George Weston Limited (WN) Earnings Call Transcript & Summary

Thank you for standing by, and Welcome to the George Weston Limited Annual General Meeting. [Operator Instructions] I would now like to hand the conference over to your speaker today, Galen G. Weston, Chairman and Chief Executive Officer. Thank you. Please go ahead, sir.

Good morning, and welcome to Weston's 93rd 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. Unfortunately, the ongoing COVID-19 pandemic and lockdown restrictions in place mean we find ourselves unable to gather in-person. Nevertheless, our team has worked to replicate as best we can our regular meeting environment in a virtual format. Joining me via webcast are Richard Dufresne, President and Chief Operating -- Chief Financial Officer of the company; and Andrew Bunston, Vice President, General Counsel and Secretary of the company. The Director nominees, representatives of the auditor and other members 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 the call to order this annual meeting of shareholders. 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 appointees 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. The scrutineers will tabulate all of the votes cast during the meeting, and we will report on the results of each resolution towards the end of the meeting. Another manner in which this virtual meeting will be different is with respect to questions, which will be accepted through this online platform. [Operator Instructions] 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. Please note that if you were logged into the virtual meeting as a guest, you will not be able to ask a question, only registered shareholders may do so. Andrew Bunston will read the questions allowed when requested and either I or another member of the management team will respond. Before proceeding with the formal part of today's meeting, I'd like to provide an update on the progress we've made over the last year in executing our strategy at George Weston Limited. The recent announcement of our decision to sell Weston Foods in order to focus on our retail and real estate segments is a meaningful one for the company and for me personally. I'm excited by what it represents for Weston Foods' ability to unlock its growth potential, but also struck by the fact that for the first time in our 139 year history, bakery will no longer be at the heart of our family's business interests. Four generations later, so much of what George Weston is today has been defined by the values of my great grandfather, brought to life when he purchased his first bread route in 1882. Over the years, serving customers well, offering quality products and seeking opportunities for innovation that have shaped how we do business. Today, with $2 billion of sales across North America, I'm proud of the solid foundation we've built at Weston Foods. The business is delivering attractive and growing margins, servicing an impressive list of customers and is home to many great brands and a first-rate team. We have spent the last 2 years exploring how to increase the scale of the Weston Foods Group, but ultimately, the right opportunity did not present itself. The Board and management came to the decision that the sale of Weston Foods would create the best conditions for it to achieve its full potential, building upon the significant progress we've made in recent years to improve processes, develop unique new products and modernize the bakery network. In connection with the company's increasing focus on Loblaw and Choice Properties, I have returned to the role of President at Loblaw, following Sarah Davis' retirement earlier this month. Richard has also expanded his current responsibilities, returning as CFO of Loblaw. I'm looking forward to working with him to build on the growing core business momentum at Loblaw and to shape a clear and focused path forward for the business. In addition, we will continue to work closely with and to support Rael Diamond and his team as they advance the strategic priorities of Choice Properties. As I reflect upon the strong financial and operating performance across the Weston group of companies in 2020, I'm also pleased with the progress we've made to further integrate environmental, social and governance measures, also known as ESG, and how we manage our group. Many of you are familiar with our history as a leader in corporate responsibility at Loblaw, and 2 years ago, Choice Properties issued its first ESG report. This year, in addition to the reports at Loblaw and Choice, we have published ESG reports for George Weston and for Weston Foods. As a growing number of organizations and investors are seeing the value of ESG more clearly than ever, we will build upon our leadership. This commitment reflects our long-standing belief that businesses have both an opportunity and a responsibility to have a positive impact in the communities they serve. This was particularly true in 2020 as the pandemic tested the resilience of our colleagues, the capacity of our stores, bakeries and supply chains. In the end, amid extraordinary circumstances, we performed well and served our customers, tenants and communities. In doing so, we leaned heavily on our values, which have been honed over generations. And I've been touched in recent weeks by the response to my father's passing and the other -- and stories others have shared, all of which remind me that my father remains very present in our company's values. Today, as we begin to turn the corner and emerge from this pandemic, I'm inspired by how far our company has come. We have been directed by good decision-making and supported by our people. Thanks to their continued contributions. I look forward to a successful 2021. I'll now proceed with the formal part of the meeting, and I would 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 15, 2021, or their appointees, 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 has 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 the business for which it has been called. Today's agenda will consist of the submission of the company's 2020 annual financial statements followed by 3 resolutions: first, to elect the Board of Directors for next year; second, to appoint the company's external auditor for fiscal 2021; 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 would like to note that today's remarks may include forward-looking statements. Details regarding forward-looking statements can be found in the company's 2020 Annual Report and first quarter 2021 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 as we coordinate from a distance. Thank you for your patience as we do so. Now before proceeding with the business of the meeting, I'd like to take this opportunity to acknowledge the contributions of 2 individuals in particular, Robert Sawyer and Rob Prichard. Robert Sawyer has served on the company's Board for the past 4.5 years and will not be standing for reelection as he has recently joined Loblaw as Chief Operating Officer. During his tenure as a Director of the company, he brought a wealth of experience and a deep passion for our business to the Board. Robert, on behalf of our Directors and shareholders, I'd like to thank you for your service to George Weston Limited, and we look forward to your continued contributions in your new role at Loblaw. I would also like to recognize Rob Prichard, who will be standing for reelection, but will be stepping down as lead independent Director, a role he has held for the last 9 years. During that time, he has been a superb adviser to me and a resolute representative of our independent shareholders. We look forward to Rob's continued contributions as a Director on the Board, and I would like to welcome Gord Nixon to his new role as Lead Director as he succeeds Rob. Thank you both for your dedication and service. I'd now like to welcome Richard Dufresne to say a few words.

