George Weston Limited (WN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the George Weston Limited Annual General Meeting Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to the call over to Galen Weston, Chairman and Chief Executive Officer. Please go ahead.

Good morning, and welcome to Weston's 92nd annual meeting. I'm Galen Weston, the Chairman and Chief Executive Officer of George Weston Limited. Every year, we look forward to this meeting and the opportunity it provides to speak with our shareholders. Today, the social distancing measures in place as a result of COVID-19 mean that we find ourselves unable to gather in person. And while this meeting of shareholders will certainly be different than previous years, our team has worked to replicate as best we can our regular meeting environment in a virtual format. Joining me this morning via webcast are Richard Dufresne, President and Chief Financial Officer of the company; Andrew Bunston, Vice President, General Counsel and secretary of the company. The nominee directors, representatives of the auditor and other member of the company's senior management team are also attending remotely either by teleconference or webcast, along with senior executives from Loblaw, Choice Properties and Weston Foods. I would now like to call to order this Annual General Meeting of shareholders of George Weston Limited. I will begin today's meeting by outlining how voting and questions will be addressed in this virtual format. Usually, and this year is no exception, the majority of shareholders submit their proxies or voting instructions in advance of the meeting. Under our normal practice, shareholders or their proxies who wish to vote at the meeting would be required to attend the meeting in person. Instead, voting during today's meeting will be conducted through this online platform. When we're ready to table an item of business for a vote, you will see voting options appear on your screen. If you have voted in advance of the meeting and do not wish to revoke your previously submitted proxies, then you do not need to do anything. Another matter in which this virtual meeting will be different is with respect to questions, which will be accepted through the platform. [Operator Instructions] When submitting a question, please identify whether it relates to the motion being considered as part of the formal business of the meeting or whether it is general in nature. We will address questions directly related to a particular motion at the appropriate time of the meeting and save general questions until the end of the meeting. Questions with common themes may be grouped together for efficiency. [Operator Instructions] Andrew Bunston, Vice President, General Counsel and secretary of the company, will read the questions allowed when requested. And either I or another member of the management team will respond. We will make every effort to answer all your questions during today's Q&A period. However, in the interest of time, we will limit that portion of the meeting to 20 minutes, and we'll address any unanswered questions in a timely manner afterwards. Now before we proceed with the formal part of the meeting, I'd like to take a moment to acknowledge the unusual circumstances within which we find ourselves today. Our Annual General Meeting is an energetic gathering and one that we look forward to each May. In previous years, I've used it as an opportunity to share how we think about building generational value at George Weston, investing in market-leading businesses that play an essential role in the lives of our customers. In March of this year, that term essential came into much sharper focus, as governments at all levels shuttered the economy and sent nearly everyone home. In that instance, COVID-19 transformed lives around the world. And from the very outset, we have understood the important roles each of our businesses would play during this uncertain time. At Loblaw, the response was immediate and sought to ensure families had the food and drugs they needed, all while keeping customers and colleagues safe. Enhanced sanitization practices, plexiglass shields and reductions in store capacity were all put in place to allow for social distancing. A pay protection program was implanted to ensure no one had to choose between their income and their health, and a 15% wage premium for frontline store and DC colleagues recognize the remarkable efforts of those who continue to come in to work when so many were being asked to stay home. All of this in a matter of days. Then what would follow was a spike in demand that truly