Author: Consultant

The federal government will provide Volkswagen with up to $13-billion in production subsidies for the new electric-vehicle battery plant it plans to build in St. Thomas, Ont. – nearly double the estimated $7-billion cost of construction.

Ottawa’s backing, which also includes about $700-million in additional support for nearer-term capital costs, is by far the most generous subsidy that Canada has ever provided to an automaker for locating a factory here.

The arrangement will be formally announced at an event in St. Thomas on Friday, but was confirmed by a federal official on Thursday. The Globe is not identifying the source, because they were not authorized to discuss the matter publicly.

The federal funding is meant to match the subsidy Volkswagen would have received through United States President Joe Biden’s Inflation Reduction Act, had it decided to build the factory in the U.S. instead. And it includes a provision that if the U.S. stops offering the subsidies, Canada will stop as well.

Neither the government nor Volkswagen would specify on Thursday how many jobs the new factory will directly create, but industry estimates have put the number between 2,000 and 3,000. The company has said a battery plant that it is currently building in Germany, which appears to be of comparable size, will employ about 2,500 people once operational.

Beyond just its scale, the federal funding deal is structurally different from those governments in this country have previously negotiated. Canada normally sticks with subsidizing investment costs. In previous deals with automakers, those subsidies have usually ranged from 10 to 20 per cent of projects’ capital budgets.

In this case, Canada will be offering subsidies during the factory’s early years of operation, tied to the number of vehicles produced. The U.S. has more history with this type of subsidy, which it provides annually through tax credits.

The billions in production subsidies revealed on Thursday, as well as the $700-million in more-immediate support, will come entirely from the federal government. The production subsidies will be delivered in annual instalments over the next decade, starting when the plant is operational. Further financial support, though in much smaller amounts, is expected to be layered on by the Ontario government.

Volkswagen announced in March that it would build the plant in Ontario, but did not provide any financial details at the time. Prime Minister Justin Trudeau’s government had signalled that it was willing to pay a premium to land the investment, because of its perceived importance to building a Canadian electric-vehicle supply chain.

Industry Minister Francois-Philippe Champagne echoed that message on Thursday, without discussing specifics of the subsidy deal. “When you see a transformation in the industry, you have to seize the moment,” he told reporters, stressing that Volkswagen is making a commitment for decades, not just the relatively short period over which the subsidies will be offered.

Mr. Champagne predicted the factory will indirectly produce “tens of thousands of jobs,” in addition to the smaller number of direct ones.

The hope is that the factory will serve as an anchor that spurs investment in the mining and refining of battery metals, while also benefitting Canadian parts manufacturers who have supplied makers of internal combustion engines and now need to transition to electric vehicles.

Some of that supporting infrastructure could be directly adjacent to the Volkswagen plant. Auto-sector insiders have pointed to the roughly 600 hectares of land that has been designated for the development – a much bigger space than is needed for the factory alone – as a sign the federal and provincial governments are aiming to attract supplier companies, or perhaps further Volkswagen facilities, to St. Thomas as well.

Volkswagen’s commitment also has some perceived symbolic value, because this facility is to be the global giant’s first large battery factory outside Europe. It’s also the first major new foray into Canada since the 1980s by an automaker that does not already have roots here, and is being billed as the single biggest auto-making investment in Canadian history.

Federal officials had previously hinted that they would not need to fully match the American subsidies, because of other Canadian advantages – including access to critical minerals and a comparatively ample supply of clean electricity. Canada also has stronger auto-making infrastructure and a more experienced manufacturing work force than the southern U.S. states that were believed to be the main competition.

The Volkswagen agreement opens the door to greater subsidies for other automakers.

The only other battery plant that Canada had previously landed – a partnership between Stellantis NV and LG Energy Solution currently being built in Windsor, Ont. – has to date received a commitment of only about $1-billion from the federal and Ontario governments combined. The deal was negotiated prior to the Inflation Reduction Act’s passage.

The federal official acknowledged that the federal government is now back at the table with Stellantis-LG, but would not speculate on whether Ottawa will now up its offer to match the production subsidies being committed to Volkswagen.