Thank you, Galen. Good morning, and thank you for joining us today. This time last year, in the early days of the global pandemic, we held our first virtual AGM. Although we face many uncertainties regarding how COVID-19 would impact our businesses, families, friends and colleagues. We were optimistic about the ability of the Weston group of companies to respond to the many challenges presented by the pandemic. Looking back, 2020 was a successful year across the group. Each of our businesses was able to respond quickly to the changing operating environment presented by the pandemic. Our teams can be proud of the work we accomplished together during these unprecedented times. On a consolidated basis, George Weston Limited reported revenues of $54.7 billion in 2020, an increase of 9.2% compared to last year. The unprecedented increase in revenue was driven by heightened sales at Loblaw as a result of the pandemic. Adjusted net earnings available to common shareholders were $1.06 billion in 2020, a decrease of $62 million compared to 2019. In 2020, Loblaw delivered revenue growth of 9.7% with same-store sales up 8.6% in food and 4.9% in drug. This growth was uneven with dramatic swings in product mix and operational challenges across Loblaw's business. Despite the extraordinary volatility in 2020 as a result of the pandemic, Loblaw's core business performed well, and it was able to advance its strategic growth initiatives, including Everyday Digital Retail, Connected Health Care networks and Payments and Rewards, all while supporting the health and safety of colleagues and customers. In Everyday Digital Retail, increasing customer demand for online services tripled Loblaw's e-commerce businesses -- business, sorry, delivering nearly $3 billion in sales in 2020. The trend continued into Q1 with the digital business reporting record sales, record fill rates and record speed at the same time delivering record customer satisfaction scores. In Connected Health Care, Loblaw has an unrivaled long-term opportunity to become the front door for community care in-person and virtually. Pharmacy services like convenient vaccinations and health consultations grew 30% in 2020. In addition, over 700,000 COVID vaccinations have been administered so far in 2021. Fundamental investments in training pharmacists, digitizing pharmacies and building up services have begun to pay off for Loblaw's customers and business. Finally, in Payments and Rewards, Loblaw saw great early performance for the PC Money account launched in 2020, which rewards Canadian for their everyday banking activities. This account is just one of the new ways Loblaw is using PC Optimum to the benefit of customers and the business. Throughout 2020, the team at Loblaw focused on serving Canadians. The core business is strong, demonstrating improving margins and financial momentum into 2021. I would like to thank Sarah Davis and her team for their contributions at Loblaw. At Choice Properties, the team demonstrated the value of its high-quality portfolio, which is supported by a strong balance sheet. Choice's long-term commitment to stability and growth were never more evident than in 2020. Choice Properties has demonstrated its commitment to supporting tenants, colleagues and other stakeholders throughout the pandemic. Choice supported its tenants by participating in the government of Canada's program for providing rent relief of up to 75% for eligible tenants and for other impacted tenants who did not qualify, Choice entered into rent deferral and abatement arrangements. The resilience of the high-quality portfolio of over 700 income-producing properties generated stable financial results in 2020 relative to many of its peers. It's our belief that grocery-anchored properties with long-term leases are very valuable retail assets. Beyond retail, Choice owns industrial, office and residential properties. The industrial asset class continues to be one of the fastest-growing in Canada, and Choice is well positioned to take advantage of the growing e-commerce market. In contrast, Choice's office portfolio has been more impacted by COVID-19. However, as more Canadians receive their vaccinations and the economy begins to reopen, we expect tenants to return to offices and workplace culture to resume. Choice Properties active development program and pipeline of future opportunities is its engine for growth. Development is focused on residential over the next few years with Choice expecting to complete projects currently under construction. Throughout 2020, Choice Properties continue with its active capital recycling program. This program focuses on evaluating opportunities to improve the overall quality of the portfolio by selling assets and using the proceeds from asset sales to invest in new assets or development opportunities. Choice Properties strategic objectives remain unchanged, create enduring value through the ownership, operation and development of high-quality, commercial and residential properties. We are confident in Choice's strategic decisions and believe that the business is well positioned for continued success. Rael Diamond and team, we thank you for another strong year in 2020. Weston Foods entered 2020 in a strong position with a focus on return to topline growth. However, the year did not play out as expected due to the volatility associated with the COVID-19 pandemic. Although Weston Foods started the year strong, the impacts of the pandemic started to be felt in the final weeks of the first quarter of 2020. Throughout the second quarter, the closure of many food retailers, in-store bakeries and bakery display cases, government-mandated closures of nonessential businesses and physical distancing protocol significantly have impacted sales. At the same time, COVID-19-related costs at Weston Foods increased significantly in order to ensure the safety and health of colleagues as the business adjusted to operating under pandemic conditions. As retailers and consumers adapted to physical distancing protocols and embraced new merchandising practices, sales and financial performance improved in the second half of the year. In addition to improving financial results in the second half of 2020, Weston Foods continued to deliver improving service levels and operational efficiencies. The Weston Foods team has been working hard over the last few years on several projects to improve operational performance, and these projects are now delivering results. These improvements has helped mitigate the impact of the pandemic on the performance of Weston Foods and position it well for success in the post-COVID environment. Throughout 2020, Weston Foods continue to advance a strategic innovation portfolio, including the installation of a new donut line in the United States. As we presented at last year's Annual Meeting, Weston Food's R&D team developed a unique product, a high-quality glazed, freeze and thaw donut for a large U.S. retailer. In the fourth quarter of 2020, Weston Foods completed an in-market test of this innovative product, receiving very positive feedback from the retailer and consumers, and it expects to reach full-scale production later this year. I want to thank Luc Mongeau and his team for the great work at Weston Food. We are proud of our colleagues across the group who responded to the changing demands of COVID-19, meeting the everyday needs of our customers and tenants. Looking forward, I believe each of our businesses is well positioned to continue to execute against their strategic plans and create value in 2021. 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, together with the notes and auditors' report to shareholders for the year ended December 31, 2020. These are included in the Annual Report, which was provided to shareholders and can also be retrieved from the company's website or SEDAR. Andrew, were there any questions or comments submitted in connection with the financial statements?

