Gildan Activewear Inc. (GIL) Earnings Call Transcript & Summary

Bonjour. Good morning, ladies and gentlemen and welcome to the Gildan Activewear Annual and Special Meeting of Shareholders. My name is Donald Berg, and I am the Chair of the Board. I'm joined today by Maryse Bertrand, our Chair of the Corporate Governance and Social Responsibility Committee, Glenn Chamandy, our President and Chief Executive Officer; Rhod Harries, our Executive Vice President, Chief Financial and Administrative Officer; and Michelle Taylor, our Vice President, General Counsel and Corporate Secretary. We are once again holding the meeting in a virtual-only format. We are confident that hosting a virtual meeting will enable greater attendance by our shareholders at our Annual and Special Meeting of Shareholders by allowing those who would not otherwise be able to travel to a physical location to attend online. All shareholders, regardless of their geographic location, have an equal opportunity to participate in this meeting via the live audio webcast and engage with directors and management of the company. You will have the opportunity to ask questions and vote on a number of important matters, and we encourage all shareholders to participate in the meeting. We will begin by conducting the official business of the meeting. After the official business is completed, Glenn and Rhod will address shareholders and provide an overview of the company's results and business plans. After that, we will answer any questions submitted during the meeting. The business of the meeting will be conducted in English. However, the meeting is being simultaneously translated into French via the live audio webcast. You may choose between English or French on the webcast main landing page. You may, of course, ask questions in either English or French. I will now call the meeting to order and we'll ask Michelle Taylor to add to Secretary of the meeting and to take us through certain procedures for the meeting, including the process for voting and submitting questions.

Thank you, Mr. Chair. [Interpreted] As mentioned, this will take place in English. However, translation is available in French and in English through web broadcasting. You can choose between English or French on your main page of the website. You can ask your questions in French or in English. [indiscernible] this meeting is being held virtually through live audio webcast. We wanted to go over a few items to ensure the orderly conduct of the meeting. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of this information. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant that you first obtain all required consents for the disclosure, recording, transfer and use of such personal information. Once voting has opened, the voting tab will appear on the navigation bar at the top of your screen. The resolutions and voting choices will then be displayed. After you vote, a message confirming vote received will appear. Your vote can be changed by simply clicking the other option. If you wish to cancel your vote, please press cancel. Only registered holders of common shares of record as of March 6, 2023, who received a control number prior to this meeting or their duly appointed proxy holders who registered with our transfer agent and obtained an invite code prior to this meeting are permitted to participate, ask questions and vote at this meeting. All other proxy holders are entitled to join the meeting as guests. Registered shareholders and duly appointed proxy holders who have already voted are not required to vote again unless they wish to change their vote. Registered shareholders and duly appointed proxy holders who wish to communicate with the members of the management team and the Board or with each other or who wish to ask a question in respect of a motion may do so using the instant message service on the virtual meeting platform. When asking a question, we would ask that you please indicate your name, the entity you represent, if any, and confirm that you are a registered shareholder or duly appointed proxy holder. Questions can be submitted at any time during the meeting. Questions will generally be received shortly after they are submitted, but will only be addressed during the question period at the end of the meeting. However, questions that relate to procedural matters or the motions before the meeting may be addressed during the meeting. To submit a question, select the messaging tab at the top of your screen. Type your message within the text box at the top of the message screen and then click the send button. Questions submitted during the meeting via the online platform will be moderated before being sent to the chair. Questions or comments containing inappropriate language or that are otherwise disruptive to the orderly conduct of the meeting, for all shareholders will not be answered. Questions which were already answered or that are redundant or repetitive will also not be answered. We would also like to advise you that in addition to receiving the annual consolidated financial statements, today, shareholders will vote on 7 items as described in our management information circular. These are the appointment of the auditors, the election of the directors, the adoption, ratification and renewal of the shareholder rights plan, the approval of 2 amendments to the long-term incentive plan, the first of which is to approve an increase of the common shares authorized for issuance under the long-term incentive plan and the second of which is to modify the amending provisions to specify when the Board will be required to obtain shareholder approval for any future changes to the long-term incentive plan. There will be an advisory resolution on the company's approach to executive compensation; and finally, the consideration of the shareholder proposal described in the Management Information Circular. All 7 votes will be conducted by single electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each item of business after all the items of business have been presented. Approval of all the resolutions brought before the meeting will require an affirmative vote of a majority of the votes cast by shareholders. The chair will move all motions, except the motion with respect to the approval of the shareholder proposal. This proposal will be moved by the shareholder. No motion will need to be seconded. When you are asked to vote, you will receive a message on the virtual meeting platform advising you that the polls are open. You will only have a certain amount of time to do so. I would also like to draw your attention to the text on the current slide and to advise everyone that certain of the comments you will hear today are forward-looking statements that involve assumptions, risks and uncertainties that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We also refer you to our disclaimer regarding forward-looking statements contained in our management discussion and analysis for the 2022 fiscal year, which is available on SEDAR, EDGAR and on the Gildan website. I will now turn the microphone over to the chair who will appoint the scrutineer for this meeting.

