TORONTO, Feb. 4, 2015 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
reported its financial results for the second quarter ended
December 31, 2014. The Corby Board of
Directors today also declared a dividend of $0.19 per share payable on March 13, 2015 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 February 27, 2015.
Net earnings for the quarter ended December 31, 2014 totalled $5.8 million (or $0.20 per share), representing a decrease of
$1.8 million when compared with the
same quarter last year. Strong performance for the domestic case
goods business for the quarter with 3% revenue growth was more than
offset by lapping the J.P. Wiser's Rye and J.P. Wiser's Spiced whiskies launched in the US
in the comparative period. In addition to the inventory pipe-line
build-up for the US launch that was not repeated in the period
ended December 31, 2014, advertising
and promotional ("A&P") investment for these brands has now
ramped up to drive awareness and trial. Reduced Commission income
due to discontinued representation of certain Agency brands in
December 2013 was partially offset by
increased Commission income on Pernod Ricard brands.
Similarly, on a year to date basis, net earnings
decreased $4.4 million or 29% when
compared to the same six month period last year. Again, the
decline is largely attributable to lapping the non-repeat of
inventory pipe-line build-up for the US launches of J.P. Wiser's Rye and J.P. Wiser's Spiced whiskies and related A&P
investment in the comparative period. Reduced
Commission income due to discontinued representation of certain
Agency brands in December 2013 was
offset by positive contributions from the Canadian case goods
business growing at 3%.
"I am pleased with the consistent growth of
revenue and market share in the priority segments of the Canadian
spirits and wine market through the first six months of this
year. The impact of these positive contributions has been
overshadowed by the strategic decision to invest in our
international business, which inevitably lead to some volatility in
our quarterly results. Nevertheless, we remain focused on
exploiting the long-term opportunities in the US and international
markets", 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 six-month period ended December
31, 2014, prepared in accordance with International
Financial Reporting Standards.
About Corby
Corby Spirit and Wine Limited is a leading Canadian marketer 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® Canadian whisky, Lamb's® rum, Polar Ice® vodka and
McGuinness® liqueurs. Through its affiliation with Pernod Ricard
S.A., 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.
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, the Company's results 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
December 31,
2014
The following Management's Discussion and Analysis ("MD&A")
dated February 4, 2015, should be
read in conjunction with the unaudited interim condensed
consolidated financial statements and accompanying notes as at and
for the three and six month periods ended December 31, 2014, prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
unaudited interim condensed consolidated 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,
2014.
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; 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 February 4, 2015.
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
second quarter of fiscal 2015 (three months ended December 31, 2014) are against results for the
second quarter of fiscal 2014 (three months ended December 31, 2013). All dollar amounts are in
Canadian dollars unless otherwise stated.
Business Overview
Corby is a leading Canadian marketer of spirits and importer of
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. 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 and McGuinness® liqueurs.
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® and
Graffigna® 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.
The Company expanded its agency portfolio, with the exclusive
right to represent The Wine Group LLC ("The Wine Group") brands
until May 2018 through an agreement
(which began April 2013). The
agreement complements Corby's owned and represented brands and
expands Corby offerings in the premium wine sector. Corby
represents all The Wine Group brands, including Cupcake Vineyards,
Big House Wine Co., Concannon
Vineyard, Grayfox Vineyards and Mogen David Wine Co.
Pursuant to a production agreement that expires in September 2016, PR produces Corby's owned-brands
at HWSL's production facility in Windsor,
Ontario. Under the production agreement, Corby manages PR's
business interests in Canada,
including HWSL's production facility, also until September 2016.
Corby sources more than 90% of its spirits production
requirements from HWSL at its production facility in Windsor, Ontario. 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 rum products destined for sale in countries located
outside the Americas. During the six months ending
December 31, 2014 the Company
effectively completed the process of moving production to the HWSL
production facility from the bottling facility of a third party in
Montreal, Quebec following the
expiry of the related bottling agreement on October 31, 2014.
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. The
exception to this model is 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.
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
both in volume (measured in nine-litre case equivalents) and in
retail value (measured in Canadian dollars).
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 the majority of its products in
Canada and ships to its US
distributor, Pernod Ricard USA,
LLC ("PR USA"), an affiliated company. 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.
For the UK market, Corby utilizes a third party contract bottler
and distribution company for the production and distribution of
Lamb's rum. Distributors sell to various local wholesalers and
retailers who in turn sell directly to the consumer.
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.
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
its brands to promote its premium offerings where it makes the most
sense and drives the most value for 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 its
strategy will result in value creation for shareholders. Past
disposal transactions reflect this strategy by streamlining Corby's
portfolio and eliminating brands with below average performance
trends, thus focusing resources on key brands.
Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our
agreement with PR USA to represent certain of Corby's owned brands
in the US supports our goal of expanding our Canadian whisky
business into this market 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 focused around 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 innovation is
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 ("R&D"). As far as R&D
is concerned, the Company benefits from access to leading-edge
practices at PR's North American hub, which is located in
Windsor, Ontario.
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. In 2014,
Corby continued a successful partnership with the Toronto Transit
Commission to provide free transit on New
Year's Eve for a three year period which began in 2013. The
Company stresses its core values throughout its organization,
including those of conviviality, straightforwardness, commitment,
integrity and entrepreneurship.
Significant Events
Corby declares special dividend and increases regular
dividend amount
On November 5, 2014, the Corby Board
of Directors declared a special dividend of $0.62 per share payable on January 9, 2015 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 12, 2014. The special dividend payment
resulted in a cash distribution of approximately $17.7 million to shareholders and was sourced
from Corby's surplus cash position. The payment represented cash
that the Board considered to be in excess of its requirements to
fund future growth opportunities.
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 85% of net earnings per share in the
preceding fiscal year ended June 30,
and $0.60 per share. Such dividend
policy represents a 5.6% increase in the Company's quarterly
dividend, from $0.18 per share to
$0.19 per share. Under the amended
policy, the Corby Board of Directors declared a regular dividend of
$0.19 per share payable on
December 12, 2014 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 28, 2014.
Corby Distilleries Limited changes its name to Corby
Spirit and Wine Limited
Effective November 7, 2013, Corby
Distilleries Limited began operating under the name Corby Spirit
and Wine Limited. The new name was approved at the Company's annual
and special meeting held November 7,
2013, and reflecting the change, Corby now trades on the TSX
under the symbols CSW.A and CSW.B. The new name coincided with
completely redesigned corporate branding and logos. The new name
and branding better reflect Corby's growing activities with a
strong focus on product, service and marketing.
Corby Launches J.P. Wiser's Rye and J.P. Wiser's Spiced Canadian Whisky in the US
Market
In July 2012, the Company reached a
new agreement with PR USA to represent Corby brands in the US for a
five year period, giving Corby access to one of the strongest
spirits distribution networks in the US market.
Since signing the agreement, Corby and PR USA have readied
Corby's whisky portfolio for a national launch which began in the
first quarter of 2014. Specifically, Corby developed two new
Wiser's brand extensions under the names J.P. Wiser's Rye and J.P. Wiser's Spiced Whisky. Given this is the
early stages of the launch, Corby continued to invest heavily in
the US market during the quarter. The launch has had a significant
impact on our financial results and as such will be discussed
throughout this MD&A.
Corby Continues its Exclusive Canadian Representation of
the Iconic ABSOLUT Vodka Brand
On September 30, 2013, Corby paid
$10.3 million to continue its
exclusive rights to represent the ABSOLUT vodka brand in
Canada for an eight-year period
ending September 29, 2021. The
previous representation period expired September 29, 2013. The terms of this agreement
are further described in the "Related Party Transactions" section
of this MD&A. The transaction was accounted for as an increase
in Intangible Assets and the purchase price is being amortized,
straight-line, over the eight-year term of the agreement.
Amortization expense is recorded net of commission revenues. The
payment was funded from the Company's deposits in cash management
pools.
Brand Performance Review
Corby's portfolio of owned-brands accounts for more than 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 and Corby's mixable
liqueur 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 chart 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 chart includes results for sales in both Canada and international markets.
Specifically, the J.P. Wiser's, Lamb's and Polar Ice brands are
also sold to international markets, particularly in the US and
UK.
