TORONTO, May 8, 2019 /CNW/ - Corby Spirit and Wine Limited
("Corby" or the "Company") (TSX: CSW.A, CSW.B) today reported
its financial results for the third quarter ended March 31, 2019. The Corby Board of Directors
today also declared a dividend of $0.22 per share payable on June 14, 2019 on the Voting Class A Common Shares
and Non-Voting Class B Common Shares of the Company to shareholders
of record as at the close of business on May
24, 2019.
Revenue growth of 6% for the quarter and 5% growth for the
nine-month period ended March 31,
2019 was delivered through strong domestic performance and
increased commission from Pernod Ricard brands and other
represented wine brands, in addition to new premium innovations and
the addition of Foreign Affair brands.
Net earnings of $4.5 million (or
$0.16 per share) were reported for
the three-month period ended March 31,
2019, representing a decrease of $0.3
million when compared to the same quarter last year. The
decline is largely attributable to phasing of strategic advertising
and promotion investment behind key strategic priorities, launch of
innovations, as well as new channel development. On a year to date
basis, net earnings of $17.9 million
(or $0.63 per share) reflect an
increase of $1.5 million, or +9%, for
the nine month period ended March 31,
2019, when compared to the same period last year.
"Momentum on our key brands is strong within the Canadian
market, particularly in the Canadian whisky and super premium gin
categories where performance of J.P. Wiser's and Ungava Gin are
outpacing that of our closest competitors. I am pleased with
the performance for the quarter and with the healthy year to date
net earnings growth. It is indicative of an organization
focused on delivering underlying performance and the strength of
strategically aligning our investments and focus on our key
priorities and brands,"noted Patrick
O'Driscoll, President and Chief Executive Officer of
Corby.
For further details, please refer to Corby's management's
discussion and analysis and interim condensed consolidated
financial statements and accompanying notes for the
three-and-nine-months ended March 31,
2019, prepared in accordance with International Financial
Reporting Standards.
About Corby
Corby Spirit and Wine Limited is a leading
Canadian manufacturer, marketer and distributor of spirits and
imported wines. Corby's portfolio of owned-brands includes some of
the most renowned brands in Canada, including J.P. Wiser's®, Lot 40®, and
Pike Creek® Canadian whiskies, Lamb's® rum, Polar Ice® vodka and
McGuinness® liqueurs, as well as the recently acquired Ungava® gin,
Cabot Trail® maple-based liqueurs and Chic Choc® Spiced rum and
Foreign Affair® wines. Through its affiliation with Pernod Ricard
S.A., a global leader in the spirits and wine industry, Corby also
represents leading international brands such as ABSOLUT® vodka,
Chivas Regal®, The Glenlivet® and Ballantine's® Scotch whiskies,
Jameson® Irish whiskey, Beefeater® gin, Malibu® rum, Kahlúa®
liqueur, Mumm® champagne, and Jacob's Creek®, Wyndham Estate®,
Stoneleigh®, Campo Viejo®, Graffigna® and Kenwood® wines. In 2018,
Corby was named one of the 50 Best Workplaces in Canada by The Great Place to Work® Institute
Canada for the seventh consecutive year and was also listed among
Greater Toronto's Top 100
Employers. Corby is a publicly traded company based in Toronto, Ontario, and listed on the Toronto
Stock Exchange under the trading symbols CSW.A and CSW.B. For
further information, please visit our website or follow us on
LinkedIn.
This press release contains forward-looking statements,
including statements concerning possible or assumed future results
of Corby's operations. Forward-looking statements typically are
preceded by, followed by or include the words "believes",
"expects", "anticipates", "estimates", "intends", "plans" or
similar expressions. Forward-looking statements are not guarantees
of future performance. They involve risks, uncertainties and
assumptions and, as such, actual results or expectations could
differ materially from those anticipated in these forward-looking
statements. Accordingly, readers should not place undue reliance on
forward-looking statements. All financial results are reported
in Canadian dollars.
CORBY SPIRIT AND WINE LIMITED
Management's
Discussion and Analysis
March 31,
2019
The following Management's Discussion and Analysis ("MD&A")
dated May 8, 2019 should be read in
conjunction with the interim condensed consolidated financial
statements and accompanying notes as at and for the three and
nine-month periods ended March 31,
2019, prepared in accordance with International Financial
Reporting Standards ("IFRS"). These interim condensed consolidated
financial statements were not audited or reviewed by the Company's
external auditors in accordance with standards established by the
Canadian Institute of Chartered Accountants for a review of
unaudited interim financial statements by an entity's auditor.
These unaudited interim condensed financial statements do not
contain all disclosures required by IFRS for annual financial
statements and, accordingly, should also be read in conjunction
with the most recently prepared annual consolidated financial
statements for the year ended June 30,
2018.
This MD&A contains forward-looking statements, including
statements concerning possible or assumed future results of
operations of Corby Spirit and Wine Limited ("Corby" or the
"Company"), including the statements made under the headings
"Strategies and Outlook", "Liquidity and Capital Resources",
"Recent Accounting Pronouncements" and "Risks and Risk Management."
Forward-looking statements typically are preceded by, followed by
or include the words "believes", "expects", "anticipates",
"estimates", "intends", "plans" or similar expressions.
Forward-looking statements are not guarantees of future
performance. They involve risks and uncertainties, including, but
not limited to: the impact of competition; the impact, and
successful integration of, acquisitions; business interruption;
trademark infringement; consumer confidence and spending
preferences; regulatory changes; general economic conditions; and
the Company's ability to attract and retain qualified employees.
There can be no assurance that forward-looking statements will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on
forward-looking statements. These factors are not intended to
represent a complete list of the factors that could affect the
Company and other factors could also affect Corby's results. For
more information, please see the "Risk and Risk Management" section
of this MD&A.
This document has been reviewed by the Audit Committee of
Corby's Board of Directors and contains certain information that is
current as of May 8, 2019. Events
occurring after that date could render the information contained
herein inaccurate or misleading in a material respect. Corby will
provide updates to material forward-looking statements, including
in subsequent news releases and its interim management's discussion
and analyses filed with regulatory authorities as required under
applicable law. Additional information regarding Corby, including
the Company's Annual Information Form, is available on SEDAR at
www.sedar.com.
Unless otherwise indicated, all comparisons of results for the
third quarter of fiscal 2019 (three months ended March 31, 2019) are against results for the third
quarter of fiscal 2018 (three months ended March 31, 2018). All dollar amounts are in
Canadian dollars unless otherwise stated.
Business Overview
Corby is a leading Canadian manufacturer, marketer and importer
of spirits and wines. Corby's national leadership is sustained by a
diverse brand portfolio that allows the Company to drive profitable
organic growth with strong, consistent cash flows. Corby is a
publicly traded company, with its shares listed on the Toronto
Stock Exchange under the symbols "CSW.A" (Voting Class A Common
Shares) and "CSW.B" (Non-Voting Class B Common Shares). Corby's
Voting Class A Common Shares are majority-owned by Hiram Walker & Sons Limited ("HWSL") (a
private company) located in Windsor,
Ontario. HWSL is a wholly-owned subsidiary of international
spirits and wine company Pernod Ricard S.A. ("PR") (a French public
limited company), which is headquartered in Paris, France. Therefore, throughout the
remainder of this MD&A, Corby refers to HWSL as its parent, and
to PR as its ultimate parent. Affiliated companies are those that
are also subsidiaries of PR.
The Company derives its revenues from the sale of its
owned-brands ("Case Goods"), as well as earning commission income
from the representation of selected non-owned brands in
Canada ("Commissions"). The
Company also supplements these primary sources of revenue with
other ancillary activities incidental to its core business, such as
logistics fees and from time to time bulk whisky sales to rebalance
its maturation inventories. Revenue from Corby's owned-brands
predominantly consists of sales made to each of the provincial
liquor boards ("LBs") in Canada,
and also includes sales to international markets.
Corby's portfolio of owned-brands includes some of the most
renowned brands in Canada,
including J.P. Wiser's® Canadian whisky, Lamb's® rum, Polar Ice®
vodka, McGuinness® liqueurs, Ungava® gin, Chic Choc® Spiced rum,
Cabot Trail® maple cream liqueur (Coureur des Bois®, in
Quebec), collectively, the "Ungava
Spirit Brands," and the Foreign Affair® wine brands,("Foreign
Affair Brands"). Through its affiliation with PR, Corby also
represents leading international brands such as ABSOLUT® vodka,
Chivas Regal®, The Glenlivet® and Ballantine's® Scotch whiskies,
Jameson® Irish whiskey, Beefeater® gin, Malibu® rum, Kahlúa®
liqueur, Mumm® champagne, and Jacob's Creek®, Wyndham Estate®,
Stoneleigh®, Campo Viejo®, Graffigna® and Kenwood® wines. In
addition to representing PR's brands in Canada, Corby also provides representation for
certain selected, unrelated third-party brands ("Agency brands")
when they fit within the Company's strategic direction and, thus,
complement Corby's existing brand portfolio.
PR produces the majority of Corby's owned-brands under a
distillate agreement and a co-pack agreement, each expiring
September 30, 2026 at HWSL's
production facility in Windsor,
Ontario. Under an administrative services agreement which
also expires September 30, 2026,
Corby manages PR's business interests in Canada, including HWSL's production
facility.
Corby sources more than 90% of its spirits production
requirements from HWSL at its production facility in Windsor, Ontario. Corby's wholly-owned
subsidiary, Ungava Spirits Co. Ltd. ("Ungava Spirits") produces the
Ungava Spirits Brands and operates the Cowansville, Quebec production facility.
Corby's wholly-owned subsidiary, the Foreign Affair Winery Ltd.,
produces the Foreign Affair Brands and operates the winery and
vineyard, based in Ontario's
Niagara region (the "Foreign Affair Winery"). The Company's
remaining production requirements have been outsourced to various
third-party vendors including a third-party manufacturer in the
United Kingdom ("UK"). The UK site
blends and bottles Lamb's products destined for sale in countries
located outside North America.
In most provinces, Corby's route to market in Canada entails shipping its products to
government-controlled LBs. The LBs then sell directly, or control
the sale of, beverage alcohol products to end consumers. Exceptions
to this model include Alberta,
where the retail sector is privatized. In this province, Corby
ships products to a bonded warehouse that is managed by a
government-appointed service provider who is responsible for
warehousing and distribution into the retail channel. Other
provinces have aspects of both government-controlled and private
retailing, including British
Columbia, Saskatchewan and
Quebec.
Corby's shipment patterns to the LBs will not always exactly
match short-term consumer purchase patterns. However, given the
importance of monitoring consumer consumption trends over the long
term, the Company stays abreast of consumer purchase patterns in
Canada through its member
affiliation with the Association of Canadian Distillers ("ACD"),
which tabulates and disseminates consumer purchase information it
receives from the LBs to its industry members. Corby refers to this
data throughout this MD&A as "retail sales", which are measured
in volume (measured in nine-litre case equivalents). Current retail
value information as discussed in this MD&A is based on
available pricing information as provided by the ACD and the
LBs.
In addition to a focus on efforts to open new international
markets, Corby's international business is concentrated in
the United States ("US") and UK
and the Company has a different route-to-market for each. For the
US market, Corby manufactures its products in Canada and ships to third party US
distributors. The market in the US operates a three-tier
distribution system which often requires a much longer and larger
inventory pipeline than in other markets, resulting in a disconnect
between quarterly shipment performance, as reported in the
financial statements, and the true underlying performance of the
brands at retail level during the same quarter.
For the other international markets, Corby products are
distributed by PR affiliates or third parties (more information is
provided in the "Related Party Transactions" and "Significant
Events" sections of this MD&A).
Corby's operations are subject to seasonal fluctuations: sales
are typically strong in the first and second quarters, while
third-quarter sales usually decline after the end of the retail
holiday season. Fourth-quarter sales typically increase again with
the onset of warmer weather as consumers tend to increase their
purchasing levels during the summer season. In addition, retail
sales comparisons can be affected by timing of key holidays and LB
reporting calendars.
Strategies and Outlook
Corby's business strategies are designed to maximize sustainable
long-term value growth, and thus deliver solid profit while
continuing to produce strong and consistent cash flows from
operating activities. The Company's portfolio of owned and
represented brands provides an excellent platform from which to
achieve its current and long-term objectives.
Management believes that having a focused brand prioritization
strategy will permit Corby to capture market share in the segments
and markets that are expected to deliver the most growth in value
over the long term. Therefore, the Company's strategy is to focus
its investments on, and leverage the long-term growth potential of
its key brands. As a result, Corby will continue to invest behind
those brands to promote its premium offerings where it makes the
most sense and drives the most value for Corby shareholders.
Brand prioritization requires an evaluation of each brand's
potential to deliver upon this strategy and facilitates Corby's
marketing and sales teams' focus and resource allocation. Over the
long term, management believes that effective execution of this
strategy will result in value creation for Corby shareholders.
Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our
primary goal is to leverage our Canadian whisky and gin expertise
and expand our business into markets where we believe there is
growth potential in both volume and margin.
Of primary importance to the successful implementation of our
brand strategies is an effective route-to-market strategy. Corby is
committed to investing in its trade marketing expertise and
ensuring that its commercial resources are specialized to meet the
differing needs of its customers and the selling channels they
inhabit. In all areas of the business, management believes setting
clear strategies, optimizing organization structure and increasing
efficiencies is key to Corby's overall success.
