Q3 2021 George Weston Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the George Weston Limited 2021 third quarter results Conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Any time during this call you require assistance. Please press star zero for the operator. This call is being recorded on Tuesday November 23rd 2021.
I would now like to turn the conference over to Mr. Ryan Mcdonald. Please go ahead.
Great. Thanks, very much Pam and good morning, everybody welcome to the George Weston Limited third quarter 2021 results Conference call I'm joined in the room. This morning by Galen Weston, our chairman and CEO and Richard Dufresne, our president and CFO.
And before we begin today's call I want 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 risks 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 our expectations.
These risks and uncertainties are disclosed in the company's materials filed with the Canadian Securities regulators.
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 information future events or otherwise other than what's required by law also certain non-GAAP financial measures may be.
Just or referred to today. So please refer to our annual report and other materials filed with the Canadian Securities regulators for reconciliation of each of these measures to the most directly comparable GAAP financial measure.
And with that I will turn the call over to Richard.
Thank you Roy and good morning, everyone I'm happy to report on our progress after a very busy and successful quarter.
Overall, we are pleased with our results in the third quarter.
Let me start with Western Foods as announced in March of this year, we made the decision to focus on our retail and real estate businesses.
As such we began a process to sell our western foods business.
After announcing a deal to sell the fresh and frozen portion of Western Foods on October 26 last week, we announced the sale of the remaining ambient business.
Together these deals represented the.
<unk> of George Weston entire bakery business for an aggregate value of $157 billion.
We expect both transaction to close before the end of the first quarter of 2022.
As previously indicated our current intention is to return to net proceeds to shareholders through our normal course issuer bid overtime.
Looking at our third quarter results, our financial performance is reflected in our continuing operations, mainly loblaw and choice properties.
George Weston limited reported revenues of $16 2 billion for the quarter, an increase of two 4% versus last year.
Total reported adjusted net earnings were $359 million approximately flat to last year. However, adjusted net earnings from continuing operations were $365 million up six 4% compared to last year.
Adjusted net earnings per common share from continuing operations were $2 43 up nine 5%.
Lobos performance of the third quarter continued from the positive trends from the previous quarter with steady improvement across our businesses.
<unk> delivered strong sales and food benefited from the continuation of elevated to eat at home trends.
Adjusted EBITDA was up 10, 3% and adjusted EPS growth of 24, 2%.
Also loblaw increased its full year 2021, EPS outlook again.
Choice properties delivered another quarter of solid financial results and had an operationally strong quarter there.
This quarter the <unk>.
Actual rent collection rate increased to 99% demonstrating the strength and stability of its necessity based portfolio.
With its strong balance sheet, the business is well positioned to drive net asset value appreciation.
At a consolidated level GW, all free cash flow from continuing operations was $286 million in the quarter and $770 million year to date.
We returned capital to shareholders by repurchasing $411 million of common shares in the quarter year to date, we have repurchased $678 million of shares or five 4 million shares.
Last quarter, we initiated the settlement of the net debt associated with our long term standing equity forward sale agreement relating to $9 6 million Loblaw shares subsequent to the end of Q3, we fully settled for liability and cash.
In the process, we have simplified our balance sheet and more importantly aligned our economic and voting interest in loblaw at 52, 6%.
Total cash cost of the Ford settlement was $790 million.
This will also save us approximately $20 million annually in cash servicing cost.
Looking forward I remain encouraged by the strength and momentum of Loblaw and choice. We are excited about the opportunities ahead for both our businesses.
Finally, and both Loblaw and choice properties, both publicly report their financial results. The divestiture of Weston foods eliminates the need to hold a quarterly call going forward. We will continue to build relationships with the investment community to drive interest in George Weston limited with that I will turn the call over to <unk>.
Thank you Richard and good morning, I am pleased with the progress of our business made in the third quarter is a continued emphasis on operational discipline delivered improved financial performance at.
At Loblaw are focused on retail excellence ensured we were ready to meet the evolving needs of Canadians as a steady return to normal met many of US opened our homes to friends and family for the first time in a long time this Thanksgiving.
Along with the gradual shift back into the workplace changing consumer habits with growing demand for beauty and cosmetics and a slow return of both acute and chronic prescriptions in our pharmacies.
Even as more and more of US head back to our favorite restaurants, we continue to eat additional meals at home and as we do loblaw remains committed to offering exceptional value and convenience as it delivers on its purpose of helping Canadians live life well.
At choice properties. We were also pleased with strong financial and operating results in the quarter.
Our necessity based portfolio and disciplined approach to financial management continue to serve us well as we reported an increase in our NAV for the fifth consecutive quarter when combined with one of the best development pipelines in the country. It's clear the choice is well positioned to drive long term value appreciation.
Finally, as Richard mentioned, we have signed definitive agreements for the sale of our bakery businesses. We are pleased to have two high quality buyers and FGF and heart side, both of whom are well positioned to build upon the heritage of Weston foods, while unlocking new opportunities for its products and people.
This is a major milestone for George Weston and an important step in our strategic journey.
To thank everyone, who has worked diligently over the last eight months to reach this point.
Looking ahead, GW well will remain the strategic center of our group actively working with our market, leading retail and real estate businesses as we do so I want to express my appreciation for all the colleagues in our stores warehouses and properties are serving our customers and tenants every day as the country settles into a new post pandemic.
Rhythm it is through their efforts that George Weston will continue to build long term value for shareholders. We'll now open the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear us retail prompt acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed bite you.
Using a speaker phone please lift your handset before pressing any Keith your.
Your first question comes from Irene <unk> with RBC capital markets. Please go ahead.
