Weston Foods embarks on transformation plan

by Eric Schroeder
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In 2017, George Weston posted net earnings of C$1,574 million, up from C$1,090 million a year ago.

TORONTO — Against a backdrop of disappointing financials in its Weston Foods unit in fiscal 2017, George Weston Ltd. is setting forth on an ambitious transformation plan geared toward accelerating the company’s change agenda.

Operating income in the Weston Foods segment totaled C$91 million ($70.5 million) in fiscal 2017 ended Dec. 31, 2017, down 47% from C$173 million in fiscal 2016. Adjusted operating income, meanwhile, fell 25% to C$149 million (C$115.4 million) from C$199 million. Sales decreased 1.1% to C$2,243 million ($1,738.5 million) from C$2,268 million.

“Weston Foods experienced a challenging year in 2017, and we recognized the need to accelerate our change agenda,” Galen Weston, chairman and chief executive officer, said during a March 2 conference call with analysts. “And as a result, the business has embarked on an ambitious three-year transformation plan, led by our president, Luc Mongeau.”

Mr. Mongeau described the baking industry as “an exciting category with a healthy growth potential,” noting that Weston Foods is well positioned to compete in the category behind its expansive portfolio. But the company did not perform well in 2017, and a change is necessary, he acknowledged.

“While improvements have been made in recent years, a challenging 2017 has highlighted the need to accelerate our company’s change agenda,” he explained. “As a result, in late 2017, we launched a transformation program designed to improve our ability to delight consumers and customers and improve our agility and operational efficiencies. This will better position us for future growth and produce a reliable and growing stream of earnings. Our transformation program will achieve these objectives through three work streams, restructuring of our organization, simplification of our operations and amplification of our growth efforts.”

Since kicking off the transformation program in November, Weston Foods has seen encouraging results, Mr. Mongeau said. He said the company has moved to a single sales team to better serve customers and has transitioned from four business units into one lean organization. The company also has begun to work on simplifying its work stream.

The company also is in the process of stock-keeping unit rationalization, with early indications that it will rationalize approximately 20% of its portfolio, focused mostly on low-volume, low-margin products, Mr. Mongeau said.

“These efforts will simplify our key offering and our production and distribution network, and will optimize our cost spend,” he said. “Once we achieve identified savings, we will launch our amplification work stream, which will ensure we have the best portfolio offering, increase the level of investment in our brands, our production capacity and innovation. This transformation program will not only position us to win with the consumers and customers in North America; it will also result in $100 million improvement in EBITDA for the fiscal year 2020.”

If successful, the transformation program could position Weston Foods as one of the premier baking companies in North America, he said. Asked by an analyst what a premier North American baking company looks like, Mr. Mongeau responded, “It definitely starts with above-average returns, and it is driven by superior ability to deliver superior taste, superior enjoyment of our products and as well deliver, as I mentioned earlier, superior service to our business partners. And superior insights allow them to drive their businesses.”

Overall, George Weston posted net earnings of C$1,574 million, equal to C$5.60 per share on the common stock, up from C$1,090 million, or C$3.96 per share, a year ago. Sales increased to C$48,292 million from C$47,999 million. 
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