2008 I nvestor Meeting 2008 I nvestor Meeting February 19, 2008 - - PowerPoint PPT Presentation

2008 I nvestor Meeting 2008 I nvestor Meeting

February 19, 2008

2

Forward Forward-

• Looking Statements

Looking Statements

This publication for Loblaw Companies Limited and its subsidiaries (collectively, the “Company” or “Loblaw”) contains forward-looking statements about the Company’s objectives, plans, goals, aspirations, strategies, financial condition, results of

• perations, cash flows,

performance, prospects and

• pportunities. These forward

looking statements include preliminary unaudited financial highlights for its fiscal year 2007. Words such as “anticipate”, “expect”, “believe”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may” and “should” and similar expressions, as they relate to the Company and its management, are intended to identify forward- looking statements. These forward-looking statements are not historical facts but reflect the Company’s current expectations concerning future results and events.

These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These risks and uncertainties include, but are not limited to: changes in economic conditions; changes in consumer spending and preferences, heightened competition, whether from new competitors or current competitors; changes in the Company’s or its competitors’ pricing strategies; failure

• f the Company’s franchised stores to

perform as expected; risks associated with the terms and conditions of financing programs offered to the Company’s franchisees; failure to realize anticipated cost savings and

• perating efficiencies from the

Company’s major initiatives, including investments in the Company’s information technology systems, supply chain investments and other cost reduction and simplification initiatives; the ability of the Company’s information technology infrastructure to support the requirements of the Company’s business; the ability of the Company to indentify obsolete or excess inventory and to control shrink; failure to execute successfully and in a timely manner the Company’s major initiatives, including the implementation of strategies and introduction of innovative products; unanticipated costs associated with the Company’s strategic initiatives, including those related to compensation costs; the ability of the Company’s supply chain to service the needs of the Company’s stores; deterioration in the Company’s relationship with its employees, particularly through periods of change in the Company’s business; failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements; changes to the regulatory environment in which the Company

• perates; the adoption of new

accounting standards and changes in the Company’s use of accounting estimates including in relation to inventory valuation; fluctuations in the Company’s earnings due to changes in the value of equity forward contracts

3

Forward Forward-

• Looking Statements (continued)

Looking Statements (continued)

relating to its common shares; changes in the Company’s tax liabilities resulting from changes in tax laws or future assessments; detrimental reliance on the performance of third-party service providers; public health events; the ability of the Company to obtain external financing; the ability of the Company to attract and retain key executives; and supply and quality control issues with vendors. These and

• ther risks and uncertainties are

discussed in the Company’s materials filed with the Canadian securities regulatory authorities from time to time, including the Risks and Risk Management section of the MD&A included in the Company’s 2006 Annual Report. 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. In addition to these risks and uncertainties, the material assumptions used in making the forward-looking statements contained in this publication, include: there is no material change in economic conditions from those of 2007; patterns of consumer spending and preferences are reasonably consistent with historical trends; there is no significant change in competitive conditions, whether related to new competitors or current competitors; there is no unexpected change in the Company’s or its competitors’ current pricing strategies; the Company’s franchised stores perform as expected; anticipated cost savings and

• perating efficiencies are achieved,

including those from the Company’s cost reduction and simplification initiatives; and there are no significant regulatory, tax or accounting changes

• r other significant events occurring
• utside the ordinary course of

business. 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 publication. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or

• therwise, except as required by law.

4

Non Non-

• GAAP Financial Measures

GAAP Financial Measures

The Company reports its financial results in accordance with Canadian GAAP. However, the Company has included certain non-GAAP financial measures and ratios which it believes provide useful information to both management and readers of this News Release in measuring the financial performance and financial condition of the Company for the reasons set out below. These measures do not have a standardized meaning prescribed by Canadian GAAP and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies. They should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP. Sales and Sales Growth Excluding the I mpact of Tobacco Sales and VI Es These financial measures exclude

the impact on sales from the decrease in tobacco sales and from the consolidation by the Company of certain independent