The details of the government’s commitment to Volkswagen, which have been a topic of speculation since the company announced its Ontario plans, drew a mixed reaction from industry observers and advocates.

Greig Mordue, a former auto-sector executive who is now the chair in advanced manufacturing policy at McMaster University’s engineering school, expressed skepticism that Ottawa has rigorously analyzed whether the leap in battery-manufacturing subsidies – from $1-billion a year ago to around $13-billion now – is justified by the economic value of the investment.

And he suggested that some of the domestic sectors in which the factory could spur investment, such as critical minerals, would have growth opportunities regardless of which country the plant was located in. At the same time, he said, Canada has yet to prove it is capable of accelerating mining to meet demand for battery metals.

Brendan Sweeney, the managing director of the Trillium Network for Advanced Manufacturing, a non-profit that advocates for Ontario’s advanced manufacturing sector, was more bullish.

“There is a lot of emphasis on the $13-billion figure,” he said, “but less on the fact that all of that $13-billion is tied to production and output that exceeds those incentives in multiples. We’ve done the math, and it makes sense for everyone.”

What are we looking for?

My team member, Allan Meyer, recently attended the Canadian Association of Petroleum Producers (CAPP) conference hosted in Toronto by Bank of Montreal. He came back impressed. As a result, we decided to analyze oil and gas producers using our investment philosophy, which focuses on safety and value, and see what the numbers say. We’d also like to remind investors that this sector can be cyclical and volatile, so we tend to target very limited to no exposure to it in our client portfolios.

The screen

We started with Canadian-listed oil and gas companies with a market capitalization of $1-billion or more, sorted from largest to smallest. This is a safety factor, as large companies tend to be more stable and liquid than small ones.

Dividend yield is the projected annual dividend per share divided by the share price. Allan and I like to get paid while we wait for capital appreciation, and dividends generally reflect safety and stability. So, we limited our search to dividend payers.

Debt/equity is our final safety measure. A smaller number is better and implies lower relative risk. It’s difficult to go bankrupt if you have little or no debt.

Price/cash flow is the share price divided by the projected annual cash flow per share. It’s a valuation metric, and the lower the number, the better the value. In the oil and gas sector, cash flow is often considered more reliable than earnings-based financial ratios because of the high costs in the sector related to non-cash items such as depreciation, amortization and deferred taxes.

Enterprise Value/EBITDA is known as the “takeover multiple.” It is a measure of the company’s total value divided by earnings before interest, taxes, depreciation and amortization (a proxy that’s like cash flow). Unlike many common valuation metrics, it accounts for the undertaking of debt by an acquirer. Smaller numbers mean a company is less expensive (i.e. better value).

We’ve also included the 52-week total return to track performance, and the average and median numbers to allow for better comparability within the group.

What we found

Oil and gas stocks with strong dividends

COMPANY	TICKER	MARKET CAP ($B)	DIV. YLD. (%)	D/E (%)	P/CF	EV/EBITDA
Canadian Natural Resources Ltd	CNQ-T	87.8	4.5	34.0	5.5	4.5
Suncor Energy Inc	SU-T	56.9	4.8	39.7	3.8	2.8
Cenovus Energy Inc	CVE-T	45.8	1.8	42.2	3.9	3.5
Imperial Oil Ltd	IMO-T	42.6	2.4	18.5	6.3	3.8
Tourmaline Oil Corp	TOU-T	19.6	1.7	4.6	4.3	2.9
ARC Resources Ltd	ARX-T	9.9	3.7	26.8	3.1	2.2
Whitecap Resources Inc	WCP-T	6.5	5.4	37.1	3.4	3.2
Crescent Point Energy Corp	CPG-T	5.6	3.9	24.1	2.3	2.4
Enerplus Corp	ERF-T	4.5	1.4	24.1	3.6	2.2
Vermilion Energy Inc	VET-T	2.9	2.3	33.9	2.0	1.6
Parex Resources Inc	PXT-T	2.8	5.7	0.4	2.5	1.6
Topaz Energy Corp	TPZ-T	2.8	6.3	34.1	8.7	9.1
Tamarack Valley Energy Ltd	TVE-T	2.3	3.6	56.5	2.5	3.9
Freehold Royalties Ltd	FRU-T	2.3	7.2	16.5	7.8	6.7
Peyto Exploration & Development Corp	PEY-T	2.2	10.6	41.9	2.5	2.5
Birchcliff Energy Ltd	BIR-T	2.2	9.9	6.0	3.7	2.6
Headwater Exploration Inc	HWX-T	1.5	6.2	0.2	4.7	4.7
Cardinal Energy Ltd (Alberta)	CJ-T	1.2	9.7	3.9	4.2	3.4
AVERAGE		16.6	5.1	24.7	4.2	3.5
MEDIAN		3.7	4.7	25.5	3.8	3.1

