Larsen & Toubro Ltd
NSE:LT
Larsen & Toubro Ltd
In the vibrant tapestry of India's industrial landscape, Larsen & Toubro Ltd. (L&T) has woven itself as a cornerstone, bearing witness to and actively participating in the nation’s growth. Founded by two Danish engineers in 1938, the company initially focused on engineering and construction. Over the decades, it has evolved into one of the largest and most respected conglomerates in India, spanning across diverse sectors. Headquartered in Mumbai, L&T operates with a strategic blend of innovation and resourcefulness, driven by its pillars of Engineering, Construction, Manufacturing, and Technology. The company manages to fuse traditional values with cutting-edge practices, nurturing major infrastructure projects that include roads, bridges, metros, and airports, thereby shaping the physical backdrop of India’s future.
L&T's prowess is accentuated through its integrated business model, combining domain expertise with a vast geographical reach that extends well beyond India’s borders, into the Middle East and beyond. The company's financial health is fortified by its multi-disciplinary operations: construction and project execution drive a substantial revenue stream, while its foray into high-margin sectors such as technology services and financial services further bolster profitability. With a commitment to sustainability and innovation, L&T leverages its extensive R&D capabilities to stay ahead of the curve in a competitive market. The company’s manufacturing division, particularly in heavy engineering, supplies equipment for critical sectors like defense, nuclear power, and aerospace, thus making significant contributions to national capabilities and self-reliance. Thus, L&T stands not just as a business entity, but as a monumental force that underscores and accelerates the progress of an ambitious nation.
Earnings Calls
In the third quarter, George Weston Limited achieved revenues of $16.2 billion, up 2.4% year-over-year. Adjusted net earnings from continuing operations reached $365 million, a 6.4% increase, with adjusted EPS rising 9.5% to $2.43. The company announced the sale of its entire bakery business for $1.57 billion, aiming to return proceeds to shareholders through buybacks. Loblaw's performance showed strong momentum, reflected in a 10.3% rise in adjusted EBITDA. The free cash flow from continuing operations was $286 million for the quarter, with expectations to maintain similar performance next year as they focus on long-term value creation in retail and real estate.
Management
Sekharipuram Narayanan Subrahmanyan, commonly known as S. N. Subrahmanyan, is a prominent Indian business executive and the CEO and Managing Director of Larsen & Toubro (L&T), an Indian multinational conglomerate. Subrahmanyan assumed the role of CEO in July 2017, succeeding the well-regarded A. M. Naik. He joined L&T in 1984 and has played a significant role in the company, particularly within the construction and infrastructure segments. Over the years, Subrahmanyan has contributed to the execution of several major infrastructure projects and has been instrumental in overseeing the company's expansion both domestically and internationally. Known for his expertise and leadership in engineering and construction, he was pivotal in the growth and transformation of L&T’s construction business, which has become one of the largest in the country under his leadership. Subrahmanyan's strategic vision has helped drive innovation and efficiency within the company, addressing the dynamic challenges of the industry. His leadership style is noted for fostering a collaborative environment and integrating cutting-edge technology solutions to enhance project delivery and operations. Additionally, Subrahmanyan holds positions in various professional organizations and is often involved in advocating for the infrastructure sector's growth and development. He is an alumnus of the London Business School and has an educational background in civil engineering from the National Institute of Technology, Kurukshetra.
Mr. Ramamurthi Shankar Raman is a prominent figure in the corporate world, particularly known for his role at Larsen & Toubro Ltd (L&T), a multinational conglomerate with interests in engineering, construction, manufacturing, technology, and financial services. He joined L&T in 1994 and has held various key positions within the company, significantly contributing to its financial strategies and overall growth. As of his last known position, Mr. Shankar Raman serves as the Chief Financial Officer (CFO) and a member of the Board of Directors at Larsen & Toubro. In his role as CFO, he is responsible for overseeing the financial operations of the company, which includes managing its financial risks, financial planning and analysis, record-keeping, and financial reporting. His leadership has been instrumental in steering the company through various economic cycles and ensuring its robust financial health. Mr. Shankar Raman is a Chartered Accountant and has a rich background in finance and management, with extensive experience in handling complex financial portfolios. Under his financial stewardship, L&T has maintained a strong balance sheet and has been able to capitalize on emerging opportunities in various sectors. He is also associated with several professional bodies and holds a reputable standing in the financial community for his expertise and insights into corporate finance and governance. Mr. Shankar Raman's strategic financial management has played a crucial role in strengthening L&T's position as a leader in its industry.
