaw Companies Limited 99
Notes to the Consolidated Financial Statements
Note 9. Cash and Cash Equivalents and Short Term Investments
The components of cash and cash equivalents and short term investments were as follows:
Cash and Cash Equivalents
(millions of Canadian dollars)
Cash
Cash equivalents
Government treasury bills
Bankers’ acceptances
Guaranteed investment certificates
Other
Total cash and cash equivalents
Short Term Investments
(millions of Canadian dollars)
Government treasury bills
Bankers’ acceptances
Guaranteed investment certificates
Other
Total short term investments
As at
December 31, 2022
As at
January 1, 2022
$
1,024
$
849
356
222
—
6
560
543
21
3
$
1,608
$
1,976
As at
December 31, 2022
As at
January 1, 2022
$
$
299
$
3
21
3
326
$
361
97
5
1
464
Note 10. Accounts Receivable
The following is an aging of the Company’s accounts receivable:
(millions of Canadian dollars)
As at
December 31, 2022
As at
January 1, 2022
0-90
days
91-180
days
> 180
days
Total
0-90
days
91-180
days
> 180
days
Total
Accounts receivable, net
$ 1,098 $
20 $
81 $ 1,199
$ 846 $
60 $
41 $ 947
The following are continuities of the Company’s allowances for uncollectible accounts receivable:
(millions of Canadian dollars)
Allowances, beginning of year
Net addition
Allowances, end of year
2022
(23)
$
(8)
(31)
$
$
$
2021
(20)
(3)
(23)
Credit risk associated with accounts receivable is discussed in note 29.
100 2022 Annual Report - Financial Review Loblaw Companies Limited
Note 11. Credit Card Receivables
The components of credit card receivables were as follows:
(millions of Canadian dollars)
Gross credit card receivables
Allowance for credit card receivables
Credit card receivables
Securitized to independent securitization trusts:
Securitized to Eagle Credit Card Trust® (note 20)
Securitized to Other Independent Securitization Trusts
Total securitized to independent securitization trusts
As at
December 31, 2022
4,160
$
$
$
$
$
(206)
3,954
$
1,350
$
700
2,050
$
As at
January 1, 2022
3,648
(205)
3,443
1,350
450
1,800
The Company, through PC Bank, participates in various securitization programs that provide a source of funds for
the operation of its credit card business. PC Bank maintains and monitors a co-ownership interest in credit card
receivables with independent securitization trusts, including Eagle and Other Independent Securitization Trusts, in
accordance with its financing requirements.
The associated liability of Eagle is recorded in long term debt (see note 20). The associated liabilities of credit card
receivables securitized to the Other Independent Securitization Trusts are recorded in short term debt.
The securitization agreements between PC Bank and the Other Independent Securitization Trusts are renewed and
extended on an annual basis. The existing agreements were renewed in 2021, with their respective maturity dates
extended to 2025 and with all other terms and conditions remaining substantially the same.
As at December 31, 2022, PC Bank recorded a $250 million net increase of co-ownership interest in the securitized
receivables held with the Other Independent Securitization Trusts as a result of growth in the credit card portfolio.
The undrawn commitments on facilities available from the Other Independent Securitization Trusts as at
December 31, 2022 were $250 million (January 1, 2022 – $250 million).
The Company has arranged letters of credit on behalf of PC Bank for the benefit of the independent securitization
trusts (see note 31).
Under its securitization programs, PC Bank is required to maintain, at all times, a credit card receivable pool
balance equal to a minimum of 107% of the outstanding securitized liability. PC Bank was in compliance with this
requirement as at December 31, 2022 and throughout 2022.
2022 Annual Report - Financial Review Loblaw Companies Limited 101
Notes to the Consolidated Financial Statements
The following table provides gross carrying amounts of credit card receivables by internal risk ratings for credit risk
management purposes:
Low risk
Moderate risk
High risk
Total gross carrying amount
ECL allowance
Net carrying amount
Low risk
Moderate risk
High risk
Total gross carrying amount
ECL allowance
Net carrying amount
As as December 31, 2022
12-month ECL
(Stage 1)
Lifetime ECL-
not credit
impaired
(Stage 2)
Lifetime ECL-
credit
impaired
(Stage 3)
$
2,113 $
13 $
— $
1,163
424
35
370
—
42
Total
2,126
1,198
836
$
$
3,700 $
418 $
42 $
4,160
(79)
(92)
(35)
(206)
3,621 $
326 $
7 $
3,954
As as January 1, 2022
12-month ECL
(Stage 1)
Lifetime ECL-
not credit
impaired
(Stage 2)
Lifetime ECL-
credit
impaired
(Stage 3)
$
1,877 $
11 $
— $
985
332
3,194 $
(75)
3,119 $
$
$
35
371
417 $
(98)
319 $
Total
1,888
1,020
740
—
37
37 $
3,648
(32)
(205)
5 $
3,443
The following are continuities of the Company’s allowance for credit card receivables for the years ended
December 31, 2022 and January 1, 2022:
(millions of Canadian dollars)
Balance, beginning of year
Increase / (decrease) during the year:
Transfers(i)
To Stage 1
To Stage 2
To Stage 3
New loans originated(ii)
Net remeasurements(iii)
Write-offs
Recoveries
Balance, end of year
Stage 1
As at December 31, 2022
Total
Stage 3
Stage 2
$
75 $
98 $
32 $
205
22
(5)
(2)
13
(24)
—
—
(22)
7
(15)
8
16
—
—
—
(2)
17
5
81
(127)
29
$
79 $
92 $
35 $
—
—
—
26
73
(127)
29
206
(i) Transfers reflect allowance movements between stages for loans that were recognized as of the beginning of the year.
(ii) New loans originated reflect the stage of loan, and the related loan balance, as of the end of the year.
(iii) Net remeasurements includes the impact from changes in loan balances, model enhancements and credit quality during the year.
102 2022 Annual Report - Financial Review Loblaw Companies Limited
(millions of Canadian dollars)
Balance, beginning of year
Increase / (decrease) during the year:
Transfers(i)
To Stage 1
To Stage 2
To Stage 3
New loans originated(ii)
Net remeasurements(iii)
Write-offs
Recoveries
Balance, end of year
Stage 1
Stage 2
As at January 1, 2022
Total
Stage 3
$
90 $
116 $
31 $
237
44
(5)
(1)
7
(60)
—
—
(44)
7
(18)
14
23
—
—
—
(2)
19
2
65
(108)
25
$
75 $
98 $
32 $
—
—
—
23
28
(108)
25
205
(i) Transfers reflect allowance movements between stages for loans that were recognized as of the beginning of the year.
(ii) New loans originated reflect the stage of loan, and the related loan balance, as of the end of the year.
(iii) Net remeasurements includes the impact from changes in loan balances, model enhancements and credit quality during the year.
The allowances for credit card receivables recorded in the consolidated balance sheets are maintained at a level
which is considered adequate to endure credit-related losses on credit card receivables.
Note 12. Inventories
For inventories recorded as at December 31, 2022, the Company has an inventory provision of $43 million
(January 1, 2022 – $67 million) for the write-down of inventories below cost to net realizable value. The write-down
was included in cost of sales. There were no reversals of previously recorded write-downs of inventories during
2022 and 2021.
Note 13. Assets Held for Sale
The Company classifies certain assets, primarily land and buildings, that it expects to sell in the next 12 months, as
assets held for sale. These assets were either originally used in the Company’s retail business segment or held in
investment properties. In 2022, the Company recognized a net gain of $76 million (2021 – net gain of $12 million)
from the sale of these assets. Nominal fair value gain (2021 – net fair value gain of $1 million) was recognized on
assets held for sale in 2022.
2022 Annual Report - Financial Review Loblaw Companies Limited 103
Notes to the Consolidated Financial Statements
Note 14. Fixed Assets
The following are continuities of the cost and the accumulated depreciation of fixed assets for the years ended
December 31, 2022 and January 1, 2022:
(millions of Canadian dollars)
Cost
Balance, beginning of year
Additions
Business acquisitions(i)
Disposals
Net transfer to assets held for sale
Transfer from assets under construction
Balance, end of year
Accumulated depreciation
Balance, beginning of year
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Balance, end of year
Carrying amount as at:
December 31, 2022
2022
Buildings and
building
improvements
Land
Equipment
and fixtures
Leasehold
improvements
Assets under
construction
Total
$ 219 $
1,834 $ 9,343 $ 4,204 $
361 $ 15,961
—
—
(1)
(6)
—
—
—
(27)
—
65
147
6
(104)
—
563
55
10
(38)
—
204
950
1,152
—
—
—
(832)
16
(170)
(6)
—
$ 212 $
1,872 $ 9,955 $ 4,435 $
479 $ 16,953
$
1 $
926 $ 7,070 $ 2,515 $
2 $ 10,514
—
3
—
—
54
—
(1)
(22)
522
11
(5)
(103)
308
15
(2)
(37)
—
—
—
—
884
29
(8)
(162)
$
4 $
957 $ 7,495 $ 2,799 $
2 $ 11,257
$ 208 $
915 $ 2,460 $
1,636 $
477 $ 5,696
(i) Includes $16 million related to the acquisition of Lifemark (see note 5).
(millions of Canadian dollars)
Cost
Balance, beginning of year
Additions(i)
Disposals
Net transfer to assets held for sale
Transfer from assets under construction
Balance, end of year
Accumulated depreciation
Balance, beginning of year
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Balance, end of year
Carrying amount as at:
January 1, 2022
Buildings and
building
improvements
Land
Equipment
and fixtures
Leasehold
improvements
Assets under
construction
Total
2021
$ 225 $
1,779 $ 8,805 $
4,044 $
415 $ 15,268
—
(12)
(7)
13
—
(10)
(5)
70
26
(63)
—
575
16
(14)
—
158
762
—
—
(816)
804
(99)
(12)
—
$
219 $
1,834 $ 9,343 $
4,204 $
361 $ 15,961
$
1 $
883 $ 6,603 $ 2,239 $
2 $ 9,728
—
—
—
—
51
—
(2)
(6)
507
25
(4)
(61)
284
16
(10)
(14)
—
—
—
—
842
41
(16)
(81)
$
1 $
926 $
7,070 $
2,515 $
2 $ 10,514
$
218 $
908 $ 2,273 $
1,689 $
359 $ 5,447
(i) Additions to fixed assets include $1 million prepayment that was made in 2020. The balance was transferred from other assets in 2021.
104 2022 Annual Report - Financial Review Loblaw Companies Limited
Fixed Asset Commitments As at December 31, 2022, the Company had entered into commitments of $866 million
(January 1, 2022 – $744 million) for the construction, expansion and renovation of buildings and the purchase of
real property.
Impairment Losses and Reversals of Fixed Assets and Right-of-Use Assets Management identified indications of
impairment for certain retail location CGUs and therefore an impairment test was performed for these CGUs. For
the year ended December 31, 2022, the Company recorded $22 million (2021 – $26 million) of impairment losses
on fixed assets and $14 million (2021 – $28 million) of impairment losses on right-of-use assets (see note 27) in
respect of 18 CGUs (2021 – 16 CGUs) in the retail operating segment. The recoverable amount was based on the
greater of the CGU’s fair value less costs to sell and its value in use. No CGUs (2021 – nil) were impaired on the
basis of their carrying values exceeding their fair value less costs to sell (2021 – nil). All (2021 – all) of the impaired
CGUs had carrying values which were $36 million (2021 – $54 million) greater than their value in use.
For the year ended December 31, 2022, the Company recorded $8 million (2021 – $16 million) of impairment
reversals on fixed assets and $6 million (2021 – $12 million) of impairment reversals on right-of-use assets (see note
27) in respect of 7 CGUs (2021 – 14 CGUs) in the retail operating segment. Impairment reversals are recorded
where the recoverable amount of the retail location exceeds its carrying values. No CGUs (2021 – nil %) with
impairment reversals had fair value less costs to sell greater than their carrying values (2021 – nil). All (2021 – all) of
the CGUs with impairment reversals had value in use of $14 million (2021 – $28 million) greater than their carrying
values.
When determining the value in use of a retail location, the Company develops a discounted cash flow model for
each CGU. The duration of the cash flow projections for individual CGUs varies based on the remaining useful life
of the significant assets within the CGU for owned locations or the remaining lease term of the CGU for leased
locations. Projected future sales and earnings for cash flows are based on actual operating results, operating
budgets, and long term growth rates that are consistent with industry averages, all of which are consistent with
strategic plans presented to the Company’s Board. The estimate of the value in use of relevant CGUs was
determined using a pre-tax discount rate of 8.4% to 9.1% at December 31, 2022 (January 1, 2022 – 7.9% to 8.4%).
Additional impairment losses on fixed assets of $7 million (2021 – $15 million) were incurred related to store
closures, renovations, conversions of retail locations and restructuring activities. No impairment losses (2021 – nil)
were recognized on right-of-use assets related to restructuring activities (see note 27).
Note 15. Investment Properties
The following are continuities of investment properties for the years ended December 31, 2022 and
January 1, 2022:
(millions of Canadian dollars)
Balance, beginning of year
Adjustment to fair value of investment properties
Net transfer to assets held for sale
Balance, end of year
2022
111
6
(57)
60
$
$
$
$
2021
128
1
(18)
111
The valuations of investment properties using the income approach include assumptions as to market rental rates
for properties of similar size and condition located within the same geographical areas, recoverable operating costs
for leases with tenants, non-recoverable operating costs, vacancy periods, tenant inducements and terminal
capitalization rates for the purposes of determining the estimated net proceeds from the sale of the property. As at
December 31, 2022, the pre-tax discount rates used in the valuations for investment properties ranged from 6.5%
to 8.75% (January 1, 2022 – 6.5% to 8.5%) and the terminal capitalization rates ranged from 5.0% to 7.0% (January 1,
2022 – 5.0% to 7.0%).
2022 Annual Report - Financial Review Loblaw Companies Limited 105
Notes to the Consolidated Financial Statements
Note 16. Intangible Assets
The following are continuities of the cost and the accumulated amortization of intangible assets for the years ended
December 31, 2022 and January 1, 2022:
(millions of Canadian dollars)
Cost
Balance, beginning of year
Additions
Business acquisitions(i)
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Impairment losses
Balance, end of year
Carrying amount as at:
December 31, 2022
2022
Indefinite life
intangible
assets
Software
Other definite
life intangible
(ii)
assets
Total
$
3,491 $
3,821 $
5,892 $
13,204
—
265
418
—
1
311
419
576
3,756 $
4,239 $
6,204 $
14,199
— $
2,765 $
4,037 $
6,802
—
—
381
5
506
—
887
5
— $
3,151 $
4,543 $
7,694
3,756 $
1,088 $
1,661 $
6,505
$
$
$
$
Includes $564 million related to the acquisition of Lifemark (see note 5).
