Weston has ACE up its sleeve

by Eric Schroeder
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TORONTO — George Weston Ltd. continues to reap the rewards from ACE Bakery, a business it bought a little more than three years ago for C$110 million to complement its existing baked goods brands, said Pavi Binning, president of George Weston.

“ACE has been performing well since we bought the business,” Mr. Binning said during a Feb. 27 conference call to discuss fiscal 2013 results. “The last year, in terms of top-line growth was another very good year for ACE. One of the challenges that we had is keeping up with the demand from the market. Because, as you know, it is an excellent product and now has a range of different products within the portfolio.”

He said ACE has more room to grow, noting the company is largely out of capacity in Canada on the business.

“Our job is obviously to drive that business as hard as we can, and there are opportunities for us to continue to develop not only in the GTA (Greater Toronto Area) where the brand is strong, but in other parts of Canada as well,” he said. “We are driving hard in terms of that.”

Mr. Binning also said Weston is attempting to manage a mix shift.

“In terms of the margins, the margins on frozen dough historically have been strong margins,” he said. “When one looks at some of the thaw-and-sell products, particularly when you bring new products to market, often the margin structure is different, the margins are lower. So, that is a mix shift that what we are trying to manage. Frozen dough has been historically one of our best products in terms of overall margin because of the very nature of the product. That’s a challenge that we are managing in terms of the mix shift.”

In 2013, Weston said it invested C$120 million in its network, adding a fresh production facility in Ontario and a new donut line for Maplehurst (in Brownsburg, Ind.). In 2014, the company said it plans to increase capital investments to more than C$150 million, adding new production capacity in artisan, gluten-free cake and cookies.

“As we go through these projects, those are all to drive growth,” said Richard Dufresne, chief financial officer of George Weston. “We need more capacity just to satisfy demand. We are putting money at attractive returns where we are going to be both to drive top line and margin.”

Commenting on its gluten-free business, Mr. Binning said Weston has gotten off to “a good start.”

“In Canada in particular, the All But Gluten brand has been well received by retailers, and also now in the last month or so, we started to push into the United States as well and the initial feedback we’re getting in response from customers has been very positive,” Mr. Binning said. “What I would say in terms of the overall gluten business is it’s still relatively small when one compares it with the fresh business, which is obviously for us a big business. I would say that now, in 2013, just in Canada, have exceeded C$10 million, and what we are pushing forward with is the launch into the U.S.”

Mr. Binning also addressed the pending acquisition by Grupo Bimbo S.A.B. de C.V. of Canada Bread, George Weston’s major competitor in Canada.

“My expectation is that a new competitor — Bimbo — will be a strong competitor in the marketplace just like Canada Bread has been for many years,” he said. “The market structure continues as is. And, I think what we are focused on is what we need to do to drive long-term value for shareholders. So, clearly there will be sort of a new competitor in the marketplace, but we are focused on what we need to do.”

Weston Foods in the fiscal year ended Dec. 31, 2013, had operating income of C$238 million ($213.5 million), up 3% from C$230 million in fiscal 2012. Sales during the year increased 2.7% to C$1,812 million ($1,625.8 million) from C$1,765 million.

Adjusted operating income was C$267 million in the year, which was down from C$275 million in fiscal 2012.

Companywide, George Weston Ltd. in fiscal 2013 had net earnings from continuing operations attributable to shareholders of C$616 million, or C$4.48 of basic net earnings per common share. Those numbers compared with C$475 million and C$3.36 in the previous year. George Weston Ltd. had fiscal 2013 sales of C$33,582 million, which was up 2.6% from C$32,742 million in fiscal 2012.
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