PRESS RELEASE: NOVEMBER 23, 2006

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George Weston Limited - Quarterly Report to Shareholders

TORONTO, Nov. 21 /CNW/ -

George Weston Limited Quarterly Report to Shareholders

40 Weeks Ended October 7, 2006 FORWARD-LOOKING STATEMENTS

This Quarterly Report for George Weston Limited ("Weston") and its subsidiaries (collectively, the "Company"), including the Management's Discussion and Analysis ("MD&A"), contains forward-looking statements which reflect management's expectations regarding the Company's objectives, plans, goals, strategies, future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements include expected sales and earnings prospects for 2006. Forward-looking statements are typically identified by words or phrases such as "anticipates", "expects", "believes", "estimates", "intends" and other similar expressions.

These forward-looking statements are not guarantees, but only predictions. Although the Company believes that these statements are based on information and assumptions which are current, reasonable and complete, these statements are necessarily subject to a number of factors that could cause actual results to vary significantly from the estimates, projections and intentions. Such differences may be caused by factors which include, but are not limited to, changes in consumer spending, preferences and consumers' nutritional and health related concerns, changes in the competitive environment, including changes in pricing and market strategies of the Company or its competitors and the entry of new competitors and expansion of current competitors, the availability and cost of raw materials and ingredients, fuels and utilities, the ability to realize anticipated cost savings, including those resulting from restructuring and other cost reduction initiatives, the ability to execute restructuring plans effectively and in a timely manner, the Company's relationship with its employees, results of labour negotiations including the terms of future collective bargaining agreements, changes to the legislative and regulatory environment in which the Company operates now or in the future, changes in the Company's tax liabilities, either through changes in tax laws or future assessments, performance of third-party service providers, public health events, the ability of the Company to attract and retain key executives, the success rate of the Company in developing and introducing new products and entering new markets and supply and quality control issues with vendors. The Company cautions that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Operating and Financial Risks and Risk Management sections of the MD&A included in Weston's 2005 Financial Report.

The assumptions applied in making the forward-looking statements contained in this Quarterly Report, including the MD&A, include the following: economic conditions do not materially change from those expected, patterns of consumer spending and preferences are reasonably consistent with historical trends, no new significant competitors enter the Company's markets and neither the Company nor its existing competitors unexpectedly significantly increase their presence or change pricing or market strategies materially, anticipated cost savings are realized as planned, continuing future restructuring activities are effectively executed and executed in a timely manner, the Company does not significantly change its approach to its current restructuring activities, there are no material work stoppages and the performance of third-party service providers is in accordance with expectations.

Potential investors and other readers are urged to consider these factors carefully in evaluating these forward-looking statements and are cautioned not to place undue reliance on them. The forward-looking statements included in this Quarterly Report, including the MD&A, are made only as of the filing date of this Quarterly Report and the Company does not undertake to publicly update these forward-looking statements to reflect new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events contained in these forward-looking statements may or may not occur. The Company cannot assure that projected results or events will be achieved.

Report to Shareholders

CONSOLIDATED RESULTS OF OPERATIONS

George Weston Limited's third quarter 2006 basic net earnings per common share from continuing operations were $1.62, an increase of 14.9% compared to $1.41 in 2005. Weston's third quarter 2006 adjusted basic net earnings per common share from continuing operations(1) were also $1.62, which was unchanged compared to the same period in 2005. A number of items identified in determining adjusted basic net earnings per common share from continuing operations(1) in this and previous quarters are detailed in the MD&A.

Sales for the third quarter of 2006 of $10.1 billion increased 4.0% compared to 2005 including a 0.6% decrease due to foreign currency translation and 0.4% decrease due to consolidation of VIEs by Loblaw Companies Limited ("Loblaw").

Operating income of $465 million for the third quarter of 2006 compared to $478 million in 2005, a decrease of 2.7%. Adjusted operating income(1) for the third quarter of 2006 was $535 million compared to $552 million in the third quarter of 2005, a decline of 3.1%, which resulted in an adjusted operating margin(1) of 5.4% compared to 5.8% in the prior year. A number of items identified in determining adjusted operating income(1) in this and previous quarters are detailed in the MD&A.

Interest expense and other financing charges for the third quarter of 2006 decreased 65.9% to $30 million from $88 million in 2005. The decrease is primarily due to the higher non-cash income of $69 million (2005 - $14 million) related to the accounting for Weston's 2001 forward sale agreement for 9.6 million Loblaw common shares.

The effective income tax rate decreased to 29.2% in the third quarter of 2006 compared to 30.0% in 2005. The decrease is primarily due to changes in the Canadian Federal and certain provincial statutory income tax rates and a change in the proportion of taxable income earned across different tax jurisdictions, including the jurisdictions in which the income tax impact of restructuring and other charges and stock-based compensation and the associated equity derivatives occurred.