| BRAND PERFORMANCE CHART - INCLUDES
BOTH CANADIAN AND INTERNATIONAL SHIPMENTS |
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Three Months Ended |
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Six Months Ended |
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Shipment Change |
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Shipment
Change |
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|
Dec. 31, |
Dec. 31, |
Volume |
Value |
|
Dec. 31, |
Dec. 31, |
Volume |
Value |
| (Volumes in 000's of 9L cases) |
|
2014 |
2013 |
% |
% |
|
2014 |
2013 |
% |
% |
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| Brand |
|
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|
|
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|
|
|
| J.P. Wiser's Canadian whisky |
225 |
237 |
(5%) |
(2%) |
|
449 |
479 |
(6%) |
(8%) |
| Lamb's rum |
|
|
163 |
175 |
(7%) |
(4%) |
|
293 |
299 |
(2%) |
2% |
| Polar Ice vodka |
|
101 |
102 |
(1%) |
0% |
|
204 |
198 |
3% |
5% |
| Mixable liqueurs |
|
57 |
60 |
(4%) |
0% |
|
100 |
107 |
(6%) |
(6%) |
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| Total Key Brands |
|
547 |
574 |
(5%) |
(3%) |
|
1,046 |
1,083 |
(3%) |
(3%) |
| Other Corby-owned brands |
|
68 |
57 |
20% |
19% |
|
123 |
114 |
8% |
9% |
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| Total Corby brands |
|
615 |
631 |
(3%) |
(1%) |
|
1,170 |
1,197 |
(2%) |
(2%) |
Overall, volume and shipment value for Corby owned-brands is
lower on a year over year comparative basis. However, trends in
Corby's domestic market differ significantly from international
markets as highlighted in the following chart:
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Three Months Ended |
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Six Months Ended |
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% Shipment |
% Shipment |
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% Shipment |
% Shipment |
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Dec. 31, |
Dec. 31, |
Volume |
Value |
|
Dec. 31, |
Dec. 31, |
Volume |
Value |
| (Volumes in 000's of 9L cases) |
2014 |
2013 |
Growth |
Growth |
|
2014 |
2013 |
Growth |
Growth |
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| Domestic |
|
|
546 |
536 |
2% |
3% |
|
1,053 |
1,035 |
2% |
3% |
| International |
|
69 |
95 |
(27%) |
(23%) |
|
117 |
162 |
(28%) |
(35%) |
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| Total Corby brands |
615 |
631 |
(3%) |
(1%) |
|
1,170 |
1,197 |
(2%) |
(2%) |
For both the three months and six months ended December 31, 2014, Corby's domestic shipments
delivered 2% growth on a year over year comparative basis driven
primarily by Corby's flagship brand, J.P.
Wiser's Canadian whisky and Polar Ice vodka. Shipment value
performed ahead of volume at 3% growth as a result of our
premiumization strategy, price increases and effective management
of promotional programming. A more in-depth discussion of
Corby's key brands in the Canadian market is provided in the
"Summary of Corby's Key Brands" section of this MD&A.
In international markets, lower shipments reflect J.P. Wiser's Canadian whisky lapping a one-time
inventory pipe-line build-up for the national launch of
J.P. Wiser's Rye and J.P. Wiser's Spiced whisky in the US that was
not repeated in the current year. The three tier distribution
system in the US requires us to fill the inventory pipeline well
before any retail promotions which did not commence until quarter
three of the last fiscal year. We have established a
distribution base for J.P. Wiser's
Rye with sales to over 21,000 off-premise and on-premise accounts
in the 12 months ending November 30,
2014. Corby's focus will now be on improving the rate
of consumer purchase at points of distribution in order to fully
deplete the initial inventory pipeline build up last financial
year.
Shipments of Lamb's rum in the UK market were relatively
consistent for the six month period, however second quarter volumes
were lower than the same quarter last year as a result of a shift
in production timing at our third-party bottling facility.
This shift effectively moved volumes which occurred in second
quarter last year into first quarter this year. Shipments
have now evened out over the full six month period ended
December 31, 2014.
Retail Volume and Retail Value Performance
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. Retail sales data, as provided by the ACD, is
set out in the following chart and is discussed throughout this
MD&A.
It should be noted that the retail sales information presented
does not include international retail sales of Corby-owned
brands. While Corby's focus on business in the US business is
increasing, retail sales data in the US is prepared using limited
sampling techniques, which does not provide meaningful trend
analysis on a brand that has not yet reached sufficient scale to
make such disclosure meaningful. Corby will provide such data
as and when it is considered to offer meaningful analysis of brand
performance.
|
RETAIL SALES FOR THE CANADIAN MARKET ONLY1 |
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Three Months Ended |
|
Six Months Ended |
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% Retail |
% Retail |
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% Retail |
% Retail |
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|
Dec. 31, |
Dec. 31, |
Volume |
Value |
|
Dec. 31, |
Dec. 31, |
Volume |
Value |
| (Volumes
in 000's of 9L cases) |
|
2014 |
2013 |
Growth |
Growth |
|
2014 |
2013 |
Growth |
Growth |
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| Brand |
|
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| J.P. Wiser's Canadian whisky |
235 |
230 |
2% |
3% |
|
411 |
403 |
2% |
3% |
| Lamb's rum |
|
|
129 |
132 |
(3%) |
(2%) |
|
227 |
236 |
(4%) |
(3%) |
| Polar Ice vodka |
|
|
108 |
98 |
10% |
8% |
|
200 |
188 |
6% |
6% |
| Mixable liqueurs |
|
|
62 |
63 |
(2%) |
0% |
|
103 |
107 |
(3%) |
(1%) |
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| Total Key Brands |
|
|
533 |
524 |
2% |
2% |
|
941 |
934 |
1% |
1% |
| Other
Corby-owned brands |
64 |
59 |
7% |
7% |
|
113 |
110 |
3% |
4% |
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| Total |
|
|
597 |
583 |
2% |
3% |
|
1,054 |
1,044 |
1% |
2% |
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| (1) Refers to sales at
the retail store level in Canada, as provided by the Association of
Canadian Distillers. |
The Canadian spirits industry has maintained modest growth
posting 1% retail sales volume growth and 3% retail sales value
growth for both the three months and six months ended December 31, 2014. These trends were supported by
double digit retail sales value growth in the Bourbon and Irish
Whiskey categories.