• franchisees. Tobacco sales continued to

decrease through the end of third quarter 2007 as a result of a major tobacco supplier shipping directly to certain customers of the Company’s cash & carry and wholesale club network commencing in the third quarter of 2006. These impacts on sales are excluded because the Company believes this allows for a more effective analysis of the operating performance of the Company. A reconciliation of the financial measures to the Canadian GAAP financial measures is included in the table “Total Sales and Sales Excluding the Impact of Tobacco Sales and VIEs” on page 2 of the Company’s Fourth Quarter 2007 News

• Release. Same-store sales growth and

same-store sales growth excluding the impact of decreased tobacco sales is included in the table “Sales Growth and Same-Store Sales Growth” on page 3 of the same news release.

Adjusted Operating I ncome and Margin The table on page 4 of the

Company’s Fourth Quarter 2007 News Release reconciles operating income and adjusted operating income to Canadian GAAP net earnings measures based on management’s review of preliminary unaudited results for the twelve and fifty-two week periods ended December 29, 2007 and December 30, 2006. Items listed in the reconciliation are excluded because the Company believes this allows for a more effective analysis of the

• perating performance of the
• Company. In addition, the excluded

items affect the comparability of the financial results and could potentially distort the analysis of trends. The exclusion of these items does not imply they are non-recurring. Adjusted

• perating income and margin are

useful to management in assessing the Company’s performance and in making decisions regarding the

• ngoing operations of its business.

5

Non Non-

• GAAP Financial Measures (continued)

GAAP Financial Measures (continued)

Adjusted EBI TDA and Margin

The table on page 4 of the Company’s Fourth Quarter 2007 News Release reconciles adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) to adjusted operating income which is reconciled to Canadian GAAP net earnings measures based on management’s review of preliminary unaudited results for the twelve and fifty-two week periods ended December 29, 2007 and December 30, 2006. Adjusted EBITDA is useful to management in assessing the Company’s performance of its

• ngoing operations and its ability to

generate cash flows to fund its cash requirements, including the Company’s capital investment program.

Adjusted Basic Net Earnings per Common Share The table “Basic Net

Earnings (Loss) Per Common Share and Adjusted Basic Net Earnings Per Common Share” on page 6 of the Company’s Fourth Quarter 2007 News Release reconciles adjusted basic net earnings per common share to Canadian GAAP basic net earnings (loss) per common share measures based on management’s review of preliminary unaudited results for the twelve and fifty-two week periods ended December 29, 2007 and December 30, 2006. Items listed in the reconciliation are excluded because the Company believes this allows for a more effective analysis of the operating performance of the

• Company. In addition, the excluded

items affect the comparability of the financial results and could potentially distort the analysis of trends. The exclusion of these items does not imply they are non-recurring. Adjusted basic net earnings per common share is useful to management in assessing the Company’s performance and in making decisions regarding the ongoing

• perations of its business.

Free Cash Flow The Company

calculates free cash flow as cash flows from operating activities less fixed asset purchases and dividends. The Company believes free cash flow is a useful measure of the change in the Company’s cash available for additional funding requirements.

6

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions

7

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions

8

Making Loblaw the Best Again Making Loblaw the Best Again… ….. ..

I NNOVATE GROW

(Loblaw is the Best Again)

SI MPLI FY

▪ 5% SALES

GROWTH

▪ 10% ADJUSTED

NET EARNINGS GROWTH

▪ $250 MILLION

FREE CASH FLOW

FINANCIAL ASPIRATIONS* Grow Loblaw

through the Formula For Growth, but spend capital wisely to drive comparable store sales

Restore

innovation to

the heart of our culture in food and across all our control label – make our brands, and stores worth switching supermarkets for

Simplify and sharpen

Loblaw by making accountabilities clear and centralizing where it counts

Fix the Basics that matter

to customers like availability and value- for- money, and fix the basics that matter financially, like reducing shrink and our cost base

We are here We are here

* See Forward-Looking Statements and Non-GAAP Financial Measures

9

2007 2007

… … indications of progress indications of progress

10

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Food volumes are strong despite inflation Food volumes are strong despite inflation

LCL Food Sales and LCL Food I nflation

(Percent growth)