(i)
(ii) Other definite life intangible assets includes prescription files with a net book value of $1,009 million related to the acquisition of Shoppers
Drug Mart in 2014 which will be fully amortized by 2025.
(millions of Canadian dollars)
Cost
Balance, beginning of year
Additions
Business acquisitions
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization
Impairment losses
Balance, end of year
Carrying amount as at:
January 1, 2022
2021
Indefinite life
intangible
assets
Other definite
life intangible
assets
Software
Total
$
3,491 $
3,442 $
5,891 $
12,824
—
—
379
—
—
1
379
1
3,491 $
3,821 $
5,892 $
13,204
— $
2,414 $
3,540 $
5,954
—
—
338
13
497
—
835
13
— $
2,765 $
4,037 $
6,802
3,491 $
1,056 $
1,855 $
6,402
$
$
$
$
106 2022 Annual Report - Financial Review Loblaw Companies Limited
Indefinite Life Intangible Assets Indefinite life intangible assets are comprised of brand names, trademarks, import
purchase quotas and certain liquor licenses. The brand names and trademarks are a result of the Company’s
acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug Mart”), Lifemark and T&T Supermarket Inc. The
Company expects to renew the registration of the brand names, trademarks, import purchase quotas and liquor
licenses at each expiry date indefinitely, and expects these assets to generate economic benefit in perpetuity. As
such, the Company has assigned these intangible assets indefinite useful lives.
Software Software is comprised of software purchases and development costs. There were no capitalized
borrowing costs included in 2022 and 2021.
Other Definite Life Intangible Assets Other definite life intangible assets primarily consist of prescription files, the
customer loyalty awards program and customer relationships.
Note 17. Goodwill
The following are continuities of the cost and the accumulated impairment of goodwill for the years ended
December 31, 2022 and January 1, 2022:
(millions of Canadian dollars)
Cost
Balance, beginning of year
Business acquisitions(i)
Balance, end of year
Accumulated impairment losses
Balance, beginning of year
Impairment losses
Balance, end of year
Carrying amount as at the end of the year
2022
2021
$
4,943
$
4,942
374
1
5,317
$
4,943
994
$
—
994
4,323
$
$
994
—
994
3,949
$
$
$
$
(i)
Includes $365 million related to the acquisition of Lifemark (see note 5).
The carrying amount of goodwill attributed to each CGU grouping was as follows:
(millions of Canadian dollars)
Shoppers Drug Mart
Market
Discount
Lifemark
T&T Supermarket Inc.
All other
Carrying amount as at the end of the year
As at
December 31, 2022
As at
January 1, 2022
$
2,981
$
2,976
376
461
369
129
7
376
461
—
129
7
$
4,323
$
3,949
2022 Annual Report - Financial Review Loblaw Companies Limited 107
Notes to the Consolidated Financial Statements
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.
The key assumptions used to calculate the fair value less costs to sell are revenue and gross margin forecasts,
growth/attrition rates, discount rate, and terminal rate. These assumptions are considered to be Level 3 in the fair
value hierarchy.
The weighted average cost of capital was determined to be 7.1% to 9.3% (January 1, 2022 – 7.1% to 7.9%) and is
based on a risk-free rate, an equity risk premium adjusted for betas of comparable publicly traded companies, an
unsystematic risk premium, an after-tax cost of debt based on corporate bond yields and the capital structure of
comparable publicly traded companies.
Cash flow projections have been discounted using a rate derived from an after-tax weighted average cost of
capital. At December 31, 2022, the after-tax discount rate used in the recoverable amount calculations was 7.1% to
9.3% (January 1, 2022 – 7.1% to 7.9%). The pre-tax discount rate was 9.7% to 12.7% (January 1, 2022 – 9.7% to
10.8%).
The Company included a minimum of three years of cash flows in its discounted cash flow model. The cash flow
forecasts were extrapolated beyond the three year period using an estimated long term growth rate of 2.0%
(January 1, 2022 – 2.0%). The budgeted EBITDA growth was based on the Company’s three year strategic plan
approved by the Board.
The Company completed its annual impairment tests for goodwill and indefinite life intangible assets and
concluded there was no impairment.
Note 18. Other Assets
The components of other assets were as follows:
(millions of Canadian dollars)
Sundry investments and other receivables
Accrued benefit plan asset (note 24)
Finance lease receivable (note 27)
Investments accounted for under the equity method(i)
Long term securities
Other(ii)
Total other assets
As at
December 31, 2022
As at
January 1, 2022
$
$
66
52
77
87
246
164
692
$
$
54
463
78
73
66
68
802
(i) During 2022, the Company agreed to invest a total of $42 million in Rapid Retail Canada Inc. (“Rapid”) in exchange for a minority interest.
Rapid will provide on-demand grocery and convenience items to customers in Canada. As at December 31, 2022, the Company had
invested $18 million.
(ii) As at December 31, 2022, includes $70 million related to fixed asset prepayments (January 1, 2022 – $4 million) and $47 million related to
Venture Fund I ( January 1, 2022 – $29 million) (see note 32).
108 2022 Annual Report - Financial Review Loblaw Companies Limited
Note 19. Provisions
The following are continuities of provisions for the years ended December 31, 2022 and January 1, 2022:
(millions of Canadian dollars)
Balance, beginning of year
Additions
Payments
Reversals
Reclasses
Balance, end of year
(millions of Canadian dollars)
Recorded on the consolidated balance sheets as follows:
Current portion of provisions
Non-current portion of provisions
Total provisions
$
$
2022
225
191
(192)
(5)
—
$
219
$
2021
213
72
(53)
(6)
(1)
225
As at
December 31, 2022
As at
January 1, 2022
$
$
110
109
219
$
$
111
114
225
Provisions consist primarily of amounts recorded in respect of restructuring, self-insurance, environmental and
decommissioning liabilities, certain onerous costs on leased properties, legal claims, Loblaw Card Program and a
charge related to PC Bank commodity tax matter.
Restructuring and other related costs The Company continuously evaluates strategic and cost reduction initiatives
related to its store infrastructure, distribution networks and administrative infrastructure with the objective of
ensuring a low cost operating structure. Restructuring activities related to these initiatives are ongoing. As at
December 31, 2022, the provision related to restructuring and other related costs was $26 million (January 1, 2022
– $54 million).
Charge related to PC Bank commodity tax matter In July 2022, the Tax Court of Canada (“Tax Court”) released a
decision relating to PC Bank, a subsidiary of the Company. The Tax Court ruled that PC Bank is not entitled to claim
notional input tax credits for certain payments it made to Loblaws Inc. in respect of redemptions of loyalty points.
On September 29th, 2022, PC Bank filed a Notice of Appeal with the Federal Court of Appeal. Although the
Company believes in the merits of its position, the Company recorded a charge of $111 million, inclusive of interest,
in the second quarter of 2022 and, as at December 31, 2022, this charge has substantially been paid. The
Company believes that this provision is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
Competition Bureau Investigation In 2017, the Company and Weston announced actions taken to address their
involvement in an industry wide price-fixing arrangement. In connection with the arrangement, the Company
offered customers a $25 Loblaw Card, which can be used to purchase items sold in Loblaw grocery stores
across Canada. As at December 31, 2022, the Loblaw Card Program liability was $15 million (January 1, 2022 –
$15 million). The Company expects that Loblaw Cards issued to customers will be an offset against civil liability. The
charge recorded for the Loblaw Card Program should not be viewed as an estimate of damages (see note 30).
2022 Annual Report - Financial Review Loblaw Companies Limited 109
Notes to the Consolidated Financial Statements
Note 20. Long Term Debt
The components of long term debt were as follows:
(millions of Canadian dollars)
Debentures
Loblaw Companies Limited Notes
4.86%, due 2023
3.92%, due 2024
6.65%, due 2027
6.45%, due 2028
4.49%, due 2028
6.50%, due 2029
2.28%, due 2030
11.40%, due 2031
Principal
Effect of coupon repurchase
5.01%, due 2032
6.85%, due 2032
6.54%, due 2033
8.75%, due 2033
6.05%, due 2034
6.15%, due 2035
5.90%, due 2036
6.45%, due 2039
7.00%, due 2040
5.86%, due 2043
5.34%, due 2052
Guaranteed Investment Certificates
0.40% – 5.36%, due 2023 – 2027
Independent Securitization Trust
2.71%, due 2022
3.10%, due 2023
2.28%, due 2024
1.34%, due 2025
1.61%, due 2026
4.78%, due 2027
5.63%, due 2027
6.83%, due 2027
Independent Funding Trusts
Transaction costs and other
Total long term debt
Less amount due within one year
Long Term Debt
110 2022 Annual Report - Financial Review Loblaw Companies Limited
As at
December 31, 2022
As at
January 1, 2022
$
—
$
400
100
200
400
175
350
151
30
400
200
200
200
200
200
300
200
150
55
400
1,567
—
250
250
300
300
232
9
9
800
400
100
200
400
175
350
151
32
—
200
200
200
200
200
300
200
150
55
—
996
250
250
250
300
300
—
—
—
574
(19)
7,783
727
$
7,056
$
570
(16)
7,213
1,002
6,211
$
$
Significant long term debt transactions are described below.
Debentures The following table summarizes the debentures issued in 2022. There were no debentures issued
in 2021.
(millions of Canadian dollars except where otherwise indicated)
Loblaw Companies Limited Notes(i)
Loblaw Companies Limited Notes(i)
Total debentures issued
Interest
Rate
5.01%
5.34%
Maturity Date
September 13, 2032
September 13, 2052
Principal
Amount
2022
$
$
400
400
800
(i) During 2022, the Company completed a dual-tranche issuance of $800 million aggregate principal amount of senior unsecured notes. In
connection with this issuance, the Company used the net proceeds of the issuance to redeem $800 million outstanding principal amount of
its Series 2023 unsecured notes.
The following table summarizes the debentures repaid in 2022. There were no debentures repaid in 2021.
(millions of Canadian dollars except where otherwise indicated)
Loblaw Companies Limited Notes(i)
Total debentures repaid
Interest
Rate
4.86%
Maturity Date
September 12, 2023
Principal
Amount
2020
$
$
800
800
(i) The Company recorded an early repayment premium charge of $7 million in net interest expense and other financing charges when the
Company redeemed the $800 million outstanding principal amount of its Series 2023 senior unsecured notes with original maturity date of
September 12, 2023 on September 21, 2022.
Guaranteed Investment Certificates The following table summarizes PC Bank’s Guaranteed Investment
Certificates (“GICs”) activity, before commissions, in 2022 and 2021:
(millions of Canadian dollars)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
$
$
2022
996
764
(193)
$
1,567
$
2021
1,185
414
(603)
996
Independent Securitization Trust The notes issued by Eagle are debentures, which are collateralized by
PC Bank’s credit card receivables (see note 11).
During 2022, Eagle filed a Short Form Base Shelf Prospectus, which allows for the issuance of up to $1.25 billion of
notes over a 25-month period.
During 2022, Eagle issued $250 million (2021 – $300 million) of senior and subordinated term notes with a
maturity date of July 17, 2027 (2021 – June 17, 2026). These notes have a weighted average interest rate of 4.89%
(2021 – 1.61%). In connection with this issuance, $140 million (2021 – $175 million) of bond forward agreements were
settled, resulting in a realized fair value gain of $8 million (2021 – loss of $1 million) before income taxes, which was
cumulatively recorded in other comprehensive loss as unrealized prior to the settlement of the agreement. The
gain will be reclassified to net earnings over the life of the Eagle notes. This settlement resulted in a net effective
interest rate of 4.24% (2021 – 1.65%) on the Eagle notes issued (see note 28).
During 2022, $250 million of senior and subordinated term notes at weighted average interest rate of 2.71%,
previously issued by Eagle, matured and were repaid on October 17, 2022. As a result, during 2022, there was no
net change in the balances related to Eagle notes.
There were no repayments of notes issued by Eagle in 2021.
2022 Annual Report - Financial Review Loblaw Companies Limited 111
Notes to the Consolidated Financial Statements
Independent Funding Trusts As at December 31, 2022, the independent funding trusts had drawn $574 million
(January 1, 2022 – $570 million) from the revolving committed credit facility that is the source of funding to the
independent funding trusts.
The Company has a $700 million revolving committed credit facility that is the source of funding to the
independent funding trusts that has a maturity date of April 14, 2025. The Company extended the maturity date
during 2022 with all other terms and conditions remaining substantially the same.
Committed Credit Facility The Company has a $1.0 billion committed credit facility with a maturity date of
July 15, 2027, provided by a syndicate of lenders. The Company extended the maturity date during 2022 with all
other terms and conditions remaining substantially the same. This committed credit facility contains certain financial
covenants (see note 23). As at December 31, 2022 and January 1, 2022, there were no amounts drawn under this
facility.
Long Term Debt Due Within One Year The following table summarizes long term debt due within one year:
(millions of Canadian dollars)
Guaranteed investment certificates
Independent securitization trust
Independent funding trust
Long term debt due within one year
As at
December 31, 2022
As at
January 1, 2022
$
$
$
477
250
—
182
250
570
727
$
1,002
Schedule of Repayments The schedule of repayments of long term debt, based on maturity, is as follows:
(millions of Canadian dollars)
2023
2024
2025
2026
2027
Thereafter
Total long term debt (excludes transaction costs)
See note 28 for the fair value of long term debt.
As at
December 31, 2022
$
$
727
1,091
1,138
494
541
3,811
7,802
Reconciliation of Long Term Debt The following table reconciles the changes in cash flows from financing
activities for long term debt:
(millions of Canadian dollars)
Long term debt, beginning of year
Long term debt issuances(i)
Long term debt repayments
Total cash flow from long term debt financing activities
Other non-cash changes
Long term debt, end of year
2022
7,213
1,818
(1,243)
575
(5)
7,783
$
$
$
$
$
$
$
$
$
$
2021
7,046
772
(603)
169
(2)
7,213
(i)
Includes net movements from the Independent Funding Trust, which are revolving debt instruments.
112 2022 Annual Report - Financial Review Loblaw Companies Limited
Note 21. Other Liabilities
The components of other liabilities were as follows:
(millions of Canadian dollars)
Net defined benefit plan obligation (note 24)
Other long term employee benefit obligation
Financial liabilities (note 32)
Equity-based compensation liabilities (note 25)
Other
Total other liabilities
Note 22. Share Capital
As at
As at
December 31, 2022
January 1, 2022
$
$
237
106
69
3
20
$
435
$
289
115
54
3
7
468
First Preferred Shares (authorized - 1.0 million shares) There were no First Preferred Shares outstanding as at
December 31, 2022 and January 1, 2022.
