Weight-loss drugs are coming to bite a sugar industry in denial

Ilena Peng and Dayanne Sousa, Bloomberg News

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In a room filled with more than 800 sugar traders, Sally Lyons Wyatt, an executive at consumer researcher Circana, had an important message to deliver: Ozempic is coming for your industry.

“Does it have the ability to be huge in the future?” she asked during her speech at the New York Sugar Dinner earlier this month. “It does.”

Nobody appeared to be paying attention. As is traditional at the event, traders were preoccupied with the clock, having placed bets on how long the speech would last.

The oversight extended beyond the dinner. Traders, brokers and analysts met at conferences, individual presentations and meetings throughout New York Sugar Week, an annual event that gathers traders from across the world. They swapped outlooks on how much sugar would be available in the upcoming season, discussed the role of biofuels, and even argued about rules on the New York exchange.

Demand was a footnote. That’s even as executives from Walmart Inc. warned that Novo Nordisk A/S’s Ozempic and Eli Lilly & Co.’s Zepbound are impacting food sales, and multiple analyst surveys have showed that less-hungry customers are spending fewer dollars at grocery stores and restaurants. 

Sugar traders, used to seeing demand grow as population expands, could be overlooking the next big demand hit. The drugs, which cut cravings, will result in a decline in calorie consumption in the U.S. of 1.5 to 2.5 per cent by 2035, with a drop of as much as five per cent in the consumption of sweets such as baked goods, confectionery and soda, Morgan Stanley analysts including Pamela Kaufman said in a report last month.

Expanding market

Morgan Stanley forecast about a 10th of the U.S. population will be on the so-called GLP-1 medications — originally designed to treat diabetes but being used by many as a powerful weight-loss tool — by 2035.

“I’m spending a lot of time thinking about it because I think it could be really important,” said Stephen Geldart, the head of analysis at London-based commodities trader Czarnikow Group Ltd. “Maybe I’m wrong, but if no one else is paying any attention, that’s great. I’m quite happy to do things that no one else is looking at.”

Even with tight supplies and sky-high prices limiting uptake of the medications, sales of GLP-1 drugs for both obesity and diabetes already exceeded US$19 billion in 2023. The global obesity market alone could top $100 billion by the end of the decade, Goldman Sachs Group Inc. estimates, while Bloomberg Intelligence forecasts $80 billion of sales.

More than 60 per cent of U.S. consumers taking the drugs said they had cut back on sweet treats like candy, ice cream and baked goods, and many said they had either significantly — or entirely — stopped eating those products, according to Morgan Stanley.

Not everyone in the sugar market is worried about weight-loss drugs. In New York, Carlos Murilo Barros de Mello, the head of sugar in the Americas at brokerage Hedgepoint Global Markets, said the industry hasn’t spent significant time estimating consumption because shifts are “minuscule” relative to production swings.

The impact hasn’t been felt yet as “it’s still very much further down the line,” said Kona Haque, head of research at ED&F Man. “And don’t forget, this is still very much an advanced-economy, affluent-society syndrome where people are trying to tackle obesity.”

Haque stressed that sugar demand is still growing in emerging markets, where the medications aren’t yet being marketed. And even in places like the U.S., there is still a strong need for sugar as many customers prefer it over alternatives like high-fructose corn syrup, said Plinio Nastari, founder of Brazilian consultants Datagro.

Global picture

“I suspect it’s not a big enough factor to be concerned about the bigger global picture,” said Tom McNeill, managing director at consultancy Green Pool Commodity Specialists. 

Demand growth has long been buoyed by increasing populations and rising incomes in regions like Asia and Africa. Sugar also still accounts for 80 per cent of global sweetener use, holding up against competition from substitutes like high fructose corn syrup, according to the Organization for Economic Co-operation and Development. 

Still, demand has taken a hit over the past decade as health conscious consumers cut back. Global consumption is growing at just 1.2 per cent a year now, compared to the 10-year average of 1.6 per cent, according to the International Sugar Organization.