LCL Food Price I nflation LCL Food Sales Growth Retail I tem Count Growth

11

Margin begins to flatten out Margin begins to flatten out

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 34 37 39 41 43 45 47 49 51

Food Front End Gross Profit 2007 by Week

(Percent)

FEGP % Rolling 4 Week FEGP % Weeks

* Front end gross profit includes product margin, some vendor funding and some transportation costs

12

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Shrink trends are positive Shrink trends are positive

National Shrink Trend by Period 2006 vs. 2007

(Shrink as a % of sales)

2006 Shrink % 2007 Shrink %

13

Labour trend is positive Labour trend is positive

Retail Labour Cost Growth 2007 vs. 2006

(Percent growth)

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

14

46 48 50 52 54 56 58 60 62 64 66 68

Q2 Q3 Q4

Front End Staff Availability/ Selection Value

Satisfaction with Store Attributes – National

Source: Loblaw National Customer Satisfaction survey April to December 2007

Top 2 Box % scores n = 218,400

Customer satisfaction holding steady nationally Customer satisfaction holding steady nationally … …

Q2 Q3 Q4

15

46 48 50 52 54 56 58 60 62 64 66 68

Q2 Q3 Q4

Top 2 Box % scores n = 64,800

… … improving across categories improving across categories … …

Satisfaction with Store Attributes – National

General Merchandise Fresh Grocery Health & Beauty

Source: Loblaw National Customer Satisfaction survey April to December 2007

Q2 Q3 Q4

16

46 48 50 52 54 56 58 60 62 64 66 68

Q2 Q3 Q4

… …and improving in Superstore and improving in Superstore

Front End Staff Availability/ Selection Value

Satisfaction with Store Attributes – Superstore

Source: Loblaw National Customer Satisfaction survey April to December 2007

Top 2 Box % scores n = 218,400

Q2 Q3 Q4

17

I n Q4, we gained market share in key regions I n Q4, we gained market share in key regions

+ 0.6 + 1.1 + 0.1

• 0.7

+ 0.5

Gain West Ontario Quebec Atlantic National

Source: Nielsen MarketTrack, LCL Market share Flash Report, National All Channels, L52wks Period Ending Dec 22, 2007. All Sales ex. Perishables

Market Share – Q4 2006 vs. Q4 2007 – Dollars

(Point Change)

2007 market share flat 2007 market share flat

18

I ndustry new square footage growth is slowing I ndustry new square footage growth is slowing

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2004 2005 2006 2007

STM Retailers Competitor 1

Market Square Footage

(Square Feet Thousands)

* STM = Supermarket Type Merchandise, i.e., excludes general merchandise

19

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions

20

Two important points: Two important points:

• 1. 2007 began the process of Making Loblaw the Best

Again

• 2. 2008’s actions balance three important requirements:

Improve competitive position and results Invest in infrastructure to support future growth Make progress on each area of the Formula for

Growth

21

Stated objectives for 2007 Stated objectives for 2007

Our Timeline for Change What we said What we did

* See Forward-Looking Statements and Non-GAAP Financial Measures

I NNOVATE GROW

(Loblaw is the Best Again)

SI MPLI FY

▪ 5% SALES

GROWTH

▪ 10% ADJUSTED

NET EARNINGS GROWTH

▪ $250 MILLION

FREE CASH FLOW

FINANCIAL ASPIRATIONS*

Grow Loblaw

through the Formula For Growth, but spend capital wisely to drive comparable store sales

Restore

innovation to

the heart of our culture in food and across all

• ur control label

– make our brands, and stores worth switching supermarkets for

Simplify and sharpen

Loblaw by making accountabilities clear and centralizing where it counts

Fix the Basics that

matter to customers like availability and value- for- money, and fix the basics that matter financially, like reducing shrink and our cost base

22

Fix the Basics: Fix the Basics: Successfully complete Successfully complete implementation of simplified organization implementation of simplified organization

Reduced ~ 900 positions Net reduction of 800 – 1,000 positions No major stumbles No major stumbles Faster and more effective but not yet simpler to extent necessary Faster, simpler more effective Loblaw New central teams in place New Central Operations and Merchandise teams