Second Preferred Shares (authorized - unlimited) The Company has outstanding 9.0 million 5.30% non-voting
Second Preferred Shares, Series B, with a face value of $225 million, which were issued for net proceeds of
$221 million. These preferred shares are presented as a component of equity on the consolidated balance sheets.
Common Shares (authorized – unlimited) Common shares issued are fully paid and have no par value. The
activities in the common shares issued and outstanding were as follows:
(millions of Canadian dollars except where otherwise indicated)
Issued and outstanding, beginning of period
Issued for settlement of stock options (note 25)
Purchased and cancelled
Issued and outstanding, end of period
Shares held in trust, beginning of period
Purchased for future settlement of RSUs and PSUs
Released for settlement of RSUs and PSUs (note 25)
Shares held in trust, end of period
Issued and outstanding, net of shares held in trust, end of period
Weighted average outstanding, net of shares held in trust (note 8)
2022
Number of Common
Share
Capital
Common
Shares
2021
Number of Common
Share
Capital
Common
Shares
333,527,369 $ 6,643
347,361,480 $ 6,837
1,487,377
100
1,829,170
(10,952,138)
(254)
(15,663,281)
116
(310)
324,062,608 $ 6,489
333,527,369 $ 6,643
(595,495) $
(12)
(672,784) $
(1,172,000)
545,217
(23)
11
(510,000)
587,289
(13)
(10)
11
(1,222,278) $
(24)
(595,495) $
(12)
322,840,330 $ 6,465
332,931,874 $ 6,631
328,068,749
339,097,833
2022 Annual Report - Financial Review Loblaw Companies Limited 113
Notes to the Consolidated Financial Statements
Dividends The declaration and payment of dividends on the Company’s common shares and the amount thereof
are at the discretion of the Board, which takes into account the Company’s financial results, capital requirements,
available cash flow, future prospects of the Company’s business and other factors considered relevant from time to
time. Over the long term, it is the Company’s intention to increase the amount of the dividend while retaining
appropriate free cash flow to finance future growth. In the second quarter of 2022 and in the third quarter of 2021,
the Board raised the quarterly dividend by $0.04 to $0.405 and $0.03 to $0.365 per common share, respectively.
The following table summarizes the Company’s cash dividends declared for the periods as indicated:
Dividends declared per share ($)
Common Share
Second Preferred Share, Series B
2022(i)
2021
$
$
1.580
1.325
$
$
1.400
1.325
(i) The Common Share dividends declared in the fourth quarter of 2022 of $0.405 per share had a payment date of December 30, 2022.
The Second Preferred Shares, Series B dividends declared in the fourth quarter of 2022 of $0.33125 per share had a payment date of
December 31, 2022.
(millions of Canadian dollars)
Dividends declared
Common Share
Second Preferred Share, Series B (note 8)
Total dividends declared
2022
2021
$
$
$
517
12
529
$
472
12
484
Subsequent to December 31, 2022, the Board declared a quarterly dividend of $0.405 per common share, payable
on April 1, 2023 to shareholders of record on March 15, 2023 and a quarterly dividend of $0.33125 per share on the
Second Preferred Shares, Series B payable on March 31, 2023 to shareholders of record on March 15, 2023.
Normal Course Issuer Bid Activities under the Company’s Normal Course Issuer Bid (“NCIB”) during the periods
were as follows:
(millions of Canadian dollars except where otherwise indicated)
Common shares repurchased under the NCIB for cancellation (number of shares)(i)
2022
2021
10,952,138
15,647,886
Cash consideration paid
Premium charged to retained earnings(ii)
Reduction in common share capital(iii)
Common shares repurchased under the NCIB and held in trust (number of shares)
Cash consideration paid
Premium charged to retained earnings
Reduction in common share capital
$
1,258
1,204
254
1,172,000
$
138
115
23
$
$
1,200
890
310
510,000
50
40
10
(i) Common shares repurchased and cancelled as at December 31, 2022 do not include the shares that may be repurchased subsequent to the
end of the quarter under the automatic share repurchase plan, as described below.
(ii) Includes $166 million related to the automatic share purchase plan, as described below.
(iii) Includes $34 million related to the automatic share purchase plan, as described below.
114 2022 Annual Report - Financial Review Loblaw Companies Limited
In the second quarter of 2022, the Company renewed its NCIB to purchase on the Toronto Stock Exchange (“TSX”)
or through alternative trading systems up to 16,647,384 of the Company’s common shares, representing
approximately 5% of issued and outstanding common shares. In accordance with the rules of the TSX, the
Company may purchase its common shares from time to time at the then market price of such shares. As at
December 31, 2022, the Company had purchased 9,609,720 common shares for cancellation under its current
NCIB.
During 2020, the TSX accepted an amendment to the Company’s NCIB. The amendment permitted the Company
to purchase its common shares from George Weston Limited (“Weston”) under its NCIB, pursuant to an automatic
disposition plan agreement among the Company’s broker, the Company and Weston, in order for Weston to
maintain its proportionate ownership interest in the Company. The maximum number of common shares that may
be purchased pursuant to the NCIB will be reduced by the number of common shares purchased from Weston.
During 2022, 10,952,138 common shares (2021 – 15,647,886) were purchased under the NCIB program for
cancellation, for aggregate consideration of $1,258 million (2021 – $1,200 million), including 4,868,949 common
shares (2021 – 7,399,437) purchased from Weston, for aggregate consideration of $558 million (2021 –
$563 million).
From time to time, the Company participates in an automatic share purchase plan (“ASPP”) with a broker in order to
facilitate the repurchase of the Company’s common shares under its NCIB. During the effective period of the ASPP,
the Company’s broker may purchase common shares at times when the Company would not be active in the
market. As at December 31, 2022, an obligation to repurchase shares of $200 million was recognized under the
ASPP in trade payables and other liabilities.
Note 23. Capital Management
In order to manage its capital structure, the Company may, among other activities, adjust the amount of dividends
paid to shareholders, purchase shares for cancellation pursuant to its NCIB, issue new shares or issue or repay
long term debt with the objective of:
• ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and
strategic plans;
• maintaining financial capacity and flexibility through access to capital to support future development of the
business;
• minimizing the after-tax cost of its capital while taking into consideration current and future industry, market
and economic risks and conditions;
• utilizing short term funding sources to manage its working capital requirements and long term funding sources
•
•
to manage the long term capital investments of the business;
returning an appropriate amount of capital to shareholders; and
targeting an appropriate leverage and capital structure for the Company and each of its reportable operating
segments.
The Company has policies in place which govern debt financing plans and risk management strategies for liquidity,
interest rates and foreign exchange. These policies outline measures and targets for managing capital, including a
range for leverage consistent with the desired credit rating. Management and the Audit Committee regularly review
the Company’s compliance with, and performance against, these policies. In addition, management regularly
reviews these policies to ensure they remain consistent with the risk tolerance acceptable to the Company.
2022 Annual Report - Financial Review Loblaw Companies Limited 115
Notes to the Consolidated Financial Statements
The following table summarizes the Company’s total capital under management:
(millions of Canadian dollars)
Bank indebtedness
Demand deposits from customers
Short term debt
Long term debt due within one year
Long term debt
Certain other liabilities(i)
Total debt excluding lease liabilities
Lease liabilities due within one year
Lease liabilities
Total debt including lease liabilities
Equity attributable to shareholders of the Company
Total capital under management
As at
December 31, 2022
As at
January 1, 2022
$
8
$
125
700
727
7,056
153
8,769
$
1,401
7,714
17,884
$
11,299
29,183
$
$
$
$
52
75
450
1,002
6,211
131
7,921
1,297
7,542
16,760
11,573
28,333
(i)
Includes financial liabilities of $73 million (2021 – $57 million) related to the sale of properties to Choice Properties Real Estate Investment
Trust (see note 32).
Covenants and Regulatory Requirements The Company is subject to certain key financial and non-financial
covenants under its existing committed credit facility, certain debentures and letters of credit. These covenants,
which include interest coverage and leverage ratios, as defined in the respective agreements, are measured by the
Company on a quarterly basis to ensure compliance with these agreements. As at December 31, 2022 and
throughout the year, the Company was in compliance with each of the covenants under these agreements.
The Company is subject to externally imposed capital requirements from the Office of the Superintendent of
Financial Institutions (“OSFI”), the primary regulator of PC Bank. PC Bank’s capital management objectives are to
maintain a consistently strong capital position while considering the economic risks generated by its credit card
receivables portfolio and to meet all regulatory capital requirements as defined by OSFI. PC Bank uses Basel III as
its regulatory capital management framework, which includes a target common equity Tier 1 capital ratio of 7.0%, a
Tier 1 capital ratio of 8.5% and a total capital ratio of 10.5%. In addition to the regulatory capital ratios requirement,
PC Bank is subject to the Basel III Leverage ratio. PC Bank is also subject to the OSFI’s Guideline on Liquidity
Adequacy Requirements (“LARs”). The LARs guideline establishes standards based on the Basel III framework,
including a Liquidity Coverage Ratio standard. As at December 31, 2022 and throughout the year, PC Bank has met
all applicable regulatory requirements.
116 2022 Annual Report - Financial Review Loblaw Companies Limited
Note 24. Post-Employment and Other Long Term Employee Benefits
The Company sponsors a number of pension plans, including registered defined benefit pension plans, registered
defined contribution pension plans and supplemental unfunded arrangements providing pension benefits in excess
of statutory limits. Certain obligations of the Company under these supplemental pension arrangements are
secured by a standby letter of credit issued by a major Canadian chartered bank.
The Company’s Pension Committee oversees the Company’s pension plans. The Pension Committee is
responsible for assisting the Board in fulfilling its general oversight responsibilities for the plans. The Pension
Committee assists the Board with oversight of management’s administration of the plans, pension investment and
monitoring responsibilities, and compliance with legal and regulatory requirements.
The Company’s defined benefit pension plans are primarily funded by the Company, predominantly non-
contributory and the benefits are, in general, based on career average earnings subject to limits. The funding is
based on regulatory going concern and solvency valuations for which the assumptions may differ from the
assumptions used for accounting purposes as detailed in this note.
The Company also offers certain other defined benefit plans other than pension plans. These other defined benefit
plans are generally not funded, are mainly non-contributory and include health care, life insurance and dental
benefits. Employees eligible for these other defined benefits are those who retire at certain ages having met
certain service requirements. The majority of other defined benefit plans for current and future retirees include a
limit on the total benefits payable by the Company.
The Company’s defined benefit pension plans and other defined benefit plans expose it to a number of actuarial
risks, such as longevity risk, interest rate risk and market risk.
In Canada, the Company also has a national defined contribution plan for salaried employees. All newly hired
salaried employees are only eligible to participate in this defined contribution plan.
The Company also contributes to various MEPPs, which are administered by independent boards of trustees
generally consisting of an equal number of union and employer representatives. The Company’s responsibility to
make contributions to these plans is limited by amounts established pursuant to its collective agreements.
The Company expects to make contributions in 2023 to its defined benefit and defined contribution plans and the
MEPPs in which it participates as well as benefit payments to the beneficiaries of the supplemental unfunded
defined benefit pension plans, other defined benefit plans and other long term employee benefit plans.
Other Long Term Employee Benefits The Company offers other long term employee benefit plans that include
long term disability benefits and continuation of health care and dental benefits while on disability.
Defined Benefit Pension Plans and Other Defined Benefit Plans Information on the Company’s defined benefit
pension plans and other defined benefit plans, in aggregate, is summarized as follows:
(millions of Canadian dollars)
Present value of funded obligations
Present value of unfunded obligations
Total present value of defined benefit obligation
Fair value of plan assets
Total funded status of surpluses (obligations)
Assets not recognized due to asset ceiling
Total net defined benefit plan (obligations) surpluses
Recorded on the consolidated balance sheets as follows:
Other assets (note 18)
Other liabilities (note 21)
2022
2021
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
Defined
Benefit
Pension
Plans
$ (1,249) $
(110)
$ (1,359) $
1,552
—
(116)
(116)
—
$
$
(1,668) $
(142)
(1,810) $
2,130
Other
Defined
Benefit
Plans
—
(145)
(145)
—
$
193 $
(116)
$
320 $
(145)
(262)
—
(1)
—
(69) $
(116)
$
319 $
(145)
52 $
—
(121) $
(116)
$
$
463 $
—
(144) $
(145)
$
$
$
2022 Annual Report - Financial Review Loblaw Companies Limited 117
Notes to the Consolidated Financial Statements
The following are the continuities of the fair value of plan assets and the present value of the defined benefit plan
obligations:
(millions of Canadian dollars)
Changes in the fair value of plan assets
Fair value, beginning of year
Employer contributions
Employee contributions
Benefits paid
Interest income
Actuarial (losses) gains in other comprehensive
income
Other
Fair value, end of year
Changes in the present value of the defined
benefit plan obligations
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Employee contributions
Actuarial (gains) in other comprehensive income
Balance, end of year
Total funded status of surpluses (obligations)
Assets not recognized due to asset ceiling
Total net defined benefit plan (obligations)
surpluses
2022
Defined
Other
Benefit Defined
Benefit
Pension
Plans
Plans
Defined
Benefit
Pension
Plans
2021
Other
Defined
Benefit
Plans
Total
Total
$ 2,130 $ — $ 2,130
$ 2,060 $ — $ 2,060
1
3
(54)
69
(593)
(4)
—
—
—
—
—
—
1
3
(54)
69
(593)
(4)
26
2
(47)
52
41
(4)
—
—
—
—
—
—
26
2
(47)
52
41
(4)
$ 1,552 $ — $ 1,552
$ 2,130 $ — $ 2,130
$ 1,810 $ 145 $ 1,955
$ 2,058 $
163 $ 2,221
62
57
(60)
3
(513)
3
5
(5)
—
65
62
(65)
3
(32)
(545)
70
53
(55)
2
(318)
5
4
(5)
—
75
57
(60)
2
(22)
(340)
$ 1,359 $
116 $ 1,475
$ 1,810 $
145 $ 1,955
$ 193 $ (116) $
77
$ 320 $
(145) $
175
(262)
—
(262)
(1)
—
(1)
$
(69) $ (116) $ (185)
$ 319 $
(145) $
174
For 2022, the actual loss on plan assets was $524 million (2021 – return of $93 million).
The net defined benefit obligation can be allocated to the plans’ participants as follows:
• Active plan participants 58% (2021 – 61%);
• Deferred plan participants 12% (2021 – 12%); and
• Retirees 30% (2021 – 27%).
During 2023, the Company expects to contribute approximately $46 million (2022 – contributed $1 million) to its
registered defined benefit pension plans. The actual amount of contributions may vary from the estimate
depending on the funded positions of the plans, filing of any actuarial valuations, any new regulatory requirements
or other factors.