Source: Refinitiv Eikon & Wickham Investment Counsel Inc.

Parex Resources PXT-T +1.17%increase scores well for safety and value, and has the lowest EV/EBITDA ratio; one wonders if the company is a takeover candidate. Birchcliff Energy BIR-T unchno change also looks interesting. Vermilion Energy VET-T +1.49%increase is the least expensive on both of our valuation metrics, while Peyto Exploration & Development PEY-T -0.77%decrease has the highest dividend and is attractively priced. Headwater Exploration HWX-T +2.18%increase has almost no debt and pays a nice dividend. In general, the list offers attractive valuations, light debt loads and healthy dividend yields.

The BMO Canadian Oil and Gas ETF and the iShares Energy ETF are options for investors who like the sector, but want to diversify away individual security risk.

Investors should contact an investment professional or conduct further research before buying any of the companies or ETFs listed here.

Glencore intensified its battle for Teck Resources TECK-B-T -1.09%decrease by dangling the prospect of a higher bid as long as shareholders reject the Canadian company’s proposal to split the company in two next week.

In an open letter pitched Wednesday morning to Teck’s Class B shareholders, who own almost all the equity but few of the votes, Glencore CEO Gary Nagle said that, should the vote go against Teck, his company would open negotiations directly with shareholders if Teck continues to resist its offer.

“Glencore is willing to consider making improvements to its proposal,” Mr. Nagle said. “Glencore has never stated that its proposal is ‘best and final’ and that is it not willing to make changes and improvements to its proposal.”

Mr. Nagle’s new pitch came exactly one week ahead of the Teck vote, which requires two-thirds approval by both the Class A and Class B shareholders to succeed. If Teck wins the vote Teck would place its copper and zinc assets in a metals-focused company and spin off its metallurgical coal business, which would pay most of its cash flow to the metals company for a number of years.

Opinion: How the hedge funds could feast on any Teck deal – and possibly influence its outcome

Norman B. Keevil, Teck’s Chairman Emeritus, and Japan’s Sumitomo control almost half of the A shares, which have 100 votes apiece. Mr. Keevil and Sumitomo have already committed to endorsing Teck’s split proposal.

Mr. Keevil has said that he would not stand in the way of a deal that would enlarge Teck and deliver considerable value to shareholders if the proposal were to receive the endorsement of the full board and the B shareholders. There is no sign, however, that he or the board would warm to an improved Glencore offer.

Mr. Keevil told The Globe and Mail last week that a higher per-share offer from Glencore would actually make the offer less enticing. That’s because it would result in Glencore “debasing their own currency,” he said in an interview on Friday.

“The [Glencore] shares are worth less and less and less, because there’s so many more of them,” he said.

The Teck board has refused to negotiate with Glencore and has rejected the company’s opening merger offer as well as sweetened offer that proposed buying out for cash any Teck shareholders who did not want equity exposure to the new coal company.

Glencore is gambling that the prospect of a higher price will convince the holders of the single-vote B Shares to reject the Teck restructuring.

In the event of both Teck’s split getting voted down, and Teck subsequently refusing to engage with Glencore, Jefferies analyst Christopher LaFemina predicts the dynamic of the deal will change dramatically.

“We believe this becomes a takeover rather than a merger. There is no more GlenTeck if a deal is consummated in that case, ” he wrote in a note to clients.

“It would be Glencore, and Glencore’s management takes control in that case. This reminds us in many ways of the Glencore playbook when it acquired Xstrata ten years ago.”