In addition, management is convinced that both innovation and
acquisitions are essential to seizing new profit and growth
opportunities. Successful innovation can be delivered through a
structured and efficient process as well as consistent investment
in consumer insight and research and development. Corby benefits
from having access to leading-edge practices at PR's North American
hub, which is located in Windsor,
Ontario, where most of its products are manufactured. Corby
assesses potential acquisition opportunities against specific
criteria including its core competencies and strategic
priorities.
Finally, the Company is a strong advocate of social
responsibility, especially with respect to its sales and
promotional activities. Corby will continue to promote the
responsible consumption of its products in its activities. As an
example, Corby has an agreement in place to continue its successful
partnership with the Toronto Transit Commission to provide free
transit on New Year's Eve until 2021.
Significant Events
Corby declared special dividend and amended regular
dividend policy
On November 7,
2018, the Corby Board of Directors declared a special
dividend of $0.44 per share payable
on January 11, 2019 on the Voting
Class A Common Shares and Non-voting Class B Common Shares of Corby
to shareholders of record as at the close of business on
December 14, 2018. The special
dividend payment resulted in a cash distribution of approximately
$12.5 million to shareholders and was
sourced from Corby's surplus cash position.
Further, the Corby Board of Directors also announced an
amendment to its dividend policy. Subject to business conditions
and opportunities and appropriate adjustment for extraordinary
events, regular dividends will be paid quarterly, on the basis of
an annual amount equal to the greater of 90% of net earnings per
share in the preceding fiscal year ended June 30, and $0.60
per share. Previously, the policy provided for such dividends to be
based on an annual amount equal to the greater of 85% of net
earnings per share in the preceding fiscal year ended June 30, and $0.60
per share. Under the amended policy, the Corby Board of Directors
declared a regular dividend of $0.22
per share payable on December 7, 2018
on the Voting Class A Common Shares and Non-voting Class B Common
Shares of Corby to shareholders of record as at the close of
business on November 23, 2018.
New US Distribution Agreements
Corby entered
into an agreement providing 375 Park Avenue Spirits (a
dba of Luctor International, LLC ("375 Park Avenue Spirits")) the
exclusive right to represent J.P. Wiser's Canadian whisky and
Lamb's rum in the US effective as of July 1, 2018
for a five-year period to June 30, 2023, subject to extension
as provided for under the agreement.
In addition, Corby entered into an agreement
providing Hotaling & Co. ("Hotaling") the exclusive
right to represent Corby's Northern Border Collection of Canadian
whiskies (the "Northern Border Collection"), consisting of Lot No.
40®, Pike Creek®, and Gooderham & Worts®, and Ungava gin
in the US effective as of July 1, 2018 for a five-year
period to June 30, 2023.
Finally, effective July 1, 2018, Polar Ice vodka is being
imported in the US under an agreement with MHW,
Ltd. ("MHW"). This agreement is for a term of one year,
subject to extension as provided for under the agreement and
effective October 18, 2018, RNDC
Texas LLC will distribute the brand in Texas for the next five years, subject to
extension as provided for under an agreement entered into with
Corby.
Brand Performance Review
Corby's portfolio of owned
brands accounts for approximately 80% of the Company's total annual
revenue. Included in this portfolio are its key brands: J.P.
Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka, Corby's
mixable liqueur brands and the Ungava Spirits Brands. The sales
performance of these key brands significantly impacts Corby's net
earnings. Therefore, understanding each key brand is essential to
understanding the Company's overall performance.
Shipment Volume and Shipment Value
Performance
The following table summarizes the
performance of Corby's owned-brands (i.e., Case Goods) in terms of
both shipment volume (as measured by shipments to customers in
equivalent nine-litre cases) and shipment value (as measured by the
change in net sales revenue). The table includes results for sales
in both Canada and international
markets. Specifically, the J.P. Wiser's, Lamb's, Polar Ice, Lot No.
40, Pike Creek, and the Ungava Spirits Brands are also sold to
international markets, particularly in the US and UK.
BRAND PERFORMANCE
CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL
SHIPMENTS
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2019
|
2018
|
%
|
%
|
2019
|
2018
|
%
|
%
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
176
|
173
|
2%
|
8%
|
626
|
581
|
8%
|
10%
|
Polar Ice
vodka
|
81
|
81
|
0%
|
(5%)
|
264
|
267
|
(1%)
|
(6%)
|
Lamb's rum
|
74
|
80
|
(8%)
|
(5%)
|
291
|
312
|
(7%)
|
(4%)
|
Mixable
liqueurs
|
25
|
27
|
(7%)
|
(10%)
|
116
|
119
|
(3%)
|
(1%)
|
Ungava Spirits
Brands
|
34
|
17
|
96%
|
94%
|
100
|
76
|
31%
|
24%
|
Foreign Affair
Brands1
|
1
|
2
|
(38%)
|
(12%)
|
6
|
3
|
103%
|
74%
|
Other Corby-owned
brands
|
48
|
48
|
0%
|
(11%)
|
155
|
157
|
(1%)
|
(1%)
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
439
|
428
|
3%
|
5%
|
1,558
|
1,515
|
3%
|
5%
|
|
(1)
Comparative information for Foreign Affair Brands only includes six
months of activity, as these brands were not owned by Corby prior
to October 2, 2017.
|
Corby's owned-brands grew value ahead of volume with a 5%
increase in shipment value and 3% growth in shipment volumes when
compared to the three and nine-month periods ended March 31, 2018. Revenue increase was driven by
the performance of J.P. Wiser's, the Ungava Spirits Brands and the
integration of Foreign Affair Brands into the domestic market, as
well as value growth delivered through premium innovations and
price adjustments.
Trends in Canada differ from
international markets as highlighted in the following table:
|
Three Months
Ended
|
Nine Months
Ended
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2019
|
2018
|
%
|
%
|
2019
|
2018
|
%
|
%
|
|
|
|
|
|
|
|
|
|
Domestic
|
398
|
380
|
5%
|
6%
|
1,415
|
1,354
|
5%
|
6%
|
International
|
42
|
48
|
(14%)
|
(4%)
|
143
|
161
|
(11%)
|
(1%)
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
439
|
428
|
3%
|
5%
|
1,558
|
1,515
|
3%
|
5%
|
Both third quarter and fiscal year to date domestic shipments
grew 5% in volume and 6% in value when compared to the same time
last year. Results for the previous fiscal year were impacted as
the LCBO normalized higher inventory levels pre-emptively built
ahead of an adverted strike. Current year shipments also benefited
from innovations such as J.P. Wiser's Old-Fashioned, the
collaboration with the NHL® Alumni Association on the Alumni Whisky
Series and Lamb's Sociable Pineapple and Soda. Corby's domestic
shipment value benefited from favourable mix effects of the premium
Ungava Spirits Brands, Foreign Affair Brands and launch of higher
marque innovations such as the Alumni Whisky Series and the Rare
Range Series of the Northern Border Collection.
In international markets, third quarter shipment value declined
4% driven by a 14% decrease in shipment volumes compared to the
same period last year. Volume was impacted primarily by UK market
challenges, order phasing in smaller markets, and timing of
transition of the Ungava Spirits Brands to new export distributors.
Despite softer international results, Canadian whisky performance
remained strong, and a footprint for gin has been established. For
the nine months ended March 31, 2019,
shipment volumes declined 11% on a year over year comparable basis
while value dipped 1%. Growth in the US market is helping to offset
UK market performance. Value was delivered through product and
market mix as focus increased on premium and higher marque
variants.
Retail Sales Performance / Spirit Market
Trends
It is of critical importance to understand the performance of
Corby's brands at the retail level in Canada. Analysis of performance at the retail
level provides insight with regards to consumers' current purchase
patterns and trends.
To provide context for the following analysis, the Canadian
spirits industry third quarter retail sales volume declined 3%
while retail sales value declined 2%. Results for the third quarter
were heavily impacted by the timing of Easter holiday (Q4 this year
compared to Q3 in the previous year) and liquor board reporting
periods. Retail sales volume were flat in the nine months ended
March 31, 2019 compared to the prior
year, while retail sales value grew 2%. Industry trends were led by
retail sales volume and value growth in the Irish whiskey, gin and
tequila categories.
Corby's portfolio is heavily weighted in the Canadian whisky,
rum and vodka categories; together they make up over 86% of the
Company's total retail volumes. In the nine-month period ended
March 31, 2019, the vodka category
grew 1% in both retail volume and retail value. The Canadian whisky
category declined nearly 1% in volume and grew 1% in value. The rum
category declined 3% in volume and 2% in value. Gin, a growing
priority within the Corby portfolio, increased volume by 7% and
value by 11% through growth of premium and super-premium
brands.
The following brand discussion provides a more detailed analysis
of the performance of each of Corby's key brands relative to its
respective industry category. Retail sales volume and value data,
as provided by the ACD, is set out in the following table and is
discussed throughout this MD&A.
It should be noted that the retail information presented does
not include international retail sales of Corby-owned brands and
on-site winery sales.
Retail Sales Performance / Summary of Corby's Key
Brands
RETAIL SALES FOR
THE CANADIAN MARKET ONLY (AS PROVIDED BY THE
ACD1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Twelve Months
Ended
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
Mar
31
|
Mar
31
|
Volume
|
Value
|
|
Mar
31
|
Mar
31
|
Volume
|
Value
|
|
Mar
31
|
Mar
31
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2019
|
2018
|
Growth
|
Growth
|
|
2019
|
2018
|
Growth
|
Growth
|
|
2019
|
2018
|
Growth
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
156
|
163
|
(5%)
|
(3%)
|
|
574
|
577
|
0%
|
2%
|
|
742
|
741
|
0%
|
2%
|
Polar Ice
vodka
|
77
|
77
|
0%
|
0%
|
|
270
|
265
|
2%
|
2%
|
|
354
|
347
|
2%
|
2%
|
Lamb's rum
|
62
|
69
|
(9%)
|
(10%)
|
|
239
|
251
|
(5%)
|
(6%)
|
|
315
|
333
|
(5%)
|
(6%)
|
Mixable
liqueurs
|
27
|
31
|
(11%)
|
(10%)
|
|
120
|
126
|
(5%)
|
(3%)
|
|
156
|
160
|
(3%)
|
(1%)
|
Ungava Spirits
Brands
|
21
|
19
|
13%
|
8%
|
|
87
|
70
|
24%
|
19%
|
|
108
|
85
|
27%
|
21%
|
Foreign Affair
Brands
|
1
|
0
|
28%
|
26%
|
|
3
|
2
|
28%
|
26%
|
|
3
|
3
|
16%
|
13%
|
Other Corby-owned
brands
|
45
|
43
|
4%
|
2%
|
|
145
|
142
|
2%
|
1%
|
|
190
|
186
|
2%
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
390
|
402
|
(3%)
|
(3%)
|
|
1,438
|
1,433
|
0%
|
1%
|
|
1,868
|
1,855
|
1%
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Refers to sales at the retail store level in Canada, as provided by
the Association of Canadian Distillers.
|
J.P. Wiser's Canadian Whisky
J.P. Wiser's Canadian
whisky, one of Canada's
best-selling Canadian whiskies, is Corby's flagship brand. The
brand experienced flat retail volumes for the nine months ended
March 31, 2019 while retail value
grew 2% compared to the same period last year. Retail sales volumes
for the Canadian whisky category declined 1% while retail value for
the category improved 1% over the same period. Results for the
three months ended March 31, 2019
were highly impacted by liquor board reporting periods.
Within the range, organic growth in both retail volume and value
was posted by J.P. Wiser's Deluxe, J. P. Wiser's Apple Whisky, J.P.
Wiser's Spiced Vanilla Whisky, and J.P. Wiser's Triple Barrel Rye.
Growth was also realized through a series of new J.P. Wiser's
products launched in fiscal 2019 which include a range of
super-premium, limited edition Canadian whiskies created in
partnership with the NHL® Alumni Association, a ready-to serve J.P.
Wiser's Old-Fashioned Whisky Cocktail, and a new limited release of
J.P. Wiser's 35-Year-Old. Partially offsetting results, Wiser's
Special Blend volume declined 7% amidst a strained economy Canadian
whisky segment.
New offerings, along with premium innovations launched in fiscal
2018 (including J.P. Wiser's 15-Year-Old and a limited release of
J.P. Wiser's 35-Year-Old), continued to enhance J.P. Wiser's unique
heritage and superior quality credentials. The brand is being
supported nationally with a second phase of the successful "Hold it
High" campaign in a range of media channels.
J.P. Wiser's continued to receive prestigious accolades. J.P.
Wiser's 35-Year-Old was awarded World's Best
Canadian Blended Whisky and J.P. Wiser's Vanilla Whisky was
awarded World's Best Canadian Flavoured Whisky at the 2019
World Whiskies Awards. Wendel Clark Alumni Whisky Series, J.P.
Wiser's 35-Year-Old, and J.P. Wiser's Canada Commemorative 2018
were awarded Gold at the 2019 Canadian Whisky Awards. J.P. Wiser's
35-Year-Old also won Connoisseur Whisky of the Year after
winning the prior year's coveted Canadian Whisky of the Year
award. J.P. Wiser's 18-Year-Old and J.P. Wiser's Triple Barrel Rye
won Gold and Silver respectively at the 2018 San Francisco World
Spirits Competition.