118 2022 Annual Report - Financial Review Loblaw Companies Limited
The net cost recognized in earnings before income taxes for the Company’s defined benefit pension plans and
other defined benefit plans was as follows:
(millions of Canadian dollars)
Current service cost
Net interest (income) cost on net defined
benefit plan (assets) obligations
Other
Net post-employment defined benefit cost
Defined
Benefit
Pension
Plans
2022
Other
Defined
Benefit
Plans
Defined
Benefit
Pension
Plans
2021
Other
Defined
Benefit
Plans
Total
$
62
$
3
$
65
$
70
$
5
$
(12)
4
5
—
(7)
4
1
4
4
—
Total
75
5
4
$
54 $
8 $
62
$
75 $
9 $
84
The actuarial losses (gains) recognized in other comprehensive income (loss) net of taxes for defined benefit plans
were as follows:
(millions of Canadian dollars)
Loss (return) on plan assets, excluding
amounts included in net interest expense
and other financing charges
Experience adjustments
Actuarial losses from change in demographic
assumptions
Actuarial (gains) from change in financial
assumptions(i)
Change in liability arising from change in asset
ceiling(i)
Total net actuarial losses (gains) recognized in
other comprehensive income (loss) before
income taxes
Income tax (recoveries) expenses on actuarial
losses (gains) (note 7)
Actuarial losses (gains) net of income tax
(recoveries) expenses
Defined
Benefit
Pension
Plans
2022
Other
Defined
Benefit
Plans
Defined
Benefit
Pension
Plans
2021
Other
Defined
Benefit
Plans
Total
$ 593 $
— $ 593
$
(41) $
— $
—
—
(3)
6
(3)
6
(38)
—
(7)
—
Total
(41)
(45)
—
(513)
(35)
(548)
(280)
(15)
(295)
262
—
262
(2)
—
(2)
$ 342 $
(32) $ 310
$
(361) $
(22) $
(383)
(91)
8
(83)
95
6
101
$ 251 $
(24) $ 227
$
(266) $
(16) $
(282)
(i) The actuarial gains and the change in liability arising from change in asset ceiling were primarily driven by an increase in discount rates.
The cumulative actuarial (gains) losses before income taxes recognized in equity for the Company’s defined benefit
plans were as follows:
(millions of Canadian dollars)
Cumulative amount, beginning of year
Net actuarial losses (gains) recognized in the
year before income taxes
Cumulative amount, end of year
2022
Defined
Benefit
Pension
Plans
$ (408) $
Other
Defined
Benefit
Plans
Total
(100) $ (508)
Defined
Benefit
Pension
Plans
2021
Other
Defined
Benefit
Plans
$
(47) $
(78) $
Total
(125)
342
(66) $
(32)
(132) $
310
(198)
(361)
(408) $
(22)
(100) $
(383)
(508)
$
$
2022 Annual Report - Financial Review Loblaw Companies Limited 119
Notes to the Consolidated Financial Statements
Composition of Plan Assets The defined benefit pension plan assets are held in trust and consist of the following
asset categories:
(millions of Canadian dollars, except where otherwise indicated)
Equity securities
Canadian - pooled funds
Foreign - pooled funds
Total equity securities
Debt securities
Fixed income securities:
- government
- corporate
Total debt securities
Other investments
Cash and cash equivalents
Total
2022
2021
$
24
832
$ 856
2 %
53 %
55 %
$
$
45
1,144
1,189
2 %
54 %
56 %
$ 382
78
$ 460
202
34
$ 1,552
25 %
5 %
30 %
13 %
2 %
100 %
$
$ 687
58
745
156
40
$ 2,130
32 %
3 %
35 %
7 %
2 %
100 %
As at December 31, 2022 and January 1, 2022, the defined benefit pension plans did not directly include any of the
Company’s securities.
All equity and debt securities and other investments 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, either derived from prices or as per
agreements for contractual returns.
The Company’s asset allocation reflects a balance of interest-rate sensitive investments, such as fixed income
investments, and equities, which are expected to provide higher returns over the long term. The Company’s
targeted asset allocations are actively monitored and adjusted on a plan by plan basis to align the asset mix with
the liability profiles of the plans.
Principal Actuarial Assumptions The principal actuarial assumptions used in calculating the Company’s defined
benefit plan obligations and net defined benefit plan cost for the year were as follows (expressed as weighted
averages):
Defined Benefit Plan Obligations
Discount rate
Rate of compensation increase
Mortality table(i)
Net Defined Benefit Plan Cost
Discount rate
Rate of compensation increase
Mortality table(i)
2022
2021
Defined Benefit
Pension Plans
Other Defined
Benefit Plans
Defined Benefit
Pension Plans
Other Defined
Benefit Plans
5.30 %
4% for 2022 and 2023
and 3% thereafter
5.30 %
n/a
3.30 %
3.00 %
3.20 %
n/a
CPM-RPP2014 Pub/ CPM-RPP2014 Pub/ CPM-RPP2014 Pub/ CPM-RPP2014 Pub/
Priv Generational
Priv Generational
Priv Generational
Priv Generational
3.30 %
3.00 %
2.50 %
n/a
CPM-RPP2014 Pub/ CPM-RPP2014 Pub/ CPM-RPP2014 Pub/ CPM-RPP2014 Pub/
Priv Generational
3.20 %
n/a
2.50 %
3.00 %
Priv Generational
Priv Generational
Priv Generational
n/a – not applicable
(i) Public or private sector mortality table is used depending on the prominent demographics of each plan.
The weighted average duration of the defined benefit obligation as at December 31, 2022 is 14.3 years (January 1,
2022 – 17.3 years).
The growth rate of health care costs, primarily drug and other medical costs, for the other defined benefit plan
obligations as at the end of the year was estimated at 4.60% and is expected to increase to 4.90% as at year end
2023.
120 2022 Annual Report - Financial Review Loblaw Companies Limited
Sensitivity of Key Actuarial Assumptions The following table outlines the key assumptions for 2022 (expressed as
weighted averages) and the sensitivity of each of these assumptions on the defined benefit plan obligations.
The sensitivity analysis provided in the table is hypothetical and should be used with caution. The sensitivities of
each key assumption have been calculated independently of any changes in other key assumptions. Actual
experience may result in changes in a number of key assumptions simultaneously. Changes in one factor may
result in changes in another, which could amplify or reduce the impact of such assumptions.
Increase (Decrease)
(millions of Canadian dollars except where otherwise indicated)
Discount rate
Impact of:
1% increase
1% decrease
Expected growth rate of health care costs
Impact of:
1% increase
1% decrease
Mortality rates
Impact of:
One year increase in life expectancy
One year decrease in life expectancy
n/a – not applicable
Defined Benefit
Pension Plans
Benefit Plan
Obligations
Other Defined
Benefit Plans
Benefit Plan
Obligations
5.30 %
5.30 %
$
$
$
$
(176)
220
n/a
n/a
23
(21)
$
$
$
$
$
$
(12)
15
4.60 %
11
(9)
2
(2)
Multi-Employer Pension Plans During 2022, the Company recognized an expense of $70 million (2021 –
$73 million) in operating income, which represents the contributions made in connection with MEPPs. During 2023,
the Company expects to continue to make contributions into these MEPPs.
The Company, together with its franchises, is the largest participating employer in the Canadian Commercial
Workers Industry Pension Plan (“CCWIPP”), with approximately 57,000 (2021 – 56,000) employees as members.
Included in the 2022 expense described above are contributions of $69 million (2021 – $72 million) to CCWIPP.
Post-Employment and Other Long Term Employee Benefit Costs The net cost recognized in earnings before
income taxes for the Company’s post-employment and other long term employee benefit plans was as follows:
(millions of Canadian dollars)
Net post-employment defined benefit cost
Defined contribution costs(i)
Multi-employer pension plan costs(ii)
Total net post-employment benefit costs
Other long term employee benefit costs(iii)
Net post-employment and other long term employee benefit costs
Recorded on the consolidated statement of earnings as follows:
Selling, general and administrative expenses (note 26)
Net interest expense and other financing charges (note 6)
Net post-employment and other long term employee benefit costs
2022
62
31
70
163
24
187
191
(4)
187
$
$
$
$
$
$
$
$
$
$
2021
84
28
73
185
31
216
208
8
216
(i) Amounts represent the Company’s contributions made in connection with defined contribution plans.
(ii) Amounts represent the Company's contributions made in connection with MEPPs.
(iii) Other long term employee benefit costs include $3 million (2021 – $3 million) of net interest expense and other financing charges.
2022 Annual Report - Financial Review Loblaw Companies Limited 121
Notes to the Consolidated Financial Statements
Note 25. Equity-Based Compensation
The Company’s equity-based compensation expense, which includes Stock Option, RSU, PSU, DSU and EDSU
plans, was $69 million during 2022 (2021 – $59 million). The expense was recognized in operating income.
The carrying amounts of the Company’s equity-based compensation arrangements, which include Stock Option,
RSU, PSU, DSU and EDSU plans, were recorded on the consolidated balance sheets as follows:
(millions of Canadian dollars)
Other liabilities (note 21)
Contributed surplus
As at
December 31, 2022
As at
January 1, 2022
$
3
$
122
3
116
The following are details related to the equity-based compensation plans of the Company:
Stock Option Plan The Company maintains a stock option plan for certain employees. Under this plan, the
Company may grant options up to 28,137,162 common shares.
The following is a summary of the Company’s stock option plan activity:
2022
2021
Weighted
Options Average Exercise
Price / Share
(number of shares)
Options
(number of shares)
Weighted
Average Exercise
Price / Share
Outstanding options, beginning of year
Granted
Exercised (note 22)
Forfeited/cancelled
Outstanding options, end of year
Options exercisable, end of year
6,431,449 $
1,162,625 $
(1,487,377) $
(324,082) $
5,782,615 $
2,100,204 $
63.15
100.05
59.47
71.04
71.07
62.26
7,259,645 $
1,926,951 $
(1,829,170) $
(925,977) $
6,431,449 $
2,285,608 $
61.19
64.27
56.02
64.22
63.15
59.79
The following is the weighted average remaining contractual life and exercise price of outstanding and exercisable
stock options as at December 31, 2022:
Range of Exercise Prices
$55.18-$64.07
$64.08-$70.13
$70.14-$117.67
2022 Outstanding Options
2022 Exercisable Options
Number of
Options
Outstanding
2,412,999
2,065,927
1,303,689
5,782,615
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price/Share
Number of
Exercisable
Options
Weighted
Average
Exercise
Price/Share
3.3 $ 59.67
1,235,700 $
58.11
3.8 $ 68.23
824,882 $
67.76
6.1 $ 96.67
39,622 $
77.36
$
71.07
2,100,204 $ 62.26
During 2022, the Company issued common shares on the exercise of stock options with a weighted average
market share price of $114.22 (2021 – $81.97). The Company received cash consideration of $88 million (2021 –
$102 million) related to the exercise of these options.
122 2022 Annual Report - Financial Review Loblaw Companies Limited
The fair value of stock options granted during 2022 was $21 million (2021 – $17 million). The assumptions used to
measure the fair value of options granted during 2022 and 2021 under the Black-Scholes valuation model at date
of grant were as follows:
Expected dividend yield
Expected share price volatility
Risk-free interest rate
Expected life of options
2022
1.4 %
18.4% – 22.2%
1.6% – 3.5%
3.7 – 6.2 years
2021
1.7 %
18.3% – 20.6%
0.6% – 1.6%
3.8 – 6.2 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture rate
applied as at December 31, 2022 was 11.0% (January 1, 2022 – 9.0%).
Restricted Share Unit Plan The following is a summary of the Company’s RSU plan activity:
(number of awards)
Restricted share units, beginning of year
Granted
Reinvested
Settled
Forfeited
Restricted share units, end of year
2022
799,345
244,686
10,105
(294,115)
(43,194)
716,827
The fair value of RSUs granted during 2022 was $26 million (2021 – $25 million).
Performance Share Unit Plan The following is a summary of the Company’s PSU plan activity:
(number of awards)
Performance share units, beginning of year
Granted
Reinvested
Settled
Forfeited
Performance share units, end of year
2022
616,417
310,100
8,570
(258,411)
(28,477)
648,199
2021
894,272
372,015
14,835
(371,474)
(110,303)
799,345
2021
666,400
281,099
11,177
(231,952)
(110,307)
616,417
The fair value of PSUs granted during 2022 was $26 million (2021 – $18 million).
Settlement of Awards from Shares Held in Trust During 2022, the Company settled RSUs and PSUs totaling
552,526 (2021 – 603,426), of which 545,218 (2021 – 587,289) were settled through the trusts established for
settlement of each of the RSU and PSU plans (see note 22). The settlements resulted in a $11 million (2021 –
$11 million) increase to share capital and a net increase of $24 million (2021 – $23 million) to retained earnings.
2022 Annual Report - Financial Review Loblaw Companies Limited 123
Notes to the Consolidated Financial Statements
Director Deferred Share Unit Plan The following is a summary of the Company’s DSU plan activity:
(number of awards)
Director deferred share units, beginning of year
Granted
Reinvested
Settled
Director deferred share units, end of year
2022
361,316
21,744
4,532
(62,361)
325,231
The fair value of DSUs granted during 2022 was $2 million (2021 – $2 million).
Executive Deferred Share Unit Plan The following is a summary of the Company’s EDSU plan activity:
(number of awards)
Executive deferred share units, beginning of year
Granted
Reinvested
Settled
Executive deferred share units, end of year
2022
62,473
7,719
914
(5,608)
65,498
2021
380,481
32,829
6,162
(58,156)
361,316
2021
56,856
5,399
1,066
(848)
62,473
The fair value of EDSUs granted during 2022 was $1 million (2021 – nominal).
Note 26. Employee Costs
Included in operating income are the following employee costs:
(millions of Canadian dollars)
Wages, salaries and other short term employment benefits
Post-employment benefits (note 24)
Other long term employee benefits (note 24)
Equity-based compensation
Capitalized to fixed assets and intangible assets
Total employee costs
2022
$
7,233
$
170
21
65
(129)
2021
6,983
180
28
55
(112)
$
7,360
$
7,134
124 2022 Annual Report - Financial Review Loblaw Companies Limited
Note 27. Leases
The Company leases certain of its retail stores, distribution centres, corporate offices, passenger vehicles, trailers
and IT equipment. Leases of retail stores are a substantial portion of the Company’s lease portfolio. Retail store
leases typically have an initial contractual period of 10 to 15 years with additional renewal options available
thereafter. The Company also has owned and leased properties that are leased and subleased to third parties,
respectively. The subleases are primarily related to medical centers and ancillary tenants within stores.
