Q2 2021 George Weston Ltd Earnings Call

Good morning, ladies and gentlemen, and welcome George Weston Limited 2021 second quarter results Conference call. At this time all lines are in listen only mode. Following the presentation, we will conduct the question and answer session.

During this call.

You're quite immediate assistance.

Zero for the operator.

The scar.

The third.

2020.

I would like to turn the conference of which of Mr. Ray Mcdonald. Please go ahead.

Thank you very much and good morning, everybody welcome to the George Weston Limited second quarter.

2021 results call I'm joined this morning by Galen Weston, our chairman and CEO, Richard Dufresne, our president and CFO and Luc Macho President of Weston Foods.

And before we begin today's call I'd like to remind you that today's discussion will include forward looking statements.

Which may include but are not limited to statements with respect to George Weston anticipated future results and the impact of the COVID-19 pandemic.

These statements are based on assumptions and reflect management's current expectations and as such they are subject to a number of risks and uncertainties.

<unk> that could cause actual results or events to differ materially from our expectations.

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

And any forward looking statements speak only as of the date. They are made the company disclaims any intention.

Our obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise other than what's required by law also certain non-GAAP financial measures may be discussed or referred to today. So 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 comparable GAAP financial measure.

And since Loblaw companies limited and choice properties have both released their second quarter results.

Today, we will focus our call on the performance of our.

Weston Foods segment, and with that I will turn the call over to Richard.

The new Roy and good morning, everyone.

We delivered good results in the second quarter.

Our businesses delivered growth, despite continuing impacts of the pandemic and some new industry pressure.

No.

While the.

The consolidated basis, George Weston Limited reported revenues of $12.9 billion for the quarter, an increase of 4.6% versus last year.

Adjusted net earnings were $270.272 million, an increase of $133 million and adjusted.

The diluted net earnings per share were $1.78, an increase of 87 per share part of 95, 6%.

The increase reflected the improvement in the underlying operating performance of Loblaw and choice properties and Weston foods.

Labat performed very well in the second quarter with strong revenue.

Bottom line growth continuing to report sequential performance improvement.

Retail gross margin continued its strong momentum from the previous quarter growing 130 basis points compared to last year, reflecting underlying improvement and business initiatives.

Looking beyond this quarter's performance.

Performance on the 2 year basis, low vol reported average growth in revenue of 5.9%.

Adjusted EBITDA up 8.1% and adjusted EPS growth of 15%.

Joyce properties delivered solid financial results in the quarter the business conduct collected 98% of construction.

The actual rent despite an operating environment that was impacted by regional lockdowns across Canada. Once again, demonstrating the value of choices necessity based retail portfolio.

Choice continued to advance the development initiatives and drive meaningful net asset value appreciation through its existing.

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Weston foods delivered much improved financial results in the second quarter of 2021, as the business regaining momentum with Covid restrictions starting to lift and as it lapped the CVR challenges faced at the start of the pandemic.

Last year.

Sales improved by 12.

Expense, including the impact of foreign currency translation.

EBITDA grew by $19 million in the quarter, driven by higher sales lower COVID-19 related expenses and continued productivity improvements.

Along with many others in the food manufacturing industry and in manufacturing in general.

Weston foods was challenged in the quarter with high cost inflation in many aspects of its business, especially commodities as well as significant labor availability challenges.

Both the inflation and labor availability challenges are notable for the speed breadth and severity of their impact on the industry.

<unk> and both related to a surge in global demand as the economy began to recover from the negative impacts of Covid.

The challenges impacted Weston foods, the ability to meet growing customer demand I E sales and deliver against its profitability targets.

The challenge are expected to persist.

Assist in the second half of the year.

Weston foods has taken the steps, including broad based pricing to help mitigate the impact of cost inflation and expect labor availability challenges will ease overtime.

However, we expect full year earnings to be impacted as reflected in our outlook statement.

We now expect adjusted EBITDA to be modest really lower compared to 2020 on a 52 week basis.

Looking through these challenges Weston foods remain well positioned to meet the increasing demand from its customers and continue to offer superior products and services.

We returned.

The capital to shareholders by repurchasing of $141 million of common shares in the quarter.

Subsequent to quarter end, we purchased an additional $130 million worth of GW of all share.

Year to date, we have repurchased $325 million of shares or I guess, 2.8 million shares.

Earlier today, we announced the 9% increase in our quarterly dividend, marking our 10th annual increase.

Also in Q2, we began to settle the net debt associated with the long standing equity forward sale agreement relating to $9.6 million Loblaw shares.

We expect to settle the remaining balance.

<unk> before the end of the year.

The net impact of this is the reduction in annual carrying cost of approximately $20 million and an increase in our economic interest in the loblaw to the tune of $9.6 million shares.

Looking forward I remain encouraged by the underlying strength of all of our businesses.

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On the sale of Weston foods, the process is well underway and we are engaged with the with a broad group of prospective buyers.

We received indications of interest from a number of financial and strategic buyers and are currently going through the second phase of the process.

We expect to.

To be in a position to announce the transaction this fall.

With that I will turn the call over of studios.

Good morning, like Richard I'm pleased with the steady progress each of our businesses made against their financial and operating metrics. During what was the dynamic and challenging second quarter of.

The global of strong results were accompanied by a re prioritization.

Position of strategic initiatives, which has freed up capacity to focus on retail fundamentals.

Put the business on firm footing and leaves us well positioned relative to the rest of the industry as we navigate the second half of 2021.

Choice properties necessity based portfolio and its disciplined approach to financial management continue.