What We Did What We Said

I n Process I n Process

23

Fix the Basics: Fix the Basics: Successfully complete Successfully complete implementation of simplified organization implementation of simplified organization

Clear priorities and improved

support systems

• Central Merchant team

shows strong signs of early success but requires ramp-up time to be effective

Year 1 of IT roadmap Systems investment is key

to Loblaw success

Ops team focused on key drivers of

improved performance: customer service, availability, shrink reduction, labour productivity, colleague training

• Central Operations team

is a new platform for consistency and speed of execution

How I t Effects 2008 What We Learned Leveraging national scale for the first time Leveraging national scale for the first time

24

Fix the Basics: Fix the Basics: Availability, Store Operations, Availability, Store Operations, Supply Chain and I nformation Technology Supply Chain and I nformation Technology

New structure implemented, Learning Stores piloted and rollout initiated, colleague surveys and employee discounts piloted

Store Operations: Implement

new leadership structure, Learning Stores, “Great Place to Work” changes IT Roadmap plan created and

• mobilized. Systems infrastructure

currently inadequate.

I T: Carefully phased

implementation of up to date centralized systems SC 2010 program plan created and staffed, service levels remain below satisfactory levels

Supply Chain: Tightly organized

program to improve our supply chain end to end Implemented program in our 233 highest volume corporate stores

Availability: Focus on store root

causes and roll out improvement program

What We Did What We Said

• –

–

25

Fix the Basics: Fix the Basics: Getting credit for value Getting credit for value

Price reductions were not funded by price increases Offset portion of margin impact through increases in price where appropriate New tools and disciplines ensure timely, accurate read

• f market and measure

consumer perception of price Implement new tools and disciplines to improve proactive management of price By year end, SS and HD banners operated at target price levels. Significant improvements made in Conventional stores. Loblaw will make a major investment in price with a focus on KVI’s

What We Did What We Said

26

Fix the Basics: Fix the Basics: Fix Ontario RCSS proposition Fix Ontario RCSS proposition and economic model and economic model

Strong availability, front end productivity Improve store operations Joe Fresh, Baby, Health Selectively reduced non-hero categories Beauty and Home Fix GM First “lean build” expected to

• pen in late 2008 or early 2009

Reduce 15–20% of capital cost of RCSS building Food performance ahead of expectations Consumer feedback indicates improved shopping experience Make the store easier to shop

What We Did What We Said

• –
• I n

Process I n Process

27

Focus for 2008 Focus for 2008

I mprove competitive position and cost efficiency

1

Price I nvestment Shop-keeping Availability Labour Shrink I nvest in Future Growth

2

Format Pilots SC2010 I T Roadmap Make progress in each area of the formula for growth

3

BEST FORMAT CONTROL LABEL ADVANTAGE PRI CED RI GHT FRESH FI RST ALWAYS AVAI LABLE FRI ENDLY COLLEAGUES MOTI VATED TO SERVE 10% JOE HEALTH, HOME, & WHOLESOME

28

2008: 2008: I mproving competitive position and I mproving competitive position and cost efficiency cost efficiency

Operating cost programs: Labour productivity Shrink reduction Administrative/other

costs

Improved buying efficiencies Food General Merchandise Continued investment

in price

Improvements in

availability

Improvements in the

• ffer

Results expected to be supported through cost reduction/ efficiencies driven by focus on . . . Major factors in improving Loblaw competitive position . . .