OPERATING SEGMENTS

The Company's consolidated sales and operating income were impacted by each of its reportable operating segments as follows:

Weston Foods

Weston Foods sales for the third quarter of 2006 of $1.3 billion decreased 0.6% compared to 2005 as a result of a sales increase of 4.1% offset by the negative impact of foreign currency translation, which impacted Weston Foods reported sales growth by approximately 4.7%. Price increases across key categories combined with changes in sales mix contributed positively to sales growth by approximately 4.6% for the third quarter of 2006. Overall volume decreased 0.5% for the third quarter and was negatively impacted by approximately 0.8% due to the exit from the United States frozen foodservice bagel business early in the third quarter of 2006 and the discontinuance of contract manufacturing of biscuits for certain customers during 2006.

Weston Foods adjusted operating income(1) for the third quarter of 2006 was $103 million compared to $97 million in 2005, an increase of 6.2%, impacted positively by sales growth, pricing and the continued focus on cost reduction initiatives. Adjusted operating margin(1) for the third quarter of 2006 was 7.7% compared to 7.2% in 2005.

Weston Foods continues to evaluate strategic and other cost reduction initiatives with the objectives of ensuring a low cost operating structure and an improving competitive cost position. Certain of these initiatives are in progress while others are still in the planning stages. During the third quarter of 2006, Weston Foods recognized a $13 million charge to operating income related to a number of initiatives currently in progress, which are discussed in more detail in the MD&A.

Loblaw

The new Loblaw management team is refocusing the business through three themes: Simplify, Innovate, and Grow, and has developed a "Formula for Growth" as a framework for a three year renewal plan.

Loblaw sales for the third quarter of 2006 of $9.0 billion increased 4.6% compared to 2005. Sales increases were realized across all regions of the country and in food, general merchandise and drugstore areas. Same-store sales increased by 2.0%, albeit versus soft comparisons a year ago. The growth in sales and same-store sales is higher by approximately 1.0% excluding the loss in tobacco sales. As reported previously, in the third quarter of 2006, a major tobacco supplier commenced shipping directly to certain customers of Loblaw's cash & carry and wholesale club network thereby adversely impacting sales.

Loblaw's adjusted operating income(1) in the third quarter of 2006 of $432 million compared to $455 million in 2005 and resulted in adjusted operating margins(1) of 4.9% and 5.4% respectively. A number of items identified in determining adjusted operating income(1) in this and previous quarters are detailed in the MD&A.

Loblaw's supply chain performance is stable, with distribution service levels in food at normal operating levels, representing an improvement over last year. General merchandise and drugstore service levels are slowly improving.

As part of Loblaw's regular review of its ability to recover the carrying value of inventory by selling inventory through normal channels, management identified certain excess inventory, primarily general merchandise. During the third quarter of 2006, Loblaw concluded that the carrying value of this inventory should be reduced to reflect its best estimate of the net realizable amount. Accordingly, an additional $18 million charge recorded in the third quarter resulted in a total inventory valuation provision of $31 million.

The investment in lower food prices to drive sales growth continues to have a negative impact on operating income. Improvements in buying synergies and the effect of the sales mix between food, general merchandise and drugstore offset the investment in lower food prices, driving marginal improvements in aggregate gross margin percentage. Loblaw continues to incur higher than anticipated store and distribution centre operational costs, principally relating to labour and third-party storage locations.

The "Formula for Growth" is focused on how Loblaw will compete and succeed for the long term. In support of this, a number of actions, as more fully discussed in the MD&A, are in progress. The aggregate impact of some of these actions has been quantified and is expected to be in the range of $127 million to $140 million. These costs will be recorded when the appropriate criteria for recognition are met. The majority of these costs are expected to be recorded in the fourth quarter of 2006. Loblaw continues to evaluate and review the costs of these actions.

In addition, other areas under review are inventory, supply chain costs, Loblaw's organizational structure and pharmacy-related legislative changes, the costs of which are not yet quantified and which may also result in a material impact to operating income in the fourth quarter. Possible activities in these areas are more fully discussed in the MD&A.

OUTLOOK

The outlook for the consolidated results of George Weston Limited for 2006 reflects the underlying results of its operating segments as discussed below. The consolidated results continue to reflect the changes undertaken by both the Weston Foods and Loblaw operating businesses in order to position them for strong growth in the future.

The outlook for Weston Foods for the 2006 full year is for continued growth in sales, excluding the impact of foreign currency translation, in an ongoing competitive pricing environment. Growth in adjusted operating income(1) and margins(1) over prior year's results is anticipated to continue but with pressure from underlying cost inflation, particularly with respect to certain key ingredient costs.

Loblaw believes that sales growth for 2006 excluding the impact of variable interest entities(1) as previously stated will be in the range of 3% - 6%. Loblaw is continuing to invest in food prices in certain markets and increasing its level of advertising support which may have negative earnings implications for the year. As a result of these investments together with continuing higher supply chain costs, adjusted basic net earnings per common share(1) for 2006 are expected to be less than the previously provided guidance of 0% - 5% below 2005 results. Loblaw will also return to its previous practice of not providing earnings guidance.



 

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