deserves the term unprecedented. Stores saw sales surge for the likes of which we would expect during the peak of Christmas, day after day as tens of millions of customers rushed to stock up on essentials for their families. E-commerce penetration grew threefold as Loblaw waived all PC Express fees, so those who could not make it into the store still had a reliable source of food and medication. And thousands of health care professionals turned to our virtual care platform, Medeo, which was made available to them at no charge, all of this to help Canadians stay healthy while staying at home. At each step along the way, Loblaw tested the resolve of its people, processes and vendor partners. All held strong. And like so many others, Weston Foods rose to this challenge as well to keep bakery shelves stocked, both in our own supermarkets and for hundreds of other customers across North America. Social distancing measures were deployed in all their facilities. Assortments were adjusted to reduce line changes, drive efficiency and get customers the product they needed most. And several bakeries were repurposed to produce the most highly sought-after items, as foodservice was closed and retail demand remained at elevated levels. Choice Properties, for their part, quickly transitioned to supporting their tenants while working from home, ensuring the safety and security of hundreds of properties, many of which has the essential bakeries, warehouses and supermarkets and pharmacies that we continue to operate across the group. Each of these measures was in response to an unusual and unexpected set of circumstances, but all of them reflect George Weston's conviction around our role in serving the communities in which we operate. Well before COVID-19, that commitment was clearly on display throughout 2019. And today, I'm pleased that we'll be able to share some of those highlights with you during this Annual General Meeting. I'll now proceed with the formal part of the meeting. I'd ask Andrew Bunston to act as secretary of the meeting. Computershare Investor Services Inc. is acting as scrutineer of the meeting by way of its representatives Patty Sigiannis and Louise Waltenbury. Only shareholders of record at the close of business on March 9, 2020, or their proxies are entitled to take part in and vote at this meeting. To make the best use of our time, certain shareholders have been asked to move and second the motions, which are called for in the Notice of the Meeting. A copy of the Notice of the Meeting and proof of its mailing have been filed with the company. The scrutineer's report indicates that a quorum is present. I now declare that this annual meeting has been properly called and is duly constituted for the transaction of business for which it has been called. Today's agenda will consist of the submission of the company's 2019 annual financial statements; remarks from Richard Dufresne, President and Chief Financial Officer of the company; followed by 3 resolutions: First, to elect the Board of Directors for next year; second, to appoint the company's external auditor for fiscal 2020; and third, to consider an advisory resolution on the company's approach to executive compensation. At the conclusion of the formal items of business, we will move to our question-and-answer period and the announcement of voting results. On behalf of those speaking today, I'd like to note that today's remarks may include forward-looking statements. Details regarding forward-looking statements are on screen and can be found in the company's 2019 annual report and first quarter 2020 report to shareholders. Actual results could differ materially from the forecast, projections and conclusions in the forward-looking statements made today. I should also note that during the meeting, we may pause from time to time to review messages from Andrew Bunston, the secretary of the meeting, as we coordinate from a distance. Thank you for your patience as we do so. Now before we proceed with the business of the meeting, I'd like to take this opportunity to acknowledge the contributions of a key individual. Ms. Alannah Weston has served on the company's Board for the last 4 years and is not standing for reelection. During her tenure, Alannah was a key contributor and provided valuable insights and counsel to the Board and to me on a personal level. On behalf of the directors and shareholders, I'd like to thank you for your dedicated service and your contribution to George Weston Limited. I'd now like to welcome Richard Dufresne, President and Chief Financial Officer of the company, to say a few words.