29

2008: 2008: I nvest in future growth I nvest in future growth

2008 capital cost of ~ $80 MM 40% IT infrastructure and

60% business systems investment

Focus: merchandising, store

• perations, finance

IT Roadmap start up – a multi year investment in Loblaw systems capabilities

2008 capital cost of ~ $115MM IRR% (pre-tax) on total

program investment ~ 23% SC2010 program start up – a multi year supply chain improvement program

I mpact Action

30

2008: 2008: Make progress in each area of the Make progress in each area of the Formula for Growth Formula for Growth

BEST FORMAT CONTROL LABEL ADVANTAGE PRI CED RI GHT FRESH FI RST ALWAYS AVAI LABLE FRI ENDLY COLLEAGUES MOTI VATED TO SERVE 10% JOE HEALTH, HOME, & WHOLESOME

31

Market share Market share – – a positive trend a positive trend

• 1
• 0.5

0.5 1 1.5 2 P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

Source: AC Neilson Market Track December 22 Flash Report - Tonnage

Market Share – 2006 vs. 2007 – Tonnage

(Point Change and Percentage Growth)

LCL Food Unit Price % Growth Total Food Center of Store

32

2008 2008

. . . focus on execution . . . focus on execution

33

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities

Deep Dive into 2008 Priorities

Pricing Shop-keeping Format Pilots Supply Chain Information Technology

Financial Update Wrap-up Your Questions

34

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities

Deep Dive into 2008 Priorities

Pricing Shop-keeping Format Pilots Supply Chain Information Technology

Financial Update Wrap-up Your Questions

35

Strong price positions gain share at expense Strong price positions gain share at expense

• f weaker players even as Wal
• f weaker players even as Wal-
• Mart grows

Mart grows

Micromarket – market share

(Percent)

Source: Metro Market studies

Price index Price index Houston, Texas Buffalo, New York Losers

Other Wal-Mart Albertsons HEB Kroger 1998 2002 2006 Other ALDI Wal-Mart Wegmans

Winners

109 109 120 120 105 105

Losers Winners

125 125

1998 2002 2006 Tops (Ahold)

36

We have a simple yet rigorous approach to We have a simple yet rigorous approach to pricing pricing

Invest in price where it most impacts consumers’ value

perceptions

Stores operate within a zone structure based on

reference trading competitors

Each format (HD, SS, GF) has its own price target for

each pricing segment

37

Each LCL format has a distinctive price Each LCL format has a distinctive price position aligned with its overall strategy position aligned with its overall strategy

Best value for money among Great Food with distinctive fresh and prepared food Delivers variety, great food, healthy living and stylish home

• fferings

SUPERSTORE HARD DI SCOUNT

Lower price position justified by limited assortment and simple shopping environment relative to Superstore and Great Food

100 100 102–104 102–104 106–108 106–108 Target indices GREAT FOOD

38

LCL HD and SS are competitively priced; LCL HD and SS are competitively priced; additional investment is required to support GF additional investment is required to support GF

Price I ndex Loblaws Superstore nofrills

Target Target Target

39

Clear value signage assists in improving Clear value signage assists in improving customer price perceptions customer price perceptions

From From To To

40

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities

Deep Dive into 2008 Priorities

Pricing Shop-keeping Format Pilots Supply Chain Information Technology

Financial Update Wrap-up Your Questions

41

Hole counts have decreased by 73 Hole counts have decreased by 73-

• 77%

77%

Baseline Week 6 Baseline Week 6 Baseline Baseline Week 6 Week 6

West Atlantic Ontario Quebec

74% 74% 77% 77% 76% 76% 73% 73%

42

Customers finding improved in Customers finding improved in-

• stock of

stock of 7~ 9% points 7~ 9% points

3 HOLES 3 HOLES 8 HOLES 8 HOLES

On Always Available On Always Available Not on Always Available Not on Always Available

43

Focus on scheduling is yielding results Focus on scheduling is yielding results

Pd 6 Pd 7 Pd 8 Pd 9 Pd 10 Pd 11 Pd 12 Pd 13

Loblaw Labour Productivity

(Percent growth vs. LY)

I tems Per Labour Hour Labour $ Hours

44

Cashiers are getting more productive Cashiers are getting more productive

National I tems Per Minute Scanning Rate

(Items Per Minute)

Trend line I tems Per Minute

Pd 6 Pd 7 Pd 8 Pd 9 Pd 10 Pd 11 Pd 12 Pd 13

45

Four programs to reduce shrink Four programs to reduce shrink

L.A.R. (Loblaw Accountability Report)

1

Backcheck

2

ARCP (At Risk Coupon Program)