Global per capita sugar consumption in 2022 was just 22.1 kilograms, recovering slightly from a pandemic low but still 3.5 per cent below 2016 levels. European consumption took a similar 3.3 per cent dip from 2016 to 2022, while in the U.S., Mexico and Canada trade zone it dropped 6.1 per cent, ISO data showed.

As the use of GLP-1 drugs spreads, cheaper versions are also popping up. Once patents on branded drugs expire, so-called generics sold at lower costs could also boost the overall uptake.

In Brazil, local pharmaceutical company Biomm SA is already looking to supply a generic version of Ozempic once Novo Nordisk’s patent expires, which could happen as soon as 2026. Sales of that drug already represent a $600 million market in Brazil, according to investment firm Ace Capital, and as many as 7 million people could become users once lower-cost options hit drugstores.

A country like the U.K., for example, which consumes about two million metric tons of sugar a year, could see losses of “tens of thousands of tons,” Czarnikow’s Geldart said. “That sort of stuff at the margins, it makes a difference.”

Food diversification

GLP-1 drugs have already moved stock prices, with the S&P Consumer Staples Index falling last October after Walmart said consumers were buying less food. Analysts at Truist Securities downgraded shares for Krispy Kreme Inc. on uncertainty over the medications’ impact. Nestlé SA is even launching a new line of frozen foods specifically targeting users of GLP-1 drugs.

Back at the sugar dinner, Circana’s Lyons Wyatt encouraged companies to understand what GLP-1 users are “craving” and diversify product offerings, including with smaller serving sizes. But with nobody listening, even the executive joined in on the joke.

“I accept bribes,” she said, referring to how long her speech would last.

WORKERS CAPITAL

Omers said to explore selling stake in Texas renewable energy Firm

Gillian Tan and Paula Sambo, Bloomberg News

Ontario’s pension fund for local-government workers is exploring selling a stake in Leeward Renewable Energy, according to people with knowledge of the matter.

, Bloomberg

(Bloomberg) -- Ontario’s pension fund for local-government workers is exploring selling a stake in Leeward Renewable Energy, according to people with knowledge of the matter.

The Ontario Municipal Employees Retirement System is working with advisers to solicit interest in the Dallas-based company, which may be valued at about $3.5 billion including debt in a transaction, said the people, who requested anonymity discussing confidential information.

Representatives for the Canadian pension fund declined to comment. Leeward didn’t immediately respond to a request for comment. 

The company, led by CEO Jason Allen, operates and owns a portfolio of 31 solar, wind and energy storage facilities across the U.S., its website shows, and is developing dozens of new ones. Leeward says it expects to commercialize more than 1,000 megawatts of renewable energy capacity over the next couple of years. 

The infrastructure arm of Omers acquired the business from ArcLight Capital Partners in 2018, and Leeward expanded in 2021 by buying a solar project platform from First Solar Inc. 

 

Can AI-driven efficiencies address Canada's lagging economic productivity?

Daniel Johnson , BNN Bloomberg

A new report from TD Economics says that while advancements in AI technology could help the Canadian economy address long-standing productivity issues, its potential for growth will depend on its implementation. 

TD Senior Economist Rannella Billy-Ochieng’ and Economic Analyst Anusha Arif said in a report Tuesday that AI offers a potential “remedy” to Canada’s productivity issues. The report said that weak investment has contributed to productivity issues, but a larger issue has been the “slowing rate of technological change.” 

“Canada’s unique AI ecosystem provides a good starting position for us to ride this industrial growth wave, but poor adoption policies and weak AI preparedness may derail this opportunity,” the report said. 

“In the more optimistic scenario, the adoption of AI across industries could lead to an output increase of five to eight per cent over the baseline over the next decade.” 

Recent advances in AI technology are now “manifesting with great speed,” the report said, and some experts predict AI to be a key technology “of the next Industrial Revolution.” 

“Generative AI – a general purpose technology with the ability to mimic cognitive skills – has the potential to be one of the most influential innovations of the fourth Industrial Revolution,” the report said. 

