TORONTO — Operating income in the Weston Foods segment totaled C$173 million ($129 million) in fiscal 2016 ended Dec. 31, 2016, down 2% from C$177 million in fiscal 2015. Adjusted operating income, meanwhile, fell 1.5% to C$199 million ($149 million) from C$202 million. Sales increased nearly 6% to C$2,268 million ($1,695 million) from C$2,144 million.
“Weston Foods continued to deliver results in line with our expectations, reflecting the impact of increased capital expenditures and incremental investments to support growth initiatives,” Galen Weston, chairman and chief executive officer, said during a March 2 conference call with analysts. “The seven new manufacturing lines that we have referred to previously are operating well and are generating incremental volume and growth.
“Weston Foods expects sales growth generated by incremental capacity and productivity improvements to drive an increase in adjusted EBITDA in 2017, when compared to 2016. However, this improvement will be partly offset by a challenging environment on our Canadian fresh bakery business and incremental investments required to meet new, more stringent regulatory requirements in food safety and labeling.
“The increase in adjusted EBITDA is expected to be greater in the second half of the year. Management expects to make capital investments of approximately C$250 million in 2017 related to growth, regulatory and maintenance. Depreciation is projected to increase in 2017 when compared to 2016, and more than offset the improvement in adjusted EBITDA.”
In the questions-and-answers portion of the call, Richard Dufresne, chief financial officer of George Weston, said food regulations in the United States are becoming more stringent, which has had an effect on the company’s business.
“If you look at the Food Safety Modernization Act, (it) essentially is shifting the focus from contamination to prevention,” he said. “And so therefore there are a bunch of new rules that are coming into play that are adding to our cost and the rest of the industry in the U.S. And there some new F.D.A. requirements regarding labeling, which are going to be enacted in July 2018, so we need to get ready for that in the U.S. And we are anticipating that such requirements will … happen in Canada, but probably over a longer time period. So those costs are now new that we need to take on and are reflected in our outlook for 2017.”Overall, George Weston posted net earnings of C$1,090 million, equal to C$3.96 per share on the common stock, which compared with C$830 million, or C$3.66 per share, a year ago. Sales increased 2% to C$47,999 million.