Q1 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the George Western limits. It Twentytwenty first quarter results conference call.

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After the speakers presentation, there will be a question and answer session.

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I would now like to hand, the conference over to your speaker today Ms. pair spears. Thank you. Please go ahead ma'am.

Thank you Lisa and good morning, everyone welcome to the George West and limited first quarter 2020 results Conference call I'm joined this morning by Galen Weston, our chairman and CEO return to frame, our president and CFO and Luzu President requesting foods.

Before we begin today's call I want to remind you that today's discussion will include forward looking statements such as the company's beliefs and expectations regarding certain aspects of its financial performance in 2020 in future years.

These statements are based on assumptions and reflect management's current expectations as such they are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from.

My expectation.

These risks and uncertainties are discussed in the company's materials filed with the Canadian regulators.

Any forward looking statements speak only as of the date they are made.

The company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new it.

Information future events or otherwise other than what it will measures may be discussed or referred to today. Please refer to our annual report and other materials filed the Canadian Securities regulators.

For a reconciliation of each of these measures to the most directly cleans limited and choice properties had those both release their first quarter results you will focus today's call on the performance of our west in feed SEC.

With that I will turn the call over to Richard.

For your new reality.

This reality is filled with enormous disruption and uncertainty.

I normally start vibrant.

Thanking our frontline colleagues across our businesses.

Well services to our customers and communities.

Our culture is one focused on concepts, which unite our operating companies and one of these concept is core values.

Our core values are defined as follow care.

Our ownership respect and excellence core.

I believe these values have never been more evident then during this crisis.

In addition, our group of companies benefited from strong balance sheets and ample liquidity.

I believe it's the combination of the right people ration and impacts of the Golden 19 pandemic on the Canadian economy is difficult to predict outer company and its operating center.

Yes.

We'll perform for the balance of the year.

Given these uncertainties, we withdrew growth guidance on April nine.

Yes.

Performed well.

During the final weeks of the quarter.

Operating segments responded swiftly to the changing circumstances brought on by go with 19.

Global responded to the increase in sales driven by pantry stocking, which had a positive impact on earnings.

In parallel.

So the increase in sale loblaw began to make meaningful investments.

Secure operations and provide financial support.

Choice properties moved quickly to manage the health and safety.

And implementing and handheld and safety measures added sites.

And it wasn't food answered increased customer request for retail product, which spiked at the onset of the crisis.

For the first quarter on a consolidated basis, George West of the limited reported revenues of $12.3 billion, an increase of 10.4% compared to last year.

First quarter results reflect an an estimated increase in sales from the impact of Govan 19 of approximately $750 million.

The global 19 impact is primarily related to this significant increase in initial demand for grocery and pharmacy products at loblaw at the end of March following the onset of the crisis.

For the first quarter adjusted net earnings available to common shareholders of the company were $239 million compared to the same period last year.

This represented an increase of $38 million or 18.9% due to the improvement in the underlying.

Performance of our businesses.

Partially offset by the higher net interest expense and other financing charges.

Normalized for the interest charges on the financial liability relating to the Oak Street disposition and choice.

Adjusted net earnings available to common shareholders of the company or $244 million compared to the same period last year.

This represented an increase of $43 million or 21.4%, which essentially represents the blended increase in earnings of our three businesses.

The company regions reported adjusted diluted net earnings per share of $1.55, an increase of 25 cents a share or 19.2% compared the same period last year.

Normalized for the interest charges on the financial liability relating to the Oak Street disposition of choice adjusted net earnings per common share were $1.58, an increase of 28 cents per share or 21.5%.

First quarter financial results include the estimated increase in net earnings available to common shareholders of $29 million or 19 cents per common share related to the impact of coven 19.

For the first quarter goodwill corporate free cash flow was $214 million, an increase of $97 million over last year.

Looking ahead to the second quarter the challenges of the Golden 19 pandemic continue.

At Loblaw, physical distancing protocols investments in safety and sanitation.

Enhancing the customer experience and the provision of financial support has continued and result in significant cost to the business.

While a significant percentage of the choice portfolio is anchored by necessity based retail tenants choice has and continues to respond to request for rent deferrals from small business Dennis.

As of April 86.6% of choices rent was paid.

Within food supplies, both retail and foodservice customers.

Based on physical distance distancing requirements and closures across the foodservice industry customer demand has increased by more than 50% in this decrease sorry by more than 50% in this segment, which represents about 20% of Weston foods sales.

In addition worsened foods retail business has also been effective.

While retail customers are buying more fresh bread customers are not purchasing bakery case or celebratory items.

The increase in packaged breads does not offset the declines in foodservice another retail categories.

In addition to changes in customer demand within food is investing in pay premiums and pay protection for frontline employees and health and safety measures.

In response to cover 19, and the challenges across the business worse than foods is incurring increased costs of approximately approximately $1 million per week since the first week of the second quarter.

The mitigate these increased cost within food is continuing with this transformation program and is taking additional measures designed to significantly reduce costs.