As illustrated in the above chart, Corby's portfolio of owned
brands has performed consistently with the total spirits market,
with retail sales value growing ahead of retail volume. The
following brand discussion provides a more detailed discussion of
how each of Corby's key brands performed relative to their
respective industry category.
Summary of Corby's Key Brands
J.P. Wiser's Canadian
Whisky
Corby's flagship brand, J.P. Wiser's
Canadian whisky, continued to outperform the Canadian whisky
category and gained market share. For the three months and six
months ended December 31, 2014,
J.P. Wiser's Canadian whisky retail
value grew 3% on a year-over-year comparison basis. The Canadian
whisky category was flat in retail volume and grew 1% in retail
value, when compared to the same three month and six month periods
last year. Corby continued its strong investment behind the brand,
with the new Wiserfund campaign launched in October 2014.
A new J.P. Wiser's Spiced
extension, Torched Toffee delivered more than 2,000 incremental 9L
cases in Retail Volume as a limited time offering in the three
months ended December 31, 2014.
As well, new packaging highlighting more premium and quality cues
was rolled out to the Canadian market during the six months ended
December 31, 2014.
Lamb's Rum
Lamb's rum, one of the top-selling rum families in Canada, experienced a 3% decline in retail
volume and a 2% decline in retail value for the three months ending
December 31, 2014 when compared to
same three month period last year. The rum category in Canada declined 3% on retail volume and 1% on
retail value compared to the same three month period last year. The
rum category in Canada continued
to be driven entirely by the spiced rum segment which only managed
flat retail volumes, while the dark and white rum segments both
declined 4% and 5% respectively in retail volumes when compared to
the same three month period last year. Corby's Lamb's rum product
line is heavily weighted in the dark and white segments.
Lamb's rum, one of the top-selling rum families in Canada, experienced a 4% decline in retail
volume and a 3% decline in retail value when compared to same six
month period last year. The rum category in Canada declined 2% on retail volume and was
flat on retail value compared to the same six month period last
year. The rum category in Canada
continued to be driven entirely by the spiced rum segment (+5% in
retail volumes), while the dark and white rum segments are both
declining 5% in retail volumes when compared to the same six month
period last year. Corby's Lamb's rum product line is heavily
weighted in the dark and white segments.
Polar Ice Vodka
Polar Ice vodka is among the top three largest vodka brands in
Canada. Supported by the regional
roll out of Polar Ice 90° North, retail volume and retail value
increased 6% when compared to the same six month period last year.
These trends outperformed the overall vodka category in
Canada which grew retail volumes
1% and grew retail value 3% when compared to the same six month
period last year.
Polar Ice vodka retail volume growth of 10% for the three month
period ended December 31, 2014 was
driven by impressive momentum in the provinces of Ontario, Quebec and Manitoba together with incremental retail
programming in Alberta.
Advertising and promotion investment included a digital / social
media platform to drive support for Polar Ice 90° North in
Western Canada.
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 and retail value for Corby's mixable liqueurs portfolio
lagged market trends (retail volume was -2% and retail value was
flat for the three month period ended December 31, 2014). The Liqueurs category
as a whole grew retail volume 2% and grew retail value 3% when
compared to the same three month period last year, propped up by
category innovations and cream based offerings.
Retail volume and retail value for Corby's mixable liqueurs
portfolio lagged market trends (retail volume was -3% and retail
value was -1%) for the six month period ended December 31, 2014. The Liqueurs category as
a whole grew retail volume 1% and grew retail value 3% when
compared to the same six month period last year, propped up by
category innovations and cream based offerings.
During the six months ending December 31,
2014 the Company effectively completed the process of moving
mixable liqueur production to the Corby managed HWSL production
facility from the bottling facility of a third party in
Montreal, Quebec.
Other Corby-Owned Brands
Innovation remains an important pillar for delivering new profit
and growth opportunities to the Corby domestic business. Recent
premium offerings in Canadian whisky such as Pike Creek® and Lot
40® collectively grew retail volume and retail value 29% compared
to the same six month period last year.
Criollo® Chocolate Sea Salted Caramel and Criollo® Chocolate
Raspberry Truffle marked their one year anniversary in the Canadian
market in September 2014 and
continued to be well received by key customers and consumers with
retail volume growth of 34% and retail value growth of 47% for the
six month period ended December 31,
2014.
Royal Reserve® Canadian whisky returned to growth in the three
months ended December 31, 2014 with
incremental retail programming in Alberta. For the six months ended
December 31, 2014 retail volume and
retail value grew 2% when compared to the same six month period
last year.