3

Fresh Shrink I nitiative

4

46

Shrink focus improves freshness Shrink focus improves freshness

Stores on the program have reduced throwaways by 30% Stores on the program have reduced throwaways by 30% On Shrink Program Not on Shrink Program

47

I nvesting in our colleagues I nvesting in our colleagues

Colleague Discount Colleague Discount

Commencing Q1 2008 a 10% colleague discount will be offered

Learning Stores Learning Stores

Classroom Facilitators are former Store Managers Shopfloor-based practical training by former Department Managers

48

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities

Deep Dive into 2008 Priorities

Pricing Shop-keeping Format Pilots Supply Chain Information Technology

Financial Update Wrap-up Your Questions

49

Loblaw Pilot Projects Loblaw Pilot Projects -

• Superstore

Superstore

Will offer great value in an innovative and fun one-stop shop for great food, healthy living and a stylish home Will offer great value in an innovative and fun one-stop shop for great food, healthy living and a stylish home Superstore Superstore Superstore

50

Superstore pilots Superstore pilots – – encouraging initial results encouraging initial results

Milton Superstore Milton Superstore West Retrofit West Retrofit

Improved GM adjacencies

& power aisle flow

Expanded ethnic offering New graphic package Improved overall & food

productivity 1st conversion up 25% in sales

Increased productivity

(bakery, apparel & drug); more work (beauty, home & electronics)

Operational, front end &

customer service improvements

Results

Renovate tired Superstore assets; ~ 30 stores In progress ~ 40 potential conversions @ $3-5MM capital each Very positive Success

Status

Apply to other Superstores, in less costly box

Rollout 80K Version 80K Version

(Mavis& Dundas)

51

Milton holding opening week sales ahead of Milton holding opening week sales ahead of the average Ontario Superstore the average Ontario Superstore

70 80 90 100 110 1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5

Weeks of Operation

Pre-Holiday Holiday Post-Holiday

+ 5% + 7%

Milton Average Ontario Superstore

Used rolling averages to reduce effect of holiday spike

I ndexed Sales

I ndexed Sales Performance

(First Full Week of Operation = 100)

52

Loblaw Pilot Projects Loblaw Pilot Projects – – Great Food Great Food

Will offer the best fresh and packaged food, knowledgeable staff, outstanding customer service, and an exciting shopping experience Will offer the best fresh and packaged food, knowledgeable staff, outstanding customer service, and an exciting shopping experience Great Food Great Food Great Food

53

Great Food pilots Great Food pilots – – started, but more to come started, but more to come

Conversion Program

(Collingwood)

Conversion Program

(Collingwood)

Yonge & Yonge Yonge & Yonge

Testing new food

• fferings, to

determine if scalable

Improved fresh sales Positive customer

feedback

27% produce sales lift # 3 Joe in country Revised signage

package

More fresh work

needed

Results

Under review; market specific & not core Further Testing Convert as appropriate In Progress Initial Success

Status

5 stores identified; ~ 100 potential @ $2-5MM capital each

Rollout Burnhamthorpe

54

Loblaw Pilot Projects Loblaw Pilot Projects – – Hard Discount Hard Discount

Will deliver the lowest effective prices and traffic oriented promotions for customers willing to make the trade off on brands and service for price and convenience Will deliver the lowest effective prices and traffic oriented promotions for customers willing to make the trade off on brands and service for price and convenience Hard Discount Hard Discount Hard Discount

55

Hard Discount pilot Hard Discount pilot – – encouraged by initial encouraged by initial results results

nofrills in West nofrills in West

Strong value

• ffering in

competitive market

Positive sales

growth

Tonnage up

considerably

Store operations

simplified

Operating costs

reduced

Results

Initial success

Status

~ 70 potential conversions @ $0.5-1.5MM capital each Also test non- converted Extra Foods with proven Hard Discount

• perating

principles

Rollout

56

Loblaw Loblaw – – largest STM footprint in the market largest STM footprint in the market