Polar Ice Vodka
Polar Ice vodka is among the
top-selling vodka brands in Canada. Retail volume and value grew 2% in the
nine months ended March 31, 2019
following strategic price repositioning in key regions.
The overall vodka category in Canada grew 1% in retail volume and value on a
comparable basis. The premium vodka segment continues to drive
category performance. The standard vodka category, where
Polar Ice Vodka competes, was flat in retail volume and declined 1%
in value compared to the prior comparable period.
Advertising and promotion investment continued to focus on brand
awareness and consumer trial, while range extensions, including
Polar Ice Arctic Extreme and Polar Ice Ontario Peach, deliver
premiumization.
Polar Ice won Silver at the 2018 International Wine and Spirits
Competition and Polar Ice Arctic Extreme won Double Gold at the
2018 San Francisco World Spirits Competition.
Lamb's Rum
Lamb's rum, one of the top-selling rum
families in Canada, continued to
be impacted by ongoing changes in consumer trends for standard rum
particularly in regional strongholds. Retail volumes for the
overall rum category declined 3% for the nine months ended
March 31, 2019, while retail values
declined 2% compared to the same period last year. The economy rum
category declined 3% in retail volumes and dipped 2% in value in
the same comparable period.
Lamb's experienced a 5% decline in retail volumes and a 6%
decline in retail value when compared to the same period last year.
The Lamb's rum product line is heavily weighted in the dark and
white segments, which have faced evolving consumer preferences in
recent years and increased competitor pressure in key markets. Our
strategy remains to defend regional strongholds with targeted
campaigns (including the "Hometown Heroes" campaign), to focus on
the most differentiated variants and to launch new flavour variants
and format innovations. Lamb's Sociable Pineapple and Soda has
become Newfoundland's #2
ready-to-drink and is helping to recruit new drinkers.
Mixable Liqueurs
Corby's portfolio of mixable liqueur
brands consists of McGuinness liqueurs (which is Canada's largest mixable liqueur brand family)
and Meaghers liqueurs. Retail volume for Corby's mixable liqueurs
portfolio lagged category trends with a decline in retail volume of
5% for the nine months ended March 31,
2019, and a retail value decline of 3%.
The liqueurs category grew 1% in retail value and was flat in
retail volume for the nine-month period ended March 31, 2019. Category growth was driven by
traditional coffee and cream liqueurs.
Our current strategy is to expand innovation and focus on strong
programming in the retail environment, ensuring that our flavour
offering is aligned to consumer trends. Recently launched flavour
innovation, McGuinness Ruby Red Grapefruit as well as the launch of
an expanded range of flavour offerings in a convenient 375mL
format, to encourage consumer trial. McGuinness also benefited from
co-branded programs activated in retail and on-premise and through
social media.
Ungava Spirits Brands
Retail volume and value for the
Ungava Spirits Brands increased 24% and 19%, respectively, for the
nine months ended March 31, 2019. The
flagship brand, Ungava gin, grew 20% in retail volume and 20% in
value, outperforming the Canadian gin category, which grew 7% in
retail volume while retail value grew 11%. Ungava gin is the value
leader in the super-premium gin category.
Cabot Trail maple-based liqueurs (in Quebec, Coureur des Bois) continued to perform
well, benefiting from increased distribution and successful
recruitment through retail tastings. Retail volume increased 14% in
the fiscal year to date while retail value grew 15%.
Two new-to-world wine innovations were launched in the
Quebec grocery channel by Ungava
Spirits. Distribution in this channel is restricted to wines
bottled in Quebec which Corby is
now able to access by utilizing the acquired Cowansville production facility. Divine
Sunshine, a contemporary rose blend made with California grapes, and Coureurs des Vignes, a
premium French wine brand are our first entries into this unique
channel.
Foreign Affair Brands
The Foreign Affair Brands
represent Corby's first foray into the VQA Canadian wine category.
In addition to the LBs, Foreign Affair Brands are available through
several channels including direct delivery (on-premise and wine
club) and the on-site winery visitor centre, where the majority of
sales are conducted.
Only retail sales conducted through the LBs are reported by the
ACD. LB retail sales volume increased 28% for the nine-month period
ended March 31, 2019 when compared to
the same period last year while retail value grew 26%. The Canadian
table wine category retail volume declined 1% for same period while
retail value was flat to the prior year.
The Foreign Affair Brands have been winning top awards,
including Gold medals at the Ontario Wine Awards, the Lieutenant
Governor's Award of Excellence in Ontario Wines, Silver at the
Decanter International Wine Awards and Gold at the National Wine
Awards of Canada.
Other Corby-Owned Brands
Premium offerings in Canadian
whisky such as Pike Creek, Lot No. 40 and Gooderham & Worts
(collectively known as the Northern Border Collection) grew retail
volume 14% and value 13% for the nine-month period ended
March 31, 2019 and continued to
outperform the Canadian whisky category in Canada. Innovation remains an important pillar
for delivering new profit and growth opportunities to the Corby
domestic business. A second Rare Range series was launched in the
last quarter (including Pike Creek 21-Year-Old European Oak Finish,
Lot No. 40 11-Year-Old Cask Strength and Gooderham & Worts
Eleven Souls) and has received high praise, winning Gold medals at
the 2019 Canadian Whisky Awards.
Pike Creek, Lot No. 40 and Gooderham & Worts were all
awarded Gold medals at the 2019 Canadian Whisky Awards. In
addition, Pike Creek Rum Barrel Finish was awarded Sipping
Whisky of the Year. Lot No. 40 has consistently won top awards
in the most prestigious Canadian and International competitions
including Silver at the 2018 San Francisco World Spirits
Competition. Pike Creek 21-Year-Old European Oak Finish won
World's Best Corn Whisky at the 2019 World Whiskies Awards
while Lot No. 40 11-Year-Old Cask Strength won World's Best
Canadian Rye Whisky. Gooderham & Worts Little Trinity
(17-Year-Old) was awarded Best Canadian Blended Limited
Release at the World Whiskies Award for 2018.
Royal Reserve® retail volume grew 1% in the nine months ended
March 31, 2019 while retail value was
flat compared to the same period last year. Competitive retail
activity and industry-wide softness within the economy segment of
Canadian whisky impacted performance.
Financial and Operating Results
The following table presents a summary of certain selected
consolidated financial information of the Company for the three and
nine-month periods ended March 31,
2019 and 2018.
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in millions of
Canadian dollars,
|
Mar.
31
|
Mar.
31
|
|
|
|
Mar.
31
|
Mar.
31
|
|
|
except per share
amounts)
|
2019
|
2018
(1)
|
$
Change
|
%
Change
|
|
2019
|
2018
(1)
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
31.0
|
$
|
29.3
|
$
|
1.7
|
6%
|
|
$
|
110.7
|
$
|
105.5
|
$
|
5.2
|
5%
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(12.3)
|
(11.5)
|
(0.9)
|
8%
|
|
(43.0)
|
(40.2)
|
(2.8)
|
7%
|
Marketing, sales and
administration
|
(12.7)
|
(11.6)
|
(1.1)
|
10%
|
|
(44.0)
|
(43.4)
|
(0.6)
|
1%
|
Other income
(expense)
|
-
|
0.2
|
(0.2)
|
(105%)
|
|
-
|
0.4
|
(0.4)
|
(87%)
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
5.9
|
6.5
|
(0.5)
|
(8%)
|
|
23.7
|
22.3
|
1.4
|
7%
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
0.4
|
0.3
|
0.1
|
16%
|
|
1.1
|
0.9
|
0.3
|
31%
|
Financial
expenses
|
(0.1)
|
(0.2)
|
0.1
|
(36%)
|
|
(0.4)
|
(0.6)
|
0.2
|
(38%)
|
Net financial
income
|
0.2
|
0.1
|
0.1
|
97%
|
|
0.8
|
0.3
|
0.5
|
162%
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
6.2
|
6.6
|
(0.4)
|
(6%)
|
|
24.5
|
22.6
|
1.9
|
9%
|
Income
taxes
|
(1.7)
|
(1.8)
|
0.1
|
(6%)
|
|
(6.7)
|
(6.2)
|
(0.5)
|
8%
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
4.5
|
$
|
4.8
|
$
|
(0.3)
|
(6%)
|
|
$
|
17.9
|
$
|
16.4
|
$
|
1.5
|
9%
|
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.16
|
$
|
0.17
|
$
|
(0.01)
|
(6%)
|
|
$
|
0.63
|
$
|
0.58
|
$
|
0.05
|
9%
|
- Diluted net
earnings
|
$
|
0.16
|
$
|
0.17
|
$
|
(0.01)
|
(6%)
|
|
$
|
0.63
|
$
|
0.58
|
$
|
0.05
|
9%
|
|
|
|
|
|
|
|
|
|
|
(1) In preparing its
comparative information, the Company has adjusted amounts reported
previously in the interim condensed consolidated statement of
earnings as a result of the retrospective application of IFRS 15,
Revenue from Contracts with Customers.
|
Overall Financial Results
Net earnings
decreased $0.3 million or 6%, and
increased $1.5 million or 9%,
respectively, for the three and nine months ended March 31, 2019, when compared to the same periods
last year. Results were driven by strong domestic market
performance and increased commission revenue from both PR Brands
and other represented wine brands for whom Corby acts as an agent,
partially offset by increased strategic investment behind key
strategic priorities, including recently acquired brands, launch of
new innovations and new channel development.
Revenue
The following highlights the key
components of the Company's revenue streams:
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Mar.
31
|
Mar.
31
|
|
|
|
Mar.
31
|
Mar.
31
|
|
|
(in millions of
Canadian dollars)
|
2019
|
2018
(1)
|
$
Change
|
%
Change
|
|
2019
|
2018
(1)
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
Case
goods
|
$
|
24.7
|
$
|
23.5
|
$
|
1.2
|
5%
|
|
$
|
88.2
|
$
|
83.9
|
$
|
4.3
|
5%
|
Commissions
|
5.6
|
5.1
|
0.5
|
10%
|
|
20.2
|
18.9
|
1.2
|
6%
|
Other
services
|
0.7
|
0.7
|
0.0
|
(3%)
|
|
2.3
|
2.6
|
(0.3)
|
(11%)
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
31.0
|
$
|
29.3
|
$
|
1.7
|
6%
|
|
$
|
110.7
|
$
|
105.5
|
$
|
5.2
|
5%
|
|
|
|
|
|
|
|
|
|
|
(1) In preparing its
comparative information, the Company has adjusted amounts reported
previously in the interim condensed consolidated statement of
earnings as a result of the retrospective application of IFRS 15,
Revenue from Contracts with Customers.
|
Case Goods revenue increased $1.2
million, or 5% and increased $4.3
million, or 5%, respectively, for the three and nine-month
periods ended March 31, 2019, when
compared to the same periods last year. Growth during the
nine-month period was attributable to strong domestic shipments
lapping prior year LCBO normalization of inventory levels,
performance of Ungava Spirits Brands, and the addition of the
Foreign Affair Brands. Revenue was also impacted by tactical price
adjustments in regional strongholds.
Commissions increased $0.5
million, or 10% and $1.2
million, or 6%, respectively, for the three and nine-month
period ended March 31, 2019 when
compared to the same periods last year. This was largely
attributable to strong PR spirits portfolio performance which
lapped prior year LCBO strike distortion. The PR brand portfolio
benefitted from its positioning within premium categories along
with PR's investment to build these brands in Canada. Increased commissions were also
realised from other represented wines for whom Corby acts as an
agent.
Other services represent ancillary revenue incidental to Corby's
core business activities, such as logistical fees and from time to
time bulk whisky sales. Revenue from other services were flat for
the quarter and declined in the nine-month period ended
March 31, 2019 attributable to timing
of prior year bulk whisky sales.
Cost of sales
Cost of sales was $12.3 million, an increase of $0.9 million, or 8% when compared to the same
quarter last year. Overall gross margin on Case Goods was 51%
compared 53% in the same period last year (note: Commissions are
not included in this calculation) and was impacted by higher
distribution costs to Western
Canada and increased warehousing fees related to the
recently acquired brands.
Cost of sales increased by $2.8
million, or 7%, for the nine-month period ended March 31, 2019 when compared to the same period
last year. The increase is in line with Case Goods growth and is
also attributable to the addition of the Foreign Affair Brands and
higher distribution costs as previously mentioned. Combined with
the previously mentioned tactical price adjustments in regional
strongholds and the launch of new lower margin size and innovation
formats, overall gross margin on Case Goods was 53% compared to 54%
in the same period last year.
Marketing, sales and administration
Marketing,
sales and administration expenses increased $1.1 million, or 10% for the three-month period
ended March 31, 2019 when compared to
the same period last year. For the nine-month period ended
March 31, 2019, marketing, sales and
administration expenses increased $0.6
million, or 1% year over year. Marketing investments were
concentrated on Ungava Spirits Brands, the Foreign Affair Brands,
entry into the Quebec grocery wine
channel and launch of new innovations. Overhead expenses decreased
as we lapped prior year acquisition-related professional fees,
partially offset by integration of the Foreign Affair Winery
structure.