It is not known which way Teck’s B shareholders are leaning, as the Teck split vote approaches, since investors typically make up their minds on which way to go only shortly before the vote. On Monday, Teck CEO Jonathan Price expressed confidence that the company’s biggest B-shareholder, China Investment Corp., will vote for Teck’s proposed split. CIC owns 10 per cent of the B shares.

Mr. Nagle has said that Glencore’s bid probably would collapse if Teck were to win the vote. Glencore has offered to merge its metals assets with those of Teck’s, then form a separate company that would hold the two companies’ thermal and metallurgical coal businesses. The offer was delivered last month at a 20 per cent premium.

“We affirm Glencore’s proposal will stand and remain valid if Teck delays its shareholders’ meeting or Teck shareholders vote down the proposed Teck separation,” Mr. Nagle said. “Glencore is willing to make an offer directly to Teck shareholders if the proposed Teck separation does not proceed.”

More than 150,000 federal public servants across the country will go on strike starting Wednesday, after Ottawa and the union representing these workers failed to reach a deal for a new collective agreement by Tuesday evening’s strike deadline.

It will be one of the largest national strikes in Canadian history, coming on the heels of a prolonged inflation and cost-of-living crisis.

“Our issues at the bargaining table have still not been addressed by the employer. We do not have a tentative agreement. Our 155,000 members of the Public Service Alliance of Canada will be on strike as of 12:01 a.m. tomorrow,” declared Chris Aylward, president of PSAC at a news conference in Ottawa late Tuesday evening.

Mr. Aylward added that the union and the government were still “a ways apart” on a deal, but reiterated that the union would stay at the bargaining table if the government too was prepared to stay at the table.

“Our members are calm, but they are prepared to fight,” he said.

Given the number of workers involved in the strike spread across various federal departments, its impact will be felt acutely by Canadians. A variety of public services across the country could face backlogs and delays, including immigration and passport applications, employment insurance claims, as well as tax filings ahead of the April 30 deadline. PSAC workers in ports across the country will also be on strike, potentially causing supply chain disruptions. Slowdowns at the border are expected as well, according to the union, as certain administrative staff from the Canada Border Service Agency will be on strike.

A strike will send roughly 120,000 workers off the job – 34,000 others are deemed essential and would keep working, according to the union

Picket lines will be set up in more than 250 locations across the country, the union said.

On Monday, PSAC president Chris Aylward described the mood at the bargaining table as “frustrating” and said that both sides were still “too far apart” on key issues including wages, job security and remote work.

The government has said that it is committed to reaching agreements that are “fair to employees and reasonable for taxpayers.” In a statement issued Monday, the Treasury Board stated that beyond wages, PSAC had “made it clear” that it would walk away from negotiations unless remote work language was enshrined into collective agreements.

Various PSAC bargaining units have been at the negotiating table for over 18 months now, and some of them have reached deals with Ottawa – but the most contentious negotiations have been between the government and four bargaining units made up of 120,000 Treasury Board workers. These workers range from operations service employees who maintain federal government buildings, to administrative staff across various departments and agencies.

From the start of negotiations, PSAC has been pushing for a 13.5-per-cent wage increase spread over three years, which the union says matches inflation. The government’s opening offer in 2021 was a 2.07-per-cent increase per year over three years, but last May it increased that to a cumulative 8.2 per cent spread over three years. On Monday the government upped its offer again to 9 per cent, over three years, in line with a recent suggestion from the Federal Labour and Employment Board’s public interest commission.

Negotiations for 35,000 CRA workers are taking place at a separate bargaining table, led by representatives of the Union of Taxation Employees, an arm of PSAC. The union is asking for a wage hike of 4.5 per cent in 2021, 8 per cent in 2022 and 8 per cent in 2023, again arguing that it is in line with inflation and private sector wage gains over the past few years. The government has not made its wage offer public – earlier this week, Mr. Aylward said the union had yet to receive a wage offer from Ottawa for CRA workers.

The federal labour board’s public interest commission had said, in a report earlier this year, that both sides in this particular negotiation had “completely divergent” views about the state of the Canadian economy and the government’s fiscal circumstances, although it also noted that there were many areas of potential compromise and trade-offs.