“These technologies will change the way we work, and by helping workers become more efficient, will foster greater economic growth.” 

Despite the potential productivity gains from AI implementation, the report highlighted that Canada has a globally competitive AI ecosystem. However Canadian businesses have comparatively poorer AI adoption rates relative to U.S. peers.

“The absence of widespread adoption and commercialization of AI among businesses could stand in the way of Canada fully capitalizing on this nascent opportunity,” the report said. 

The report detailed that Canada’s total factory productivity, which measures changes in economic output that don’t come from increased inputs, began slowing in the 1960s.  

According to the report, total factory productivity has weighed on labour productivity for the past two decades.

TD’s report follows widespread concerns about the nation's lagging economic productivity. In March, Bank of Canada Senior Deputy Governor Carolyn Rogers described the issue as an economic emergency. 

Last month Mark Wiseman, the former Canada Pension Plan Investment Board (CPPIB) CEO, said that while the federal government’s 2024 budget focuses on redistribution, more attention should be given to productivity-related issues. 

More Canadians only making minimum payment on credit cards: TransUnion

Ritika Dubey, The Canadian Press

A new report suggests an increasing number of Canadians are seeing their credit card balances balloon as the cost-of-living crisis and higher interest rates eat into household budgets.

A TransUnion report published Tuesday said the number of Canadians paying only the minimum monthly amount on their credit card rose eight basis points to 1.3 per cent in the first quarter compared with last year. 

Matthew Fabian, director of financial services research at TransUnion Canada, said many household incomes are not keeping up with inflation and higher interest rates, leaving them to rely on credit. 

"Consumers that have had significant increases in their mortgage payment have made that deliberate trade-off to pay less on their credit card and in some cases, they're missing their payment," Fabian said in an interview. 

"We've seen a higher delinquency rate in credit cards for those consumers that have mortgages than traditional credit card consumers."

Total consumer debt in Canada was $2.38 trillion in the first quarter, compared with $2.32 trillion in the same quarter last year, and down only slightly from a record $2.4 trillion in the fourth quarter.

The report said 31.8 million Canadians had one or more credit products in the first quarter, up 3.75 per cent year-over-year. The jump was mainly driven by newcomers and gen Z signing up for their first credit products. 

The report showed there was a 30 per cent surge in outstanding credit card balances for the gen Z cohort compared with the previous year.

"The younger generation (is) only getting access to credit for the very first time in their life," said Fabian. "They're still learning how to use it, they're still learning what it means to pay your monthly obligations."

Meanwhile, millennials held the largest portion of debt in the country — about 38 per cent of all debt — likely due to higher credit needs as they grow older, according to the report.

"They're in the life stage where they're probably having children, getting houses and have auto loans," Fabian said. "The structure of the debt is shifted where 10 years ago, the majority of them would have had credit cards and car loans."

Fabian said he isn't overly concerned about households falling behind on their mortgage payments because of the strict screening process established by the banking watchdog to qualify for a mortgage.

He also said cash-strapped consumers will typically pay their mortgage first at the expense of other credit products like their auto loan or credit card. 

Even though there are concerns about missed payments among the vulnerable population, Fabian said, "We're still seeing pretty decent resiliency in the Canadian consumer base, especially when you look at how quickly it's grown with gen Z and the volume of credit participation."

He added interest rate cuts, which are anticipated as early as June, can lessen the burden on households over time.

"Our expectation is that the market will start to correct back to normal," Fabian said.

This report by The Canadian Press was first published May 28, 2024.

AB BIG OIL

Lobby group says emissions cap would cost oil and gas sector $75B in lost investment

Amanda Stephenson, The Canadian Press

A new report commissioned by an industry lobby group on the federal government's proposed emissions cap stirred up strong reactions from both oil and gas supporters and environmental groups on Monday.

The report, by S&P Global Commodity Insights, was commissioned by the Canadian Association of Petroleum Producers to examine the impact of various proposed emissions-reducing policies on Canada's conventional (non-oilsands) oil and gas producers.