As a Lessee
Right-of-Use Assets The following are continuities of the cost and accumulated depreciation of right-of-use assets
for the years ended December 31, 2022 and January 1, 2022:
(millions of Canadian dollars)
Cost
Balance, beginning of year
Lease additions, net of lease terminations
Lease extensions and other items
Balance, end of year
Accumulated depreciation
Balance, beginning of year
Depreciation
Impairment losses, net of reversals (note 14)
Balance, end of year
Carrying amount as at:
December 31, 2022
(millions of Canadian dollars)
Cost
Balance, beginning of year
Lease additions, net of lease terminations
Lease extensions and other items
Balance, end of year
Accumulated depreciation
Balance, beginning of year
Depreciation
Impairment losses, net of reversals (note 14)
Balance, end of year
Carrying amount as at:
January 1, 2022
2022
Property
Other
Total
$ 10,041 $
98 $ 10,139
316
921
20
9
336
930
$ 11,278 $
127 $ 11,405
$ 2,900 $
64 $ 2,964
1,005
8
19
—
1,024
8
$ 3,913 $
83 $ 3,996
$ 7,365 $
44 $ 7,409
2021
Property
Other
Total
$ 9,083 $
85 $ 9,168
128
830
—
13
128
843
$ 10,041 $
98 $ 10,139
$
1,915 $
46 $
1,961
969
16
18
—
987
16
$ 2,900 $
64 $ 2,964
$
7,141 $
34 $ 7,175
2022 Annual Report - Financial Review Loblaw Companies Limited 125
Notes to the Consolidated Financial Statements
Lease Liabilities The following are continuities of lease liabilities for the years ended December 31, 2022 and
January 1, 2022:
(millions of Canadian dollars)
Balance, beginning of year
Lease additions, net of lease terminations
Lease extensions and other items
Lease payments
Interest expense on lease liabilities (note 6)
Balance, end of year
Lease liabilities due within one year
Lease liabilities
Total lease liabilities
2022
$
8,839
$
320
950
(1,327)
333
9,115
1,401
7,714
9,115
$
$
$
$
$
$
2021
8,901
125
833
(1,360)
340
8,839
1,297
7,542
8,839
Liquidity The future undiscounted contractual lease payments are as follows:
Payments due by year
As at
December 31, 2022
As at
January 1, 2022
(millions of Canadian
dollars)
Lease payments
2023
2024
2025
2026
2027 Thereafter
Total
$ 1,426 $ 1,352 $ 1,291 $ 1,058 $ 910 $ 3,201
$
9,238
$
Total
8,973
As at December 31, 2022, the Company also had commitments of $579 million (January 1, 2022 – $842 million)
related to leases not yet commenced.
Short-Term Leases The Company has short-term leases that are primarily related to trailer rentals and certain
properties. During 2022, $27 million (2021 – $26 million) was recognized in cost of sales and SG&A.
Variable Lease Payments The Company makes variable lease payments for property tax and insurance charges
on leased properties. The Company also has certain retail store leases where portions of the lease payments are
contingent on a percentage of retail sales. During 2022, $385 million (2021 – $393 million) was recognized in
SG&A.
Extension Options Substantially all of the retail store leases have extension options for additional lease terms. As
at December 31, 2022, approximately 16% (January 1, 2022 – 13%) of the lease liabilities are related to extension
options that were deemed reasonably certain to be exercised.
As at December 31, 2022, approximately $16 billion (January 1, 2022 – $16 billion) of discounted future lease
payments are related to extension options that were not deemed to be reasonably certain to be exercised and
were not included in lease liabilities. These future lease payments are discounted at the incremental borrowing
rates associated with the current lease liability profile.
Sale and Leaseback Transactions During 2022, the Company disposed of and leased back one retail property
(2021 – two retail properties), and recognized a loss of $1 million (2021 – gain of $1 million) in SG&A. The Company
also disposed of and leased back two additional retail properties in 2022 (2021 – one additional retail property)
that did not meet the criteria for sales of assets in accordance with IFRS 15 as the Company did not relinquish
control of the properties under the terms of the leases (see note 32).
126 2022 Annual Report - Financial Review Loblaw Companies Limited
As a Lessor
Finance Leases Finance lease receivable is included in other assets on the Company’s consolidated balance sheet
(see note 18). During 2022, the Company recognized finance interest income of $3 million (2021 – $4 million) and
nil impairment losses (2021 – nil).
The future finance lease payments to be received by the Company relating to properties that are subleased to third
parties are as follows:
(millions of Canadian dollars)
2023
2024
2025
2026
2027
Thereafter
Payments to be received by year
As at
December 31, 2022
Total
As at
January 1, 2022
Total
$ 23 $
12 $
11 $
11 $
8 $
23
$
88
$
90
Finance lease
payments to be
received
Less: unearned
finance interest
income
Total finance lease
receivable (note 18) $ 20 $
10 $
9 $
10 $
7 $
21
$
77
$
(3)
(2)
(2)
(1)
(1)
(2)
(11)
(12)
78
Operating Leases During 2022, the Company recognized operating lease income of $28 million (2021 –
$26 million), of which $19 million (2021 – $20 million) was related to operating lease income from subleases of
right-of-use assets.
The future undiscounted operating lease payments to be received by the Company are as follows:
(millions of Canadian dollars)
2023
2024
2025
2026
2027
Thereafter
Payments to be received by year
As at
December 31, 2022
Total
As at
January 1, 2022
Total
Operating lease
income
$
11 $
9 $
7 $
4 $
3 $
8
$
42
$
63
2022 Annual Report - Financial Review Loblaw Companies Limited 127
Notes to the Consolidated Financial Statements
Note 28. Financial Instruments
The following table presents the fair value and fair value hierarchy of financial assets and financial liabilities,
excluding those classified as amortized cost that are short term in nature. The carrying values of the Company’s
financial instruments approximate their fair values except for long term debt.
(millions of Canadian dollars)
Financial assets
Fair value through other comprehensive income:
Long term securities
Derivatives included in prepaid expenses and
other assets
Fair value through profit and loss:
Certain other assets(i)
Derivatives included in prepaid expenses and
other assets
Financial liabilities
Amortized cost:
Long term debt
Certain other liabilities(i)
Fair value through other comprehensive income:
Derivatives included in trade payables and other
liabilities
Fair value through profit and loss:
Derivatives included in trade payables and other
liabilities
As at
December 31, 2022
Total
Level 3
Level 2
As at
January 1, 2022
Total
Level 3
Level 1
Level 2
Level 1
$ 246 $ — $ — $ 246
$ 96 $ — $ — $
96
—
—
1
6
—
6
—
60
60
13
—
14
—
—
3
1
—
1
—
29
29
2
—
5
$ — $7,865 $ — $7,865
$ — $ 8,106 $ — $ 8,106
—
—
78
78
—
—
57
57
—
—
—
—
—
1
—
—
—
3
3
—
—
1
1
1
(i) Certain other assets relate primarily to Venture Fund I (see note 32).
(ii) Certain other liabilities relate primarily to financial liabilities associated with properties that did not meet the criteria for sale (see note 32).
There were no transfers between levels of the fair value hierarchy during the years presented.
During 2022, the Company recognized a gain of $4 million (2021 – loss of $1 million) in operating income on
financial instruments designated as amortized cost. In addition, during 2022, a net gain of $67 million (2021 – net
gain of $16 million) was recorded in earnings before income taxes related to financial instruments required to be
classified as fair value through profit and loss.
Embedded Derivatives The Company’s level 3 financial instruments classified as fair value through profit or loss
consist of embedded derivatives on purchase orders placed in neither Canadian dollars nor the functional currency
of the vendor. These derivatives are valued using a market approach based on the differential in exchange rates
and timing of settlement. The significant unobservable input used in the fair value measurement is the cost of
purchase orders. Significant increases (decreases) in any one of the inputs could result in a significantly higher
(lower) fair value measurement.
During 2022, a loss of $2 million (2021 – loss of $3 million) was recorded in operating income related to these
derivatives. In addition, a corresponding liability of $3 million was included in trade payables and other liabilities as
at December 31, 2022 (January 1, 2022 – $1 million liability). As at December 31, 2022, a 1% increase (decrease) in
foreign currency exchange rates would result in a gain (loss) in fair value of $1 million.
Securities Investments PC Bank holds investments which are considered part of the liquid securities required to
be held to meet its Liquidity Coverage Ratio. As at December 31, 2022, the fair value through other comprehensive
income securities of $246 million (January 1, 2022 – $96 million) were included in short term investments and other
assets on the consolidated balance sheets. During 2022, PC Bank recorded an unrealized fair value loss of
$2 million (2021 – $1 million unrealized fair value loss) in other comprehensive income related to these investments.
128 2022 Annual Report - Financial Review Loblaw Companies Limited
Other Derivatives The Company uses bond forwards, interest rate swaps and foreign exchange forwards to
mitigate the impact of increases in interest rates and manage its anticipated exposure to exchange rates on its
underlying operations and anticipated fixed asset purchases. The Company also uses futures, options and forward
contracts to manage its anticipated exposure to fluctuations in commodity prices and exchange rates in its
underlying operations. The following is a summary of the fair values recognized on the consolidated balance
sheets and the net realized and unrealized gains (losses) before income taxes related to the Company’s other
derivatives:
(millions of Canadian dollars)
Derivatives designated as cash flow hedges
Foreign Exchange Forwards(i)
Bond Forwards(ii)
Interest Rate Swaps(iii)
Total derivatives designated as cash flow hedges
Derivatives not designated in a formal hedging relationship
Foreign Exchange and Other Forwards
Other Non-Financial Derivatives
Total derivatives not designated in a formal hedging relationship
Total derivatives
December 31, 2022
Gain/(loss)
recorded in
operating
income
Gain/(loss)
recorded
in OCI
Net asset/
(liability)
fair value
$
$
$
$
$
4 $
1
1
6 $
13 $
1
14 $
20 $
4 $
18
(1)
21 $
— $
—
— $
21 $
2
(5)
4
1
32
24
56
57
(i) PC Bank uses foreign exchange forwards, with a notional value of $37 million USD, to manage its foreign exchange risk related to certain
U.S. payables. The fair value of the derivatives is included in trade payables and other liabilities. During the first quarter of 2022, the
Company entered into foreign exchange forwards, as described below.
(ii) PC Bank uses bond forwards, with notional value of $25 million, to manage its interest risk related to future debt issuances. The fair value of
the derivatives is included in trade payables and other liabilities. During 2022, PC Bank settled $140 million of bond forwards (see note 20).
(iii) PC Bank uses interest rate swaps, with notional value of $180 million to mitigate the impact of increases in interest rate. The fair value of the
derivatives is included in prepaid expenses and other assets.
In the first quarter of 2022, the Company entered into foreign exchange forwards. The purpose of these forward
exchange forwards was to hedge the risk that the future cash flows of an anticipated fixed asset purchase
transaction will fluctuate because of changes in foreign exchange rates. The Company concluded that these
hedges were effective and accordingly, the gains or losses on these foreign exchange forwards are recognized in
other comprehensive income. Upon settlement of these foreign exchange forwards, the accumulated other
comprehensive income will be included in the initial cost of the fixed asset.
(millions of Canadian dollars)
Derivatives designated as cash flow hedges
Foreign Exchange Forwards(i)
Bond Forwards(ii)
Interest Rate Swaps(iii)
Total derivatives designated as cash flow hedges
Derivatives not designated in a formal hedging relationship
Foreign Exchange and Other Forwards
Other Non-Financial Derivatives
Total derivatives not designated in a formal hedging relationship
Total derivatives
January 1, 2022
Gain/(loss)
recorded in
operating
income
Gain/(loss)
recorded
in OCI
Net asset/
(liability)
fair value
$
$
$
$
$
— $
(1)
1
— $
2 $
3
5 $
5 $
— $
6
1
7 $
— $
—
— $
7 $
(1)
(7)
—
(8)
1
18
19
11
(i) PC Bank uses foreign exchange forwards, with a notional value of $19 million USD, to manage its foreign exchange risk related to certain
U.S. payables. The fair value of the derivatives is included in trade payables and other liabilities.
(ii) PC Bank uses bond forwards, with a notional value of $120 million, to manage its interest risk related to future debt issuances. The fair value
of the derivatives is included in trade payables and other liabilities. During 2021, PC Bank settled $175 million of bond forward (see note 20).
(iii) PC Bank uses interest rate swaps, with notional value of $225 million, to manage its interest risk related to future debt issuances. The fair
value of derivatives is included in prepaid expenses and other assets.
2022 Annual Report - Financial Review Loblaw Companies Limited 129
Notes to the Consolidated Financial Statements
Note 29. Financial Risk Management
As a result of holding and issuing financial instruments, the Company is exposed to liquidity, credit and market risk.
The following is a description of those risks and how the exposures are managed:
Liquidity Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its equivalents
in a cost effective manner to fund its obligations as they come due. The Company is exposed to liquidity risk
through, among other areas, PC Bank, which requires a reliable source of funding for its credit card business.
PC Bank relies on its securitization programs, demand deposits from customers and the acceptance of guaranteed
investment certificate deposits to fund the receivables of its credit cards. The Company would experience liquidity
risks if it fails to maintain appropriate levels of cash and short-term investments, is unable to access sources of
funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could
adversely affect the financial performance of the Company.
Liquidity risk is mitigated by maintaining appropriate levels of cash and cash equivalents and short term
investments, actively monitoring market conditions, and by diversifying sources of funding, including the
Company’s committed credit facilities, and maintaining a well diversified maturity profile of debt and capital
obligations.
The following are the undiscounted contractual maturities of significant financial liabilities as at December 31, 2022:
Derivative financial liabilities
Foreign exchange forward contracts
Non-derivative financial liabilities
Bank indebtedness
Demand deposits from customers
Short term debt(ii)
Financial liabilities(iii)
Long term debt including interest payments(iv)
Other liabilities
Total
2023
2024
2025
2026
2027 Thereafter
Total(i)
$ 543 $ 157 $ — $ — $ — $
— $ 700
8
125
700
4
—
—
—
4
—
—
—
5
1,051
1,393
1,413
2
—
—
—
—
—
5
761
—
—
—
—
5
—
—
—
42
8
125
700
65
803
—
5,428
10,849
—
2
$ 2,433 $ 1,554 $ 1,418 $ 766 $ 808 $ 5,470 $ 12,449
(i) The Company excluded trade payables and other liabilities, which are due within the next 12 months.
(ii) These are obligations owed to Other Independent Securitization Trusts which are collateralized by the Company’s credit card receivables
(see note 31).
(iii) These are the contractual payments that the Company is committed to related to the sale of retail properties to Choice Properties Real
Estate Investment Trust (see note 32).
(iv) Fixed interest payments are based on the maturing face values and annual interest for each instrument, including GICs, long term
independent securitization trusts and an independent funding trust, as well as annual payment obligations for structured entities. Variable
interest payments are based on the forward rates as of December 31, 2022.