Thank you, Galen, and good morning. Thank you for joining us today. We always welcome the opportunity to engage with our shareholders directly. I echo Galen's sentiments. The COVID-19 pandemic continues to have a significant impact on our families, on our friends and on our colleagues. I would like to thank our colleagues across the group of companies for their hard work and dedication to serving our customers and communities during this unprecedented time. The COVID-19 pandemic will be a defining moment for our generation. On a day-to-day basis, we are very busy with the everyday challenges of keeping our businesses operating and our colleagues and families safe. At George Weston, we must remain future-focused, driving ahead with our strategies across the group of companies. Turning to 2019. It was a successful year across the group. Loblaw delivered revenue growth of 2.9%, same-store sales of 1.1% in food and 3.6% in drug in a very competitive environment. In addition, Loblaw remains focused on continued investment in strategic growth areas, Payments & Rewards to Connected Health in wellness and Everyday Digital Retail to meet and anticipate evolving customer needs. True to its strategy, Loblaw's process and efficiency initiatives allow it to invest and move the business forward. Loblaw invested over $1 billion in 2019, keeping stores fresh and ready to serve, adding efficiencies and automation. Loblaw's focus on the passion for the customer and its commitment to its strategic pillars is evident in its 2019 achievements, including adding over 18 million PC Optimum members and loyalty being used in about 70% of transactions. These levels are important as they speak to Loblaw's data competency and its ability to scale and leverage data insights to engage customers. Loblaw is focused on rewarding its customers, whether they are shopping its banners or banking with PC Financial. Loblaw crossed a significant e-commerce milestone last year, reaching $1 billion in online sales. PC Express is leading the industry in e-commerce grocery, providing a convenient and efficient service to Canadians. And Loblaw progressed its health and wellness strategy, expanding its digital HealthWATCH system to more pharmacies, physicians and patients and caregivers. Recently, Shoppers Drug Mart has been named Canada's most trusted brand, a vote of confidence from its customers. I would like to thank Sarah Davis and her team for another strong year at Loblaw. 2019 was another transformational year for Choice Properties. Choice continued to deliver on its objective, generating stable and growing cash flows and creating long-term value for unitholders. Choice relies on its robust income-producing portfolio to deliver stable and growing cash flows and its development pipeline to provide long-term growth through adding square footage at a reasonable cost, all supported by a strong balance sheet. In 2019, Choice deployed its active capital program to take proceeds from dispositions and redeploy them in higher-growth assets or debt reduction. In 2019, approximately $470 million in proceeds from dispositions was used to reduce debt and strengthen its balance sheet. In addition, Choice completed 32 development projects for a total cost of $232 million, adding over 1 million square feet of best-in-class real estate to its income-producing portfolio at a reasonable cost. Over the next couple of years, Choice expects to invest an additional approximately $450 million in its active $1 billion development pipeline. The current development pipeline is focused on rental/residential in large Canadian markets. We believe this is a competitive advantage for Choice. Choice owns many urban retail properties. And over time, it will add density to these sites and turn them into mixed-use residential communities. Another milestone for Choice in 2019 was the launch of its first Sustainability and Responsibility report. Choice believes its commitment to work in a sustainable manner aligns well with its objective of long-term value creation. Choice's Sustainability and Responsibility program includes targets for energy and water consumption, waste reduction, greenhouse gas emissions and building certifications. On the social side, it includes a program empowering employees to give back to communities through donations and volunteer hours. On the governance front, Choice has embedded its ESG goals into the strategy with formalized lines of reporting and tools to measure performance. Rael Diamond and team, we thank you for another strong year in 2019. Throughout 2019, Weston Foods continued to restore sales growth and improve operational consistency, demonstrating commitment through its transformation program and its return to premier bakery status. Weston Foods was focused on a return to top line growth, financial improvements and organizational capabilities. The business delivered. Weston Foods sales grew 3% versus 2018. Weston Foods experienced positive operational metrics, including positive customer engagement. And Weston Foods improved its organizational capabilities as it started to roll out a new ERP system to simplify workflows and processes, driving efficiencies across customer service, manufacturing, supply chain, finance and procurement. As we have shared in previous years, Weston Foods' strategy is focused on superior taste and experience, preferred partnerships with key customers and bold leadership in bakery. Since 2017, when Weston Foods initiated its transformation program, the business has been focused on these initiatives, and much progress was made in 2019. I believe the best way to share this progress is by way of an example. Leveraging its insights competency, Weston Foods identified a growth opportunity in donuts, where it has expertise and where there is growing customer demand. The insights team shared and validated this information with certain key customers to better understand their requirements and challenges. Through joint business plan participation, Weston Foods was able to address these concerns in the design concept and product development. Weston Foods benefits from its strong customer relationships, and these relationships have been built on its superior products, consistent quality and operational metrics. The Weston Foods R&D team leveraged their culinary heart and food science expertise to meld the consumer insights and customer requests, creating an innovative product in donuts. It is this combination of insights, customer engagement and R&D expertise that has enabled Weston Foods to gain traction with multiple strategic accounts across North America. We expect this product to come to the retail marketplace in 2020 and look forward to sharing more details on this initiative with you next year. I want to thank Luc Mongeau and his team for their great work at Weston Foods this year. Throughout 2019, George Weston's businesses demonstrated their ability to execute on their strategies. We are proud of the accomplishments across the group. Looking ahead, while uncertainty and volatility are near-term challenges we must overcome as a result of the COVID-19 pandemic, we believe our businesses are strong, resilient and well positioned for the future. At Loblaw, the company's leadership in grocery e-commerce positions it well to maintain elevated levels of customer engagement going forward. In an environment that is shifting to digital promotion strategies, PC Optimum enables personalized promotional offers, and it also provides a powerful opportunity for one-to-one customer communication. And Loblaw's investment in Connected Health have positioned it well to serve patients, facilitating virtual physician consults and leveraging our pharmacies as community health hubs. The strong financial foundation at Choice, its market-leading portfolio of retail, industrial, office and residential assets in attractive markets and the substantial development pipeline, position it well for continued stability and growth. And at Weston Foods, its investment in people, its supply chain and systems, position it well to meet and exceed customers' expectations with particular strength in emerging growth areas of artisan and donuts. Across the group, we have the right people and the right assets. We are well positioned to continue to meet and exceed customer expectations to date and in the future. I will now turn the meeting back over to Galen.

