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We also managed to post record financial results in a challenging retail marketplace. System-wide sales reached $2.41 billion including $376 million of franchise sales, compared to $2.38 billion including $375 million of franchise sales in 2014. Same-store sales remained positive, increasing by 1.2 percent despite slow growth in the economy and persistent weakness in consumer spending, as we continued to grow market share. Leon’s also achieved record net income of $76.6 million or $1.08 per share. Meanwhile, we continued to strengthen the balance sheet, retiring $30 million in long-term debt associated with the acquisition of The Brick and we remain on track with our debt reduction schedule.

2015 IN REVIEW
Among the year’s most significant accomplishments was the completion in October 2015 of our new enterprise-wide information management platform. Two years in planning and execution, this highly complex project involved the migration of five legacy information systems from The Brick along with important upgrades to the functionality of our existing network. That we were able to complete this project without major disruption to our business is a testament to the skill and dedication of the entire IT integration team.

As a result of this work, we now have a unified perspective on every aspect of the combined business and the foundation required to fully realize the operating synergies between the two divisions. This process has already started with the launch of a combined point-of-sale system for Leon’s and The Brick and the planned combination of core business functions such as procurement, finance, human resources, warranty and service. There is also significant potential to reduce cost and improve efficiencies in the optimization of our national distribution system.

During the past year, we announced key changes to the senior management team that have helped strengthen our leadership for Leon’s next stage of growth. These included the appointment of Edward Leon, former Vice President of Merchandising, as President and Chief Operating Officer of the Leon’s Group of Companies where he has assumed responsibility for day-to-day operation of the Company and allowed me to spend more time on the strategic development of the Company. We were also very pleased to hire Mike Walsh, former Vice President of Canadian Tire, as President of the Leon’s Furniture division. In conjunction with Brick President Jim Caldwell, we now have seasoned industry veterans from outside the Leon family driving division-level performance for the first time in the organization’s history. This structure has advanced our efforts to differentiate the market position of our primary banners and allowed senior management more time to concentrate on the growth opportunities within our portfolio of complementary businesses.

What’s in store, and more Leon’s is the largest retailer of furniture, appliances and home electronics in Canada. Yet together, our Leon’s and Brick divisions command only an estimated 17 percent of the total market share. Ours is still a highly fragmented industry that is likely to present market share growth opportunities as it consolidates over the next few years. We also have significant room to grow within our existing geographic footprint thanks to a distribution network that extends from coast to coast to coast. This includes the expansion of Leon’s in British Columbia and The Brick in Atlantic Canada.

At the same time we continue to invest in the value of these storied Canadian brands. Leon’s has adopted an increasingly aspirational positioning, as evidenced by its growing presence on social media and sponsorship of lifestyle television programming. We are also investing in the powerful Brick brand with reinvigorated advertising and a new tagline — saving you more — that reinforces the division’s promotional strengths.

We also continue to expand our online retailing presence through the leons.ca and thebrick.com websites. They are part of an omni-channel marketing strategy aimed at serving customers, whenever and wherever they wish to deal with us. This combination of online and in-store retailing, with the support of the country’s largest distribution and service networks, represents a powerful competitive advantage in today’s marketplace.

In 2016, we are also very excited as we are ready to launch furniture.com. Our newest online store offers everything available in our retail stores and so much more, including a wider range of price points in each category and a growing assortment of home décor and lighting products.

We are also pleased by the performance and prospects of several less well-known but profitable businesses that complement our retail network. These include:
  • Appliance Canada and Midnorthern Appliance, which together are the largest provider of appliances to the builder, developer, property management and hotel industries.
  • TransGlobal Service, which was founded to service appliances sold by The Brick, is now providing factory service for many major manufacturers as well as a growing number of retail clients including the Leon’s division. Prospects for this business remain strong as manufacturers outsource service and the industry consolidates.
  • Trans Global Insurance, a major provider of life, disability and income protection insurance for credit customers.
  • King & State, which offers extended warranty protection for products sold through our retail channels including our stores.
  • First Oceans Trading Corporation, which sources furniture directly from East Asian manufacturers on behalf of both retail divisions from offices in China and Vietnam.
All of these businesses are well positioned in their respective industries with the potential to make growing contributions to the Company’s earnings in the years ahead. Through our corporate entities including our subsidiaries Murlee Holdings Limited and Leon Holdings (1967) Limited, we also own a 4.2 million square foot portfolio of commercial real estate, much of it in prime urban locations, with unrealized value and development potential for adjacent properties.

THE YEAR AHEAD
Canada’s economy sputtered between positive and negative territory in 2015 in the midst of declining oil prices, uncertain financial markets and weak consumer spending growth. These conditions are likely to persist throughout the year ahead. In response, we’ll continue to do what we have done throughout other economic cycles by delivering the best combination of service, selection and value in the business. By doing this well — in our stores and online — we will continue to outperform the industry while finding more ways to reduce the cost of doing business. In 2016, this will include the optimization of our distribution system and back office services, which should enable our earnings to show significant top line growth.

In closing, I would like to thank our dedicated executives, corporate and franchise store management teams and all of the associates throughout our businesses for their valued contributions during another challenging but rewarding year.

Sincerely,
“Terrence T. Leon”

Terrence T. Leon
Chief Executive Officer