Financial and Operating Results
The following table presents a summary of certain selected
consolidated financial information of the Company for the three and
six month periods ended December 31,
2014 and 2013.
| |
Three Months Ended |
|
Six Months Ended |
| (in millions of Canadian
dollars, |
|
Dec. 31, |
|
Dec. 31, |
|
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
|
|
| except per share amounts) |
|
2014 |
|
2013 |
|
$ Change |
% Change |
|
|
2014 |
|
2013 |
|
$ Change |
% Change |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
$ |
38.0 |
$ |
38.5 |
$ |
(0.5) |
(1%) |
|
$ |
72.8 |
$ |
75.3 |
$ |
(2.5) |
(3%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales |
|
(14.6) |
|
(14.4) |
|
(0.2) |
1% |
|
|
(27.0) |
|
(27.2) |
|
0.2 |
(1%) |
| Marketing, sales and
administration |
|
(15.7) |
|
(14.2) |
|
(1.5) |
10% |
|
|
(31.5) |
|
(28.3) |
|
(3.2) |
11% |
| Other income (expense) |
|
0.0 |
|
0.3 |
|
(0.3) |
(97%) |
|
|
0.0 |
|
0.3 |
|
(0.3) |
(89%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings from operations |
|
7.7 |
|
10.2 |
|
(2.5) |
(24%) |
|
|
14.3 |
|
20.1 |
|
(5.8) |
(29%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial income |
|
0.4 |
|
0.4 |
|
0.0 |
12% |
|
|
0.9 |
|
0.9 |
|
0.0 |
1% |
| Financial expenses |
|
(0.3) |
|
(0.3) |
|
0.0 |
(2%) |
|
|
(0.6) |
|
(0.6) |
|
0.0 |
(3%) |
| Net financial income |
|
0.2 |
|
0.1 |
|
0.1 |
53% |
|
|
0.3 |
|
0.3 |
|
0.0 |
9% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings before income taxes |
|
7.9 |
|
10.3 |
|
(2.4) |
(24%) |
|
|
14.6 |
|
20.4 |
|
(5.8) |
(28%) |
| Income taxes |
|
(2.1) |
|
(2.8) |
|
0.7 |
(24%) |
|
|
(3.9) |
|
(5.3) |
|
1.4 |
(26%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings |
$ |
5.8 |
$ |
7.5 |
$ |
(1.8) |
(23%) |
|
$ |
10.7 |
$ |
15.1 |
$ |
(4.4) |
(29%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic net earnings |
$ |
0.20 |
$ |
0.26 |
$ |
(0.06) |
(23%) |
|
$ |
0.38 |
$ |
0.53 |
$ |
(0.15) |
(28%) |
|
- Diluted net earnings |
$ |
0.20 |
$ |
0.26 |
$ |
(0.06) |
(23%) |
|
$ |
0.38 |
$ |
0.53 |
$ |
(0.15) |
(28%) |
Overall Financial Results
For the three month period ended December
31, 2014, strong domestic performance was not sufficient to
prevent a net earnings decrease of $1.8
million or 23% when compared to the prior year. The
earnings decrease is largely attributable to lapping the J.P.
Wiser's Rye and J.P. Wiser's Spiced
whisky launch in the US in the comparative period. In
addition to the non-repeat of inventory pipe-line build-up for the
US launch, advertising and promotional investment for these brands
has now ramped up to drive awareness and trial. Advertising and
promotional investment in the Canadian market was essentially flat
for the three month period with incremental retail programming on
brands such as Polar Ice and Royal Reserve offset by timing of the
J.P. Wiser's investment between the first and second quarter of
this fiscal year.
Similarly, on a year to date basis, net earnings decreased
$4.4 million or 29% when compared to
the same six month period last year. Again, the decline is
largely attributable to lapping the J.P. Wiser's Rye and
J.P. Wiser's Spiced whisky launch in
the US in the comparative period. In addition to the
non-repeat of inventory pipe-line build-up for the US launch,
advertising and promotional investment for these brands has now
ramped up to drive awareness and trial. Reduced Commission
income due to discontinued representation of certain Agency brands
in December 2013 was offset by
positive contributions from the Canadian case goods business.