If the strike prolongs, the Liberal government could potentially table back-to-work legislation which would legally force public servants back to their jobs through an imposed contract, or enter into binding arbitration with the union. But the government would need to rely on support from the Bloc Québécois and the Conservatives to get the bill passed – NDP Leader Jagmeet Singh emphasized Monday that his party would not support any kind of back-to-work legislation.

• Fox Corp. and its cable networks agreed to pay $787.5 million to Dominion Voting Systems to settle a defamation lawsuit over false claims that Dominion’s machines swayed the outcome of the 2020 presidential election.
• The settlement, which came after a jury had been seated, averted a weekslong trial that could have seen top Fox TV hosts and network boss Rupert Murdoch publicly testify.
• Dominion CEO John Poulos told reporters outside court that, as part of the settlement, “Fox has admitted to telling lies.”

Fox News and Dominion settle election defamation lawsuit (cnbc.com)

Big global money managers got rid of a high volume of Chinese equities in recent days, while adding U.S. energy shares to portfolios at a near-record pace, according to a Goldman Sachs report.

Managers decided to sell Chinese equities amid heightened geopolitical tensions between the world’s second largest economy and the United States.

“As concerns heightened around geopolitics, Chinese equities were net sold for the first time in a month, driven by risk unwinds with long sales outpacing short covers,” Goldman Sachs said, adding investors had sold both offshore and onshore shares.

Besides geopolitics risks, managers are closely watching China’s economic recovery from the COVID-19 slump. The MSCI Index is up 9.6% this year, after a 22% drop in 2022.

Goldman Sachs compiled data from its clients, which include hedge funds and other big money managers, for the period between April 7 and April 13.

Gross exposure to China, which includes funds’ short and long positions, went down 2.6% for this period.

While selling China, hedge funds net bought U.S. energy shares at the fastest pace in three months, Goldman Sachs said. The move was driven by a rally in crude oil price this year after Saudi Arabia and its allies in OPEC+ surprised traders by announcing an unexpected cut in their output target at the start of April.

The bank noted that last week’s U.S. net buying was at a near-record pace for the past five years.

Canada’s inflation rate is rapidly cooling as expected this spring, with consumers benefiting from a pullback in energy costs and weaker price hikes for appliances and other durable goods.

The Consumer Price Index (CPI) rose 4.3 per cent in March from a year earlier, down from February’s 5.2-per-cent pace, Statistics Canada reported on Tuesday. The slowdown was widely anticipated and matched financial analysts’ predictions.

And there should be more progress in the coming months. The Bank of Canada projects inflation will ease to around 3 per cent by the middle of the year, before returning to 2 per cent by the end of 2024. The central bank outlined that path for inflation at last week’s rate decision, which held the benchmark interest rate at 4.5 per cent.

Instant reaction to Canadian inflation data: markets no longer pricing in BoC rate cuts this year

Price growth is moderating as businesses and households adjust to the highest interest rates in more than 15 years, and as supply chains recover from significant disruptions. There are also favourable base effects at play: The initial surge in commodity prices as Russia invaded Ukraine is no longer part of the year-over-year calculation of CPI growth.

Even so, the short-term trend has noticeably cooled off. Expressed at an annualized rate, the three-month change in core inflation (excluding food and energy) was 3.1 per cent in March, down from 3.4 per cent in February. It had peaked at more than 8 per cent in May, 2022.

“While Canadian households can’t look forward to broad-based price declines, there are growing signs that the pace of price growth is settling down,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a note to clients.

Gasoline prices fell nearly 14 per cent over the past year, although they were up 1.2 per cent from February. The price of durable goods rose 1.6 per cent in March on a 12-month basis, slowing from a 3.4-per-cent gain in February.

There have also been slight improvements in the grocery sector: Those prices rose 9.7 per cent over the past year, down from increases of more than 11 per cent in recent months.

On the flip side, mortgage interest costs have surged by 26.4 per cent over the past year, rising from February’s gain of nearly 24 per cent. “This was the largest yearly increase on record as Canadians continued to renew and initiate mortgages at higher interest rates,” Statscan said in its release. Excluding these costs, the CPI rose 3.6 per cent over the past 12 months.