Its conclusions Monday were used to support the industry argument that legislating an emissions ceiling will inhibit investment and growth, even as opponents argued the report's methodology was flawed.

The commissioned report concludes that if oil and gas drillers were required to cut greenhouse gas emissions by 40 per cent by 2030, industry could see $75 billion less in capital investment over the course of the next nine years compared with current policy conditions.

The study says that would translate to one million barrels of oil equivalent less of production per day by 2030 compared with current forecasts, and 51,000 fewer jobs by 2030 than under existing government policies.

The findings align with what Canada's oil and gas sector has long been saying — that the federal government's proposed cap on emissions from the industry will amount to a de facto cap on fossil fuel production.

On Monday, CAPP president Lisa Baiton said the new report is proof that a federally mandated emissions cap "should not proceed."

"Declines in production forced on the industry by a stringent emissions cap will result in significant job losses for Canadians, severe impacts on the economy and our GDP, and have the potential to compromise Canada’s energy security and prosperity," Baiton said.

But the federal government has said all along that the oil and gas emission cap will be designed to limit emissions, not oil and gas production.

The government has said the design of the emissions cap will take into account other regulations, such as Canada's commitment to reduce oil and gas methane emissions by at least 75 per cent by 2030, as well as complementary climate policies by federal and provincial governments.

And the hypothetical scenarios the CAPP-commissioned report examines do not use the same targets the federal government actually proposes in its draft emissions framework, released last December.

Under the proposed framework, the sector would have to cut greenhouse gas emissions by 35 to 38 per cent from 2019 levels by 2030. The sector would also have the option to buy offset credits or contribute to a decarbonization fund that would lower that requirement to cutting just 20 to 23 per cent.

“CAPP has commissioned an analysis of a non-existent scenario. Everything in it flows from false assumptions that make it so deeply flawed, it amounts to disinformation," said Oliver Anderson, spokesman for Environment Minister Steven Guilbeault, in an email.

CAPP says its sponsored study adds in the projected impact of the federal government's draft methane regulations, which would require at least a 75 per cent reduction of oil and gas methane emissions below 2012 levels by 2030, and takes into account that the policies have not been finalized and remain uncertain.

Environmental groups were quick to criticize the report's methodology. Clean energy think-tank The Pembina Institute said the CAPP report includes only conventional oil and gas drillers and leaves out oilsands production, which accounts for the vast majority of the industry's emissions profile.

The Pembina Institute added that when it comes to methane, which is where the bulk of conventional drillers' emissions come from, significant reductions can be made using already existing, cost-effective technologies.

"Pembina Institute research demonstrates that the proposed 2030 emissions cap can be feasibly met by the oil and gas industry, almost entirely through a combination of methane reductions (which would mostly come from the conventional sector) and the Pathways Alliance’s 2030 emissions reduction plan (for the oilsands)," the think-tank stated in a release.

While the oil and gas sector is Canada's heaviest-emitting industry, the bulk of those emissions come from the oilsands sector — where rising production is contributing to increased to total emissions.

Emissions from the conventional sector, which the CAPP reports focuses on, have been declining since 2014.

Alberta Premier Danielle Smith also waded in Monday, issuing a joint statement with the province's environment and energy ministers in which she referred to the proposed cap as a "reckless gamble that will devastate Canadian families and do nothing to reduce global emissions."

This report by The Canadian Press was first published May 27, 2024.

 

Residential mortgage debt hits $2.16 trillion amid slowest growth in 23 years: CMHC

The Canadian Press

Canada Mortgage and Housing Corp. says the country’s total residential mortgage debt totalled $2.16 trillion as of February this year, up 3.4 per cent year-over-year and representing the slowest growth in 23 years.

The federal housing agency said in a new report that higher mortgage costs and uncertainty around the Bank of Canada lowering its key interest rate led to softer home sales and prices across many regions in the second half of 2023.

However, it said the slowdown in mortgage growth could be short-lived. 

The agency expects the rate of growth for mortgage debt to increase amid forecasts of higher home sales and prices in the coming years.