To serve it well of the pandemic evolved in communities entered various stages of reopening.

With market, leading rent collection rates and a strong balance sheet choice of set to drive meaningful net asset value appreciation as it further advance its development program.

And finally as Richard mentioned, we have been pleased with.

Continued with interest from prospective buyers of Weston foods.

At the same time Luca and the team have actively been mitigating the current inflation and labor challenges facing the industry.

The fundamentals underpinning Weston foods remains strong with leading bakery assets and high customer engagement and we maintain our conviction around the opportunity for that business.

To unlock meaningful incremental value in the right hands.

As vaccination rates rise communities gradually reopen and the pressures of the pandemic EPS each of our businesses are positioned to build upon their market leading positions as.

As they do so I want to express my appreciation for the colleagues in our stores.

With the level of our houses properties and bakeries, who continue to set an impressive standard as they serve our customers and tenants.

Its through their efforts the George Weston continues to build long term value for shareholders.

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

Thank you Galen.

Sorry can I get you to introduce the process. Please.

Thank you ladies and gentlemen, we now begin to have an answer session.

Should you have any questions. Please press star followed by 1 on your Touchtone phone.

Youll hear 3 of them.

Brown the acknowledging the request injections of the bulb in the other day I received.

Should you wish to decline from the polling process. Please press star followed by 2.

Using the speaker phone please lift your handset for any keys, 1 moment for your first question.

The first question comes from Irene <unk> with RBC. Please go ahead.

Thanks, and good morning, everyone.

Just start with the.

Sale process can you just talk through the degree to which potential buyers are willing to look through the curtain. The current let's call. It Valley. If you will in the earnings and value the business on something closer to a normalized earnings run rate.

Yes, good question Irene.

Of that discussion at our out of our board meeting yesterday.

Look at the people who are interested the in the process most of them out of experience in our industry and are actually facing the same issues of the us. So so we feel confident that they will see through this.

That's not.

That's helpful. Thank you and then just you know to the extent that they are already involved in the industry do you anticipate a meaningful competition Bureau challenges.

It depends on who ultimately yes.

Okay. So so in terms of.

Actually if we get an announcement this fall whats a reasonable timeline do you think to closing.

Depending on depending on whether or not there. There is competition review it could be really quick.

So, but our expectation would be we would like to close before year end.

Okay, that's great.

And then just finally, 1 other question.

In terms of the unwind of the equity forward structure can you just walk us through the mechanics of it.

Sort of the aggregate cost of the redemption.

How this all works and what the net outflow.

Flow will be.

Really you won't give you sort.

All of it.

So.

So this is this is all just make it very simple arena.

So this is an old the old instruments.

Thank you for a while back and we made the decision that we want to settle it and clean it up because it's been a.

A bit of a nuisance in our financial statements.

So.

So we're essentially using cash to buy it out and effectively what's happening is that we're increasing our economic interest in the wallboard share to the tune of $9.6 million shares.

And when do you of all cleaned it up we're going to be saving essentially 20 million.

Colors of interest.

Perfect. Thank you.

Thank you.

Your next question comes from Peter Sklar with BMO. Please go ahead.

Hi, Good morning, Emily Fort Peter Sklar.

Oh.

Just wanted to touch on the foodservice of segment I'm wondering if you could maybe spend a minute or so of telling of how that segment has rebounded now that we're lapping the worst quarters of Covid last year.

Yeah, we're very happy with the aware of where foodservice business is rebounding for example, our <unk>.

SAR business behind the strength of our artisan and donuts categories is actually now outperforming 2019 levels. So the <unk>.

Sales of the cutting in Baghdad momentum is really good.

Great. So it sounds like it's coming back real quickly.

Okay.

In terms of installations and your sales.

Leavers to help mitigate that like how often are you able to put through price increases and how large of the GAAP now between the cost inflation that you're feeling on the price increases that used the Naples implement so far.

Yeah.

Yes, the we don't have crystal ball, but inflation, but the what.

Of our your levers to try to mitigate and minimize that GAAP.

So in terms of inflation, we're seeing inflation in the back half of this year anything outside of rate of about 3 times higher than what we normally put in the plan. So this this is really unprecedented.

The we were using the normal levers that we use of tight as Jan EBITDA, we lean more aggressively on productivity, we've already announced pricing that's going to be effective by the end of August but challenging right now of the lag between the time that the inflation.

Hit us.

And pricing, becoming effective which I just mentioned at the end of <unk> of August. So we we put out their first price increase if if this level of inflation continue we will potentially consider.

Second.

So in a price increase.

Great. Thank you that's 1 of my questions.

Thank you.

Thank you, ladies and gentlemen, as the final reminder, should you have any questions. Please press star 1.

Oh.

Your next question comes from Mark Petrie.

Please go ahead.

Alright.

Go ahead of time, Mark Thanks for taking our questions I just wanted to know if you could talk about planned capital structure post bakery sales.

Yes, our cash.

The structure will remain more.

More or less the same.

We have some of that.

The George Weston level of debt.

In the years of weight from maturing so some of that debt will remain on the balance sheet. The.

<unk> from the sales are most likely to be used to the to pursue.

More of a share buyback.

Okay. That's perfect. Thank you.

Thank you there.

There are no further questions at this time Mr. Mcdonald you May proceed.

Great. Thank you very much and thanks, everybody for joining us. This morning, if you of any follow.

Follow up questions. Please give me a shout and Mark your calendars for November 23rd 1 we will be reporting our 'twenty 'twenty..1 Q3 results. Thanks, very much and have a great day.