Revenue
The following highlights the key components of the Company's
revenue streams:
| |
Three Months Ended |
|
Six Months Ended |
| |
|
Dec. 31, |
|
Dec. 31, |
|
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
|
|
| (in millions of Canadian
dollars) |
|
2014 |
|
2013 |
|
$ Change |
% Change |
|
|
2014 |
|
2013 |
|
$ Change |
% Change |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Case goods |
$ |
32.5 |
$ |
32.8 |
$ |
(0.3) |
(1%) |
|
$ |
61.8 |
$ |
63.4 |
$ |
(1.5) |
(2%) |
| |
Commissions |
|
4.4 |
|
4.5 |
|
(0.2) |
(4%) |
|
|
8.8 |
|
9.6 |
|
(0.8) |
(8%) |
| |
Other services |
|
1.1 |
|
1.2 |
|
(0.1) |
(4%) |
|
|
2.2 |
|
2.4 |
|
(0.2) |
(8%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
$ |
38.0 |
$ |
38.5 |
$ |
(0.5) |
(1%) |
|
$ |
72.8 |
$ |
75.3 |
$ |
(2.5) |
(3%)
|
Case goods revenue declined $0.3
million and $1.5 million
respectively for the three and six months ended December 31, 2014 when compared to the same
periods last year. For both the three and six month periods,
domestic case goods revenue increases of 3% were more
than offset by the impact of the J.P. Wiser's inventory
pipe-line build-up in the US in the prior period.
Commissions decreased $0.2 million
or 4% on a quarter over quarter comparative basis due to the impact
of the discontinuation of certain agency brands as of December 2013 $0.3
million partially offset by increased commission income on
Pernod Ricard brands of $0.1
million.
On a year to date basis, Commissions decreased $0.8 million or 8% when compared with the same
six month period last year. The reduction was primarily due to the
impact of the discontinuation of certain agency brands as of
December 2013 $0.6 million and higher straight line
amortization of long term representation rights of $0.3 million on Pernod Ricard brands in the first
quarter. Referenced earlier in the Significant Events section of
this MD&A, Corby entered into an agreement on September 30, 2013 for continued exclusive
Canadian representation of the iconic ABSOLUT vodka brand. This is
partially offset by increased commission income on Pernod Ricard
brands of $0.1 million.
Other services represents ancillary revenue incidental to
Corby's core business activities such as logistical fees.
Cost of sales
Cost of sales was $14.6 million
for the three months ended December 31,
2014, representing an increase of 1%, or $0.2 million when compared to the same period
last year and moving directionally in line with topline revenues
generated on our Case Goods business. Gross margin for the quarter
was 59%, reduced from 60% for the same three month period last
year, and reflects the lower mix of (superior margin) case good
sales to the US market due to the inventory pipe-line build-up in
the prior year quarter that was not repeated in the current quarter
(note: commissions are not included in this calculation).
Cost of sales was $27.0 million
for the six months ended December 31,
2014, representing a decrease of 1%, or $0.2 million when compared to the same period
last year and moving directionally in line with topline revenues
generated on our Case Goods business. Gross margin for the year to
date was 60%, reduced from 61% for the same six month period last
year, and reflects the lower mix of (superior margin) case good
sales to the US market due to the inventory pipe-line build-up in
the prior year that was not repeated in the current year (note:
commissions are not included in this calculation).
Marketing, sales and administration
Marketing, sales and administration expenses increased 10% and
11% respectively for the three and six months ending December 31, 2014. As previously mentioned, Corby
has now ramped up investment behind the J.P. Wiser's brands in the
US market through increased advertising and promotional spend.
Examples of A&P investment include sponsorship of ESPN fantasy
football and trips to the Super Bowl to support in-store programs.
Administrative costs remain relatively consistent with the prior
year quarter and year-to-date periods reflecting the impacts of the
Company's cost reduction programme offsetting inflationary
increases.
Other income and expenses
Other income and expenses include such items as realized foreign
exchange gains and losses, and gains on sale of property and
equipment. The balances comprising this account are relatively
consistent year over year.
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. This
balance is relatively consistent with the prior year.
Income taxes
A reconciliation of the effective tax rate to the statutory
rates for each period is presented below. The effective tax rate
for the six month period ending December 31,
2013 was impacted by permanent differences between financial
income and income reported for taxation purposes as well as the
impacts of the adjustments that arise upon the completion of annual
tax filings.