130 2022 Annual Report - Financial Review Loblaw Companies Limited
Credit The Company is exposed to credit risk resulting from the possibility that counterparties could default on
their financial obligations to the Company, including derivative instruments, cash and cash equivalents, short term
investments, security deposits, PC Bank’s credit card receivables, finance lease receivable, pension assets held in
the Company’s defined benefit plans and accounts receivable, including amounts due from government and third-
party drug plans arising from prescription drug sales, independent accounts and amounts owed from vendors.
Failure to manage credit risk could adversely affect the financial performance of the Company.
The risk related to derivative instruments, cash and cash equivalents and short term investments is reduced by
policies and guidelines that require that the Company enters into transactions only with counterparties or issuers
that have a minimum long term “A-” credit rating from a recognized credit rating agency and place minimum and
maximum limits for exposures to specific counterparties and instruments.
PC Bank manages its credit card receivable risk by employing stringent credit scoring techniques, actively
monitoring the credit card portfolio and reviewing techniques and technology that can improve the effectiveness of
the collection process. In addition, these receivables are dispersed among a large, diversified group of credit card
customers.
Finance lease receivable and accounts receivable, including amounts due from governments and third-party drug
plans arising from prescription drug sales, independent accounts and amounts owed from vendors and tenants, are
actively monitored on an ongoing basis and settled on a frequent basis in accordance with the terms specified in
the applicable agreements.
Interest Rates The Company is exposed to interest rate risk from fluctuations in interest rates on its floating rate
debt, and from the refinancing of existing financial instruments. An increase in interest rates could adversely affect
the operations or financial performance of the Company. The Company manages interest rate risk by monitoring
the respective mix of fixed and floating rate debt and by taking action as necessary to maintain an appropriate
balance considering current market conditions, with the objective of maintaining the majority of its debt at fixed
interest rates. The Company estimates that a 1% increase (decrease) in short term interest rates, with all other
variables held constant, would result in an increase (decrease) of $20 million to net interest expense and other
financing charges.
Currency Exchange Rates The Company is exposed to foreign currency exchange rate variability, primarily on its
USD denominated purchases in trade payables and other liabilities. A depreciating Canadian dollar relative to the
USD will have a negative impact on year-over-year changes in reported operating income and net earnings, while
an appreciating Canadian dollar relative to the USD will have the opposite impact. To manage a portion of this
exposure, the Company uses derivative instruments in the form of futures contracts and forward contracts to
minimize cost volatility related to foreign exchange.
Commodity Prices The Company is exposed to increases in the prices of commodities in operating its stores and
distribution networks, as well as to the indirect effect of changing commodity prices on the price of consumer
products. Rising commodity prices could adversely affect the financial performance of the Company. To manage a
portion of this exposure, the Company uses purchase commitments and derivative instruments in the form of
exchange traded futures contracts and forward contracts to minimize cost volatility related to commodities. The
Company estimates that based on the outstanding derivative contracts held by the Company as at December 31,
2022, a 10% decrease in relevant commodity prices, with all other variables held constant, would result in a loss of
$2 million on earnings before income taxes.
2022 Annual Report - Financial Review Loblaw Companies Limited 131
Notes to the Consolidated Financial Statements
Note 30. Contingent Liabilities
In the ordinary course of business, the Company is involved in and potentially subject to, legal actions and
proceedings. In addition, the Company is subject to tax audits from various tax authorities on an ongoing basis. As
a result, from time to time, tax authorities may disagree with the positions and conclusions taken by the Company in
its tax filings or legislation could be amended or interpretations of current legislation could change, any of which
events could lead to reassessments.
There are a number of uncertainties involved in such matters, individually or in aggregate, and as such, there is a
possibility that the ultimate resolution of these matters may result in a material adverse effect on the Company’s
reputation, operations, financial condition or performance in future periods. It is not currently possible to predict the
outcome of the Company’s legal actions and proceedings with certainty. Management regularly assesses its
position on the adequacy of accruals or provisions related to such matters and will make any necessary
adjustments.
The following is a description of the Company’s significant legal proceedings:
Shoppers Drug Mart was previously served with an Amended Statement of Claim in a class action proceeding that
has been filed in the Ontario Superior Court of Justice (“Superior Court”) by two licensed Associates, claiming
various declarations and damages resulting from Shoppers Drug Mart’s alleged breaches of the Associate
Agreement. The class action comprises all of Shoppers Drug Mart’s current and former licensed Associates
residing in Canada, other than in Québec, who were parties to Shoppers Drug Mart’s 2002 and 2010 forms of the
Associate Agreement. On July 9, 2013, the Superior Court certified as a class proceeding portions of the action. A
summary judgment trial of the matter was held in December 2022 and on February 17, 2023, the Superior Court
released its decision in relation to those summary judgment motions (the “Decision”). The Superior Court dismissed
the plaintiffs’ claims on the majority of the issues including a request for damages at this stage of proceedings. The
Court also held that Shoppers Drug Mart breached the 2002 form of Associate Agreement when it did not remit
certain amounts that it received from generic drug manufacturers to Associates. The Company is still assessing the
Decision and has not yet determined whether it plans to appeal any aspect of it. Accordingly, the Company has not
recorded any amounts related to the potential liability associated with this lawsuit. The Company does not believe
that the ultimate resolution of this matter will have a material adverse impact on its financial condition or prospects.
In 2017, the Company and Weston announced actions taken to address their role in an industry-wide price-fixing
arrangement involving certain packaged bread products. The arrangement involved the coordination of retail and
wholesale prices of certain packaged bread products over a period extending from late 2001 to March 2015. Under
the arrangement, the participants regularly increased prices on a coordinated basis. Class action lawsuits have
been commenced against the Company and Weston as well as a number of other major grocery retailers and
another bread wholesaler. It is too early to predict the outcome of such legal proceedings. Neither the Company
nor Weston believes that the ultimate resolution of such legal proceedings will have a material adverse impact on
its financial condition or prospects. The Company’s cash balances far exceed any realistic damages scenario and
therefore it does not anticipate any impacts on its dividend, dividend policy or share buyback plan. The Company
has not recorded any amounts related to the potential civil liability associated with the class action lawsuits in 2022
or prior on the basis that a reliable estimate of the liability cannot be determined at this time. The Company will
continue to assess whether a provision for civil liability associated with the class action lawsuits can be reliably
estimated and will record an amount in the period at the earlier of when a reliable estimate of liability can be
determined or the matter is ultimately resolved. As a result of admission of participation in the arrangement and
cooperation in the Competition Bureau’s investigation, the Company and Weston will not face criminal charges or
penalties.
132 2022 Annual Report - Financial Review Loblaw Companies Limited
In August 2018, the Province of British Columbia filed a class action against numerous opioid manufacturers and
distributors, including the Company and its subsidiaries, Shoppers Drug Mart Inc. and Sanis Health Inc. The claim
contains allegations of breach of the Competition Act, fraudulent misrepresentation and deceit and negligence, and
seeks unquantified damages for the expenses incurred by the federal government, provinces, and territories of
Canada in paying for opioid prescriptions and other healthcare costs related to opioid addiction and abuse in
Canada. During the second quarter of 2021, the claim against Loblaw Companies Limited was discontinued. In May
2019, two further opioid-related class actions were commenced in each of Ontario and Quebec against a large
group of defendants, including Sanis Health Inc. In February 2022, the plaintiff and Sanis Health Inc. agreed to
settle the Quebec action for a nominal amount, with no admission of liability and for the express purpose of
avoiding the delays, disruption, and expenses associated with the litigation. The settlement has been approved by
the court and is now final. In December 2019, a further opioid-related class action was commenced in British
Columbia against a large group of defendants, including Sanis Health Inc., Shoppers Drug Mart Inc. and the
Company. The allegations in the Ontario, Quebec, and the civil British Columbia class actions are similar to the
allegations against manufacturer defendants in the Province of British Columbia class action, except that these May
2019 and December 2019 claims seek recovery of damages on behalf of opioid users directly. In April 2021, the
Company, Shoppers Drug Mart Inc. and Sanis Health Inc. were served with another opioid-related class action that
was started in Alberta against multiple defendants. The claim seeks damages on behalf of municipalities and local
governments in relation to public safety, social service, and criminal justice costs allegedly incurred due to the
opioid crisis. In September 2021, the Company, Shoppers Drug Mart Inc. and Sanis Health Inc. were served with a
class action started in Saskatchewan by Peter Ballantyne Cree Nation and Lac La Ronge Indian Band on behalf of
all Indigenous, Metis, First Nation and Inuit communities and governments in Canada to recover costs they have
incurred as a result of the opioid crisis, including healthcare costs, policing costs and societal costs. The Company
believes these proceedings are without merit and is vigorously defending them. The Company does not currently
have any significant accruals or provisions for these matters recorded in the consolidated financial statements.
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron, a wholly owned Barbadian subsidiary of the
Company that was wound up in 2013, should be treated, and taxed, as income in Canada. In the fourth quarter of
2021, the Supreme Court ruled in favour of the Company on the Glenhuron matter and the Company reversed $301
million of previously recorded charges, of which $173 million was recorded as interest income and $128 million was
recorded as income tax recovery, and an additional $16 million, before taxes, was also recorded in respect of
interest income earned on expected cash tax refunds. As a result of related reassessments received during the first
quarter of 2022, the Company reversed another $35 million of previously recorded charges, of which $2 million
was recorded as interest income and $33 million was recorded as an income tax recovery, and an additional $9
million, before taxes, was recorded in respect of interest income earned on expected cash tax refunds.
In July 2022, the Tax Court released a decision relating to PC Bank, a subsidiary of the Company. The Tax Court
ruled that PC Bank is not entitled to claim notional input tax credits for certain payments it made to Loblaws Inc. in
respect of redemptions of loyalty points. On September 29th, 2022, PC Bank filed a Notice of Appeal with the
Federal Court of Appeal. Although the Company believes in the merits of its position, the Company recorded a
charge of $111 million, inclusive of interest, in the second quarter of 2022. The Company believes that this provision
is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
Indemnification Provisions The Company from time to time enters into agreements in the normal course of its
business, such as service and outsourcing arrangements, lease agreements in connection with business or asset
acquisitions or dispositions, and other types of commercial agreements. These agreements by their nature may
provide for indemnification of counterparties. These indemnification provisions may be in connection with breaches
of representations and warranties or in respect of future claims for certain liabilities, including liabilities related to
tax and environmental matters. The terms of these indemnification provisions vary in duration and may extend for
an unlimited period of time. In addition, the terms of these indemnification provisions vary in amount and certain
indemnification provisions do not provide for a maximum potential indemnification amount. Indemnity amounts are
dependent on the outcome of future contingent events, the nature and likelihood of which cannot be determined at
this time. As a result, the Company is unable to reasonably estimate its total maximum potential liability in respect
of indemnification provisions. Historically, the Company has not made any significant payments in connection with
these indemnification provisions.
2022 Annual Report - Financial Review Loblaw Companies Limited 133
Notes to the Consolidated Financial Statements
Note 31. Financial Guarantees
The Company established letters of credit used in connection with certain obligations mainly related to real estate
transactions, benefit programs, purchase orders and guarantees with a gross potential liability of approximately
$296 million as at December 31, 2022 (January 1, 2022 – $331 million). In addition, the Company has provided to
third parties the following significant guarantees:
Associate Guarantees The Company has arranged for its Associates to obtain financing to facilitate their inventory
purchases and fund their working capital requirements by providing guarantees to various Canadian chartered
banks that support Associate loans. As at December 31, 2022, the Company’s maximum obligation in respect of
such guarantees was $580 million (January 1, 2022 – $580 million) with an aggregate amount of $473 million
(January 1, 2022 – $469 million) in available lines of credit allocated to the Associates by the various banks. As at
December 31, 2022, Associates had drawn an aggregate amount of $8 million (January 1, 2022 – $52 million)
against these available lines of credit. Any amounts drawn by the Associates are included in bank indebtedness on
the Company’s consolidated balance sheets. As recourse, in the event that any payments are made under the
guarantees, the Company holds a first-ranking security interest on all assets of Associates, subject to certain prior-
ranking statutory claims.
Independent Funding Trusts The full balance relating to the debt of the independent funding trusts has been
consolidated on the balance sheets of the Company (see note 20). As at December 31, 2022 the Company has
agreed to provide a credit enhancement of $64 million (January 1, 2022 – $64 million) in the form of a standby
letter of credit for the benefit of the independent funding trusts representing not less than 10% (January 1, 2022 –
not less than 10%) of the principal amount of loans outstanding. This credit enhancement allows the independent
funding trusts to provide financing to the Company’s franchisees. As well, each franchisee provides security to the
independent funding trusts for its obligations by way of a general security agreement. In the event that a franchisee
defaults on its loan and the Company has not, within a specified time period, assumed the loan, or the default is not
otherwise remedied, the independent funding trusts would assign the loan to the Company and draw upon this
standby letter of credit. This standby letter of credit has never been drawn upon. The Company has agreed to
reimburse the issuing bank for any amount drawn on the standby letter of credit.
Lease Obligations In connection with historical dispositions of certain of its assets, the Company has assigned
leases to third parties. The Company remains contingently liable for these lease obligations in the event any of the
assignees are in default of their lease obligations. The Company has guaranteed lease obligations of a third party
distributor in the amount of $4 million (January 1, 2022 – $2 million).
Glenhuron Bank Limited Surety Bond In connection with the Canada Revenue Agency’s reassessment of the
Company on certain income earned by Glenhuron (see note 30), the Company arranged for a surety bond to the
Ministry of Finance in order to appeal the reassessments. The amount of the surety bond was $56 million as at
January 1, 2022. During 2022, the surety bond was released as a result of the favourable decision of the Supreme
Court. (see Note 30)
Cash Collateralization As at December 31, 2022, the Company had agreements to cash collateralize certain of its
uncommitted credit facilities up to an amount of $93 million (January 1, 2022 – $93 million), of which a nominal
amount (January 1, 2022 – nominal) was deposited with major financial institutions and classified as security
deposits, which is included in other assets.
134 2022 Annual Report - Financial Review Loblaw Companies Limited
Financial Services The Company has provided a guarantee on behalf of PC Bank to MasterCard International
Incorporated (“MasterCard”) for accepting PC Bank as a card member and licensee of MasterCard. As at December
31, 2022, the guarantee on behalf of PC Bank to MasterCard was USD $190 million (January 1, 2022 – USD
$190 million).
The Company had in place an irrevocable standby letter of credit from a major Canadian chartered bank on behalf
of one of its wholly-owned subsidiaries in the amount of $11 million (January 1, 2022 – $11 million).