S. Subramanian Sarma is a prominent figure in the engineering and construction industry, known for his significant contributions to Larsen & Toubro Ltd (L&T). He serves as an executive director and is part of the company's board. With a deep background in engineering and a wealth of experience in the oil and gas sector, Sarma has been instrumental in overseeing and guiding the strategic direction of L&T’s Hydrocarbon business. Before joining L&T, Sarma held key leadership positions at various global organizations in the energy sector, bringing valuable insights and expertise. His career trajectory includes substantial international exposure, having worked in multiple countries, which has further enriched his understanding and approach towards managing large-scale projects. He is known for his leadership skills, keen business acumen, and ability to drive growth and innovation within L&T. Under his leadership, L&T’s Hydrocarbon segment has achieved substantial growth, strengthening its position in both domestic and international markets. Sarma's contributions have not only enhanced operational efficiencies but also expanded the company's portfolio and market reach. Sarma’s work continues to influence the industry, and he is recognized as a key figure in ensuring L&T’s sustained success and leadership in the global engineering and construction landscape.
Tharayil Madhava Das is a notable executive known for his significant contributions to Larsen & Toubro Limited (L&T), a major technology, engineering, construction, and manufacturing company in India. He has an academic background in engineering, holding a Bachelor of Technology (B.Tech.) degree, which laid the foundation for his career in the engineering and infrastructure sector. Throughout his tenure at L&T, Mr. Das has been instrumental in driving strategic initiatives and projects that align with the company’s mission to deliver impactful and sustainable infrastructure solutions. He has held various leadership roles, showcasing his expertise in project management, operational excellence, and technological innovation. His efforts have played a crucial role in enhancing L&T’s reputation as a leading player in the industry. Mr. Das is recognized for his leadership skills, his ability to adapt to changing market dynamics, and his commitment to fostering a culture of innovation within the company. He has been involved in numerous high-profile projects, steering them to successful completion and contributing to the company's growth and profitability. His career at L&T exemplifies a blend of technical knowledge and managerial acumen, making him a respected figure in the corporate world and the broader engineering and construction industries.
Sudhindra Vasantrao Desai is a notable executive at Larsen & Toubro Ltd (L&T), which is one of India's largest and most respected conglomerates with a presence in various sectors such as engineering, construction, manufacturing, technology, and financial services. Desai has held significant positions within the company and contributed to its growth and operations. He has extensive experience in strategic planning and operational excellence, and he has played a crucial role in various infrastructure projects undertaken by L&T. His leadership and expertise have been instrumental in navigating complex challenges, improving efficiency, and driving innovation within the company. Desai is known for his commitment to quality and has consistently advocated for sustainability and ethical practices in business operations. His approach often focuses on integrating modern technology and engineering solutions to solve real-world problems effectively. Throughout his career at L&T, Sudhindra Desai has earned recognition for his management skills and his ability to lead diverse teams toward achieving common goals. His contributions have had a lasting impact on the organization's stature and success in the international arena.
Anil Vithal Parab is a prominent figure at Larsen & Toubro Ltd, a major Indian multinational engaged in technology, engineering, construction, manufacturing, and financial services. He serves as an Executive Vice President and heads the Heavy Engineering division of the company. Parab has been with Larsen & Toubro for several decades, having joined the company as a graduate engineer trainee. Over the years, he has held various positions, contributing significantly to the growth and development of the Heavy Engineering division. His leadership is characterized by a focus on operational excellence, innovation, and the adoption of cutting-edge technologies. Under his guidance, the Heavy Engineering division has achieved several milestones, cementing its position in both domestic and international markets. Parab is recognized for his deep technical expertise and strategic vision, playing a crucial role in driving projects across diverse sectors such as nuclear power, defense, and petrochemicals. Anil Vithal Parab is an alumnus of the Indian Institute of Technology (IIT), where he obtained his engineering degree. His contributions to the industry and his leadership in complex projects have earned him respect and recognition within the engineering community.
R. Govindan is a senior executive at Larsen & Toubro Ltd, an Indian multinational engaged in technology, engineering, construction, manufacturing, and financial services. He plays a pivotal role in the company, contributing to its growth and strategic initiatives. At L&T, Govindan has been involved in operations that are critical to the company’s success, including mergers and acquisitions, and the expansion of its infrastructure and manufacturing capabilities. His leadership and expertise have been instrumental in enhancing L&T's reputation as a leader in various sectors, including engineering and construction. Details about his specific role, responsibilities, and career trajectory within L&T may not be extensively documented in public domains, reflecting a more reserved leadership presence.