| |
|
Three
Months Ended |
|
Six
Months Ended |
| |
|
Dec. 31 |
Dec. 31 |
|
Dec. 31 |
Dec. 31 |
| |
2014 |
2013 |
|
2014 |
2013 |
| |
|
|
|
|
|
|
| Combined basic Federal and Provincial
tax rates |
27% |
27% |
|
27% |
27% |
| Other |
|
0% |
0% |
|
0% |
(1%) |
| |
|
|
|
|
|
|
| Effective tax rate |
27% |
27% |
|
27% |
26% |
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $112.4 million as at
December 31, 2014, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities, which totalled $34.7
million as at December 31,
2014, 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 |
|
Six Months Ended |
| |
|
Dec. 31, |
|
Dec. 31, |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
|
| (in millions of Canadian
dollars) |
|
2014 |
|
2013 |
|
$ Change |
|
|
2014 |
|
2013 |
|
$ Change |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings, adjusted for non-cash items |
$ |
9.5 |
$ |
11.9 |
$ |
(2.4) |
|
$ |
17.9 |
$ |
23.3 |
$ |
(5.3) |
| |
Net change in non-cash working capital |
|
3.9 |
|
2.5 |
|
1.4 |
|
|
1.9 |
|
(4.4) |
|
6.3 |
| |
Net payments for interest and income taxes |
|
(1.8) |
|
(2.1) |
|
0.3 |
|
|
(3.8) |
|
(4.5) |
|
0.7 |
| |
|
11.6 |
|
12.3 |
|
(0.7) |
|
|
16.0 |
|
14.4 |
|
1.6 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Additions to property and equipment |
|
(0.5) |
|
(0.1) |
|
(0.4) |
|
|
(1.2) |
|
(0.3) |
|
(1.0) |
| |
Additions to intangible assets |
|
- |
|
- |
|
- |
|
|
- |
|
(10.3) |
|
10.3 |
| |
Proceeds from disposition of property and
equipment |
|
0.1 |
|
0.2 |
|
(0.1) |
|
|
0.1 |
|
0.2 |
|
(0.1) |
| |
Deposits in cash management pools |
|
(5.7) |
|
(7.2) |
|
1.5 |
|
|
(4.4) |
|
5.9 |
|
(10.3) |
| |
|
(6.2) |
|
(7.1) |
|
1.0 |
|
|
(5.5) |
|
(4.4) |
|
(1.1) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Dividends paid |
|
(5.4) |
|
(5.1) |
|
(0.3) |
|
|
(10.5) |
|
(10.0) |
|
(0.6) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net change in cash |
$ |
- |
$ |
- |
$ |
- |
|
$ |
- |
$ |
- |
$ |
- |
Operating activities
Net cash from operating activities was $11.6 million during the quarter ended
December 31, 2014 compared to
$12.3 million in the same quarter of
the prior year, representing a decrease of $0.7 million. The quarter-over quarter change is
attributable to lower earnings partially offset by improved working
capital due to timing of certain vendor payments.
For the year to date period, net cash from operating activities
was $16.0 million, an increase of
$1.6 million compared to the same six
month period last year. Lower earnings, adjusted for non-cash
items of $5.3 million were more than
offset by improved working capital due to timing of vendor payments
$6.3 million.
Investing activities
Cash used in investing activities was $6.2 million for the quarter and $5.5 million for the six month period ending
December 31, 2014, compared to
$7.1 million and $4.4 million for the same three and six month
periods last year, respectively.
The prior year period includes a payment of $10.3 million to PR for the exclusive right to
represent the ABSOLUT vodka brand in Canada for an additional eight year term, as
discussed in the "Related Party Transaction" section of this
MD&A. The payment was made on September
30, 2013 and was funded through withdrawals from cash
management pools.
Investing activities also reflect funds deposited in cash
management pools. 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 of time being reported on. 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 $5.4 million this quarter, an increase of
$0.3 million over the same quarter
last year, and reflects regular quarterly dividends being paid to
shareholders. Similarly, year to date cash used for financing
activities was $10.5 million, an
increase of $0.6 million reflecting
an increase in regular quarterly dividends being paid to
shareholders.
On November 5, 2014 the Company
announced that it had amended its dividend policy, whereby the
annual amount of dividend will now be based on the greater of 85%
of net earnings per share in the preceding fiscal year ended
June 30 and $0.60 per share, subject to business conditions
and opportunities and appropriate adjustment for extraordinary
events. Prior to this announcement the annual amount of dividends
was based on the greater of 75% of net earnings per share in the
preceding fiscal year ended June 30
and $0.60 per share.
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 |
| 2015 - Q2 |
|
February 4, 2015 |
|
February 27, 2015 |
|
March 13, 2015 |
|
$ 0.19 |
| 2015 - special |
|
November 5, 2014 (special dividend) |
|
December 12, 2014 |
|
January 9, 2015 |
|
0.62 |
| 2015 - Q1 |
|
November 5, 2014 |
|
November 28, 2014 |
|
December 12, 2014 |
|
0.19 |
| 2014 - Q4 |
|
August 27, 2014 |
|
September 15, 2014 |
|
September 30, 2014 |
|
0.18 |
| 2014 - Q3 |
|
May 7, 2014 |
|
May 30, 2014 |
|
June 13, 2014 |
|
0.18 |
| 2014 - Q2 |
|
February 5, 2014 |
|
February 28, 2014 |
|
March 14, 2014 |
|
0.18 |
| 2014 - Q1 |
|
November 6, 2013 |
|
November 29, 2013 |
|
December 13, 2013 |
|
0.18 |
| 2013 - Q4 |
|
August 28, 2013 |
|
September 13, 2013 |
|
September 30, 2013 |
|
0.17 |
| 2013 - Q3 |
|
May 9, 2013 |
|
May 31, 2013 |
|
June 14, 2013 |
|
0.17 |
Outstanding Share Data
As at February 4, 2015, 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 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 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
Canadian entities, as approved by Corby's Board of Directors.