Net financial income
Net financial income is
comprised of interest earned on deposits in cash management pools,
offset by interest costs associated with the Company's pension and
post-retirement benefit plans. An increase in interest income for
both the three and nine-month period ended March 31, 2019 is due to increases in the
Canadian Dealer Offered Rate ("CDOR") compared to the same time
last year.
Income taxes
A reconciliation of the effective
tax rate to the statutory rates for each period is presented
below.
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Mar.
31
|
Mar.
31
|
|
Mar.
31
|
Mar.
31
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
27%
|
27%
|
|
27%
|
27%
|
Other
|
0
|
0%
|
|
0%
|
0%
|
|
|
|
|
|
|
Effective tax
rate
|
27%
|
27%
|
|
27%
|
27%
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $61.0 million as at
March 31, 2019, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities which totalled $32.1
million as at March 31, 2019
and are all due to be paid within one year. The Company does not
have any liabilities under short- or long-term debt facilities.
The Company believes that its deposits in cash management pools,
combined with its historically strong operational cash flows,
provide for sufficient liquidity to fund its operations, investing
activities and commitments for the foreseeable future. The
Company's cash flows from operations are subject to fluctuation due
to commodity, foreign exchange and interest rate risks. Please
refer to the "Risks and Risk Management" section of this MD&A
for further information.
Cash Flows
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Mar.
31,
|
Mar.
31,
|
|
|
Mar.
31,
|
Mar.
31,
|
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
$
Change
|
|
2019
|
2018
|
$
Change
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net earnings, adjusted
for non-cash items
|
$
|
7.7
|
$
|
7.8
|
$
|
(0.1)
|
|
$
|
28.3
|
$
|
26.3
|
$
|
2.0
|
Net change in non-cash
working capital
|
(2.8)
|
(11.4)
|
8.6
|
|
2.8
|
(1.9)
|
4.7
|
Net payments for
interest and income taxes
|
(1.2)
|
(2.1)
|
0.9
|
|
(6.0)
|
(6.4)
|
0.4
|
|
3.7
|
(5.7)
|
9.4
|
|
25.1
|
18.0
|
7.1
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
(1.6)
|
(1.4)
|
(0.2)
|
|
(2.7)
|
(2.9)
|
0.2
|
Proceeds from
disposition of property and equipment
|
-
|
0.2
|
(0.2)
|
|
-
|
0.5
|
(0.5)
|
Business
acquisition
|
-
|
-
|
-
|
|
-
|
(6.4)
|
6.4
|
Deposits in cash
management pools
|
16.7
|
13.2
|
3.5
|
|
8.9
|
9.3
|
(0.4)
|
|
15.1
|
12.0
|
3.1
|
|
6.2
|
0.5
|
5.7
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Dividends
paid
|
(18.8)
|
(6.3)
|
(12.5)
|
|
(31.3)
|
(18.5)
|
(12.8)
|
|
|
|
|
|
|
|
|
Net change in
cash
|
$
|
-
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
Net cash generated from
operating activities was $3.7 million
during the quarter ended March 31,
2019, compared to $5.7 million
net cash used in operating activities last year, representing an
increase of $9.4 million. Prior year
cash flows were heavily impacted by the timing of customer
collections and vendor payments. Timing of advertising and
promotional expenses incurred in the months leading up to the
holiday season impacted last year's third quarter payments to
vendors.
For the nine-month period ended March 31,
2019, net cash from operating activities was $25.1 million reflecting an increase of
$7.1 million compared to the same
nine-month period last year; impacted by the timing of customer
collections and vendor payments as previously mentioned.
Investing activities
Net cash generated from
investing activities was $15.1
million for the three-month period ended March 31, 2019, and $6.2
million for the nine-month period ended March 31, 2019, compared to $12.0 million and $0.5
million, respectively for the same three and nine-month
periods last year. Investing activities include additions to
capital assets in both the current and prior year periods. The
prior year also included payments related to Corby's acquisition of
the Foreign Affair Brands which was completed on October 2, 2017.
Cash management pools represent cash on deposit with Citibank NA
via Corby's Mirror Netting Service Agreement with PR. Corby has
daily access to these funds and earns a market rate of interest
from PR on its deposits. Changes in cash management pools reflect
amounts either deposited in or withdrawn from these bank accounts
and are simply a function of Corby's cash requirements during the
period. For more information related to these deposits please refer
to the "Related Party Transactions" section of this MD&A.
Financing activities
Cash used for financing
activities was $18.8 million for the
quarter ended March 31, 2019 and
$31.3 million for the nine-month
period ended March 31, 2019.
Financing activity reflects dividend payments paid to shareholders
including a special dividend of $12.5
million paid January 11, 2019.
As well, regular quarterly dividends increased to $0.22 per share starting with the quarterly
dividend payment on December 8,
2017.
The following table summarizes dividends paid and payable by the
Company over the last two fiscal years:
for
|
|
Declaration
date
|
|
Record
Date
|
|
Payment
date
|
|
$ / Share
|
2019 - Q3
|
|
May 8,
2019
|
|
May 24,
2019
|
|
June 14,
2019
|
|
$
0.22
|
2019 - Q2
|
|
February 13,
2019
|
|
February 27,
2019
|
|
March 8,
2019
|
|
0.22
|
2019 -
special
|
|
November 7,
2018
|
|
December 14,
2018
|
|
January 11,
2019
|
|
0.44
|
2019 - Q1
|
|
November 7,
2018
|
|
November 23,
2018
|
|
December 7,
2018
|
|
0.22
|
2018 - Q4
|
|
August 22,
2018
|
|
September 12,
2018
|
|
September 28,
2018
|
|
0.22
|
2018 - Q3
|
|
May 9,
2018
|
|
May 25,
2018
|
|
June 13,
2018
|
|
0.22
|
2018 - Q2
|
|
February 7,
2018
|
|
February 23,
2018
|
|
March 9,
2018
|
|
0.22
|
2018 - Q1
|
|
November 8,
2017
|
|
November 24,
2017
|
|
December 8,
2017
|
|
0.22
|
2017 - Q4
|
|
August 23.
2017
|
|
September 15,
2017
|
|
September 29,
2017
|
|
0.21
|
2017 - Q3
|
|
May 10,
2017
|
|
May 26,
2017
|
|
June 14,
2017
|
|
0.21
|
2017 - Q2
|
|
February 8,
2017
|
|
February 24,
2017
|
|
March 10,
2017
|
|
0.21
|
2017 - Q1
|
|
November 9,
2016
|
|
November 25,
2016
|
|
December 9,
2017
|
|
0.21
|
2016 - Q4
|
|
August 24,
2016
|
|
September 15,
2016
|
|
September 30,
2016
|
|
0.19
|
Outstanding Share Data
As at May 8, 2019, Corby had
24,274,320 Voting Class A Common Shares and 4,194,536 Non-Voting
Class B Common Shares outstanding. The Company does not have a
stock option plan, and therefore, there are no options
outstanding.
Related Party Transactions
Transactions with parent, ultimate parent, and
affiliates
Corby engages in a significant number of
transactions with its parent company, its ultimate parent and
various affiliates. Specifically, Corby renders services to its
parent company, its ultimate parent, and affiliates for the
marketing and sale of beverage alcohol products in Canada. Furthermore, Corby outsources the
large majority of its distilling, maturing, storing, blending,
bottling and related production activities to its parent company. A
significant portion of Corby's bookkeeping, recordkeeping services,
data processing and other administrative services are also
outsourced to its parent company. Transactions with the parent
company, ultimate parent and affiliates are subject to Corby's
related party transaction policy, which requires such transactions
to undergo an extensive review and require approval from an
Independent Committee of the Board of Directors.
The companies operate under the terms of agreements that became
effective on September 29, 2006 (the
"2006 Agreements"). These agreements provide the Company with the
exclusive right to represent PR's brands in the Canadian market for
fifteen years, as well as providing for the continuing production
of certain Corby brands by PR at its production facility in
Windsor, Ontario, for ten years.
Corby also manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
North American entities, as approved by Corby's Board of Directors.
On August 26, 2015, Corby entered
into an agreement with PR and certain affiliates amending the
September 29, 2006 Canadian
representation agreements, pursuant to which Corby agreed to
provide more specialized marketing, advertising and promotion
services for the PR and affiliate brands under the applicable
representation agreements in consideration of an increase to the
rate of commission payable to Corby by such entities. On
November 11, 2015, Corby and PR
entered into agreements for the continued production and
bottling of Corby`s owned-brands by Pernod Ricard at the HWSL
production facility in Windsor,
Ontario, for a 10-year term commencing September 30, 2016. On the same date, Corby
and PR also entered into an administrative services agreement,
under which Corby agreed to continue to manage PR's business
interests in Canada, including the
HWSL production facility, with a similar term and commencement
date.
In addition to the 2006 Agreements, Corby signed an agreement on
September 26, 2008, with its ultimate
parent to be the exclusive Canadian representative for the ABSOLUT
vodka and Plymouth gin brands, for
a five-year term, which expired October 1,
2013 and was extended as noted below. These brands were
acquired by PR subsequent to the original representation rights
agreement dated September 29, 2006.
Corby also agreed to continue with the mirror netting arrangement
with PR and its affiliates, under which Corby's excess cash
continues to be deposited to cash management pools. The mirror
netting arrangement with PR and its affiliates is further described
below. On November 9, 2011, Corby
entered into an agreement with a PR affiliate for a new term for
Corby's exclusive right to represent ABSOLUT vodka in Canada from September
30, 2013 to September 29,
2021, which is consistent with the term of Corby's Canadian
representation of the other PR brands in Corby's portfolio (the
"2011 Agreement"). On September 30,
2013, Corby paid $10.3 million
for the additional eight years of the new term pursuant to an
agreement entered into between Corby and The Absolut Company
Aktiebolag, an affiliate of PR and owner of the ABSOLUT brand, to
satisfy the parties' obligations under the 2011 Agreement. Since
the 2011 Agreement is a related party transaction, the agreement
was approved by the Independent Committee of the Corby Board of
Directors, in accordance with Corby's related party transaction
policy, following an extensive review and with external financial
and legal advice.
On March 21, 2016, the Company
entered into an agreement with Pernod Ricard UK Ltd. ("PRUK"), an
affiliated company, which provides PRUK the exclusive right to
represent Lamb's rum in Great
Britain effective July 1,
2016. Previously, Lamb's rum was represented by an unrelated
third party in this market. The agreement provides Lamb's with
access to PRUK's extensive national distribution network throughout
Great Britain. The agreement is
effective for a five-year period ending June
30, 2021.
Deposits in cash management pools
Corby
participates in a cash pooling arrangement under a Mirror Netting
Service Agreement, together with PR's other Canadian affiliates,
the terms of which are administered by Citibank N.A. effective
July 17, 2014. The Mirror Netting
Service Agreement acts to aggregate each participant's net cash
balance for purposes of having a centralized cash management
function for all of PR's Canadian affiliates, including Corby. As a
result of Corby's participation in this agreement, Corby's credit
risk associated with its deposits in cash management pools is
contingent upon PR's credit rating. PR's credit rating as at
May 8, 2019, as published by Standard
& Poor's and Moody's, was BBB and Baa2, respectively. PR
compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Service Agreement by
paying interest to Corby based upon the 30-day Canadian Dealer
Offered Rate plus 0.40%. Corby accesses these funds on a daily
basis and has the contractual right to withdraw these funds or
terminate these cash management arrangements upon providing five
days' written notice.
Selected Quarterly Information
Summary of Quarterly Financial Results
|
|
|
|
|
|
|
|
|
(in millions of
Canadian dollars,
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
except per share
amounts)
|
2019
|
2019
|
2019
|
2018
|
2018
|
2018
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
Revenue
(1)
|
$
|
31.0
|
$
|
41.9
|
$
|
37.9
|
$
|
40.2
|
$
|
29.3
|
$
|
40.6
|
$
|
35.7
|
$
|
40.1
|
Earnings from
operations
|
5.9
|
9.1
|
8.7
|
12.6
|
6.5
|
7.9
|
7.9
|
11.7
|
Net
earnings
|
4.5
|
6.9
|
6.5
|
9.3
|
4.8
|
5.8
|
5.9
|
8.7
|
Basic EPS
|
0.16
|
0.24
|
0.23
|
0.33
|
0.17
|
0.20
|
0.21
|
0.30
|
Diluted
EPS
|
0.16
|
0.24
|
0.23
|
0.33
|
0.17
|
0.20
|
0.21
|
0.30
|
|
|
|
|
|
|
|
|
|
(1) In preparing its
comparative information, in fiscal years 2018 and 2017, the Company
has adjusted amounts reported previously in the interim
condensed consolidated statement of earnings as a result of the
retrospective application of IFRS 15, Revenue from Contracts with
Customers.
|
The above table demonstrates the seasonality of Corby's
business, as sales are typically strong in the first and second
quarters, while third-quarter sales (January, February and March)
usually decline after the end of the retail holiday season.
Fourth-quarter sales typically increase again with the onset of
warmer weather, as consumers tend to increase their purchasing
levels during the summer season.
The Ungava Spirits Brands were acquired on September 30, 2016 and are reflected in results
beginning with the second quarter of 2017. In fiscal 2018 the
Ungava Spirits Brands contributed $8.9
million to revenues.