It said an anticipated decline in mortgage rates, along with population growth and increases in real disposable incomes, will likely fuel the turnaround.

"In a context where debt levels have never been so elevated and households are showing increasing warning signs of financial struggle, household debt vulnerability is becoming a primary area of concern," said CMHC deputy chief economist Tania Bourassa-Ochoa in a press release. 

"As homeowners find it more difficult to manage their monthly budgets, policymakers and the financial sector are on high alert when considering risks to the financial industry and the economy."

The report also said borrowers are continuing to opt for shorter-term, fixed-rate mortgages over traditional five-year fixed terms as they remain uncertain of the short- and medium-term mortgage rate outlook.

That's despite "noteworthy increases" in the discounts being offered by lenders on five-year, fixed-rate mortgages in the first two months of this year, which marked a reversal of the trend from the last half of 2023.

"Lenders are foreseeing potential rate cuts by the (Bank of Canada) occurring sooner than they anticipated last year and are seeking to lock in mortgages at relatively high rates," the report said.

Terms ranging from three years to less than five years remained the most popular choice, representing nearly 40 per cent of all lending for newly extended mortgages in February 2024. Variable-rate mortgages accounted for 15 per cent of all lending for newly extended mortgages.

The report showed the national mortgage delinquency rate hit 0.17 per cent in the fourth quarter of last year, still near historic lows, but trending up for the first time since the beginning of the pandemic.

It also highlighted the Big Six banks taking an increasing share of the market for extended mortgages.

In the fourth quarter of 2023, those banks' share grew 11.8 percentage points from last year, driven by increases in refinances and renewals. Other chartered banks and credit unions recorded decreases of 6.9 and 3.1 percentage points, respectively. 

This report by The Canadian Press was first published May 29, 2024.

 SWEAT SHOP POLITICS

'We were going to win': Activist kingmaker stages coup at Gildan

Derek Decloet, Bloomberg New

Usman Nabi was certain from the beginning that it would end this way — with his firm seizing control of Gildan Activewear Inc. as the company’s directors headed for the exits.

“We’ve always known we were going to win,” he said. 

Six months ago, few people inside corporate Canada had even heard of Browning West LP, the investment partnership founded in 2019 by Nabi and Peter Lee. They know it now, after Browning triumphed in an expensive and high-profile proxy fight at Gildan, one of world’s largest makers of T-shirts and other cheap apparel.  

The battle — which began in December when Gildan’s board sacked longtime Chief Executive Officer Glenn Chamandy — featured lawsuits, conspiracy theories and plenty of mudslinging. Browning West wanted Chamandy back. The board hired a new CEO in Vince Tyra, an ex-Fruit of the Loom executive who’d had a stint as the University of Louisville’s athletic director.

In the end, Gildan spent some US$65 million on advisers, legal fees, severance and other related expenses, according to Chamandy — more than one per cent of its market capitalization. It’s even more than Walt Disney Co. paid to fend off activist shareholders including Nelson Peltz earlier this year. 

The dollar figure is one indicator of how hostile it was. Gildan’s board publicly accused Chamandy of being a checked-out CEO, more interested in his golf resort in Barbados than running a $6 billion public company. But inside Gildan, some executives were quietly organizing on his behalf and urging shareholders to back Browning’s campaign to oust the existing board and Tyra, their new boss. 

The rebellion worked. 

• 'We're turning the page': Gildan's reappointed CEO on returning leadership

Faced with imminent defeat, Gildan’s entire board quit last week. The departures included former Goldman Sachs Group Inc. executive Tim Hodgson, who was brought in as Gildan’s new chair on May 1 — an unsuccessful attempt to persuade shareholders they could get an improved board without handing control to Browning West and Chamandy.

Now Tyra is gone, Chamandy is back and the directors are the eight men and women chosen by Browning West. All of them received at least 82 per cent of the shares voted in the board election, Gildan said in a statement Wednesday.  

“I think when we approach other public companies where change is required,” Nabi said, “folks are probably going to listen a little bit more carefully the next time.” 