Thank you, Richard. I'd now like to place before the meeting the consolidated financial statements of the company consisting of the consolidated statements of earnings, consolidated statements of comprehensive income, the consolidated statements of changes in equity, the consolidated balance sheets and the consolidated statements of cash flows, together with the notes and auditor's report to the shareholders for the year ended December 31, 2019. These are included in the annual report, which was provided to shareholders and can also be retrieved from the Financial Reports section of the company's website or the company's profile at sedar.com. Andrew, were there any questions or comments submitted in connection with the financial statements?

Galen, we have not received any questions on the financial statements.

Thank you, Andrew. We'll now move to the election of directors of the company. There are 10 nominees for election at this meeting. I'm pleased to report that based on proxies received by the scrutineer in advance of the meeting, each director nominee received votes in favor from at least 96% of votes cast. The Board of Directors provides stewardship and general oversight of the company's management and its different businesses on behalf of shareholders. Our Board is committed to high standards of accountability, integrity and ethics and believes that these hallmarks of good governance are fundamental to the company's success and to safeguarding the long-term interests of its shareholders. Our Board plays a critical role in overseeing the company's strategy, risk management processes and leadership development. The Board also carries out several important duties directly and through its committees, including evaluating the company's internal controls over financial reporting and overseeing executive compensation and succession planning. With us today over webcast are several of your director nominees. Director nominees are selected based on their business and professional experience, their integrity, sound judgment and the diversity of their backgrounds. We also believe directors should be individuals with demonstrated leadership capabilities. The director nominees have impressive qualifications and expertise in retail, real estate, risk management, consumer packaged goods, finance, executive compensation and strategy. Our management proxy circular contains detailed biographies, setting out valuable qualifications and diverse backgrounds of the nominees proposed by management. We will now consider the election of directors. To facilitate the introduction of the nominees, we refer you to the slide on the webcast. I declare the polls open on all resolutions. Andrew, were there any questions or comments submitted in connection with the nomination and election of directors?

Galen, we have not received any questions related to this item.

Thank you. As mentioned, I've taken the liberty of asking certain shareholders to make the motions for the election of directors and other motions today. Could I please have a nomination for the election of directors?

My name is [ Chris Bergen ], and I'm a shareholder. Mr. Chairman, I nominate the following persons for election as directors of the company to hold office until the next annual meeting of shareholders or until they resign or their successors are duly elected or appointed: Paviter S. Binning, Andrew A. Ferrier, Nancy H.O. Lockhart, Sarabjit S. Marwah, Gordon M. Nixon, Robert Prichard, Robert Sawyer, Christi Strauss, Barbara Stymiest and Galen G. Weston.

My name is [ Shina Rango ], and I am a shareholder. Mr. Chairman, I second the motion.

Thank you. I'll now call on [ Chris ] to move that the nominations be closed.

Mr. Chairman, I move that the nominations be closed.

Mr. Chairman, I second the motion.

Thank you. You've now heard the motion. I'll ask shareholders or their proxies to cast their votes through the online portal. As a reminder, if you've already voted or sent in your proxy, there's no need to do anything unless you wish to change your vote. [Voting]

Thank you for casting your votes. The scrutineers will tabulate the votes cast, and we will report on the results towards the end of the meeting. We'll now move to the appointment of the auditor. Andrew, were there any questions or comments submitted in connection with the appointment of the auditor?

Galen, we have not received any questions related to this item.

Thank you. I'll now entertain a motion for the reappointment of the auditor of the company and the authorization of directors to fix the auditor's remuneration.

Mr. Chairman, I move that KPMG LLP chartered professional accountants be reappointed as auditor of the company until the next annual meeting of shareholders of the company, and that the directors be authorized to fix the auditor's remuneration for the 2020 fiscal year.

Mr. Chairman, I second the motion.