Revenues for the second, third and fourth quarters of 2018
include Case Goods sales for the Foreign Affair Brands, which were
acquired on October 2, 2017. Since
the completion of the acquisition, the Foreign Affair Brands have
contributed $2.3 million to
revenues.
Recent Accounting Pronouncements
A number of new
standards, amendments to standards and interpretations were
effective for Corby on July 1, 2018,
and accordingly, have been applied in preparing these interim
condensed consolidated financial statements:
(i)
Revenue
In May 2014, the International
Accounting Standards Board ("IASB") issued IFRS 15, "Revenue from
Contracts with Customers" ("IFRS 15"), which provides a
comprehensive framework for the recognition, measurement and
disclosure of revenue from contracts with customers. IFRS 15 is
effective for annual periods beginning on or after January 1, 2018 and was therefore applied for the
first time by the Company for the interim period beginning
July 1, 2018.
The Company adopted IFRS 15 using the full retrospective
approach with restatement of prior year comparative figures. After
completing the analysis of significant customer contracts, the
Company determined that the implementation of IFRS 15 did not
result in a significant impact to the Company's financial position
and performance. The application of IFRS 15 has required that
certain advertising and promotional expenditures (previously
reported in Marketing, sales and administration), when paid
directly to customers, be classified as a reduction to revenue.
For the year ended June 30, 2018,
the implementation of IFRS 15 resulted in a reduction to revenue
from Case Goods sales of $0.9 million
with a corresponding reduction to Marketing, sales and
administration. There was no impact to net earnings, the Company's
balance sheet or statement of cash flows.
The following chart summarizes the impact of IFRS 15 on the
Company's interim condensed consolidated statement of earnings for
the three and nine-month periods ending March 31, 2018:
|
Three months
ended
|
Nine months
ended
|
Statement of
Earnings Impact
|
Mar 31,
2018
|
Mar 31,
2018
|
|
|
|
Revenue
|
$
|
(0.2)
|
$
|
(0.7)
|
Marketing, sales
& administration
|
$
|
0.2
|
$
|
0.7
|
Earnings from
Operations
|
$
|
-
|
$
|
-
|
Net
Earnings
|
$
|
-
|
$
|
-
|
The Company's accounting policies for revenues have been updated
to reflect the more extensive requirements under IFRS 15 and are
outlined below.
The Company derives its revenue from Case Goods sales,
Commissions and other services. The Company recognizes revenue when
control of the goods or services sold has been transferred to the
customer. Revenue is measured at the amount of consideration to
which the Company expects to be entitled after deducting trade
discounts, volume rebates, sales-related taxes and duties and costs
of services directly provided by customers.
(i)
Case Goods Sales
Corby's Case Goods are primarily sold to provincial liquor
boards and international customers. Transfer of control over Case
Goods is achieved when products are shipped from the Company's
various distribution sites and accepted by the customer. For sales
to consumers through the Company's winery retail store, the
transfer of control is deemed to occur when the product is
purchased by the consumer.
Case Goods sales are recorded net of trade discounts, volume
rebates, sales-related taxes and duties and costs of services
provided directly by customers which include: distribution, listing
costs for new products, promotional activities at point of sale and
other advertising and promotional services.
(ii)
Commissions
When the Company acts in the capacity of an agent rather than as
the principal in a transaction, revenue is recognized in the amount
of the commission to which the Company is contractually entitled in
exchange for representation services performed. Commissions are
reported net of amortization of long-term representation rights.
The long-term representation rights represent the cost of the
Company's exclusive right to represent PR's brands in Canada and are amortized on a straight-line
basis over the term of their respective agreements.
(iii)
Other services
Other services include revenue from ancillary activities,
including logistics fees and bulk whisky sales. Logistics fees are
recognized as services are rendered. Bulk whisky sales are
recognized when control of the goods has been transferred to the
customer.
(ii)
Financial Instruments
The IASB has issued a new standard, IFRS 9, "Financial
Instruments" ("IFRS 9"), which will ultimately replace IAS 39,
"Financial Instruments: Recognition and Measurement" ("IAS 39").
The replacement of IAS 39 is a multi-phase project with the
objective of improving and simplifying the reporting for financial
instruments, and the issuance of IFRS 9 is part of the first phase
of this project. IFRS 9 uses a single approach to determine whether
a financial asset or liability is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. For financial
assets, the approach in IFRS 9 is based on how an entity manages
its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets.
IFRS 9 requires a single impairment method to be used, replacing
multiple impairment methods in IAS 39. For financial liabilities
measured at fair value, fair value changes due to changes in an
entity's own credit risk are presented in other comprehensive
income.
This standard is effective for annual periods beginning on or
after January 1, 2018 and must be
applied retrospectively. For Corby, this standard became effective
July 1, 2018 and has been applied
retrospectively to all periods presented.
The adoption of IFRS 9 did not have a significant impact on the
Company's interim condensed consolidated financial statements.
Financial assets and liabilities have been classified and measured
in accordance with IFRS 9. As a result of the application of IFRS 9
and classifications, there has been no change to the carrying value
of financial assets and liabilities.
Changes to the classification of Corby's financial assets and
liabilities under IFRS 9 are as follows:
Financial
Asset/Liability
|
Category
Under IAS 39
|
Category
Under IFRS 9
|
|
|
|
Deposits in cash
management pools
|
Loans and
receivables
|
Amortized
cost
|
Accounts
receivable
|
Loans and
receivables
|
Amortized
cost
|
Accounts payable and
accrued liabilities
|
Loans and
receivables
|
Amortized
cost
|
Recent accounting pronouncements not in
effect
The below standards have been issued but are not
yet effective for the financial period ended March 31, 2019, and accordingly, have not been
applied in preparing these interim condensed consolidated financial
statements:
(iii)
Leases
In January 2016, the IASB issued a
new standard IFRS 16, "Leases" ("IFRS 16"), which will ultimately
replace IAS 17, "Leases" ("IAS 17"). IFRS 16 specifies how an
entity will recognize, measure, present and disclose leases. The
standard provides a single lessee accounting model, requiring
lessees to recognize assets and liabilities for all leases unless
the lease term is 12 months or less or the underlying asset has a
low value. The standard is effective for annual periods beginning
on or after January 1, 2019 and must
be applied retrospectively. For Corby, this standard will become
effective July 1, 2019.
The guidance permits two methods of adoption: retrospectively to
each prior reporting period restated (full retrospective method),
or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application
(modified retrospective method). The Company will adopt the
standard using the modified retrospective method. The Company has
elected to set the right-of-use asset equal to the lease
liability.
In preparation for adoption of the standard, the Company has
completed the review of relevant contracts and has concluded there
will be a right-of-use asset and a corresponding lease liability of
approximately $5,900, recognized on
the Company's statements of financial position upon the adoption of
the standard. The Company has elected to not apply the requirements
of IFRS 16 to short-term leases and leases for which the underlying
asset is of low value. The Company will recognize the lease
payments associated with these leases on a straight-line basis,
over the lease term.
(iv)
Uncertainty over Income Tax Treatments
In June 2017, the IASB issued a
new interpretation IFRIC 23, "Uncertainty over Income Tax
Treatments" ("IFRIC 23). IFRIC 23 specifies the accounting
treatment for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over the tax
treatments. The standard is effective for annual periods beginning
on or after January 1, 2019, with
earlier application permitted. For Corby, this standard will become
effective July 1, 2019. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
Internal Controls Over Financial Reporting
The Company maintains a system of disclosure controls and
procedures to provide reasonable assurance that all material
information relating to the Company is gathered and reported to
senior management on a timely basis so that appropriate decisions
can be made regarding public disclosure.
In addition, the CEO and CFO have designed, or caused to be
designed under their supervision, internal controls over financial
reporting to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. Internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be designed effectively
can provide only reasonable assurance with respect to financial
reporting and financial statement preparation.
In accordance with the provisions of National Instrument 52-109
– Certification of disclosure in Issuers' Annual and Interim
Filings, Foreign Affair Winery was excluded from the Company's
conclusions over disclosure controls and procedures and internal
controls over financial reporting for the 365 day allowable period
subsequent to the acquisition to allow for the assessment of the
design effectiveness of Foreign Affair Winery's disclosure controls
and procedures and internal controls over financial reporting. The
Company has completed its assessment of Foreign Affair Winery's
control environment and incorporated it in the Company's assessment
of the design effectiveness of disclosure controls and procedures
and internal controls over financial reporting.
Except for the preceding changes, there were no changes in
internal control over financial reporting during the Company's most
recent interim period that have materially affected, or are
reasonably likely to materially affect, the Company's internal
controls over financial reporting.
Risks & Risk Management
The Company is exposed to a number of risks in the normal course
of its business that have the potential to affect its operating and
financial performance.
Industry and Regulatory
The beverage alcohol
industry in Canada is subject to
government policy, extensive regulatory requirements and
significant rates of taxation at both the federal and provincial
levels. As a result, changes in the government policy, regulatory
and/or taxation environments within the beverage alcohol industry
may affect Corby's business operations, causing changes in market
dynamics or changes in consumer consumption patterns. In addition,
the Company's provincial LB customers have the ability to mandate
changes that can lead to increased costs, as well as other factors
that may impact financial results.
Additionally, as the Company becomes more reliant on
international product sales in the US, UK and other countries,
exposure to changes in the laws and regulations (including on
matters such as regulatory requirements, import duties and
taxation) in those countries could also adversely affect the
operations, financial performance or reputation of the Company.
The Company continuously monitors the potential risk associated
with any proposed changes to its government policy, regulatory and
taxation environments and, as an industry leader, actively
participates in trade association discussions relating to new
developments.
Consumer Consumption Patterns
Beverage alcohol
companies are susceptible to risks relating to changes in consumer
consumption patterns. Consumer consumption patterns are affected by
many external influences, not the least of which is economic
outlook and overall consumer confidence in the stability of the
economy as a whole. Additionally, the legalization of recreational
cannabis in Canada could have the
potential to impact consumer consumption patterns with respect to
beverage alcohol products. Corby offers a diverse portfolio of
products across all major spirits categories and at various price
points. Corby continues to identify and offer new innovations
in order to address consumer desires.
Distribution/Supply Chain Interruption
The
Company is susceptible to risks relating to distributor and supply
chain interruptions. Distribution in Canada is largely accomplished through the
government-owned provincial LBs and, therefore, an interruption
(e.g., a labour strike) for any length of time, or a change in
business model may have a significant impact on the Company's
ability to sell its products in a particular province and/or
market. International sales are subject to the variations in
distribution systems within each country where the products are
sold.
Supply chain interruptions, including a manufacturing or
inventory disruption, could impact product quality and
availability. The Company adheres to a comprehensive suite of
quality programmes and proactively manages production and supply
chains to mitigate any potential risk to consumer safety or Corby's
reputation and profitability.
Inherent to producing maturing products, there is a potential
for shortages or surpluses in future years if demand and supply are
materially different from long-term forecasts. Additionally,
the loss through contamination, fire or other natural disaster of
the stock of maturing products may result in significant reduction
in supply and, as a result, Corby may not be able to meet customer
demands. The Company monitors category trends and regularly reviews
maturing inventory levels.
Environmental Compliance
Environmental
liabilities may potentially arise when companies are in the
business of manufacturing products and, thus, required to handle
potentially hazardous materials. As Corby largely outsources its
production, including all of its storage and handling of maturing
alcohol, the risk of environmental liabilities is considered
minimal. Corby currently has no significant recorded or unrecorded
environmental liabilities.
Industry Consolidation
In recent years, the
global beverage alcohol industry has continued to experience
consolidation. Industry consolidation can have varying degrees of
impact and, in some cases, may even create exceptional
opportunities. Either way, management believes that the Company is
well positioned to deal with this or other changes to the
competitive landscape in Canada
and other markets in which it carries on business.
Corby's ability to properly complete
acquisitions and subsequently
integrate them may affect
its results
Corby monitors growth
opportunities that may present themselves to Corby, including by
way of acquisitions. While we believe that an acquisition may
create the opportunity to realize certain benefits, achieving these
benefits will depend in part on successfully consolidating
functions and integrating operations, procedures and personnel in
an efficient manner, as well as our ability to realize any
anticipated growth opportunities or costs savings from combining
the target's assets and operations with our existing brands and
operations. Integration efforts following any acquisition
(including the recent acquisitions of the Ungava Spirits Brands and
Foreign Affair Winery) may require the dedication of substantial
management effort, time and resources, which may divert
management's focus and resources from other strategic opportunities
and from operational matters during this process. In addition,
Corby may be required to assume greater-than-expected liabilities
due to liabilities that are undisclosed at the time of completion
of an acquisition. A failure to realize, in whole or in part, the
anticipated benefits of an acquisition may have a negative impact
on the results or financial position of Corby.
Competition
The Canadian and international
beverage alcohol industry is extremely competitive. Competitors may
take actions to establish and sustain a competitive advantage
through advertising and promotion and pricing strategies in an
effort to maintain market share, which may negatively affect our
sales, revenues and profitability. Corby constantly monitors the
market and adjusts its own advertising, promotion and pricing
strategies as appropriate.
Competitors may also affect Corby's ability to attract and
retain high-quality employees. The Company's long heritage attests
to Corby's strong foundation and successful execution of its
strategies. Its role as a leading Canadian beverage alcohol company
helps facilitate recruitment efforts.