Leadership focus

The Gildan proxy fight was shaped by Nabi’s time at H Partners Management LLC. There, he was part of the team that recapitalized Six Flags Entertainment Corp. and later pushed to replace the CEO of mattress maker Tempur Sealy International Inc. 

Under new leadership, both companies produced nice gains for investors, though in Tempur’s case it took several years for the strategy to work. Browning West is its fourth-largest holder today, according to data compiled by Bloomberg.

The experience showed that the quality of the top executives can make all the difference, Nabi said. Lee had a similar mindset. The two men, who both once worked for Lazard Inc., linked up to launch Browning West about five years ago and soon started building a stake in Gildan, which has produced annual returns of more than 18 per cent for shareholders since it went public in 1998. 

Chamandy — who ran Gildan with his brother Greg before becoming sole CEO in 2004 — is a supplier to Walmart Inc. and other apparel sellers. It has steadily built market share by exploiting a cost advantage over rivals such as Fruit of the Loom, a product of what Gildan executives said was Chamandy’s unparalleled knowledge of an intricate supply chain. 

The company takes cotton from the U.S. South and turns it into yarn that’s eventually transformed into T-shirts, socks and underwear by workers in low-wage textile centers such as Bangladesh. Chamandy knows better than anyone how to squeeze costs out of a vertically integrated manufacturing chain, Nabi said, and that’s the key. 

“It’s this game of inches,” Nabi said. “So the first thing you’d know is, let’s not hire someone who has no manufacturing experience, which is what the board did” when it chose Tyra, he said. 

Gildan’s board may have made a tactical error in the way it announced Chamandy’s departure on Dec. 11. The statement gave no explanation as to why the veteran CEO had left and said Tyra wouldn’t start working for two months. The stock fell 11 per cent that day.

It wasn’t until later that the board, then led by former alcohol executive Don Berg, came out with its story: that Chamandy, who’s in his early 60s, had run out of sensible ideas for growth, was proposing risky acquisitions and was stalling the board’s planning to find his eventual replacement. 

By that point, Chamandy had already grabbed control of the narrative, saying he’d been fired by a board that hadn’t consulted shareholders. Several of the largest investors went public with their unhappiness about the CEO change. 

By the end of December, Nabi and Lee had recruited former United Rentals Inc. CEO Michael Kneeland as a prospective new chair for Gildan, and the fight was on. “Our campaign started with a request for two board seats, then it went to five, and then it went to eight,” Nabi said. 

Browning West, which is based in Los Angeles, manages $1.6 billion for investors, including university endowments, wealthy individuals and the partners. Lee and Nabi say they have more than 90 per cent of their net worth in their fund. And the investment strategy is unusual. All of the money is in just six stocks, with the intention of owning them for years.

Under the operating plan unveiled by Browning West and Chamandy in March, Gildan will borrow more, repurchase stock, move additional production to Bangladesh and try to expand its sales of higher-quality products. There are ambitious targets — a $60 stock price by the end of next year, about 60 per cent higher than Tuesday’s closing price. If anything, the pressure on Chamandy is greater now: he’s accountable to a board that helped him get his job back. 

Gildan is Browning West’s second-largest holding, with a stake worth about $350 million. “What that means is, Gildan is extremely important to us as a fund,” Lee said, “but it’s also extremely important to us personally.

Proxy battle cost Gildan US$65M, as investors re-elect Chamandy, new slate to board

Christopher Reynolds, The Canadian Press

The bitter battle over who would run Gildan Activewear Inc. cost the company at least US$65 million, according to its newly returned CEO, as the apparel maker looks to turn a corner after a turbulent six months.

“This is probably the largest proxy fight in history, even more so than Disney, for example, which is 40 times our size,” said chief executive Glenn Chamandy, referring to a high-profile struggle at the entertainment company in recent years.

Shareholders of the T-shirt manufacturer voted to place Chamandy back on its board alongside a slate of candidates put forward by activist investors on Tuesday, capping a months-long leadership battle.