We've also updated our capital expenditure forecast downward somewhat.

This is an unprecedented unprecedented time and it's impossible for us to predict how the businesses will perform through the balance of the year.

We are confident in each of the operating teams ability to navigate through this challenging period.

We operate in retail real estate and consumer goods, providing customers and tenants essential services and I believe our businesses will emerge from this crisis stronger and better positioned to meet customer and tenant expectations with that I will turn the call over galan. Thank you Richard.

But the global Cobot 19 pandemic has touched every corner of our economy and every part of the George Western group of companies.

We've always believed and creating value by owning businesses that play in a central role in the lives of our customers, but in these circumstances. The term essential has truly come into focus.

Over the last two months our actions have been anchored in an absolute commitment to do whats asked of us while at the same time, keeping colleagues customers and tenants safe.

Each of our businesses rose to that challenge, ensuring that a central supermarkets and pharmacies remained open bakery shelf state stocked and hundreds of properties kept operating for their tenants.

Now as we see promising signs that broad government and community actions are bending the curve of cobot 19 infections conversations are turning to reopening the economy.

As we transition into this next phase, we're confident that the long standing strategies across our portfolio will continue to serve us well.

At Loblaw, while it's difficult to anticipate precisely how the business will change in any emerging new normal there are certain consumer trends that we expect to accelerate substantially from pre covert run rates. The company's sees this in online grocery shopping digital promotions in one to one customer communications and ended.

A little health care.

In the coming months the company will continue to invest in each of these areas of opportunity.

Choice properties, we have excellent financial flexibility following recent steps to strengthen the balance sheet.

And the company is well positioned to continue to deliver both stability and growth for unit holders over the longer term.

And at West in Foods their transformation program has allowed a response to these extraordinary circumstances from a lower cost base and with greater process disciplines all across the business.

As they lean into serving sustained demand from their core retail customers recent investments in artisan and doughnuts are set to capture consumer interest in these premium and indulgence categories as traditional foodservice remains largely shuttered.

And we all find ourselves seeking a bit more inspiration, while we cook at home.

In the coming months, we expect to build on these strengths in each of our businesses doing so from physician of strong financial liquidity and supported by a team of dedicated colleagues and employees across the group there resilience and resolve in recent weeks has been inspiring and I wish to thank all of them for remaining so steadfastly focused on serve.

During our tenants and customers.

I'd now like to open the line for questions.

As a reminder to ask a question you will need to press star one on your telephone.

Withdraw your question press the pound key please standby, while we compile the Q and a roster.

Your first question comes from the line of Irene Mattel.

Thanks, and good morning, everyone and thank you Frank trading overview and that disclosure as I'm sure gas versus retail.

Good morning, however, about selling the categories, yet maybe a little bit Mark touched right now things like the sheet cakes and sort of that anything that show Thats sold in the crash baking section as fresh bakery section could you give us an idea what percentage that night vectors ads.

And your total revenues at at Western cadence.

Good morning, Irene So I'd like to thing all of our business split in two ways retail and foodservice foodservice about 20% of our total business and the remaining 80 is is retail out of that.

80, I would say that 50% of that is fee.

Increases.

In the man.

Right now lines as our traditional package growth categories our alternative.

And our biscuit.

Is from those.

As far as well.

Unfortunately, these increases are not.

Big enough to mitigate.

The good lines of Richard Mansion, and Foodservice ended this lines that were seeing as well and in cakes.

And pies and in doing that.

That's very helpful and.

Digital is there anything that you think you can do in terms of.

Hi, good chain to make them more I guess consumer friendly and I guess the second part of that is yes, yes, yes, you have a unique window with Loblaws what are you thinking about.

The probable online sort of closure of certain parts of the store as even though we reopened social gifting paying catching for black with better where it needs we have to a minimum.

Yeah. There is there's multiple ways to multiple things to load up there so across North America were adjusting and very close contact with.

Our top 25 30.

Retail and foodservice customers through make sure that we.

We've got sure all demand outside there right now.

With retailers, we're increasing the collaboration that we do with your E Commerce.

Side to side of things as consumers are not.

As often are physically.

And our install right now.

As for you to different packaging or different displays store.

Store level. Some of these are traveling through too early for US now to to address one look for a minute.

Stan.

Standpoint, but we're working very closely with retailers to make sure we capture.

Every.

Unfortunately possible.

That's great. Thank you.

Yes.

Your next question comes from the line of Mark Petrie.

Hi, good morning.

Much of your investments over the last couple of years, and I think projected growth as well as in foodservice and so just curious how the pandemic and sort of the resulting uncertainty around consumer behavior.

Effects that strategy.

Well we're.

Our long term growth was based on expansion.

Of our Donuts and.

Artisan.

Business.

There was a.

Split.

Behind those between retail and foodservice.

Comes through our two food service as I mentioned earlier, we're in close contact with.

The largest QSR operators in North America thoughts talk to them personally.

Through to the largest top then over the last few few weeks, we monitor the distribution of very closely.