Credit Risk
Credit risk arises from deposits in
cash management pools held with PR via Corby's participation in the
Mirror Netting Service Agreement (as previously described in the
"Related Party Transactions" section of this MD&A), as well as
credit exposure to customers, including outstanding accounts
receivable. The maximum exposure to credit risk is equal to the
carrying value of the Company's financial assets. The objective of
managing counter-party credit risk is to prevent losses in
financial assets. The Company assesses the credit quality of its
counter-parties, taking into account their financial position, past
experience and other factors. As the large majority of Corby's
accounts receivable balances are collectible from
government-controlled LBs, management believes the Company's credit
risk relating to accounts receivable is at an acceptably low
level.
Exposure to Interest Rate Fluctuations
The
Company does not have any short- or long-term debt facilities.
Interest rate risk exists, as Corby earns market rates of interest
on its deposits in cash management pools. An active risk management
programme does not exist, as management believes that changes in
interest rates would not have a material impact on Corby's
financial position over the long term.
Exposure to Commodity Price
Fluctuations
Commodity risk exists, as the manufacture
of Corby's products requires the procurement of several known
commodities, such as grains, sugar and natural gas. The Company
strives to partially mitigate this risk through the use of
longer-term procurement contracts where possible. In addition,
subject to competitive conditions, the Company may pass on
commodity price changes to consumers through pricing over the long
term.
Foreign Currency Exchange Risk
The Company has
exposure to foreign currency risk, as it conducts business in
multiple foreign currencies; however, its exposure is primarily
limited to the US dollar ("USD") and UK pound sterling ("GBP").
Corby does not utilize derivative instruments to manage this risk.
Subject to competitive conditions, changes in foreign currency
rates may be passed on to consumers through pricing over the long
term.
USD Exposure
The Company's demand for USD has traditionally outpaced its supply,
due to USD sourcing of production inputs and Advertising &
Promotion expenses exceeding that of the Company's USD sales.
Therefore, decreases in the value of the Canadian dollar ("CAD")
relative to the USD will have an unfavourable impact on the
Company's earnings.
GBP Exposure
The Company's exposure to fluctuations in the value of the GBP
relative to the CAD was reduced as both sales and cost of
production are denominated in GBP. While Corby's exposure has been
minimized, increases in the value of the CAD relative to the GBP
will have an unfavourable impact on the Company's earnings.
Third-Party Service Providers
HWSL, which Corby
manages on behalf of PR, provides more than 90% of the Company's
production requirements, among other services including
administration and information technology. However, the Company is
reliant upon certain third-party service providers in respect of
certain of its operations. It is possible that negative events
affecting these third-party service providers could, in turn,
negatively impact the Company. While the Company has no direct
control over how such third parties are managed, it has entered
into contractual arrangements to formalize these relationships. In
order to minimize operating risks, the Company actively monitors
and manages its relationships with its third-party service
providers.
Brand Reputation and Trademark Protection
The
Company promotes nationally branded, non-proprietary products as
well as proprietary products. Damage to the reputation of any of
these brands, or to the reputation of any supplier or manufacturer
of these brands, could negatively impact consumer opinion of the
Company or the related products, which could have an adverse impact
on the financial performance of the Company. The Company strives to
mitigate such risks by selecting only those products from suppliers
that strategically complement Corby's existing brand portfolio and
by actively monitoring brand advertising and promotion
activities.
Additionally, although the Company registers trademarks, as
applicable, it cannot be certain that trademark registrations will
be issued with respect to all the Company's applications. Also,
while Corby constantly watches for and responds to competitive
threats, as necessary, the Company cannot predict challenges to, or
prevent a competitor from challenging, the validity of any existing
or future trademark issued or licensed to Corby.
Information Technology and Cyber Security
The
Company uses technology supplied by third parties, both related and
non-related, to support operations and invests in information
technology to improve route to market, reporting, analysis, and
marketing initiatives. Issues with availability, reliability
and security of systems and technology could adversely impact the
Company's ability to compete resulting in corruption or loss of
data, regulatory-related issues, litigation or brand reputation
damage. With the fast-paced changing nature of the technology
environment including digital marketing, the Company works with
these third parties to maintain policies, processes and procedures
to help secure and protect these information systems as well as
consumer, corporate and employee data.
Valuation of Goodwill and Intangible
Assets
Goodwill and intangible assets account for a
significant amount of the Company's total assets. Goodwill and
intangible assets are subject to impairment tests that involve the
determination of fair value. Inherent in such fair value
determinations are certain judgments and estimates including, but
not limited to, projected future sales, earnings and capital
investment, discount rates, and terminal growth rates. These
judgments and estimates may change in the future due to uncertain
competitive market and general economic conditions, or as the
Company makes changes in its business strategies. Given the current
state of the economy, certain of the aforementioned factors
affecting the determination of fair value may be impacted and, as a
result, the Company's financial results may be adversely
affected.
The following table summarizes Corby's goodwill and intangible
assets and details the amounts associated with each brand (or
basket of brands) and market as at March 31,
2019:
|
|
|
Carrying Values as at
March 31, 2019
|
|
|
|
|
|
|
Associated
Brand
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
Various PR
brands
|
Canada
|
|
$
|
-
|
$
|
14.5
|
$
|
14.5
|
Lamb's rum
|
United
Kingdom(1)
|
|
1.3
|
11.8
|
13.1
|
Ungava brands
(2)
|
Canada
|
|
5.1
|
3.2
|
8.3
|
Foreign Affair Winery
brands
|
Canada
|
|
0.4
|
2.5
|
2.9
|
Other domestic
brands
|
Canada
|
|
1.9
|
-
|
1.9
|
|
|
|
|
|
|
|
|
|
$
|
8.7
|
$
|
32.0
|
$
|
40.7
|
(1)The
international business for Lamb's rum is primarily focused in the
UK, however, the trademarks and licences purchased
relate to all international markets outside of Canada, as Corby
previously owned the Canadian rights.
|
(2)The
Ungava brands include trademarks related to Ungava Premium Canadian
Gin, Chic Choc Spiced Rum and Cabot Trail
maple-based liqueurs.
|
Therefore, economic factors (such as consumer consumption
patterns) specific to these brands and markets are primary drivers
of the risk associated with their respective goodwill and
intangible assets valuations.
Employee Future Benefits
The Company has
certain obligations under its registered and non-registered defined
benefit pension plans and other post-retirement benefit plan. There
is no assurance that the Company's benefit plans will be able to
earn the assumed rate of return. New regulations and market-driven
changes may result in changes in the discount rates and other
variables, which would result in the Company being required to make
contributions in the future that differ significantly from
estimates. An extended period of depressed capital markets and low
interest rates could require the Company to make contributions to
these plans in excess of those currently contemplated, which, in
turn, could have an adverse impact on the financial performance of
the Company. Somewhat mitigating the impact of a potential market
decline is the fact that the Company monitors its pension plan
assets closely and follows strict guidelines to ensure that pension
fund investment portfolios are diversified in-line with industry
best practices. For further details related to Corby's defined
benefit pension plans, please refer to Note 10 of the annual
audited consolidated financial statements for the year ended
June 30, 2018.
CORBY SPIRIT AND WINE LIMITED
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH
31, 2019 AND 2018
CORBY SPIRIT AND
WINE LIMITED INTERIM CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Jun. 30
|
|
Notes
|
2019
|
2018
|
2018
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Deposits in cash
management pools
|
|
$
|
61,018
|
$
|
64,921
|
$
|
69,955
|
Accounts
receivable
|
5
|
28,459
|
29,265
|
33,469
|
Income taxes
recoverable
|
|
-
|
610
|
-
|
Inventories
|
6
|
62,843
|
61,107
|
59,789
|
Prepaid
expenses
|
|
661
|
950
|
593
|
|
|
|
|
|
Total current
assets
|
|
152,981
|
156,853
|
163,806
|
Other
assets
|
|
3,420
|
-
|
1,830
|
Property, plant and
equipment
|
|
19,944
|
17,097
|
19,331
|
Goodwill
|
7
|
8,757
|
11,991
|
8,757
|
Intangible
assets
|
|
31,976
|
35,263
|
36,311
|
|
|
|
|
|
Total
assets
|
|
$
|
217,078
|
$
|
221,204
|
$
|
230,035
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable and
accrued liabilities
|
8
|
$
|
32,145
|
$
|
28,649
|
$
|
31,242
|
Income and other
taxes payable
|
|
176
|
-
|
1,240
|
Total current
liabilities
|
|
32,321
|
28,649
|
32,482
|
Provision for
employee benefits
|
|
9,186
|
16,048
|
9,991
|
Deferred income
taxes
|
|
3,672
|
655
|
2,868
|
|
|
|
|
|
Total
liabilities
|
|
45,179
|
45,352
|
45,341
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
Share
capital
|
|
14,304
|
14,304
|
14,304
|
Accumulated other
comprehensive income (loss)
|
|
1,128
|
(5,365)
|
486
|
Retained
earnings
|
|
156,467
|
166,913
|
169,904
|
|
|
|
|
|
Total
shareholders' equity
|
|
171,899
|
175,852
|
184,694
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
|
217,078
|
$
|
221,204
|
$
|
230,035
|
|
|
|
|
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
Notes
|
2019
|
2018 (1)
|
2019
|
2018 (1)
|
|
|
|
|
|
|
Revenue
|
9
|
$
|
30,955
|
$
|
29,277
|
$
|
110,703
|
$
|
105,483
|
|
|
|
|
|
|
Cost of
sales
|
|
(12,336)
|
(11,461)
|
(43,046)
|
(40,213)
|
Marketing, sales and
administration
|
|
(12,673)
|
(11,555)
|
(43,963)
|
(43,350)
|
Other income
(expense)
|
10
|
(10)
|
206
|
48
|
379
|
|
|
|
|
|
|
Earnings from
operations
|
|
5,936
|
6,467
|
23,742
|
22,299
|
|
|
|
|
|
|
Financial
income
|
11
|
371
|
319
|
1,142
|
875
|
Financial
expense
|
11
|
(123)
|
(193)
|
(354)
|
(574)
|
|
|
248
|
126
|
788
|
301
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
6,184
|
6,593
|
24,530
|
22,600
|
|
|
|
|
|
|
Current income
taxes
|
|
(1,533)
|
(1,682)
|
(6,083)
|
(5,824)
|
Deferred income
taxes
|
|
(170)
|
(125)
|
(568)
|
(349)
|
Income
taxes
|
|
(1,703)
|
(1,807)
|
(6,651)
|
(6,173)
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
4,481
|
$
|
4,786
|
$
|
17,879
|
$
|
16,427
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
0.16
|
$
|
0.17
|
$
|
0.63
|
$
|
0.58
|
Diluted earnings
per share
|
|
$
|
0.16
|
$
|
0.17
|
$
|
0.63
|
$
|
0.58
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
|
|
|
|
Basic
|
|
28,468,856
|
28,468,856
|
28,468,856
|
28,468,856
|
Diluted
|
|
28,468,856
|
28,468,856
|
28,468,856
|
28,468,856
|
(1) In preparing its
comparative information, the Company has adjusted amounts reported
previously in the interim condensed
consolidated statement of earnings as a result of the retrospective
application of IFRS 15, Revenue from Contracts with Customers.
Refer to Note 2 for details regarding adjusted amounts.
|
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
Net
earnings
|
$
|
4,481
|
$
|
4,786
|
$
|
17,879
|
$
|
16,427
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
Net actuarial
gains
|
293
|
297
|
879
|
891
|
Income
taxes
|
(79)
|
(80)
|
(237)
|
(239)
|
|
214
|
217
|
642
|
652
|
|
|
|
|
|
Total
comprehensive income
|
$
|
4,695
|
$
|
5,003
|
$
|
18,521
|
$
|
17,079
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN
|
SHAREHOLDERS'
EQUITY
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Retained
Earnings
|
Total
|
|
|
|
|
|
Balance as at June
30, 2018
|
$
|
14,304
|
$
|
486
|
$
|
169,904
|
$
|
184,694
|
Total comprehensive
income
|
-
|
642
|
17,879
|
18,521
|
Dividends
|
-
|
-
|
(31,316)
|
(31,316)
|
|
|
|
|
|
Balance as at
March 31, 2019
|
$
|
14,304
|
$
|
1,128
|
$
|
156,467
|
$
|
171,899
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2017
|
$
|
14,304
|
$
|
(6,017)
|
$
|
168,991
|
$
|
177,278
|
Total comprehensive
income
|
-
|
652
|
16,427
|
17,079
|
Dividends
|
-
|
-
|
(18,505)
|
(18,505)
|
|
|
|
|
|
|
|
|
|
Balance as at March
31, 2018
|
$
|
14,304
|
$
|
(5,365)
|
$
|
166,913
|
$
|
175,852
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOW
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
Notes
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
4,481
|
$
|
4,786
|
$
|
17,879
|
$
|
16,427
|
Adjustments
for:
|
|
|
|
|
|
Amortization and
depreciation
|
12
|
2,167
|
2,066
|
6,460
|
6,090
|
Net financial
income
|
11
|
(248)
|
(126)
|
(788)
|
(301)
|
Gain on disposal of
property and equipment
|
|
-
|
(80)
|
-
|
(180)
|
Income tax
expense
|
|
1,703
|
1,807
|
6,651
|
6,173
|
Provision for
employee benefits
|
|
(399)
|
(614)
|
(1,870)
|
(1,884)
|
|
|
7,704
|
7,839
|
28,332
|
26,325
|
Net change in
non-cash working capital balances
|
13
|
(2,786)
|
(11,413)
|
2,803
|
(1,874)
|
Interest
received
|
|
372
|
318
|
1,142
|
876
|
Income taxes
paid
|
|
(1,562)
|
(2,484)
|
(7,147)
|
(7,346)
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
3,728
|
(5,740)
|
25,130
|
17,981
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Additions to property
and equipment
|
|
(1,613)
|
(1,426)
|
(2,751)
|
(2,858)
|
Proceeds from
disposition of property and equipment
|
|
-
|
187
|
-
|
447
|
Business
acquisition
|
4
|
-
|
-
|
-
|
(6,397)
|
Deposits in cash
management pools
|
|
16,674
|
13,242
|
8,937
|
9,332
|
|
|
|
|
|
|
Net cash from
investing activities
|
|
15,061
|
12,003
|
6,186
|
524
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
Dividends
paid
|
|
(18,789)
|
(6,263)
|
(31,316)
|
(18,505)
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
(18,789)
|
(6,263)
|
(31,316)
|
(18,505)
|
|
|
|
|
|
|
Net increase in
cash
|
|
-
|
-
|
-
|
-
|
Cash, beginning of
year
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Cash, end of
year
|
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(not audited
or reviewed by the Company's external auditor)
(in
thousands of Canadian dollars, except per share amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian manufacturer, marketer and importer of spirits and
wines. The Company derives its revenues from the sale of its
owned-brands in Canada and other
international markets, as well as earning commissions from the
representation of selected non-owned brands in the Canadian
marketplace. Revenues predominantly consist of sales made to each
of the provincial liquor boards in Canada. The Company also supplements these
primary sources of revenue with other ancillary activities
incidental to its core business, such as logistics fees.