The election marks another vote of confidence for the company co-founder, who retook the helm last week after being ousted from the top job in December amid accusations he was no longer fit to lead the firm.

Chamandy told reporters in Montreal that Gildan's conduct over the past several months showed "poor judgement," causing a stressful period for him, his family and employees at the company. 

“I was a little saddened, I would say, by the way I think the board handled the succession — and handled me personally," he said.

Activist shareholders, including Browning West LP, pushed for Chamandy's return to the apparel manufacturer for months after former Fruit of the Loom executive Vince Tyra took over Gildan's CEO post. Gildan's largest shareholder, Jarislowsky Fraser, supported Browning West.

In a shock move last week, Tyra and Gildan's board stepped down, paving the way for Chamandy's return and for Browning West's slate of directors to be elected.

The US$65-million battle includes severances to outgoing board members and two executives, the company sale process — floated in March and since scrapped — as well as legal costs that include a pair of lawsuits launched by Gildan against Browning West, which were dismissed earlier this month, Chamandy said. That doesn't include his own severance, which he said he never received.

"This board was very entrenched and I think was very abusive to shareholders’ money,” he said of the departing directors. 

Roughly US$26 million of the US$65-million total went to Tyra, who headed the company for four months, and Arun Bajaj, Gildan's former human resources chief, said Chamandy, who called the compensation to his predecessor "shocking."

“They actually got the money for their severance and then left the company subsequently a couple days later, which is really strange,” he said. “From our view, it’s not very clean.”

Nonetheless, Chamandy suggested legal recourse is unlikely: “We’re putting this behind us.”

Meanwhile, the new board slate received “overwhelming support” from shareholders, the CEO said. The precise tally is expected by Wednesday morning.

Leading proxy firms Institutional Shareholder Services Inc., Glass Lewis and Egan Jones had all recommended Browning West's group of candidates be elected.

Gildan had previously replaced five directors in April and said it would back two Browning West nominees.

Browning West co-founder Peter Lee said Tuesday the legal battles cost his firm “millions of dollars.” The Los Angeles-based hedge fund will determine "down the road" whether Gildan might cover some of that expense, he said.

“Overall, justice has prevailed,” Chamandy told reporters. “The shareholders have spoken. This is a new beginning for Gildan.”

However, questions have already arisen around succession plans, given the tortuous saga of the past half-year.

“I’ve got a lot of energy. I’m in my early 60s, which is early 50s in the future," he said.

While Chamandy declined to speculate on when he might step down, chairman Michael Kneeland said, "Obviously, we’ll say three to five years — that’s probably good guardrails, but there’s no set time limit."

Chamandy also threw cold water on the idea of a sale of the clothing maker, which the previous board announced barely two months ago. The chief executive pointed to Gildan's ability as a publicly traded company to raise billions of dollars in capital for investment in garment factories.

“Private equity comes in and they buy the company and they put $5 billion of debt on the company, which is unmanageable," he said. "We're not going be able to reinvest in the company itself and we'll lose our competitive advantage."

Asked about complaints from factory workers in Honduras reported on by the Globe and Mail, Chamandy stood by the company’s practices, saying that most facilities are unionized and subject to periodic audits from monitoring and certification programs such as Worldwide Responsible Accredited Production. He also claimed high worker satisfaction among Gildan’s 44,000 employees and highlighted the whistleblower lines available to them.

This report by The Canadian Press was first published May 28, 2024.

Property controls a major barrier for grocery competition in Canada: experts

Darryl Greer, The Canadian Press

As Canadian consumers have increasingly soured on the major grocers, the country's competition watchdog has turned its sights on restrictive clauses in retail leases that it says are hampering competition in the grocery sector. 

Limiting the use of these clauses could open the door for more independent grocers and smaller chains to compete with the big players, giving consumers more choice and potentially even lower prices, experts say. 

“It would promote some more competition in the marketplace,” said Peter Chapman, founder of consulting firm SKUFood and a former Loblaw Cos. Ltd. executive. 