As our innovation on join US on artisan is based on deeply rooted consumers shopper foodservice operator, our insights and we're confident that well as.

These are food service operators reopen the operations.

We should be able to.

To benefit from that growth.

Yeah, we we remain committed on the growth in QSR and once this crisis is behind US I think it's a it's a segment that there should provide the with the growth for us.

Okay, Thanks, again, and within foodservice that 20% of sale.

His QSR the vast majority or what other components of the foodservice.

Industry, our materials for you.

We're also foodservice business is split amongst our institutions so schools.

Hospitals are split with brokers and our wholesalers and it's split and are in QSR.

And the split relatively evenly or can you give us some sense of the weight of those three.

Sorry, I can't really I can't give you exact.

Split.

But our long term growth is will be fueled by QSR.

Yeah Okay.

And I guess, Alternatively do you think there's perhaps.

There will be chances to be opportunistic to accelerate.

M&A because some competitors in the in the bakery industry may struggle more than you guys will be less capital as well capitalized.

Right now, though were solely focused on the on operations and how and how to support our business within this crisis, that's our area focus right now.

Okay, and then just last Richard you'd mentioned you'd moderated capex can you give us any sense of the magnitude specifically for west and for 2020.

It's not that significant and it's more driven by the fact that we're trying to limit access to our bakeries as you can imagine we want to make sure. We're focused on production. So so we're going to have certain delays because we're not letting construction workers are engineers are walk into our plants. So.

So it's not a significant number but it's going to be down versus our initial plan.

Okay. Thank you all the best.

Thanks.

Your next question comes from the line of Patricia Baker.

Thank you very much good morning, everyone. Just firstly close can you give us a little more information on the plant closures that were referencing the press release, how much capacity amputate tabby taken out associated with the declining demand for some of the products.

Good morning, Patricia So so far win for look I've said this morning.

Instant there's this for bakeries dollar.

Temporarily.

Goals right now.

Dan related to positive quoted cases, and one of them are related to increases in.

In demand okay.

And you have is there a plan with your the three plants that are related to call that.

Cases is there a period of time that you have in mind, when you'll be opening that or is that something to be determined.

Yes for the proven positive cases on average we put in place very robust protocols that on average allow us to reopen the bakeries within a period of four days.

When it comes to two shutdowns so far weve.

Temporary shutdowns that.

Last on average about 11 to 15 thanks.

Okay. Thank you and second.

A question was a follow up on on Mark from Mark's point.

I would I be wrong, Richard in saying that the QSR segment. This segment that you had been historically underpenetrated and strategically you guys recognize that as a growth channel and that's why you made the decision in two years to go down to more aggressively go after that Chow.

Yes, I got the artisan strategy is essentially.

Fueled by by QSR, Okay, and my last question just is there a simple one so the elevated the Brett the higher bread demand is that remained elevated through the entire period in other words keep people or keep replenishing that kind of on a weekly basis.

We're still seeing.

Increased demand to traditional package Brett.

Thank you very much.

Sure.

Your next question comes from the line of Peter Sklar.

Good morning, just a question for Luke.

These additional costs covert 19 related costs, you said, they're running at 1 million per week is that the run rate.

Going forward or was there initially some disruption as you.

With the issue and as you dealt with the you know the plants that had to go down because they were employees who caught the virus.

Hi, this is.

The run rate that we reconceive for the foreseeable future right now.

Okay. That's all I have thank you.

Your next question comes from the line of Chris Lee.

Hi, Good morning, just the first question is.

Just following your comments early about 80% of your business is retail and foodservice is 20% and that also the retail business. Perhaps you are seeing decent increase in demand on the trichet should traditional side I'm just doing some back sounds with Matt so that meaning pipe, 60% you businesses chasing some some pressure and then based on your.

Closure that your sales are down 15% first four weeks that would imply that 60% of your business is down about 25% for.

For the four weeks am I in the ballpark with put that map.

Hi, Foodservice, we said is down 50%.

So I guess I'm glad that that to your model then you'll figure out the.

Okay.

That's helpful and then.

For the categories are seeing decline is it fair to say they do tend to carry higher margins.

And the ones are growing or.

Not the case.

Not necessarily.

Okay and then just last question is multi longer term question as people look more at home and obviously, we're seeing breaking has also become a very popular activity I know, it's a tough question to answer but.

As covert subsides hopefully next year do you expect that increase in baking activity to represent a structural change.

To tour industry, and maybe potentially have some pressure on demand going forward as people become more at home.

No no we don't see.

I don't see this.

Being a long term sustainable truck.

Okay. Thanks, very much in the best wishes during these challenging times.

Thank you.

Okay.

There are no further questions at this time.

I would now like to turn the call back over to Paris Bears.

Thanks Lisa.

Thanks, everybody for your time. This morning, if you have any follow up question. Please don't hesitate to contact way or myself and you can mark your calendars in July 2008, when we report our second quarter 2020 results.

Thank you.

This concludes today's conference call you may now disconnect.

Okay.