32 32 32 31 31 30 30 29 18 18 18 19 14 14 14 14 5 6 6 7

2004 2005 2006 2007

Competitor 1 Competitor 2 Competitor 3 All Others Loblaw Companies Limited

2004 to 2007 STM* Total Square Footage

(Percent)

100% 100% 100% 100%

I n 2007, Loblaw maintained its market share without growing square footage I n 2007, Loblaw maintained its market share without growing square footage

* Supermarket Type Merchandise (STM) square footage excludes general merchandise square footage

57

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities

Deep Dive into 2008 Priorities

Pricing Shop-keeping Format Pilots Supply Chain Information Technology

Financial Update Wrap-up Your Questions

58

• Faster
• Fresher
• Less Inventory
• Easy for Stores

2008

• Easier for Stores
• New DC Capacity
• Improved Forecasting
• Transport Efficiencies
• 60% Flow Model
• Stock & Ship Model
• Inventory Storage
• Capacity Constrained
• Not Responsive Enough
• Poor Forecasting

Tomorrow Today 2007/ 2008

Supply Chain 2010 Supply Chain 2010

BETTER AVAI LABI LI TY

59

I mproved Service & Freshness

Customers Stores

Fresh Everyday & Quick to Shelf

LCL Enterprise

Collaborative & I ntegrated Growth Enabled & Simple

Vendors

SC2010: Fundamentally Changing Product Flow SC2010: Fundamentally Changing Product Flow

Helping to enable “Shop Floor Easy” Seamless Flow Seamless Flow

60

Transformation Roadmap Transformation Roadmap

Integrate the End-to-End Solution Integrate the End-to-End Solution

• Advanced flow
• Network capacity

upgrades & enhancements

• Advanced order

mgmt./ replenishment

• Vendor connectivity &

integration

• Enabling technology
• Advanced flow
• Network capacity

upgrades & enhancements

• Advanced order

mgmt./ replenishment

• Vendor connectivity &

integration

• Enabling technology

Flow Storage Flow Storage Future Distribution Mix Next 2 Years Build the Core Next 2 Years Build the Core

• New end-to-end

replenishment

• Planning & execution

with vendors

• New execution

capabilities in DC’s & transport

• Enhance & modify

network capacity

• New end-to-end

replenishment

• Planning & execution

with vendors

• New execution

capabilities in DC’s & transport

• Enhance & modify

network capacity

Next 12 to 18 Mos. Lay the Foundation Next 12 to 18 Mos. Lay the Foundation

• Store service levels

& replenishment

• Freight & asset

management

• New DC capacity

(Ajax)

• Testing of new

supply chain capabilities

• Store service levels

& replenishment

• Freight & asset

management

• New DC capacity

(Ajax)

• Testing of new

supply chain capabilities

61

I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities

Deep Dive into 2008 Priorities

Pricing Shop-keeping Format Pilots Supply Chain I nformation Technology

Financial Update Wrap-up Your Questions

62

I nformation Technology Transformation I nformation Technology Transformation

Common, secure Proactively monitored Reliable, modern, but inconsistent Timely & actionable Joint stewardship Difficult to access National, modern, flexible Aging, inflexible or non-existent Strategic roadmap Buy & integrate, Outsource non-core Tactical Build it ourselves Do it ourselves

To From

I nvestment Governance Collaboration Strategy Appli- cations Data I nfra- structure

63

New capabilities have been organized into New capabilities have been organized into three main categories three main categories Core Retail

1

Supporting

2

Enabling

3

64

Core Retail

New capabilities drive strategic and financial New capabilities drive strategic and financial value value

Store Operations Store Operations Supply Chain Supply Chain Merchandising Merchandising Increased traffic & sales Improved ad effectiveness Better availability, freshness Decreased inventory and cost Quicker to shelf Greater shop-floor efficiency Value

65

Supporting

New capabilities drive strategic and financial New capabilities drive strategic and financial value value

Finance Finance Human Resources Human Resources Property Management Property Management Greater employee productivity Improved property/asset

management

Improve resource allocation Reduce cycle time and effort Improved data/information access Corporate Corporate Value

66

Enabling

New capabilities drive strategic and financial New capabilities drive strategic and financial value value