On several occasions last week, Governor Tiff Macklem said the Bank of Canada would not be satisfied with inflation ebbing to 3 per cent and pushed back against market expectations that it could start cutting interest rates later this year. The bank aims for the midpoint of a 1-to-3-per-cent range for inflation, giving it wiggle room on either side of its 2-per-cent target.

“We are encouraged with the progress so far. And getting inflation down to 3 per cent this summer will be [a] welcome relief for Canadians,” Mr. Macklem said at a press conference last week. “But let me assure Canadians that we know our job is not done until we restore price stability. That means inflation is centred on the 2-per-cent target.”

While inflation is continuing to subside, the BoC has indicated that the final leg of the journey – bringing CPI growth to 2 per cent from 3 per cent – could prove challenging. This is because inflation expectations are declining slowly, wage growth and services inflation remain elevated and corporate pricing behaviour needs to cool, Mr. Macklem said.

“Markets are no longer pricing in rate cuts in Canada this year and have opened the door to further hikes in the near term,” Mr. Mendes said. “However, with the recent global banking system stresses unexpectedly tightening financial conditions, we think rate hikes are now a thing of the past and cuts will begin around the turn of the year.”

Pilots at WestJet Airlines have voted to go on strike next month as they seek better pay, job protection and working conditions at Canada’s second-largest carrier.

Nine-three per cent of the votes cast by pilots who fly for WestJet Group, which includes discount brand Swoop, voted for the work stoppage, said Bernard Lewall, a union leader at Air Line Pilots Association.

The earliest the pilots can strike or be locked out by the employer is May 16, according to labour laws. The ballot’s participation rate was 95 per cent, the union said.

“It’s an indication of just how unified this pilots’ group is,” Mr. Lewall said by phone. “Our pilots are fed up. They want to give [union leaders] a mandate to get management back to the bargaining table and negotiate in good faith.”

The two sides have been in talks since September, and continue to negotiate daily.

Among the union’s demands is equal pay and work conditions for pilots at WestJet and Swoop. Mr. Lewall said the Swoop pilots fly the same Boeing 737 planes on many of the same routes as their WestJet colleagues, but for less money. The issue becomes more important with WestJet’s takeover of Sunwing Airlines.

In a statement, WestJet said a strike authorization vote is a common part of the bargaining process, and does not mean a strike will occur. “We remain unwaveringly committed to achieving an agreement that is competitive within Canada’s airline industry and ensures we have a long-term sustainable future so that we can continue to operate critical air service for millions of Canadians, while providing jobs for thousands at the WestJet Group,” Diederik Pen, WestJet Group chief operating officer, said in the statement.

Calgary-based WestJet lost 240 pilots last year and another 100 this year, Mr. Lewall said. They are leaving for better pay, working conditions and career certainty, often in the United States. WestJet pilots are paid 45 per cent less than their U.S. counterparts, Mr. Lewall said in an interview.

“What our pilots need is a North American standard contract .. to retain the pilots we currently have and attract new ones,” Mr. Lewall said.

“We are losing our experienced pilots, we are hiring some pilots, but it’s not replacing the ones that we’re losing, which is frustrating for us,” he said.

Other issues include that WestJet has said it will stop adding Boeing 787s, a larger plane on which pilots are paid better. And the airline’s recent move to focus less on Eastern Canada means Toronto-based flight crews are getting fewer flights, he said.

WestJet controls about 31 per cent of the Canadian market, behind Air Canada at 49 per cent.

Galen Weston will step back from day-to-day operations at Loblaw Cos. Ltd. L-T -1.09%decrease by early next year, the company announced on Tuesday, saying it has hired European retail executive Per Bank to take over as president and chief executive officer.

Mr. Bank is currently the CEO of Salling Group A/S, Denmark’s largest retailer with roughly $13-billion revenue in 2021, the most recent year for which figures were available. Salling operates 1,700 grocery stores in three countries as well as department stores. Loblaw, Canada’s largest retailer, operates more than 2,400 stores across various grocery banners as well as the Shoppers Drug Mart chain, with $56.5-billion in revenue last year.

