Weston production lines in start-up phase

by Eric Schroeder
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Weston Foods artisan bread loaves
George Weston Ltd.’s top executive said five of seven new production lines are now in the start-up phase.

TORONTO — Capital investments are on track at George Weston Ltd., where the company’s top executive said five of seven new production lines are now in the start-up phase.

Pavi Binning, president and chief executive officer of George Weston, in a May 10 conference call with analysts said the lines will add incremental capacity in cakes, donuts and pies. Mr. Binning did say that the amount of capacity the new lines will add has changed from earlier projections. Specifically, the company now expects a 40% increase in cakes (down from 50%), 20% increase for donuts (down from 30%) and about a 10% increase for pies.

“What we decided to do is take a little bit of pressure off some of the existing assets where we’ve been running them pretty hard in recent years,” Mr. Binning said.

Pavi Binning, George Weston Ltd., Weston Foods
Pavi Binning, president and chief executive officer of George Weston

While Weston is in the start-up phase with the lines currently, the company plans to really ramp up operations in the third and fourth quarters, he said, and expects it to take about a full year for the investments to contribute meaningful revenue.

“Ultimately when you put in a new production facility and capacity it takes — I would say — about a year to begin to build up the volume in terms of winning new business, because this process isn’t something that you can just switch on and off,” Mr. Binning said. “You have to then go and work with your customers, demonstrate that you’ve got the new capacity, they come in and see the facilities. And that is then hopefully what will generate new business. But it normally takes about a year or so from the time that a facility is operational.”

Adjusted EBITDA in the Weston Foods segment totaled C$63 million ($48.6 million) in the first quarter of fiscal 2016 ended March 26, unchanged from the same period in fiscal 2015. Sales increased 12% to C$562 million ($433.7 million) from C$504 million.

Mr. Binning said Weston Foods’ outlook for 2016 remains unchanged, as the company expects sales growth generated by the new capacity and productivity improvements to more than offset continued investments and new plant costs, resulting in an increase in adjusted EBITDA in 2016 when compared with 2015.

“The increase in adjusted EBITDA is expected to be greater in the second half of the year, as a new plant capacity and capability come on-line,” he said. “Depreciation is projected to increase in 2016 when compared to 2015 and offset the improvement in adjusted EBITDA. In terms of capital, management expects to make investments of approximately C$300 million in 2016.”

Overall, George Weston posted first-quarter net earnings attributable to common shareholders of C$37 million ($28.6 million), equal to C0.29 per share on the common stock, which compared with C$157 million a year ago. Sales increased 4% to C$10,800 million ($8,337 million). 
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