No, Galen, we have not received any questions on the financial statements.

Thank you. We'll now move to the election of directors of the company. There are 9 nominees for the election -- for election at this meeting. I'm pleased to report that based on proxies received by the scrutineer in advance of the meeting, each nominee received votes in favor from at least 97% 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. Director nominees are selected based on their business and professional experience, their integrity, sound judgment and the diversity of their background. We also believe Directors should be individuals with demonstrated leadership capabilities. The 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 the 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 of election of Directors?

No, Galen, we have not received any questions related to this item.

Could I please have a nomination for the election of Directors then?

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, 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 nominations be closed.

Mr. Chairman, I second the motion.

Thank you. If you've not already done so, I'll ask shareholders or their appointees to cast their votes through the online portal. As a reminder, if you have already voted or sent in your proxy, there's no need to do anything, unless you wish to change your vote. We will now move to the appointment of the auditor. Andrew, were there any questions or comments submitted in connection with the appointment of the auditor?

No, 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 the Directors to fix the auditor's remuneration.

Mr. Chairman, I move that KPMG LLP 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 2021 fiscal year.

Mr. Chairman, I second the motion.

Thank you. If you've not already done so, I will ask shareholders or their appointees to cast their votes through the online portal. 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 17 of the company's management proxy circular. Andrew, were there any questions or comments submitted in connection with this advisory resolution?

No, Galen, we have not received any questions related to this item.

Thank you. 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 be approved.

Mr. Chairman, I second the motion.

Thank you. If you've not already done so, I will ask shareholders or their appointees to cast their votes through the online portal. This brings us to the end of voting on items of business before this meeting, and I therefore declare the polls closed. Thank you for casting your votes. As we approach the end of today's meeting, I'd like to share some final thoughts as we look ahead. As a company, we can be proud of our many accomplishments in 2020, especially in the face of such extraordinary circumstances. We demonstrated a commitment to serving the needs of our customers, tenants and colleagues while never losing sight of George Weston's ambition to create generational value by actively managing our portfolio of market-leading businesses. We also meaningfully contributed to the communities in which we live and work across the group of companies with generous support of colleagues, tenants, customers and business partners. We were able to make a significant impact on those who have been negatively affected by the COVID-19 pandemic, including raising over $90 million for charities and non profits across Canada and feeding nearly 800,000 children through meal programs. In closing, I'd like to thank all of our colleagues and shareholders for their support during 2020 and also for their ongoing contributions as we continue to serve customers and communities in 2021. I'd now like to open the meeting for questions.

[Operator Instructions] 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, we have no questions.

Thank you. We've reached the end of our question-and-answer period. We thank you, and we'll now move on to the voting results. We have 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 97% 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 90% of the votes cast were in favor of the reappointment of KPMG LLP as auditor of the company. And so I declare that KPMG LLP is reappointed as auditor of the company, and that the directors are authorized to fix the auditor's remuneration for the fiscal 2021 year. On the advisory vote on the company's approach to executive compensation, approximately 97% of the votes cast were in favor of the company's approach. I declare this motion to be passed. The final voting results will be available after the meeting and posted to the company's SEDAR profile. As there is no further business, can I have a motion to terminate the meeting?

Mr. Chairman, I move that the meeting terminate.

Mr. Chairman, I second the motion.

I now declare the meeting terminated. On behalf of the company, I would like to thank you for taking the time today to join us online or over the phone. I wish all the best to you and your families and hope you stay safe and healthy.

This concludes today's conference call. Thank you for participating. You may now disconnect.