Corby is controlled by Hiram
Walker & Sons Limited ("HWSL"), which is a wholly-owned
subsidiary of Pernod Ricard, S.A. ("PR"), a French public limited
company that controls 51.6% of the outstanding Voting Class A
Common Shares of Corby as at March 31,
2019.
Corby is a public company incorporated and domiciled in
Canada, whose shares are traded on
the Toronto Stock Exchange. The Company's registered address is 225
King Street West, Suite 1100, Toronto,
ON M5V 3M2.
2. SIGNIFICANT ACCOUNTING POLICIES
(i)
Basis of Preparation
Statement of compliance
These interim condensed
consolidated financial statements have been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting" ("IAS 34"), as issued by the International Accounting
Standards Board ("IASB"). These interim condensed consolidated
financial statements follow the same accounting policies as the
most recent annual consolidated financial statements, except for
changes in accounting policies and methods described below. These
interim condensed consolidated financial statements should be read
in conjunction with the Company's 2018 annual financial
statements.
These interim condensed consolidated financial statements were
approved by the Company's Board of Directors on May 8, 2019.
Functional and presentation currency
The
Company's interim condensed consolidated financial statements are
presented in Canadian dollars, which is the Company's, and its
subsidiaries, functional and presentation currency.
Foreign currency translation
Transactions
denominated in foreign currencies are translated into the
functional currency using the exchange rate applying at the
transaction date. Non-monetary assets and liabilities denominated
in foreign currencies are recognized at the historical exchange
rate applicable at the transaction date. Monetary assets and
liabilities denominated in foreign currencies are translated at the
exchange rate applying at the balance sheet date. Foreign
currency differences related to operating activities are recognized
in earnings from operations for the period; foreign currency
differences related to financing activities are recognized within
net financial income.
Basis of Measurement
These interim condensed
consolidated financial statements are prepared in accordance with
the historical cost model, except for certain categories of assets
and liabilities, which are measured in accordance with other
methods provided for by IFRS as described in the most recent annual
consolidated financial statements, except for recently adopted
policies and methods described below. Historical cost is generally
based on the fair value of the consideration given in exchange for
assets.
Use of Estimates and Judgements
The preparation of
these interim condensed consolidated financial statements in
conformity with IFRS requires management to make certain
judgements, estimates and assumptions that affect the application
of accounting policies, the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the interim condensed consolidated financial statements,
and the reported amounts of revenues and expenses during the
reporting period. These estimates are made on the assumption the
Company will continue as a going concern, and are based on
information available at the time of preparation. Estimates may be
revised where the circumstance on which they were based changes or
where new information becomes available. Future outcomes can differ
from these estimates.
Judgment is commonly used in determining whether a balance or
transaction should be recognized in the interim condensed
consolidated financial statements, and estimates and assumptions
are more commonly used in determining the measurement of recognized
transactions and balances. However, judgment and estimates are
often interrelated.
Estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Estimates are made on the assumption the Company will continue as a
going concern and are based on information available at the time of
preparation. Estimates may be revised where the circumstance on
which they were based changes or where new information becomes
available. Future outcomes can differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods
affected.
Management's most critical estimates in determining the value of
assets and liabilities and the most critical judgements in applying
accounting policies that have a significant risk of causing
material adjustments to the carrying amounts of assets and
liabilities within the next year have been described in Note 2 of
the Company's most recent annual consolidated financial
statements.
Seasonality
The interim condensed consolidated
financial statements should not be taken as indicative of the
performance to be expected for the full fiscal year due to the
seasonal nature of the spirits business. Corby's operations are
typically subject to seasonal fluctuations in that the retail
holiday season generally results in an increase in consumer
purchases over the course of October, November and December.
Further, the summer months traditionally result in higher consumer
purchases of spirits as compared to the winter and spring months.
As a result, the Company's first and second quarter of each fiscal
year tend to reflect the impact of seasonal fluctuations in that
more shipments are typically made during those quarters.
(ii)
Adoption of New and Revised Standards and
Interpretations
Recent accounting pronouncements
A number of new standards, amendments to standards and
interpretations were effective for Corby on July 1, 2018, and accordingly, have been applied
in preparing these interim condensed consolidated financial
statements:
(a)
Revenue
In May 2014, the International
Accounting Standards Board ("IASB") issued IFRS 15, "Revenue from
Contracts with Customers" ("IFRS 15"), which provides a
comprehensive framework for the recognition, measurement and
disclosure of revenue from contracts with customers. IFRS 15 is
effective for annual periods beginning on or after January 1, 2018 and was therefore applied for the
first time by the Company for the interim period beginning
July 1, 2018.
The Company adopted IFRS 15 using the full retrospective
approach with restatement of prior year comparative figures. After
completing the analysis of significant customer contracts, the
Company determined that the implementation of IFRS 15 did not
result in a significant impact to the Company's financial position
and performance. The application of IFRS 15 has required that
certain advertising and promotional expenditures (previously
reported in Marketing, sales and administration), when paid
directly to customers, be classified as a reduction to revenue.
For the year ended June 30, 2018,
the implementation of IFRS 15 resulted in a reduction to revenue
from Case Goods sales of $871 with a
corresponding reduction to Marketing, sales and administration.
There was no impact to net earnings, the Company's balance sheet or
statement of cash flows.
The following chart summarizes the impact of IFRS 15 on the
Company's interim condensed consolidated statement of earnings for
the three and nine month periods ending March 31, 2018:
|
Three
months ended
|
Nine months
ended
|
|
Mar. 31,
|
Mar. 31,
|
Statement of
earnings impacts
|
2018
|
2018
|
|
|
|
Revenue
|
$
|
(195)
|
$
|
(707)
|
Marketing, sales
& administration
|
195
|
707
|
Earnings from
operations
|
-
|
-
|
Net
earnings
|
$
|
-
|
$
|
-
|
The Company's accounting policies for revenues have been updated
to reflect the more extensive requirements under IFRS 15 and are
outlined below.
The Company derives its revenue from Case
Goods sales, Commissions and other services. The Company recognizes
revenue when control of the goods or services sold has been
transferred to the customer. Revenue is measured at the amount of
consideration to which the Company expects to be entitled after
deducting trade discounts, volume rebates, sales-related taxes and
duties and costs of services directly provided by customers.
(i)
Case Goods Sales
Corby's Case Goods are primarily sold to provincial liquor
boards and international customers. Transfer of control over Case
Goods is achieved when products are shipped from the Company's
various distribution sites and accepted by the customer. For sales
to consumers through the Company's winery retail store, the
transfer of control is deemed to occur when the product is
purchased by the consumer.
Case Goods sales are recorded net of trade discounts, volume
rebates, sales-related taxes and duties and costs of services
provided directly by customers which include: distribution, listing
costs for new products, promotional activities at point of sale and
other advertising and promotional services.
(ii)
Commissions
When the Company acts in the capacity of an agent rather than as
the principal in a transaction, revenue is recognized in the amount
of the commission to which the Company is contractually entitled in
exchange for representation services performed. Commissions are
reported net of amortization of long-term representation rights.
The long-term representation rights represent the cost of the
Company's exclusive right to represent PR's brands in Canada and are amortized on a straight-line
basis over the term of their respective agreements.
(iii)
Other services
Other services include revenue from ancillary activities,
including logistics fees and bulk whisky sales. Logistics fees are
recognized as services are rendered. Bulk whisky sales are
recognized when control of the goods has been transferred to the
customer.
(b)
Financial Instruments
The IASB has issued a new standard, IFRS 9, "Financial
Instruments" ("IFRS 9"), which will ultimately replace IAS 39,
"Financial Instruments: Recognition and Measurement" ("IAS 39").
The replacement of IAS 39 is a multi-phase project with the
objective of improving and simplifying the reporting for financial
instruments, and the issuance of IFRS 9 is part of the first phase
of this project. IFRS 9 uses a single approach to determine whether
a financial asset or liability is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. For financial
assets, the approach in IFRS 9 is based on how an entity manages
its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets.
IFRS 9 requires a single impairment method to be used, replacing
multiple impairment methods in IAS 39. For financial liabilities
measured at fair value, fair value changes due to changes in an
entity's own credit risk are presented in other comprehensive
income.
This standard is effective for annual periods beginning on or
after January 1, 2018 and must be
applied retrospectively. For Corby, this standard became effective
July 1, 2018 and has been applied
retrospectively to all periods presented.
The adoption of IFRS 9 did not have a significant impact on the
Company's interim condensed consolidated financial statements.
Financial assets and liabilities have been classified and measured
in accordance with IFRS 9. As a result of the application of IFRS 9
and classifications, there has been no change to the carrying value
of financial assets and liabilities.
Changes to the classification of Corby's financial assets and
liabilities under IFRS 9 are as follows:
Financial
Asset/Liability
|
Category
Under IAS 39
|
Category
Under IFRS 9
|
|
|
|
Deposits in cash
management pools
|
Loans and
receivables
|
Amortized
cost
|
Accounts
receivable
|
Loans and
receivables
|
Amortized
cost
|
Accounts payable and
accrued liabilities
|
Loans and
receivables
|
Amortized
cost
|
Recent accounting pronouncements not in
effect
The below standards have been issued but are not
yet effective for the financial period ended March 31, 2019, and accordingly, have not been
applied in preparing these interim condensed consolidated financial
statements:
(c)
Leases
In January 2016, the IASB issued a
new standard IFRS 16, "Leases" ("IFRS 16"), which will ultimately
replace IAS 17, "Leases" ("IAS 17"). IFRS 16 specifies how an
entity will recognize, measure, present and disclose leases. The
standard provides a single lessee accounting model, requiring
lessees to recognize assets and liabilities for all leases unless
the lease term is 12 months or less or the underlying asset has a
low value. The standard is effective for annual periods beginning
on or after January 1, 2019 and must
be applied retrospectively. For Corby, this standard will become
effective July 1, 2019.
The guidance permits two methods of adoption: retrospectively to
each prior reporting period restated (full retrospective method),
or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application
(modified retrospective method). The Company will adopt the
standard using the modified retrospective method. The Company has
elected to set the right-of-use asset equal to the lease
liability.
In preparation for adoption of the standard, the Company has
completed the review of relevant contracts and has concluded there
will be a right-of-use asset and a corresponding lease liability of
approximately $5,900, recognized on
the Company's statements of financial position upon the adoption of
the standard. The Company has elected to not apply the requirements
of IFRS 16 to short-term leases and leases for which the underlying
asset is of low value. The Company will recognize the lease
payments associated with these leases on a straight-line basis,
over the lease term.
(d)
Uncertainty over Income Tax Treatments
In June 2017, the IASB issued a
new interpretation IFRIC 23, "Uncertainty over Income Tax
Treatments" ("IFRIC 23). IFRIC 23 specifies the accounting
treatment for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over the tax
treatments. The standard is effective for annual periods beginning
on or after January 1, 2019, with
earlier application permitted. For Corby, this standard will become
effective July 1, 2019. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
3. FAIR VALUE
The Company uses a fair value hierarchy in order to classify the
fair value measurements and disclosures related to the Company's
financial assets and financial liabilities. The fair value
hierarchy has the following levels:
- Level 1 – Quoted market prices in active markets for identical
assets or liabilities;
- Level 2 – Inputs other than quoted market prices included in
Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices); and
- Level 3 – Unobservable inputs such as inputs for the asset or
liability that are not based on observable market data.