Letters of credit for the benefit of independent securitization trusts with respect to the securitization programs of
PC Bank have been issued by major financial institutions. These standby letters of credit can be drawn upon in the
event of a major decline in the income flow from or in the value of the securitized credit card receivables. The
Company has agreed to reimburse the issuing banks for any amount drawn on the standby letters of credit. The
aggregate gross potential liability under these arrangements for the Other Independent Securitization Trusts was
$63 million (January 1, 2022 – $41 million), which represented approximately 9% (January 1, 2022 – 9%) of the
securitized credit card receivables amount (see note 11).
Note 32. Related Party Transactions
The Company’s controlling shareholder is Weston, which owns, directly and indirectly, 170,606,070 of the
Company’s common shares, representing approximately 52.6% of the Company’s outstanding common shares.
Galen G. Weston beneficially owns or controls, directly and indirectly, including through Wittington, a total of
78,650,662 of Weston’s common shares, representing approximately 55.9% of Weston’s outstanding common
shares. Galen G. Weston also beneficially owns 473,636 of the Company’s common shares, representing
approximately 0.1% of the Company’s outstanding common shares.
Weston is the controlling shareholder of Choice Properties Real Estate Investment Trust (“Choice Properties”).
Therefore, Choice Properties is a related party by virtue of common control. As at December 31, 2022, Weston’s
ownership interest in Choice Properties was approximately 61.7% (January 1, 2022 – 61.7%). The Company is
Choice Properties’ largest tenant, representing approximately 57.5% (January 1, 2022 – 55.9%) of Choice
Properties’ rental revenue as at December 31, 2022. The Company also executes various agreements and
transactions with Choice Properties.
The Company also made related party purchases from Weston Foods, a former subsidiary of Weston. In 2021,
Weston completed the sale of the Weston Foods business comprised of the fresh, frozen and ambient bakery
businesses. The sale of the fresh and frozen business was completed on December 10, 2021 and the ambient
business on December 29, 2021, at which time Weston Foods no longer met the criteria for a related party. As a
result, the Company has reflected all transactions with Weston Foods below until the dates of sale. In addition,
upon closing of each of these sales, the Company entered into a supply agreement with the purchasers of each of
those businesses.
In the ordinary course of business, the Company enters into various transactions with related parties. These
transactions are measured at the exchange amount, which is the amount of consideration established and agreed
upon by the related parties.
2022 Annual Report - Financial Review Loblaw Companies Limited 135
Notes to the Consolidated Financial Statements
Transactions with Related Parties
(millions of Canadian dollars)
Included in cost of sales
Inventory purchases from a subsidiary of Weston(vi)
Inventory sold to a subsidiary of Weston(vi)
Inventory purchases from a related party(i)
Operating income
Transactions with Weston and Wittington
Cost sharing agreements with Weston(ii)
Net administrative services provided by Weston(iii)
Transactions with Choice Properties
Lease payments to Choice Properties(iv)
Lease surrender payments paid to Choice Properties
Site intensification payments received from Choice Properties(v)
Transaction Value
2022
2021
$
$
$
—
—
39
$
71
16
$
753
$
—
(3)
541
1
32
54
19
751
2
(2)
(i) Associated British Foods plc is a related party by virtue of a common director of such entity’s parent company and Wittington. Total balance
outstanding owing to Associated British Foods plc as at December 31, 2022 was $6 million (January 1, 2022 – $1 million).
(ii) The Company and Weston have each entered into certain contracts with third parties for administrative and corporate services, including
telecommunication services and IT related matters on behalf of itself and the related party. Through cost sharing agreements that have been
established between the Company and Weston concerning these costs, the Company has agreed to be responsible to Weston for the
Company’s proportionate share of the total costs incurred.
(iii) The Company and Weston have entered into an agreement whereby certain administrative services are provided by one party to the other.
The services to be provided under this agreement include those related to commodity management, pension and benefits, information
systems, risk management, treasury, certain accounting functions and legal. Payments are made quarterly based on the actual costs of
providing these services. Where services are provided on a joint basis for the benefit of the Company and Weston together, each party pays
the appropriate proportion of the costs. Fees paid under this agreement are reviewed each year by the Audit Committee.
(iv) During 2022, lease payments paid to Choice Properties included base rent of $528 million (2021 – $528 million) and operating expenses of
$225 million (2021 – $223 million).
(v) During 2022, the Company received site intensification payments from Choice Properties of $3 million (2021 – $2 million). Included in
certain investment properties sold to Choice Properties is excess land with development potential. Choice Properties will compensate the
Company, over time, with site intensification payments, as Choice Properties pursues development, intensification or redevelopment of such
excess lands. The payments the Company receives are calculated in accordance with a payment grid, set out in the Strategic Alliance
Agreement, that takes into account the region, market ranking and type of use for the property.
(vi) In 2021, Weston completed the sale of the Weston Foods business comprised of the fresh, frozen and ambient bakery businesses. The sale
of the fresh and frozen business was completed on December 10, 2021 and the ambient business on December 29, 2021, at which time
Weston Foods no longer met the criteria for a related party. As a result, the Company has reflected all transactions with Weston Foods until
the dates of sale. In addition, upon closing of each of these sales, the Company entered into a supply agreement with the purchasers of
each of those businesses.
The net balances due to (from) related parties are comprised as follows:
(millions of Canadian dollars)
Weston(i)
Choice Properties(ii)
As at
December 31, 2022
As at
January 1, 2022
$
$
116
(18)
10
3
(i) Balances relate to trade payables and other liabilities due to Weston, net of receivables from Weston.
(ii) Balances relate to other receivables, net of other payables to Choice Properties.
136 2022 Annual Report - Financial Review Loblaw Companies Limited
Other Transactions and Agreements with Choice Properties
Strategic Alliance Agreement The Strategic Alliance Agreement established on the initial public offering (“IPO”) of
Choice Properties creates a series of rights and obligations between Choice Properties and the Company, intended
to establish a preferential and mutually beneficial business and operating relationship. The initial term of the
Strategic Alliance Agreement expires on July 5, 2023, ten years from the IPO. Upon expiry of the initial term, the
Strategic Alliance Agreement will be automatically renewed until the earlier of July 5, 2033 or the date on which
George Weston Limited and its affiliates own less than 50% effective interest in Choice Properties (on a fully diluted
basis).
Commitments The following is a summary of the Company’s future undiscounted contractual lease payments to
Choice Properties:
Payments due by year
As at
December 31, 2022
As at
January 1, 2022
(millions of Canadian dollars)
Lease payments
2023
2024
2025
2026
2027 Thereafter
Total
$ 531 $ 534 $ 543 $ 466 $ 418 $
1,659 $
4,151 $
Total
4,122
Financial Liabilities During 2022, the Company disposed of two retail properties (2021 – one retail property) to
Choice Properties for total proceeds of $15 million (2021 – $12 million). The properties were leased back by the
Company. The transactions did not meet the criteria for sale of asset in accordance with IFRS 15 as the Company
did not relinquish control of the properties under the terms of the leases. Total proceeds were recognized as
financial liabilities and as at December 31, 2022, $4 million (January 1, 2022 – $3 million) was recorded in trade
payables and other liabilities and $69 million (January 1, 2022 – $54 million) was recorded in other liabilities (see
note 22). During 2022, $5 million (2021 – $3 million) of interest expense was recognized in net interest expense
and other financing charges (see note 6) and repayments of $4 million (2021 – $4 million) were made on the
financial liabilities.
Disposition of Properties to Choice Properties Real Estate Investment Trust In the first quarter of 2022, the
Company disposed of a property to Choice Properties for proceeds of $26 million and recognized a gain of
$19 million. This property was not leased back by the Company. There were no dispositions of property to
Choice Properties in 2021.
Leases with Choice Properties During 2022, the Company renewed 42 retail leases which would have expired in
2023. Upon renewal, the Company recorded right-of-use assets and lease liabilities of $133 million.
In the second quarter of 2022, the Company announced that it intends to build an industrial facility on part of a
property in East Gwillimbury, Ontario owned by a joint venture in which Choice Properties has an ownership
interest. The Company expects to bring the industrial facility into its operations in the first quarter of 2024. For the
first phase of the development, the Company entered into a 25-year land lease with the joint venture. The
Company took possession of the land on October 1, 2022, and as a result recorded a right-of-use asset and lease
liability of $120 million. The land lease includes a 15-month construction period with lease payments commencing in
2024.
2022 Annual Report - Financial Review Loblaw Companies Limited 137
Notes to the Consolidated Financial Statements
Other Transactions
Venture Fund During 2020, Loblaw, Weston and a wholly owned subsidiary of Wittington became limited partners
in a limited partnership formed by Wittington (“Venture Fund I”). A wholly owned subsidiary of Wittington is the
general partner of the Venture Fund, which hired an external fund manager to oversee it. The purpose of the
Venture Fund I is to pursue venture capital investing in innovative businesses that are in technology-oriented
companies at all stages of the start-up life cycle that operate in commerce, healthcare, and food sectors and are
based in North America. Each of the three limited partners have 33% interest in the Venture Fund I. The Company
has a total capital commitment of $33 million over a 10-year period. To date, the Company has invested $23 million
in the Venture Fund I, of which $8 million was invested in 2022 (2021 – $9 million) (see note 18).
During the third quarter of 2022, Loblaw became a limited partner in another limited partnership formed by
Wittington (“Venture Fund II”). A wholly owned subsidiary of Wittington is also the general partner of Venture Fund
II, and the general purpose of Venture Fund II is consistent with Venture Fund I. The Company has a 50% interest in
Venture Fund II and has a total capital commitment of $60 million over a 10-year period. To date, the Company has
invested nil in Venture Fund II.
Post-Employment Benefit Plans The Company sponsors a number of post-employment plans, which are related
parties. Contributions made by the Company to these plans are disclosed in the notes to the consolidated financial
statements. Effective November 21, 2022, Loblaw became the sponsor of a group plan which was previously
sponsored by the parent company, Weston. As a participant of the group plan, the Company will continue to make
contributions for its share of defined benefit costs, including interest, service and administrative costs. In 2022 and
2021, the Company did not make any contributions to the group plan.
Income Tax Matters From time to time, the Company, Weston and its affiliates may enter into agreements to make
elections that are permitted or required under applicable income tax legislation with respect to affiliated
corporations.
Key Management Personnel The Company’s key management personnel are comprised of the Board and certain
members of the executive team of the Company, as well as both the Board and certain members of the executive
team of Weston and Wittington to the extent that they have the authority and responsibility for planning, directing
and controlling the day-to-day activities of the Company.
Compensation of Key Management Personnel Annual compensation of key management personnel that is
directly attributable to the Company was as follows:
(millions of Canadian dollars)
Salaries, director fees and other short term employee benefits
Equity-based compensation
Total compensation
2022
8
2
$
10
$
$
$
2021
9
9
18
138 2022 Annual Report - Financial Review Loblaw Companies Limited
Note 33. Segment Information
The Company has two reportable operating segments, with all material operations carried out in Canada:
• The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug
stores, which includes in-store pharmacies, health care services and other health and beauty products, apparel
and other general merchandise. This segment is comprised of several operating segments that are aggregated
primarily due to similarities in the nature of products and services offered for sale in the retail operations and
the customer base; and
• The Financial Services segment provides credit card and everyday banking services, the PC Optimum Program,
insurance brokerage services, and telecommunication services.
The Company’s chief operating decision maker evaluates segment performance on the basis of adjusted operating
income before depreciation and amortization (“Adjusted EBITDA”) and adjusted operating income, as reported to
internal management, on a periodic basis.
Information for each reportable operating segment is included below:
(millions of Canadian dollars)
Revenue(ii)
Operating income
Net interest expense
and other financing
charges
Earnings before
income taxes
Retail
Financial
Services
Total
Segment
Measure
Elimi-
nations(i)
Total
Retail
Financial
Services
Total
Segment
Measure
Elimi-
nations(i)
2022
2021
Total
$ 55,492 $ 1,338 $ 56,830 $ (326) $ 56,504 $ 52,269 $ 1,182 $ 53,451 $ (281) $ 53,170
$ 3,260 $ 82 $ 3,342 $ — $ 3,342 $ 2,713 $ 224 $ 2,937 $ — $ 2,937
599
84
683
—
683
431
64
495
—
495
$ 2,661 $
(2) $ 2,659 $ — $ 2,659 $ 2,282 $ 160 $ 2,442 $ — $ 2,442
Operating income
$ 3,260 $ 82 $ 3,342 $ — $ 3,342 $ 2,713 $ 224 $ 2,937 $ — $ 2,937
Depreciation and
amortization
Adjusting items(iii)
Less: amortization of
intangible assets
acquired with
Shoppers Drug
Mart and Lifemark
Adjusted EBITDA(iii)
Depreciation and
amortization(iv)
Adjusted operating
2,746
430
49
111
2,795
541
2,623
492
41
—
2,664
492
(497)
—
(497)
$ 5,939 $ 242 $ 6,181
(506)
—
(506)
$ 5,322 $ 265 $ 5,587
2,249
49
2,298
2,117
41
2,158
income
$ 3,690 $ 193 $ 3,883
$ 3,205 $ 224 $ 3,429
(i) Eliminations includes the reclassification of revenue related to PC® Mastercard® loyalty awards in the Financial Services segment.
(ii) Included in Financial Services revenue is $513 million (2021 – $427 million) of interest income.
(iii) Certain items are excluded from operating income to derive adjusted EBITDA.
(iv) Depreciation and amortization for the calculation of adjusted EBITDA excludes $497 million (2021 – $506 million) of amortization of
intangible assets acquired with Shoppers Drug Mart and Lifemark.
2022 Annual Report - Financial Review Loblaw Companies Limited 139
Notes to the Consolidated Financial Statements
The Company’s revenue, by type of goods or services, is reconciled to the Company’s segment revenue:
(millions of Canadian dollars)
Food retail
Drug retail
Pharmacy
Front store
Retail total
Financial Services
Eliminations(i)
Total
$
$
$
$
2022
39,398
$
2021
37,481
$
$
$
7,944
8,150
16,094
55,492
1,338
(326)
7,224
7,564
14,788
52,269
1,182
(281)
$
56,504
$
53,170
(i) Eliminations includes the reclassification of revenue related to PC® Mastercard® loyalty awards in the Financial Services segment.
(millions of Canadian dollars)
Total assets
Retail
Financial Services
(millions of Canadian dollars)
Additions to fixed assets and intangible assets
Retail(i)
Financial Services
As at
December 31, 2022
As at
January 1, 2022
$
$
$
$
32,505
$
5,642
38,147
$
31,613
5,001
36,614
2022
1,538
$
33
1,571
$
2021
1,154
29
1,183
(i) During 2021, additions to fixed assets in the retail segment included prepayments that were made in 2020 and transferred from other assets
of $1 million.