Thank you, Michelle. I now appoint Computershare Investor Services as scrutineers to report on the number of common shares represented in person and by proxy at this meeting and a report on the voting results. The scrutineer has already provided me with their report on attendance at the meeting, and it shows that a quorum has been reached. I, therefore, declare the meeting regularly constituted for the transaction of such business as may properly be brought before it. I now present to the meeting the consolidated financial statements of the company for the fiscal year ended January 1, 2023, and the auditor's report thereof. Copies of such documents have been made available through notice and access to our shareholders. In 2022, Gildan navigated a changing macroeconomic environment but delivered strong performance, thanks to our focus on implementing the Gildan sustainable growth strategy. This focus on the Gildan sustainable growth strategy allowed us to end the year with net sales of $3.24 billion, up 11%, diluted earnings per share of $2.93 and adjusted diluted earnings per share of $3.11. Further, we continue to reinvest in our business and delivered on our capital allocation priorities, returning a record $573 million to our shareholders through $449 million in share repurchases and $124 million in dividends. As we entered the second year of the Gildan sustainable growth strategy, we are on a solid footing to build on this past year's accomplishments. The combination of our focused strategy, competitive strengths and the caliber of our dedicated team positions us well to deliver long-term value to our shareholders. The next item of business is the appointment of KPMG LLP as the company's auditors. I move that KPMG LLP be appointed as the company's auditors and at the Audit and Finance Committee of the Board of Directors of the company be authorized to fix the remuneration of the auditors. Before proceeding with the election of the directors, I would like to take a moment to underline Russell Goodman's positive impact of this company's Board. Russell Goodman has been on Gildan's Board since December 2010 and is now retiring. On behalf of each member of the Board of Directors of the company, I wish to extend our sincere gratitude and appreciation for Russell's many years of service and for his significant contributions over the past 12 years. We will now proceed with the election of directors. The Board has determined that 10 persons should be elected as directors of the company and has proposed 10 candidates to hold such office for the ensuing year. In addition to Glenn Chamandy and myself, 8 independent and highly qualified individuals are being proposed for election as directors. Their biographies are included in the company's management information circular made available to our shareholders. Each of the nominees has expressed a desire to serve as the Director of the company. I nominate each of the following persons for election as the Director of the company to hold office until the close of the next annual meeting of the shareholders or until his or her successors are duly elected or appointed. The nominees are Glenn Chamandy, Maryse Bertrand, Dhaval Buch, Marc Caira, Shirley Cunningham, Charles Herington, Luc Jobin, Craig Leavitt; and Anne Martin-Vachon and myself, Donald Berg. As mentioned at the beginning of this meeting, voting today will be conducted by a single electronic ballot after all items of business have been presented. We will, therefore, continue with the next item of business on the agenda, and you will be prompted to vote after all items of business have been presented. We will now turn to the item on the agenda relating to the resolution to confirm the adoption ratification and renewal of the company's shareholder rights plan as set forth in the Management Information Circular. On February 21, 2023, the Board of Directors of the company adopted a shareholder rights plan and subsequently entered into a shareholder rights plan agreement with Computershare Investor Services. This shareholder rights plan is designed to ensure that all shareholders are treated fairly in connection with any takeover bid or other acquisition of control of the company. It replaces and renews the company's existing shareholder rights plan, which expires today. This shareholder rights plan is the same as the company's existing shareholder rights plan except that it includes minor amendments to permit the issuance and registration of rights under the shareholder rights plan and book entry form and other amendments of an administrative nature. It is similar to shareholder rights plans adopted by other TSX-listed issuers and approved by their shareholders. In terms of the context for the renewal of the shareholder rights plan, the shareholder rights plan was not adopted in response to any specific proposal to acquire control of the company nor is the Board of Directors currently aware of any pending or threat and takeover bid for the company. The Board of Directors does not intend to try to preclude a bid for the control of the company by recommending the ratification of the shareholder rights plan. Rather, the shareholder rights