The level in the fair value hierarchy within which the fair
value measurement is categorized in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety.
The Company has no financial instruments carried at fair value
on its balance sheet. For financial assets and liabilities that are
valued at other than fair value on its balance sheets (i.e.,
deposits in cash management pools, accounts receivable, accounts
payable and accrued liabilities), fair value approximates their
carrying value at each balance sheet date due to their short-term
maturities. Fair value is determined using Level 2 inputs. Level 3
inputs are used to determine the fair value of pension plan assets
contained within the infrastructure and real estate funds.
4. BUSINESS ACQUISITION
In the prior fiscal year, on October 2,
2017, the Company acquired all of the shares of Vinnova
Corporation and substantially all of the assets of the Crispino
Estate Vineyard partnership, which together operated as the Foreign
Affair Winery, a Niagara, Ontario-based wine producer for a purchase
price of $6,397. The transaction,
through a wholly-owned subsidiary, included Foreign Affair's
portfolio of wines as well as related production assets and
inventory. The acquisition was accounted for using the acquisition
method. The purchase price was funded from the Company's Deposits
in cash management pools.
The total purchase consideration of $6,397 was allocated to the net tangible assets
acquired based on their fair value of $3,543, identifiable intangible assets
(trademarks) of $2,500 and
$354 to goodwill. The fair
values of the indentifiable intangible assets related to trademarks
were based on the relief from royalty method, using Level 3 inputs
within the fair value hierarchy, which included forecasted future
cash flows, long-term revenue growth rates, royalty rates and
discount rates.
Details of the fair value of identifiable assets and liablities
acquired, purchase consideration and goodwill are as follows:
|
|
|
Purchase
consideration transferred:
|
$
|
6,397
|
|
|
|
|
|
|
Identifiable net
assets acquired:
|
|
|
Trade
receivables
|
210
|
|
Inventory
|
1,425
|
|
Prepaid
expenses
|
37
|
|
Property, plant and
equipment
|
2,146
|
|
Trademark
|
2,500
|
|
Trade
payables
|
(275)
|
|
|
$
|
6,043
|
|
|
|
Excess initially
allocated to goodwill
|
$
|
354
|
Goodwill arising from this transaction is not expected to be
deductible for tax purposes.
5. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
June 30,
|
|
|
|
|
|
|
2019
|
2018
|
2018
|
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
|
|
$
|
14,325
|
$
|
15,426
|
$
|
19,503
|
Due from related
parties
|
|
|
|
|
13,008
|
12,317
|
12,137
|
Other
|
|
|
|
|
1,126
|
1,522
|
1,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,459
|
$
|
29,265
|
$
|
33,469
|
6. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
June 30,
|
|
|
|
|
|
|
2019
|
2018
|
2018
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
|
|
$
|
3,243
|
$
|
2,929
|
$
|
3,424
|
Work-in-progress
|
|
|
|
|
48,226
|
45,873
|
46,875
|
Finished
goods
|
|
|
|
|
11,374
|
12,305
|
9,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,843
|
$
|
61,107
|
$
|
59,789
|
The cost of inventory recognized as an expense and included in
cost of goods sold during the three and nine months ended
March 31, 2019 were $10,550 and $37,202
(2018 – $10,036 and $35,495). During the three and nine month periods
ended March 31, 2019 and 2018 there
were no significant write-downs of inventory as a result of net
realizable value being lower than cost. No inventory write-downs
recognized in previous years were reversed. Inventory write-downs
are included in cost of goods sold.
7. GOODWILL
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
June 30,
|
|
|
|
|
|
|
2019
|
2018
|
2018
|
|
|
|
|
|
|
|
|
|
Goodwill,
beginning of period
|
|
|
|
$
|
8,757
|
$
|
8,403
|
$
|
8,403
|
Impact of
acquisitions during the period
|
|
|
-
|
3,588
|
354
|
|
|
|
|
|
|
|
|
|
Goodwill, end of
period
|
|
|
|
|
$
|
8,757
|
$
|
11,991
|
$
|
8,757
|
There have been no impairment losses recognized with respect to
goodwill during the period (2018 - $nil).
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
June 30,
|
|
|
|
|
|
|
2019
|
2018
|
2018
|
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
|
$
|
21,746
|
$
|
18,506
|
$
|
23,706
|
Due from related
parties
|
|
|
|
|
9,227
|
8,207
|
6,071
|
Other
|
|
|
|
|
1,172
|
1,936
|
1,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,145
|
$
|
28,649
|
$
|
31,242
|
9. REVENUE
The Company's revenue consists of the following streams:
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2019
|
2018 (1)
|
2019
|
2018 (1)
|
|
|
|
|
|
|
|
|
|
Case Goods
sales
|
|
|
|
$
|
24,675
|
$
|
23,465
|
$
|
88,217
|
$
|
83,929
|
Commissions (net of
amortization of representation rights)
|
5,631
|
5,139
|
20,153
|
18,932
|
Other
services
|
|
|
|
649
|
673
|
2,333
|
2,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,955
|
$
|
29,277
|
$
|
110,703
|
$
|
105,483
|
|
|
|
|
|
|
|
|
|
(1) In preparing its
comparative information, the Company has adjusted amounts reported
previously in the interim condensed consolidated statement of
earnings as a result of the retrospective application of IFRS 15,
Revenue from Contracts with Customers. Refer to Note 2 for details
regarding adjusted amounts.
|
Commissions for the three and nine month periods are shown net
of amortization of long-term representation rights and
non-refundable upfront fees of $1,446
and $4,336 (2018 - $1,471 and $4,413).
Other services include revenues incidental to the manufacture of
Case Goods, such as logistics fees and miscellaneous bulk spirit
sales.
10. OTHER INCOME (EXPENSE)
The Company's other income (expense) consists of the following
amounts:
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Foreign exchange
(loss) gain
|
|
|
$
|
(31)
|
$
|
118
|
$
|
3
|
$
|
192
|
Gain on disposal of
property and equipment
|
|
-
|
88
|
-
|
187
|
Other
income
|
|
|
|
21
|
-
|
45
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10)
|
$
|
206
|
$
|
48
|
$
|
379
|
11. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
$
|
371
|
$
|
319
|
$
|
1,142
|
$
|
875
|
Net financial impact
of
pensions
|
|
|
(123)
|
(193)
|
(354)
|
(574)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
248
|
$
|
126
|
$
|
788
|
$
|
301
|
12. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses, as follows:
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
$
|
721
|
$
|
595
|
$
|
2,124
|
$
|
1,677
|
Amortization of
intangible assets
|
|
|
1,446
|
1,471
|
4,336
|
4,413
|
Salary and payroll
costs
|
|
|
|
6,493
|
6,063
|
19,130
|
19,179
|
Expenses related to
pensions and benefits
|
|
285
|
355
|
992
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,945
|
$
|
8,484
|
$
|
26,582
|
$
|
26,334
|
13. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
$
|
2,279
|
$
|
2,528
|
$
|
5,010
|
$
|
5,772
|
Inventories
|
|
|
|
(2,662)
|
(2,472)
|
(3,054)
|
(4,349)
|
Prepaid
expenses
|
|
|
|
188
|
(301)
|
(68)
|
(361)
|
Accounts payable and
accrued liabilities
|
|
(2,591)
|
(11,168)
|
915
|
(2,936)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,786)
|
$
|
(11,413)
|
$
|
2,803
|
$
|
(1,874)
|
14. DIVIDENDS
On May 8, 2019 subsequent to the
quarter ended March 31, 2019, the
Board of Directors declared its regular quarterly dividend of
$0.22 per common share, to be paid on
June 14, 2019, to shareholders of
record as at the close of business on May
24, 2019. The dividends are in accordance with the Company's
dividend policy.
15. RELATED PARTY TRANSACTIONS
Transactions with parent, ultimate parent, and
affiliates
The majority of Corby's issued and
outstanding voting Class A shares are owned by HWSL. HWSL is a
wholly-owned subsidiary of PR. Therefore, HWSL is Corby's parent
and PR is Corby's ultimate parent. Affiliated companies are
subsidiaries, which are controlled by Corby's parent and/or
ultimate parent.
Corby engages in a significant number of transactions with its
parent company, its ultimate parent and various affiliates.
Specifically, Corby renders services to its parent company, its
ultimate parent, and affiliates for the marketing and sale of
beverage alcohol products in Canada. Furthermore, Corby outsources the
large majority of its distilling, maturing, storing, blending,
bottling and related production activities to its parent company. A
significant portion of Corby's bookkeeping, recordkeeping, data
processing and other administrative services are also outsourced to
its parent company. Transactions with the parent company, ultimate
parent and affiliates are subject to Corby's related party
transaction policy, which requires such transactions to undergo an
extensive review and receive approval from an Independent Committee
of the Board of Directors.
The companies operate under the terms of agreements that became
effective on September 29, 2006.
These agreements provide the Company with the exclusive right to
represent PR's brands in the Canadian market for 15 years, as well
as providing for the continuing production of certain Corby brands
by PR at its production facility in Windsor, Ontario, for 10 years. Corby also
manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
North American entities, as approved by Corby's Board of Directors.
In 2015, the production and administrative agreements were each
renewed for a further ten year term, commencing October 2016.
In addition to the aforementioned agreements, Corby signed an
agreement on September 26, 2008, with
its ultimate parent to be the exclusive Canadian representative for
the ABSOLUT vodka and Plymouth gin
brands, for a five-year term, which expired October 1, 2013 and was extended as noted below.
These brands were acquired by PR subsequent to the original
representation rights agreement dated September 29, 2006.
On November 9, 2011, Corby entered
into an agreement with a PR affiliate for a new term for Corby's
exclusive right to represent ABSOLUT vodka in Canada from September
30, 2013 to September 29,
2021, which is consistent with the term of Corby's Canadian
representation of the other PR brands in Corby's portfolio. On
September 30, 2013, Corby paid
$10.3 million for the additional
eight years of the new term pursuant to an agreement entered into
between Corby and The Absolut Company Aktiebolag, an affiliate of
PR and owner of the ABSOLUT brand, to satisfy the parties'
obligations under the 2011 agreement.
On March 21, 2016, the Company
entered into an agreement with Pernod Ricard UK Ltd. ("PRUK"), an
affiliated company, which provides PRUK the exclusive right to
represent Lamb's rum in Great
Britain effective July 1,
2016.
Previously, Lamb's rum was represented by an unrelated third
party in this market. The agreement is effective for a five-year
period ending June 30, 2021.
Transactions between Corby and its parent, ultimate parent and
affiliates during the period are as follows:
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
$
|
6,711
|
$
|
6,261
|
$
|
22,996
|
$
|
21,989
|
Products for resale
at an export level - affiliated companies
|
840
|
1,840
|
3,285
|
6,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,551
|
$
|
8,101
|
$
|
26,281
|
$
|
28,094
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
$
|
5,427
|
$
|
5,827
|
$
|
17,362
|
$
|
17,718
|
|
|
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
Marketing, selling
and administration services - parent
|
$
|
523
|
$
|
449
|
$
|
1,569
|
$
|
1,578
|
Marketing, selling
and administration services - affiliate
|
-
|
|
246
|
-
|
714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
523
|
$
|
695
|
$
|
1,569
|
$
|
2,292
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the three and nine month periods ended March 31, 2019, Corby sold casks to its parent
company for net proceeds of $nil (2018 - $187 and $447).
Deposits in cash management pools
Corby
participates in a cash pooling arrangement under the Mirror Netting
Service Agreement together with PR's other Canadian affiliates, the
terms of which are administered by Citibank N.A. The Mirror Netting
Service Agreement acts to aggregate each participant's net cash
balance for the purposes of having a centralized cash management
function for all of PR's Canadian affiliates, including Corby.
As a result of Corby's participation in this agreement, Corby's
credit risk associated with its deposits in cash management pools
is contingent upon PR's credit rating. PR's credit rating as at
May 8, 2019, as published by Standard
& Poor's and Moody's, was BBB and Baa2, respectively. PR
compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Service Agreement by
paying interest to Corby based upon the 30-day CDOR rate plus
0.40%. During the three and nine months ended March 31, 2019, Corby earned interest income of
$371 and $1,142 from PR (2018 – $319 and $875).
Corby has the right to terminate its participation in the Mirror
Netting Service Agreement at any time, subject to five days'
written notice.
16. SEGMENT INFORMATION
Corby has two reportable segments: Case Goods and Commissions.
Corby's Case Goods segment derives its revenue from the production
and distribution of its owned beverage alcohol brands. Corby's
portfolio of owned-brands includes some of the most renowned and
respected brands in Canada, such
as J. P. Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka, and
McGuinness liqueurs.
Corby's Commissions segment earns commission income from the
representation of non-owned beverage alcohol brands in Canada. Corby represents leading international
brands such as ABSOLUT vodka, Chivas
Regal, The Glenlivet and Ballantine's scotches, Jameson Irish whiskey, Beefeater gin,
Malibu rum, Kahlúa liqueur, Mumm
champagne, and Jacob's Creek and Wyndham Estate wines.
The Commissions segment's financial results are fully reported
as "Commissions" in Note 9 of the interim condensed consolidated
financial statements. Therefore, a table detailing operational
results by segment has not been provided as no additional
meaningful information would result.
SOURCE Corby Spirit and Wine Limited