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Good morning, ladies and gentlemen, and welcome to the George Weston Limited 2021 Third Quarter Results Conference Call. [Operator Instructions]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. And before we begin today's call, I want to 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. So 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. And 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 are 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 26, 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 $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 $16.2 billion for the quarter, an increase of 2.4% versus last year. Total reported adjusted net earnings were $359 million approximately flat to last year. However, adjusted net earnings from continuing operations were $365 million, up 6.4% compared to last year. Adjusted net earnings per common share from continuing operations were $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%. Also 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 $286 million in the quarter and $770 million year-to-date. We returned capital to shareholders by repurchasing $411 million of common shares in the quarter. Year-to-date, we have repurchased $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 $790 million. This will also save us approximately $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 both 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 that 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 that 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, and 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 continue 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 2 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 8 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.
[Operator Instructions] Your first question comes from Irene Nattel with RBC Capital Markets.
Just wanted to ask a few sort of practical questions around the NCIB. So first of all, you noted, Richard, that you bought $411 million of shares in Q3. Is that sort of a -- 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?
Yes. We haven't been -- not that definitive plans. Like, we're still hard at work on in getting both our transactions close. But like I mentioned in my remark, our current intention is to use these proceeds to do buyback. So right now, the only thing I would say is would probably be in line with what we are doing, what we did this year.
That's helpful. And sort of a couple of related questions. Will the Weston family participate in the NCIB? And then related, will Western participate in the Loblaw, NCIB on a go-forward basis?
Yes. We've been participating in the NCIB and Loblaw for a while and because it allows us to buyback George shares at a discount. And when you take at it, financially, like being able to buy 2 amazing businesses at a discount makes a lot of sense for us. So that's why we like the buyback at George.
Yes. And I'll add, Irene, we like to own more of George from a family perspective.
Understood. And then just one final one, if I might, just to sort of kind of check a bunch of little boxes here. Should we assume that, for the foreseeable future, that there absolutely is no intention whatsoever to add a third leg to GWL?
Never say never, Irene. It's like -- no -- but to be candid, like, our focus right now is on driving value in both our food retail and real estate businesses. Those are 2 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.
Your next question comes from Peter Sklar with BMO Capital Markets.
Richard, just one question. Just curious, like, what's your answer when people ask you the obvious question of why not eliminate the holdco discount by spinning out your interest in the REIT and Loblaw or come up with some other structure?
So 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. And so that is our focus right now, and that's what we're going to try to do as best we can.
Okay. But 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. And so right now, we like the structure as is.
[Operator Instructions] Your next question comes from Michael Van Aelst with TD Securities.
Not too much more to ask other than I just want to see what your views are on the Choice/NCIB. Do you expect them to be more active than last year? And does Weston participate in that?
Good question, Michael. No. Okay. Choice has an NCIB because they've got some employee compensation program, and they needed to buy stuff to sort of feed that program, but that's essentially the use for it. So we don't have any grand plans to start to actively buying back Choice unit.
Okay. And why buy back shares over such an extended period of time at the Weston, Loblaw, if you're limited to the amount that you can buy back under the normal course issuer bid, that could take many years 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. And so we can buy George shares and give us -- 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. So for us, makes a lot of sense to buy George shares financially.
Okay. But are there ways for you to accelerate those purchases beyond the normal kind of 5%?
I've not explored any way though, like, now -- right now, I think NCIB, but like if someone comes up with a great idea, we'll definitely look at it. But 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.
Your next question comes from Chris Li with Desjardins.
Just maybe a follow up on the buybacks, Richard. Just my first question is, it looks like GWL corporate free cash flow is on track to reach above $1 billion this year. It's coming from distribution Loblaw and Choice and participating in the Loblaw, NCIB. Do you expect a similar free cash flow run rate for next year as well?
I don't know where $1 billion number is coming up. What -- Chris, I think maybe Roy could get back to you on that. But 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. And that 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. And then, I guess, now that you're sort of selling Weston Foods and clean up -- that settles the forward sale agreement, are there other things sort of at the GWL level that you want to change? Or are you happy with the current structure? I'm talking -- 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. And last question is, I guess, in terms of the net proceeds, I guess you wait until the deals are closed before giving us more visibility on what the net proceeds will be from the sales?
Yes. Yes. 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 $150 million-ish. So that's what you should put in your model right now when -- it's a rough number, but that's what I have in my head right now.
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. And George is scheduled to report our Q4 and full year '21 results on March 2. 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.