140 2022 Annual Report - Financial Review Loblaw Companies Limited
Three Year Summary(1)
As at or for the years ended December 31, 2022 and January 1, 2022 and January 2, 2021
(millions of Canadian dollars except where otherwise indicated)
Consolidated Results of Operations
Revenue
Revenue growth
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(2)
Net earnings
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company
Adjusted net earnings available to common shareholders of the
Company(2)
Consolidated Per Common Share ($)
Diluted net earnings
Adjusted diluted net earnings(2)
Consolidated Financial Position and Cash Flows
Cash and cash equivalents and short term investments
Cash flows from operating activities
Capital investments
Free cash flow(2)
Financial Measures
Retail debt to retail adjusted EBITDA(2)
Adjusted return on equity(2)
Adjusted return on capital(2)
2022
2021
2020
$ 56,504
$ 53,170
$ 52,714
6.3 %
0.9 %
9.7 %
$
$ 3,342
6,181
10.9 %
683
694
1,994
1,921
1,909
$
$ 2,937
5,587
10.5 %
495
684
1,976
1,875
1,863
$ 2,365
5,004
$
9.5 %
742
742
1,192
1,108
1,096
2,263
1,911
1,499
$ 5.75
$ 6.82
5.45
$
$ 5.59
$ 1,934
4,755
1,571
1,528
$ 2,440
4,827
1,183
1,959
$
$
$
3.06
4.18
1,937
5,191
1,224
2,247
2.4 x
20.2 %
10.8 %
2.6 x
17.3 %
9.8 %
2.9 x
13.8 %
8.1 %
2022 Annual Report - Financial Review Loblaw Companies Limited 141
Three Year Summary(1)
As at or for the years ended December 31, 2022 and January 1, 2022 and January 2, 2021
(millions of Canadian dollars except where otherwise indicated)
Retail Results of Operations
Sales
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Retail Operating Statistics
Food retail same-store sales growth
Drug retail same-store sales growth
Drug retail same-store pharmacy sales growth
Drug retail same-store front store sales growth
Total retail square footage (in millions)
Number of corporate stores(3)
Number of franchise stores
Number of Associate-owned drug stores
Financial Services Results of Operations
Revenue
(Losses) Earnings before income taxes
Financial Services Operating Measures and Statistics
Average quarterly net credit card receivables
Credit card receivables
Allowance for credit card receivables
Annualized yield on average quarterly gross credit card receivables
Annualized credit loss rate on average quarterly gross credit card
receivables
2022
2021
2020
$ 55,492
3,260
17,165
30.9 %
$ 52,269
2,713
16,041
30.7 %
$ 51,859
2,231
15,300
29.5 %
$ 5,939
$ 5,322
$ 4,845
10.7 %
10.2 %
9.3 %
$ 2,746
$ 2,623
$ 2,571
4.7 %
6.9 %
5.7 %
8.2 %
71.2
547
551
1,346
0.3 %
5.0 %
8.4 %
2.1 %
71.2
548
551
1,342
8.6 %
4.9 %
5.3 %
4.5 %
71.0
550
542
1,347
$ 1,338
(2)
$
1,182
160
$
1,097
47
$ 3,607
3,954
206
13.0 %
$ 3,128
3,443
205
12.7 %
$ 3,165
3,109
237
13.3 %
2.7 %
2.5 %
3.4 %
Three Year Summary Endnotes
For financial definitions and ratios refer to the Glossary of Terms on page 143 of the Company’s 2022 Annual Report - Financial Review.
(1)
(2) See Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s Discussion and Analysis for the reconciliation of such
non-GAAP measures to the most directly comparable GAAP measures.
(3) Comparative figures have been restated to conform with current year presentation.
142 2022 Annual Report - Financial Review Loblaw Companies Limited
Glossary of Terms
Term
Definition
Adjusted diluted net earnings per common share
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted income tax
Adjusted effective tax rate
Adjusted net earnings available to common shareholders including the effects of all dilutive instruments divided by the
diluted weighted average number of common shares outstanding during the period (see Section 17 “Non-GAAP Financial
Measures” of the Company’s Management’s Discussion and Analysis).
Adjusted operating income before depreciation and amortization (see Section 17 “Non-GAAP Financial Measures” of the
Company’s Management’s Discussion and Analysis).
Adjusted EBITDA divided by revenue (see Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s
Discussion and Analysis).
Income taxes adjusted for the tax impact of items included in adjusted operating income less adjusted net interest and other
financing charges (see Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s Discussion and
Analysis).
Adjusted income taxes divided by adjusted operating income less adjusted net interest and other financing charges (see
Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s Discussion and Analysis).
Adjusted net earnings attributable to shareholders of the
Company
Net earnings attributable to shareholders of the Company adjusted for items that are not necessarily reflective of the
Company’s underlying operating performance (see Section 17 “Non-GAAP Financial Measures” of the Company’s
Management’s Discussion and Analysis).
Adjusted net earnings available to common shareholders of
the Company
Adjusted net earnings attributable to shareholders of the Company less preferred dividends (see Section 17 “Non-GAAP
Financial Measures” of the Company’s Management’s Discussion and Analysis).
Adjusted net interest expense and other financing charges
Adjusted operating income
Adjusted return on capital
Adjusted return on equity
Net interest expense and other financing charges adjusted for items that are not necessarily reflective of the Company’s
ongoing net financing costs (see Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s Discussion
and Analysis).
Operating income adjusted for items that are not necessarily reflective of the Company’s underlying operating performance
(see Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s Discussion and Analysis).
Tax-effected adjusted operating income divided by average capital (see Section 17 “Non-GAAP Financial Measures” of the
Company’s Management’s Discussion and Analysis).
Adjusted net earnings available to common shareholders of the Company divided by average total equity attributable to
common shareholders of the Company (see Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s
Discussion and Analysis).
Annualized credit loss rate on average quarterly gross
credit card receivables
Total credit card losses year-to-date divided by the number of days year-to-date times 365 divided by average quarterly
gross credit card receivables.
Annualized yield on average quarterly gross credit card
receivables
Interest earned on credit card receivables year-to-date divided by the number of days year-to-date times 365 divided by
average quarterly gross credit card receivables.
Average prescription value
Total prescription sales divided by total script count.
Basic net earnings per common share
Net earnings available to common shareholders divided by the weighted average number of common shares of the
Company outstanding during the period.
Capital under management
Capital investments
Control brand
Conversion
Total debt plus total equity attributable to shareholders of the Company.
Fixed asset additions and intangible asset additions (see notes 14 and 16 of the Company’s Consolidated Financial
Statements).
A brand and associated trademark that is owned by the Company for use in connection with its own products and services.
A store that changes from one Company banner to another Company banner.
Diluted net earnings per common share
Net earnings available to common shareholders of the Company adjusted for the impact of dilutive items divided by the
weighted average number of common shares outstanding during the period adjusted for the impact of dilutive items.
Diluted weighted average common shares outstanding
Weighted average number of common shares outstanding including the effects of all dilutive instruments.
E-commerce sales
Free cash flow
Food Retail basket size
Food Retail traffic
Retail segment revenue earned through online sales.
Cash flows from operating activities less intangible asset additions, fixed asset purchases, interest paid and net lease
payments (see Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s Discussion and Analysis).
The dollar value of products sold in a single retail transaction.
The number of customers entering stores across all banners.
Net earnings attributable to shareholders of the Company
Net earnings less non-controlling interests.
Net earnings available to common shareholders of the
Company
Net earnings attributable to shareholders of the Company less preferred dividends.
Operating income
Net earnings before net interest expense and other financing charges and income taxes.
Retail debt to retail adjusted EBITDA
Retail segment adjusted gross profit
Retail segment total debt (see Section 7.2 “Liquidity and Capital Structure” of the Company’s Management Discussion and
Analysis) divided by Retail segment adjusted EBITDA.
Retail segment gross profit, adjusted for items that are not necessarily reflective of the Company’s underlying operating
performance (see Section 17 “Non-GAAP Financial Measures” of the Company’s Management’s Discussion and Analysis).
Retail segment adjusted gross profit percentage
Retail segment adjusted gross profit divided by Retail segment revenue.
Retail segment gross profit
Retail segment revenue less cost of sales.
Rightsizing
Same-store sales
A capital investment in a store resulting in a decrease to the store square footage.
Retail segment sales from the same location for stores in operation in that location in both comparable periods excluding
sales from a store that has undergone a major expansion/contraction in the period.
Total equity attributable to common shareholders of the
Company
Total equity less preferred shares outstanding and non-controlling interests.
Total equity attributable to shareholders of the Company
Total equity less non-controlling interests.
Total retail square footage
Total retail square footage includes corporate, franchised stores and associate-owned drug stores.
Weighted average common shares outstanding
The number of common shares outstanding determined by relating the portion of time within the period the common shares
were outstanding to the total time in that period.
2022 Annual Report - Financial Review Loblaw Companies Limited 143
Corporate Profile
National Head Office and Store Support Centre
Loblaw Companies Limited
1 President’s Choice Circle
Brampton, Canada L6Y 5S5
Tel: (905) 459-2500
Fax: (905) 861-2206
Website: loblaw.ca
Stock Exchange Listing and Symbol
The Company’s common shares and second preferred
shares are listed on the Toronto Stock Exchange and trade
under the symbols “L” and “L.PR.B.”, respectively.
Common Shares
At year-end 2022, Galen G. Weston, directly and indirectly,
including through his controlling interest in Weston, owns
approximately 52.6% of the Company’s common shares.
At year-end 2022, there were 324,062,608 common shares
issued and outstanding.
The average daily trading volume of the Company’s common
shares for 2022 was 527,596.
Preferred Shares
At year-end 2022, there were 9,000,000 second preferred
shares, Series B issued and outstanding.
The average daily trading volume of the Company’s second
preferred shares, Series B for 2022 was 9,528.
Trademarks
Loblaw Companies Limited and its subsidiaries own a
number of trademarks. Several subsidiaries are licensees of
additional trademarks. These trademarks are the exclusive
property of Loblaw Companies Limited, its subsidiaries or the
licensor and where used in this report, are marked with ™ or ®
symbols, or written in italics.
Normal Course Issuer Bid
The Company has a Normal Course Issuer Bid on the
Toronto Stock Exchange.
Value of Common Shares
For capital gains purposes, the valuation day (December 22,
1971) cost base for the Company is $0.958 per common
share. The value on February 22, 1994 was $7.67 per
common share.
Investor Relations
Shareholders, security analysts and investment professionals
should direct their requests to Investor Relations at the
Company’s National Head Office or by e-mail at
investor@loblaw.ca.
Registrar and Transfer Agent
Computershare Investor Services Inc.
100 University Avenue
Toronto, Canada M5J 2Y1
Toll free: 1-800-564-6253 (Canada and U.S.)
Fax (416) 263-9394
Toll free fax: 1-888-453-0330
International direct dial: (514) 982-7555
To change your address, eliminate multiple mailings or for
other shareholder account inquiries, please contact
Computershare Investor Services Inc.
Additional financial information has been filed electronically
with various securities regulators in Canada through the
System for Electronic Document Analysis and Retrieval
(SEDAR) and with the Office of the Superintendent of
Financial Institutions (OSFI) as the primary regulator for the
Company’s subsidiary, President’s Choice Bank.
Company Dividend Policy
The Company’s dividend policy states: the declaration and
payment of dividends and the amount thereof on the
Company’s common shares are at the discretion of the Board
of Directors which takes into account the Company’s
financial results, capital requirements, available cash flow,
future prospects of the Company’s business and other
factors considered relevant from time to time.
Annual General Meeting
The 2022 Annual Meeting of Shareholders of Loblaw
Companies Limited will be held virtually via a live webcast on
Thursday, May 4, 2023 at 11:00 a.m. (EDT).
The Company holds an analyst call shortly following the
release of its quarterly results. These calls are archived in the
Investors section of the Company’s website (loblaw.ca).
Common Dividend Dates
The declaration and payment of quarterly dividends are
made subject to approval by the Board of Directors. The
anticipated record and payments dates for 2023 are:
Preferred Shares, Series B Dividend Dates
The declaration and payment of quarterly dividends are
made subject to approval by the Board of Directors. The
anticipated payment dates for 2023 are:
Record Date
March 15
June 15
September 15
December 15
Payment Date
April 1
July 1
October 1
December 30
Record Date
March 15
June 15
September 15
December 15
Payment Date
March 31
June 30
September 30
December 31
Ce rapport est disponible en français.
loblaw.ca
pcexpress.ca
shoppersdrugmart.ca
pharmaprix.ca
pcfnancial.ca
presidentschoice.ca
pcoptimum.ca
joefresh.com
noname.ca
tntsupermarket.com
wellwise.ca
Apps
PC Express™
PC Optimum ™
PC Health
Shoppers Drug Mart®
PC Financial®
Joe Fresh®
T&T®
Reducing Waste One Sample
at a Time
Textile waste is a big – and growing – problem. According to a 2017 report by Copenhagen-based non-
profit Global Fashion Agenda, which focused on sustainability in fashion, the global fashion industry creates
92 million tons of textile waste every year, some of that due to textile samples. Because these types of
samples are used for product development, they’re often made from whatever material is available at the
factory. These are not tested for quality or safety, so they aren’t suitable for public uses, which is why we
can’t donate them. In fact, when the life cycle of these samples was over, the only way to dispose of them
was to incinerate them – until now, that is. That’s because Joe Fresh® has committed to permanently
diverting textile samples from landfills thanks to a new Office Sample Recycling Program, which it’s
undertaking in partnership with CSR Eco Solutions. They have access to textile recyclers that shred fabric
and reprocess it into building and automotive insulation. After multiple pilot exercises to determine if this
was the best workstream for the business, the Office Sample Recycling Program is live in partnership with
CSR Eco Solutions, taking Loblaw one step closer to meeting its ESG goals.
“ In 2022, we completed 19 textile recycling projects which equates
to over 411 tonnes of CO2e avoided as a result of this permanent
landfill diversion.”
MELISSA HOBB
DIRECTOR OF QUALITY ASSURANCE & SUSTAINABILITY
JOE FRESH
loblaw.ca
pcexpress.ca
shoppersdrugmart.ca
pharmaprix.ca
pcfinancial.ca
presidentschoice.ca
pcoptimum.ca
joefresh.com
noname.ca
tntsupermarket.com
wellwise.ca
Apps
PC Express™
PC Optimum™
PC Health™
Shoppers Drug Mart®
PC Financial®
Joe Fresh®
T&T®
®/™ Trademarks of Loblaws Inc. Shoppers Drug Mart® are
trademarks of 911979 Alberta Ltd., used under license.
T&T® are trademarks of T&T Supermarket Inc., used under
license. Mastercard® is a registered trademark of Mastercard
International Incorporated. President’s Choice Bank is a
licensee of the marks.