Thanks, and good morning, I, just wanted to ask a few sort of tactical questions around the in CIB. So first of all.
Richard that you bought $411 million of shares in Q3 is that sort of thing.
Understanding that that's a 16 week quarter, but is that the cadence that we should expect in terms of buyback or will it be stepped up slow.
Down how should we think about this yeah, we haven't been we've not done definitive plans like we're still hard at work on on getting both our transactions closed love, but like as I mentioned in my remark. Our current intention is to use a.
To use these proceeds to do buybacks. So right now the only thing I would say is what would probably be in line with what we are doing but we did this year.
Okay. That's helpful. Thank you vishal and sort of a couple of related questions.
Well the western family participate in the <unk> and CIB, and then related well western participate in the Loblaw and CIB on a go forward basis, Yeah, we've been participating in the in CIB of Loblaw for awhile and because it allows us to buy.
Buyback George shares at a discount and when you think added financial they like being able to buy two amazing businesses at a discount makes a lot of sense for us. So that's why we like the buyback at Georgia.
Yeah, and all I know.
I'll add Irene.
We like to own more of George from a family perspective.
Yes.
Understood. Thank you and then just one final one if I might just to kind of check a bunch of little boxes here.
Should we assume that for the foreseeable future that they are absolutely has no intention whatsoever to add a third leg to GW out.
Never say never I really look like.
Thank you.
But to be to become digital.
Our focus right now is on driving value in both our food retail and real estate businesses. Those are two large iconic businesses in Canada, and we see a lot of runway in both of them and that should keep us busy for us for quite a while.
Thank you.
Your next question comes from Peter Sklar with BMO capital markets. Please go ahead.
Richard just one question just curious like what's your answer when people ask you the obvious question of why.
Hi, not eliminate the holdco discount by spinning out your interests and the and the reason loblaw or come up with some other structure.
So obviously my obvious question answered your question Peter is if we actually do a great job managing both loblaw and choice our shareholders at George Weston should be really happy and so that is our focus right now and that's what we're going to try to do as best we can.
Yes.
Okay, but you don't need the you don't need the structure at the top in order to manage those businesses sorry, sorry to press you on the point.
It served us really well over the last I don't know 10, 2030, 40, 50 years now and so so right now our wet now we like the we like the structure as it is.
Okay. Thanks.
Yeah.
Ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Question comes from Michael Van <unk> with TD Securities. Please go ahead.
Hi, good morning.
Not too much more to add other than I just want to see.
What your views are on the choice.
CIB do you expect them to be more active than last year and does western participated in that.
Good question.
Michael no, okay, the choices and in CIB, because they've got some.
Some employee compensation program and do you need it to buy stuff to sort of feed the feed that program, but that's essentially the use for it so we.
We don't have any grand plans to start to actively buying back choice unit.
Okay and.
Why.
Why buy back shares over such an extended period of time at the Western Harbour like if you're limited to the amount that you can buy back under the normal course issuer bid that could take many years.
Draw down now.
Our cash balance to a more reasonable level.
Oh because.
And.
Not done any work on this Michael but one thing I do know and I was.
Doing substantial issuer bids in the past as you needed to pay a premium for these things to happen and so we can buy George shares.
Give us and that provides us a discount on loblaw and choice of why would I want to negate that discount when I can do it all day now so so far us.
It makes a lot of sense to buy George shares financially.
Okay.
Are there ways for you to accelerate those purchases.
Beyond the normal kind of 5%.
I have not explored any way to like no right now I think in CIB, but like if someone comes up with a great idea, we will definitely look at it but like I'm not too excited about paying a premium to buy back stock I don't know that doesn't make sense financially from my perspective.
Alright, thank you.
Your next question comes from Chris Li with Dave Barden. Please go ahead.
Alright, good morning, just maybe follow up on the buybacks, we should have done.
The first question.
It looks like <unk> corporate free cash flow is on track to reach about $1 billion. This year is coming from distribution loblaw and choice and participating in the Loblaw and CIB do you expect a similar free cash flow run rate for next year as well.
I Dunno area 1 billion numbers coming back coming up with the Chris I think maybe Roy could get back to you on that but I think the amount of free cash flow that George will be generating going forward it should be.
In line with what we've generated this year.
And that the free cash flow will use along with some of the proceeds that we got from the dispositions to fuel our buybacks.
Okay, that's clear.
And then I guess.
<unk>.
Now that you've sort of selling Weston foods and cleanup that's handled affords sale agreement.
Other things sort of at the GW.
GW a level that you want to change or are you happy with the current structure.
Let me thinking more specifically about the preferred shares.
Anything there to two two.
No right now actually the preferred shares we really like because they are perpetual preferred shares and so so we like that structure.
The depth and George Weston as a very long maturity. So it doesn't make any sense financially to even consider taking it out I think the next question for us will be once this debt.
Gets gets to maturity, we will have to make a decision whether or not that we refinance it or we just simply take it out.
Got you okay.
Helpful and last question is I guess in terms of the net proceeds I guess, you'll wait until the.
Deals are closed before giving us more visibility on what the net proceeds will be from the yes, yes. The only thing I can tell you Chris like if you look at taxes and closing costs, though it's probably like I don't know north of about $150 million ish or so so that's what you should should put in your model right now when a.
A rough number but that's what I have in my head right now okay.
Okay, Thanks, very much and best of luck.
There are no further questions at this time. Please proceed.
Great. Thanks, Pam and thank you everybody for your time this morning.
We're around if you have any follow up questions and George is scheduled to report our Q4 and full year 'twenty one results on March the second.
As Richard indicated we will not be holding a conference call, but IR will be there to answer any questions. You have thanks very much everybody.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.