Grocery prices have increased by more than 20 per cent over three years, and the resulting political pressure has seen MPs order grocery executives to take action. The federal industry minister has said he's courting foreign grocers in the hope that a new entrant would boost competition. 

Meanwhile, the Competition Bureau is looking into the use of property controls in the grocery industry. 

The bureau says property controls, which are terms baked into commercial leases that put restrictions on other nearby tenants and their activities, can be barriers to both smaller domestic companies and foreign entrants. 

These clauses could limit the kinds of stores that can open in a mall, or limit the kind of store that can take over a vacated location. They might also limit other nearby stores from selling certain products.

But experts say limits on this practice would do more to boost domestic competition than it would to pave the way for a foreign grocer to enter Canada. 

"It's not going to necessarily bring a big international competitor in," said Michael von Massow, a food economy professor at the University of Guelph.

In May, the Competition Bureau launched investigations into the parent companies of grocery chains Loblaws and Sobeys over the use of property controls. 

“According to market participants, property controls are widespread in the retail grocery sector, impacting where and how businesses can compete in the retail sale of food products,” the commissioner said in court documents. 

Since large retailers draw traffic to malls and plazas, they have power in their negotiations with landlords to ask for restrictive clauses, said Chapman. 

“Some landlords would say that having a large retailer as a draw is worth restricting some of the other avenues they can pursue,” he said. 

If the grocer’s parent company has ownership in the landlord, it’s much more likely that the retailer will get property controls in the agreement, he added. 

In May, the Competition Commissioner applied in the Federal Court to order Empire Cos. Ltd. and George Weston Ltd. to hand over records about real estate holdings, lease agreements, customer data and more.

The court documents describe Empire's and George Weston’s holdings in real estate investment trusts, or REITs, which count the companies’ own grocery banners as major tenants. 

The REITs have a wide reach geographically, and so property controls often extend past one mall or one plaza, said von Massow. 

Over time, these clauses are becoming more specific as companies like Giant Tiger and Dollarama have expanded into food, said von Massow.

"We're seeing the introduction of new restrictions, because the nature of the competition has changed," he said. 

If consumers have access to several stores selling food within close proximity to each other, they are more likely to go to multiple stores in one trip, cherry-picking deals, said von Massow. By restricting which other stores can be near a large grocer, or what nearby stores can sell, the grocers are trying to be a one-stop shop for consumers instead, he said. 

Sobeys owner Empire said in a separate court application that the bureau’s investigation gives the Competition Commissioner “the appearance of a lack of independence” amid political pressure and criticism over grocers’ prices, and called the inquiry “unlawful.” The Competition Bureau has confirmed that it has filed a motion to strike Empire’s application for judicial review. 

Loblaw previously said it’s co-operating with the review, but noted that restrictive covenants are common in many industries including retail. 

“They help support property development investments, encouraging opening of new stores and capital risk-taking,” said spokeswoman Catherine Thomas in a statement last week. 

Though limiting the use of property controls could promote competition, Chapman said he doesn’t think restrictive clauses are one of the top barriers for potential foreign entrants like the ones being courted by federal Industry Minister François-Philippe Champagne. 

Chapman said the challenges of setting up a distribution network, and of building an economic model that works within Canada’s regulatory environment, would pose much bigger obstacles for companies looking to expand. 

If a foreign grocer decides to enter Canada, they’re more likely to build their own locations or partner with an investor, rather than try and enter shopping areas already occupied by an anchor tenant, added von Massow. 

But the experts said limiting property controls will help independent stores and smaller chains like Dollarama and Giant Tiger. 

If those stores are able to open more locations, consumers will benefit from more choice, said von Massow. 

With consumers better able to shop at multiple stores in one trip and look for deals, that could also boost local price competition on some items, he added. 

If the use of property controls is restricted, "it won't necessarily bring a Lidl or an Aldi in, but it will make it easier for a dollar store to go in and provide a choice for people who are willing to shop around," said von Massow. 

This report by The Canadian Press was first published May 29, 2024.