I nformation & Data Management I nformation & Data Management Critical I nfrastructure Critical I nfrastructure Delivery Capabilities Delivery Capabilities Enhanced speed-to-market Improved operational efficiency Maintain reliable, secure operations Reduce outage costs Common, consistent data Improve decision-making Value

67

I nvestor Meeting Agenda I nvestor Meeting Agenda

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Superstore and Hard Discount comprised Superstore and Hard Discount comprised 57% of 2007 total retail sales 57% of 2007 total retail sales

2007 Total Retail Sales(1) Breakdown by Format

(Percentage of Total Sales)

11 32 25 32 100

Total Loblaw Superstore Hard Discount Great Food Wholesale & Other

Principal pricing investments in Q3 & Q4 of 2007

(2)

Notes: (1) Retail sales equals corporate and franchise store retail sales (2) Includes Wholesale, Real Canadian Liquor Store and Gas Bars

69

Superstore and Hard Discount experienced Superstore and Hard Discount experienced the highest same the highest same-

• store sales growth in 2007

store sales growth in 2007

2007 Same-Store Sales(1) Growth

(Percentage Growth vs. LY) 0.4 4.6 3.8 2.4

Total Loblaw Superstore Hard Discount Great Food

Pricing investments supported sales growth

70

$1034 11 6 24 25 75 34 91 11 37 $1326

Sales, Margin Effects & Shrink Op. Exp. Admin & Other

2007 earnings were pressured 2007 earnings were pressured

EPS $2.72 EPS $2.05

2007 LCL Adjusted Operating I ncome* Analysis

($ Million)

‘07 Adj. Op. I ncome* ‘06 Adj. Op. I ncome* Pharm- acy Consul

• ting

Est. Adjust- ments Office Bldg Gain

Notable Notable

Bonus Plan Term- ination Fixed Asset I mpair- ment

* See Non-GAAP Financial Measures

71

Strong cash flow improvements were Strong cash flow improvements were achieved in 2007 achieved in 2007

70 375 75

2006 2007

‘06 Actual vs. ‘07 Estimated LCL Free Cash Flow*

($ Million)

2007 FCF* estimated in range of $375 to $450 million

* See Non-GAAP Financial Measures

72

Capital is being redeployed to infrastructure Capital is being redeployed to infrastructure and existing store assets in the near and existing store assets in the near-

• term

term

475 266 383 362 187 162 160 280 100 2006 2007 2008E

Conversions Remodels New Store Development, Expansions & Land I nfrastructure

New store development will commence when the format economic models are improved New store development will commence when the format economic models are improved

LCL Gross Capital Expenditure

($ million)

$937 $613 $825

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Ownership of retail square footage increased Ownership of retail square footage increased from 2006 to 2007 from 2006 to 2007

27.8 28.0 5.0 5.3

2006 2007

Corporate Stores Franchise Stores

We consider owning our retail stores a core strategic advantage We consider owning our retail stores a core strategic advantage LCL Owned Retail Real Estate

(Millions of Square Feet)

33.3 32.8

74

▪5% SALES

GROWTH

▪10% ADJUSTED

NET EARNI NGS GROWTH

▪$250 MI LLI ON

FREE CASH FLOW

FINANCIAL ASPIRATIONS*

* See Forward-Looking Statements and Non-GAAP Financial Measures

Uneven progress in 2007 towards delivering Uneven progress in 2007 towards delivering financial aspirations for turnaround financial aspirations for turnaround

$375-$450 million (estimate) due to reduced working capital and capital expenditures

• 24.6% growth due to transformation

costs and pricing investments ahead

• f cost reduction

2.6% total sales growth, with 2.4% same-store sales growth

• –

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I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions

2008 I nvestor Meeting

February 19, 2008

2008 I nvestor Meeting 2008 I nvestor Meeting

February 19, 2008

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I nvestor Meeting Agenda I nvestor Meeting Agenda

Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions

2008 I nvestor Meeting

February 19, 2008

2008 I nvestor Meeting 2008 I nvestor Meeting

February 19, 2008