Good morning, ladies and gentlemen, and welcome to the George Weston Limited 2021 third quarter results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 23, 2021. I would now like to turn the conference over to Mr. Roy MacDonald. Please go ahead.
Great. Thanks very much, Pam, and good morning, everybody. Welcome to the George Weston Limited third quarter 2021 results conference call. I am joined in the room this morning by Galen Weston, our Chairman and CEO, and Richard Dufresne, our President and CFO. Before we begin today's call, I wanna remind you that today's discussion will include forward-looking statements which may include, but are not limited to, statements with respect to George Weston's anticipated future results and the impact of the COVID-19 pandemic. These statements are based on assumptions and reflect management's current expectations. As such, they are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are disclosed in the company's materials filed with the Canadian Securities Regulators.
Any forward-looking statements speak only as of the date they are made. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than what's required by law. Also, certain non-GAAP financial measures may be discussed or referred to today. Please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. With that, I will turn the call over to Richard.
Thank you, Roy, and good morning, everyone. I'm happy to report on our progress after a very busy and successful quarter. Overall, we're pleased with our results in the third quarter. Let me start with Weston Foods. As announced in March of this year, we made the decision to focus on our retail and real estate businesses. As such, we began a process to sell our Weston Foods business. After announcing a deal to sell the fresh and frozen portion of Weston Foods on October twenty-sixth, last week we announced the sale of the remaining ambient business. Together, these deals represent the disposition of George Weston's entire bakery business for an aggregate value of CAD 1.57 billion. We expect both transactions to close before the end of the first quarter of 2022.
As previously indicated, our current intention is to return the net proceeds to shareholders through our normal course issuer bid over time. Looking at our third quarter results, our financial performance is reflected in our continuing operations, mainly Loblaw and Choice Properties. George Weston Limited reported revenues of CAD 16.2 billion for the quarter, an increase of 2.4% versus last year. Total reported adjusted net earnings were CAD 359 million, approximately flat to last year. However, adjusted net earnings from continuing operations were CAD 365 million, up 6.4% compared to last year. Adjusted net earnings per common share from continuing operations were CAD 2.43, up 9.5%. Loblaw's performance of the third quarter continued from the positive trends from the previous quarter with steady improvement across our businesses.
Drug delivered strong sales and food benefited from the continuation of elevated eat-at-home trends. Adjusted EBITDA was up 10.3% and adjusted EPS growth of 24.2%. Loblaw increased its full year 2021 EPS outlook again this quarter. Choice Properties delivered another quarter of solid financial results and had an operationally strong quarter. This quarter, the contractual rent collection rate increased to 99%, demonstrating the strength and stability of its necessity-based portfolio. With its strong balance sheet, the business is well-positioned to drive net asset value appreciation. At a consolidated level, GWL free cash flow from continuing operations was CAD 286 million in the quarter and CAD 770 million year to date. We returned capital to shareholders by repurchasing CAD 411 million of common shares in the quarter.
Year to date, we have repurchased CAD 678 million of shares or 5.4 million shares. Last quarter, we initiated the settlement of the net debt associated with a long-term standing equity forward sale agreement relating to 9.6 million Loblaw shares. Subsequent to the end of Q3, we fully settled the forward liability in cash. In the process, we have simplified our balance sheet and more importantly, aligned our economic and voting interest in Loblaw at 52.6%. The total cash cost of the forward settlement was CAD 790 million. This will also save us approximately CAD 20 million annually in cash servicing costs. Looking forward, I remain encouraged by the strength and momentum of Loblaw and Choice. We are excited about the opportunities ahead for both our businesses.
Finally, as both Loblaw and Choice Properties publicly report their financial results, the divestiture of Weston Foods eliminates the need to hold a quarterly call. Going forward, we will continue to build relationships with the investment community to drive interest in George Weston Limited. With that, I will turn the call over to Galen.
Thank you, Richard, and good morning.
I'm pleased with the progress our business made in the third quarter as a continued emphasis on operational discipline delivered improved financial performance. At Loblaw, our focus on retail excellence ensured we were ready to meet the evolving needs of Canadians as a steady return to normal meant many of us opened our homes to friends and family for the first time in a long time this Thanksgiving. Along with the gradual shift back into the workplace, changing consumer habits have meant growing demand for beauty and cosmetics and a slow return of both acute and chronic prescriptions in our pharmacies. Even as more and more of us head back to our favorite restaurants, we continue to eat additional meals at home. As we do, Loblaw remains committed to offering exceptional value and convenience as it delivers on its purpose of helping Canadians live life well.
At Choice Properties, we were also pleased with strong financial and operating results in the quarter. Our necessity-based portfolio and disciplined approach to financial management continued to serve us well as we reported an increase in our NAV for the fifth consecutive quarter. When combined with one of the best development pipelines in the country, it's clear that Choice is well-positioned to drive long-term value appreciation. Finally, as Richard mentioned, we have signed definitive agreements for the sale of our bakery businesses. We are pleased to have two high-quality buyers in FGF and Hearthside, both of whom are well-positioned to build upon the heritage of Weston Foods while unlocking new opportunities for its products and people. This is a major milestone for George Weston and an important step in our strategic journey. I'd like to thank everyone who's worked diligently over the last eight months to reach this point.
Looking ahead, GWL will remain the strategic center of our group, actively working with our market-leading retail and real estate businesses. As we do so, I want to express my appreciation for all the colleagues in our stores, warehouses, and properties who are serving our customers and tenants every day as the country settles into a new post-pandemic rhythm. It is through their efforts that George Weston will continue to build long-term value for shareholders. I'll now open the call for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pooled in the order they are received. Should you wish to decline from the pooling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. Your first question comes from Irene Nattel with RBC Capital Markets. Please go ahead.