Thank you. You've now heard the motion. If you have not already done so, I will ask shareholders or their proxies to cast their votes through the online portal. [Voting]

Thank you for casting your votes. The scrutineers will tabulate the votes cast, and we will report on the results towards the end of the meeting. The next item of business is the advisory resolution regarding the company's approach to executive compensation. The resolution is more fully described on Page 16 of the company's management proxy circular. Andrew, were there any questions or comments submitted in connection with this advisory resolution?

Galen, we have not received any questions related to this item.

Thanks. I will now entertain a motion to approve on an advisory basis the company's approach to executive compensation.

Mr. Chairman, I move that the advisory resolution regarding the company's approach to executive compensation, as more fully described on Page 16 of the company's management proxy circular, be approved.

Mr. Chairman, I second the motion.

Thank you. You've now heard the motion. If you've not already done so, I will ask shareholders or their proxies to cast their votes through the online portal. [Voting]

This brings us to the end of voting on the items of business before this meeting. And I, therefore, declare the polls closed. Thank you for casting your votes. The scrutineers will tabulate the votes cast, and we will report back at the end of the meeting. As we approach the end of today's remarks and prepare to open the meeting for questions, I'd like to share some final forward-looking perspective. Throughout this pandemic, we have acted with an absolute commitment to do what's asked of us while at the same time, keeping each other safe. Now as we're seeing promising signs that broad government and community actions are bending the curve of COVID-19 infections, conversations are slowly turning to reopening the economy. Our own experience suggests that operating in this new reality is far from simple. And at this point in time, trust means more than just about anything. At Loblaw, customers can trust in us to provide the food and drug essentials that they need and to make health care accessible through our pharmacies and digital services and to continue to work closely with all levels of government to support a robust testing framework that allows Canadians to emerge from their homes safely and with confidence. At Choice Properties, we will help our tenants reopen as the current social distancing mandates are relaxed, never losing sight of the importance of keeping those who set foot in our properties safe and secure. At Weston Foods, we will continue to keep bakery shelves stocked, bringing both innovation and indulgence to our customers so that we can all find a little bit of inspiration as we make more and more of our meals at home. And finally, at a time when we're all feeling vulnerable, we'll maintain our long-standing commitment to support those most vulnerable among us, whether through the $10 million in grants we have released for children's meal programs or the targeted rent deferrals we're providing to small businesses or the more than $5 million in baked goods and gift cards we have offered local food banks. We will do whatever is needed most in our communities. As this is the eighth week of isolation, and it weighs upon all of us, it can be tiring to wake up each day to such uncertainty. But if anything, the last 2 months have given me reason to be optimistic. During that time, I've been struck by the kindness of people going above and beyond for our customers and the gratitude that those customers have shown in return. So if I can leave you with one thought today, it's that this whole experience is a testament to the strength of people, both those who work for us and those we serve. And it's their actions that make me proud and thankful. I'd now like to open the meeting for any questions. [Operator Instructions] As I mentioned earlier, we will make every effort to answer all questions. However, in the interest of time, we will limit the question-and-answer period to 20 minutes. Any unanswered questions will be addressed after the meeting by members of our management team. Questions with common themes may be grouped together for efficiency. Andrew, are there any questions?

Galen, no questions have been received.

Okay. Thank you very much. We have now received the voting results from the scrutineer on the 3 items of business. On the election of directors, the voting results show that each director nominee received votes in favor from at least 96% of votes cast. Accordingly, I declare that the proposed director nominees have been duly elected to hold office until the next annual meeting of shareholders or until they resign or their successors are duly elected or appointed. On the appointment of the auditor, the voting results show that approximately 98% of votes cast were in favor of the reappointment of KPMG LLP chartered professional accountants as auditors of the company. I declare that KPMG LLP chartered professional accountants are reappointed as auditors of the company and that the directors are authorized to fix the auditor's remuneration for the 2020 fiscal year. On the advisory note on the company's approach to executive compensation, approximately 97% of the votes cast were in favor of the company's approach to executive compensation. I declare this motion to be passed. The final voting results will be available after the meeting and posted to the company's profile at sedar.com. As there is no further business, can I have a motion to terminate the meeting?

Mr. Chairman, I move that the meeting be terminated.

Mr. Chairman, I second the motion.

Thank you. I now declare the meeting terminated. On behalf of George Weston Limited, I'd like to thank you for taking the time today to join us online or over the phone. I wish the best to you and your families and hope you stay safe and healthy.

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