Mr. Weston will continue in his role as chairman of Loblaw’s board, as well as chair and CEO of parent company George Weston Ltd. In that capacity, he will continue to oversee the “vision, strategy and capital allocation” of the family-controlled companies, he said on a conference call Tuesday to discuss the announcement.

“I’m not leaving. I’m stepping back into what I consider to be my natural role as controlling shareholder,” Mr. Weston told analysts on the call.

The search for a new CEO began in August, 2022, precipitated by the planned retirement of chief operating officer Robert Sawyer at the end of this year.

Loblaw board says Galen Weston is underpaid, boosts compensation

Mr. Sawyer came out of retirement to join the company in 2021, when Mr. Weston returned as president following the departure of Sarah Davis. At the time, Loblaw also replaced chief financial officer Darren Myers with George Weston CFO Richard Dufresne, who will continue as CFO of both companies.

Since then, the executive team has been working to boost Loblaw’s performance, undertaking a strategic review of its operations designed to narrow the company’s focus and get back to what Mr. Weston referred to as “retail fundamentals.”

“The plan was always that Robert would only be with us for a couple of years,” Mr. Weston wrote in an internal memo to Loblaw staff on Tuesday. He said that the appointment does not signal any intention to change the company’s strategic direction.

“The intent is to continue to execute against the strategic path that has been developed by Richard, myself and Robert,” Mr. Weston said on the call.

Over the past two years, that leadership team has also seen Loblaw through a time of soaring food inflation that has contributed to higher revenues and profits in the grocery industry. Mr. Weston, along with other industry executives, has faced questions about whether retailers are doing enough to mitigate the sharp rise in the cost of basic necessities.

Mr. Weston, as a public figure representing the billionaire Weston family and as advertising spokesman for the retailer, has been in the line of fire over the issue. But that was not a factor in his decision to step back, Loblaw spokesperson Catherine Thomas said.

“At the end of the day, this will be nearly a two-year process. To think that it is at all reactionary would be wrong,” Ms. Thomas said. She added that Mr. Weston has made fewer appearances in Loblaw ads over the past year, but did not say whether he would continue as spokesperson in future. “That is a decision for another day,” she said.

On the call Tuesday, Mr. Weston alluded to Mr. Bank’s experience in a highly public CEO role, saying it would help him navigate the position Loblaw occupies in Canada.

“He has been leading an organization that has an outsized cultural and financial place inside his country, and that’s the case for Loblaw,” Mr. Weston said. “We’re a big company in a small country, and that comes with different leadership challenges and opportunities.”

On Tuesday, Statistics Canada reported that inflation began to cool in March, including some improvements in the price of groceries, which rose by 9.7 per cent compared with the prior year, down from increases of more than 11 per cent in recent months. But food is still outpacing the overall inflation rate, which was 4.3 per cent in March compared with the prior year.

In that climate, Loblaw has benefitted from a shift to discount grocery stores such as No Frills, which make up roughly 60 per cent of the retailer’s store network.

“Mr. Bank will be taking the helm of a Loblaw enjoying strong momentum and results, well-positioned against the backdrop of high prices and value-seeking, cash-squeezed consumers,” RBC Capital Markets analyst Irene Nattel wrote in a research note on Tuesday.

In Mr. Bank, Loblaw has also hired an executive with experience serving as CEO of a family-controlled company with a long history. Salling was founded in 1906, and over the course of 94 years, the company was led by just two CEOs, the founder and his son. Mr. Bank became the fourth CEO in Salling’s history in 2012, growing the retailer’s market share by more than 20 per cent, and leading a number of acquisitions, including the Polish operations of Tesco and Toys “R” Us in Denmark.

Historically, as with Ms. Davis, the top role at Loblaw did not include the title of CEO, and reported to Mr. Weston directly; Mr. Bank adds that title and will report to the board.

“There’s important symbolism in that. Having said that, this is a controlled company,” Mr. Weston said. “… And the long-term strategic vision of the company – it’s essential that there’s a high level of alignment between myself and any chief executive or any key operating executive.”

Mr. Weston also noted that Mr. Bank has experience beyond running retail stores, including sitting on the board of the Bank of Denmark, providing the central bank with perspectives on consumer behaviour.

Mr. Bank will join Loblaw by the first quarter of 2024.