Thanks. Good morning. Just wanted to ask a few sort of practical questions around the NCIB. First of all, you know, you noted, Richard, that you bought 411 million shares in Q3. Is that sort of the understanding that that's a 16-week quarter, but is that the cadence that we should expect in terms of buyback, or will it be stepped up, slowed down? How should we think about this?
Yeah, we haven't done definitive plans, though. Like, we're still hard at work on getting both our transactions closed now. Like, as I mentioned in my remark, our current intention is to use these proceeds to do buyback. Right now, the only thing I would say is what would probably be in line with what we're doing, what we've did this year.
That's helpful. Thank you, Richard. Sort of couple of related questions. Will the Weston family participate in the NCIB? Related, will Weston participate in the Loblaw NCIB on a go-forward basis?
Yeah, we've been participating in the NCIB of Loblaw for a while, and because it allows us to buy back George shares at a discount. When you think about it financially, like being able to buy two amazing businesses at a discount makes a lot of sense for us. That's why we like to buy back at George.
Yeah. I'll add, Irene, you know, we like to own more of George from a family perspective.
Understood. Thank you. Just one final one, if I might, just to sort of, kind of tick all the little boxes here. Should we assume that, you know, for the foreseeable future that there absolutely is no intention whatsoever to add a third leg to GWL?
Never say never, Irene. No. But to be candid, though, like our focus right now is on driving value in both our food, retail, and real estate businesses. Those are two large, iconic businesses in Canada, and we see a lot of runway in both of them, and that should keep us busy for quite a while.
That's good. Thank you.
Your next question comes from Peter Sklar with BMO Capital Markets. Please go ahead.
Richard, just one question. Just curious, like what's your answer when people ask you the obvious question of, you know, why not eliminate the holdco discount by spinning out your interests in the retail Loblaw or come up with some other structure? You know-
My obvious answer to your question, Peter, is if we actually do a great job managing both Loblaw and Choice, our shareholders at George Weston should be really happy. That is our focus right now, and that's what we're gonna try to do as best we can.
Okay. You don't need the structure at the top in order to manage those businesses. Sorry to press you on the point.
It served us really well over the last, I don't know, 10, 20, 30, 40, 50 years now. Right now we like the structure as is.
Okay, thanks.
Ladies and gentlemen, as a reminder, should you have any questions, please press star one. Your next question comes from Michael Van Aelst with TD Securities. Please go ahead.
Hi. Good morning. Not too much more to ask other than I just wanted to see what your views are on the Choice NCIB. Do you expect them to be more active than last year? Does Weston participate in that?
Good question, Michael. No. Okay, the Choice has an NCIB because they've got some employee compensation program, and they need it to buy stuff to sort of feed that program, but that's essentially the use for it. We don't have any grand plans to start to actively be buying back Choice units.
Okay. Why buy back shares over such an extended period of time at the Weston level? Like, if you're limited to the amount that you can buy back under the normal course issuer bid, that could take, you know, many years for you to draw down the cash balance to a more reasonable level.
Because like, I've not done any work on this, Michael, but one thing I do know when I was doing substantial issuer bids in the past is you needed to pay a premium for these things to happen. We can buy George shares and that provides us a discount on Loblaw and Choice, so why would I want to negate that discount when I can do it all day now? For us, it makes a lot of sense to buy George shares financially.
Okay. Are there ways for you to accelerate those purchases beyond the normal kind of 5%?
I've not explored any way. Like, no. Right now I think NCIB, but, like, if someone comes up with a great idea, we'll definitely look at it. Like, I'm not too excited about paying a premium to buy back stock. I don't know, that doesn't make sense financially from my perspective.
All right. Thank you.
Your next question comes from Chris Li with Desjardins. Please go ahead.
Oh, good morning. Just maybe follow up on the buybacks, which you've done. Just my first question is, it looks like GWL corporate free cash flow is on track to reach about CAD 1 billion this year. It's coming from distribution from Loblaw and Choice and participating in the Loblaw's NCIB. Do you expect a similar free cash flow run rate for next year as well?
Yeah. I don't know where your billion number is coming up with, Chris. I think,
Okay.
Maybe Roy could get back to you on that. I think the amount of free cash flow that George will be generating going forward should be in line with what we've generated this year.
Okay.
That's the free cash flow we'll use, along with some of the proceeds that we got from the dispositions to fuel our buybacks.
I got you. Okay. That's clear. I guess, you know, now that you're sort of selling Weston Foods and settled the forward sale agreement, are there other things sort of at the GWL level that you want to change, or are you know, happy with the current structure? I'm thinking more specifically about the preferred shares. Anything there to do?
No, right now, like, actually, the preferred shares we really like because they're perpetual preferred shares, and so we like that structure. The debt at George Weston has a very long maturity, so it doesn't make any sense financially to even consider taking it out. I think the next question for us will be once this debt gets to maturity, we'll have to make a decision whether or not we refinance it or we just simply take it out.
Got you. Okay. That's helpful. Last question is, I guess in terms of the net proceeds, I guess you'll wait until the deals are closed before giving us more visibility on what the net proceeds will be from the sale.
Yeah, yeah. The only thing I can tell you, Chris, like if you look at taxes and closing costs, look, it's probably like, I don't know, north of about CAD 150 million-ish. That's what you should put in your model right now. It's a rough number, but that's what I have in my head right now.
Okay. Thanks very much, and, best of luck.
Thank you.
There are no further questions at this time. Please proceed.
Great. Thanks, Pam. Thank you, everybody, for your time this morning. We're around if you have any follow-up questions. George is scheduled to report our Q4 and full year 2021 results on March 2nd. As Richard indicated, we will not be holding a conference call, but IR will be there to answer any questions you have. Thanks very much, everybody.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.