plan encourages a potential acquirer to proceed either by way of a takeover bid, which satisfies certain minimum standards designed to promote fairness or with the concurrence of the Board of Directors. The shareholder rights plan will come into force at the close of business today, provided that the resolution to confirm the adoption, renewal and ratification of the shareholder rights plan is approved by a majority of the votes cast by the shareholders who vote in respect of the resolution. The full text of the resolution is reproduced on Page 17 of the Management Information Circular and the full text of the shareholder rights plan is available on SEDAR, EDGAR and the company website. I move that the resolution confirming the adoption renewal and ratification of the company's shareholder rights plan set forth in the Management Information Circular be adopted. Again, as voting today will be conducted by a single electronic ballot, we will continue to the next item of business. We will now turn to the agenda item relating to the resolutions to approve 2 amendments to the text of the company's long-term incentive plan as set forth in the Management Information Circular. The company has had a long-term incentive plan in effect since 1998. The long-term incentive plan is designed to assist and encourage officers and employees of Gildan and its subsidiaries to work towards and participate in the growth and development of the company and to assist the company in attracting, retaining and motivating its executives and key employees. A detailed description of the features of our long-term incentive plan is available on Appendix C of the management information circular. On February 21, 2023, the Board of Directors of the company approved subject to TSX and shareholder approvals, the 2 amendments to the plan to ensure its effectiveness. The first amendment to the long-term incentive plan is to increase the number of Gildan common shares authorized for issuance under the long-term incentive plan by 1,797,219 common shares. Following the increases, a maximum number of common shares issuable under the LTIP would be fixed at 13,797,851 shares. It is worth noting that the proposed increase represents an increase of 1% of our outstanding common shares as of the record date of March 6, 2023. The second amendment is to revise the amending provisions for the long-term incentive plan. The essence of the modifications to the amending provisions is to specify the changes to the long-term incentive plan that will require the Board to obtain shareholder approval and conversely, to set out when the Board may amend their long-term incentive plan without shareholder approval. The second amendment aligns with current best practices and recently adopted equity incentive plans and ensures Gildan will meet the requirements of the stock exchanges where our shares are listed. The proposed changes to the amending provisions are detailed in the management information circular on Pages 18 through 20, and the full text of the proposed amendments is available on Gildan's website. On March 13, 2023, the TSX conditionally approved the 2 amendments to the long-term incentive plan subject to approval by the shareholders. These amendments will come into force at the close of business today, provided that resolutions to confirm the approval and adoption of the 2 amendments of the long-term incentive plan are approved by a majority of the votes cast by the shareholders. The full text of the resolutions is produced at Page 18 on the Management Information Circular. I move that the resolutions confirming the approval and adoption of the amendments to [what] company's long-term incentive plan set forth in the Management Information Circular be adopted. Again, as voting today will be conducted by a single electronic ballot, we will continue to the next item of business. The next item of business is an advisory vote on the company's approach to executive compensation as set forth in the Management Information Circular. The full text of the advisory resolution is reproduced on Page 21 of the Management Information Circular. I move that the resolution on the advisory vote on executive compensation set forth in the Management's Information Circular be adopted. As voting today will be conducted by a single electronic ballot, we will continue with the next item of business. We will now turn to the next item of business, which is the consideration of a shareholder proposal received from British Columbia General Employees Union for consideration at this meeting. The proposal, as well as a description of the Board's response is set out in Appendix E of the Management Information Circular. Management of the company has met with representatives of British Columbia General Employees Union to engage on the matters set forth in their proposal. After careful consideration and for the reasons set forth in Appendix E of the Management Information Circular, the Board recommends you vote against the proposal. At this time, we recognize Emma Pullman, a representative of the British Columbia General Employees Union to present the proposal and to make a motion to put this proposal to a vote.

Thank you, Mr. Chair, and good morning, fellow shareholders. Again, my name is Emma Pullman, and I am a duly represented proxy holder representing the BC General Employees Union, or BCGEU. I am here to present the proposal found in Appendix E. Since 2017, over $809 billion of sustainability-linked financial instruments have been brought to market. And since 2021, at least 50 Canadian public issuers have established such instruments. These products incorporate ESG goals and to an issuer's debt financing with such ESG goals providing pricing incentives. These ESG goals or metrics are selected by the issuers. In March 2022, Gildan amended its $1 billion revolving credit facility to convert it to a sustainability-linked loan. Gildan's ESG metrics included 1 metric on greenhouse gas emissions, 1 metric on reduction of packaging and 1 metric on achieving gender parity. These sustainability-linked loans are self-regulated. Issuers choose the ESG metrics and the targets are agreed upon with their lenders. A leading finance industry group has published principles to reduce the opportunity for greenwashing. These principles require that ESG metrics address relevant ESG challenges in the issuers industry and that they be consistent with the issuer's overall ESG strategy. While Gildan has said that employee health and safety or human capital management is one of its 5 key areas of ESG focus and that has already established human capital management targets that benefit workers, Gildan chose not to include any such human capital management metrics and its sustainability linked loan. Gildan relies on its textile sewing and sock manufacturing operations in developing countries with 9 of such facilities in Honduras. Gildan has announced plans to expand manufacturing capacity across its manufacturing network, including plans to undertake a significant expansion in Bangladesh. That is why the BCGEU asked Gildan to review potential human capital management ESG metrics and include 1 metric in its next sustainability-linked loan in 2027. Gildan cannot hide behind its lenders as the reason why it has not included a human capital management metric in its credit facility. Our proposal gives Gildan plenty of time to develop a human capital management sustainability target. Issuers often amend and restate their credit facilities before term expiry. So Gildan can consider incorporating such a metric at an earlier date if it chooses. I duly move the shareholder proposal and invite other shareholders to support it. Thank you.

Thank you, Emma. We will now proceed with the voting by single electronic ballot. As a reminder, today's items up for vote are the appointment of auditors, the election of directors, the adoption, ratification and renewal of the shareholder rights plan; the approval of the 2 amendments to the long-term incentive plan, each a separate voting item, the approval of an advisory resolution on the company's approach to executive compensation and the consideration of the shareholder proposal. All 7 votes will be conducted by a single electronic ballot. You will now be prompted to register your vote in respect of each of the 7 items of business. Please register your votes by accessing the voting page when prompted and by first, pressing on the for or withhold button next to the resolution with respect to the appointment of KPMG LLP as the company's auditors. Second, pressing on the for or against button after the name of each proposed director Third, pressing on the for or against button next to the resolution confirming the adoption, ratification and renewal of the shareholder rights plan; fourth, pressing on the for or against button next to the resolution approving the increase of common shares authorized for issuance under the company's long-term incentive plan; fifth, pressing on the for or against button next to the resolution approving the amendments to the amending provisions of the company's long-term incentive plan. Sixth, pressing on the for or against button next to the advisory resolution on the company's approach to executive compensation; and seventh pressing on the for or against button next to the shareholder proposing. All motions have now been presented. If you have not cast your vote, please cast it now. The voting page will remain open for 5 minutes, and this will be the last opportunity to vote. After 5 minutes, we will close the polls. Once the electronic balloting closes, the voting page will disappear, and your votes will automatically be submitted. While you complete your electronic ballots, I will now ask Rhod and Glenn to provide a business update.