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. Corby also agreed to continue
with the mirror netting arrangement with PR and its affiliates,
under which Corby's excess cash will continue to be deposited to
cash management pools. The mirror netting arrangement with PR and
its affiliates is further described below.
Further, 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 the present value of $10 million, or $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 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 July 1, 2012, the Company
entered into a five year agreement with PR USA, an affiliated
company, which provides PR USA the exclusive right to represent
J.P. Wiser's Canadian whisky and
Polar Ice vodka in the US. The agreement provides these key brands
with access to PR USA's extensive national distribution network
throughout the US and complements PR USA's premium brand portfolio.
The agreement is effective for a five year period ending
June 30, 2017. The agreement with PR
USA is a related party transaction between Corby and PR USA, as
such; the agreement was approved by the Independent Committee of
the Board of Directors of Corby following an extensive review, in
accordance with Corby's related party transaction policy.
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. 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
February 4, 2015, as published by
Standard & Poor's and Moody's, was BBB- and Baa3, 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 ("CDOR") 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, |
|
Q2 |
|
Q1 |
|
Q4 |
|
Q3 |
|
Q2 |
|
Q1 |
|
Q4 |
|
Q3 |
| except per share amounts) |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
|
2014 |
|
2014 |
|
2013 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
$ |
38.0 |
$ |
34.8 |
$ |
33.4 |
$ |
28.6 |
$ |
38.5 |
$ |
36.7 |
$ |
33.5 |
$ |
25.7 |
| Earnings from operations |
|
7.7 |
|
6.6 |
|
9.2 |
|
4.1 |
|
10.2 |
|
9.9 |
|
10.0 |
|
5.4 |
| Net earnings |
|
5.8 |
|
4.9 |
|
6.9 |
|
3.1 |
|
7.5 |
|
7.5 |
|
7.3 |
|
3.9 |
| Basic EPS |
|
0.20 |
|
0.17 |
|
0.24 |
|
0.11 |
|
0.26 |
|
0.26 |
|
0.26 |
|
0.14 |
| Diluted EPS |
|
0.20 |
|
0.17 |
|
0.24 |
|
0.11 |
|
0.26 |
|
0.26 |
|
0.26 |
|
0.14 |
The above chart 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 launch of J.P. Wiser's Canadian whisky brand in the US is
reflected in the 2014 results above, and impacted revenues in the
first and second quarters as distribution channels were being
filled.
New Accounting Pronouncements
New accounting standards
The following new and revised standards and interpretations were
effective for Corby on July 1,
2014:
(i) Financial Instruments - Asset and Liability
Offsetting
The IASB has issued amendments to IAS 32, "Financial
Instruments: Presentation" ("IAS 32"), which provides further
guidance on the requirements for offsetting of financial
instruments. The amendments to IAS 32 are effective for annual
periods beginning on or after January 1,
2014 and must be applied retrospectively. For Corby, this
amendment was effective July 1, 2014.
The implementation of IAS 32 amendments resulted in a
reclassification of assets and liabilities related to other taxes
to accounts receivable and accounts payable balances. The
implementation of these amendments had the following impacts as at
December 31, 2013, June 30, 2014 and June 30,
2013:
| |
|
|
|
|
increase (decrease) |
| |
|
|
|
|
|
Dec. 31, |
|
June 30, |
|
June 30, |
| Balance sheet impacts |
|
|
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
|
$ |
1,838 |
$ |
1,569 |
$ |
1,483 |
| Income and other taxes
recoverable |
|
|
(1,093) |
|
(634) |
|
(562) |
| Accounts payable and accrued
liabilities |
|
|
(745) |
|
(935) |
|
(921) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
$ |
- |
$ |
- |
$ |
- |
The implementation of these amendments did not impact equity,
net earnings or cash flows in the current and comparative
periods.
(i) Levies
The IFRS Interpretations Committee ("IFRIC") of the IASB has
issued a new interpretation, "Levies" ("IFRIC 21"), which addresses
the accounting for a liability to pay a levy to a government. IFRIC
21 applies to levy liabilities within the scope of IAS 37,
"Provisions, Contingent Liabilities and Contingent Assets", and to
levy liabilities when the timing and amount is certain. IFRIC 21 is
effective for annual periods beginning on or after January 1, 2014 and must be applied
retrospectively. For Corby, this interpretation was effective
July 1, 2014. The implementation of
IFRIC 21 did not have an impact on the Company's consolidated
results of operations and financial position.
Recent accounting pronouncements
A number of new standards, amendments to standards and
interpretations have been issued but are not yet effective for the
financial year ending June 30, 2015,
and accordingly, have not been applied in preparing these interim
condensed consolidated financial statements:
(i) Revenue
In May 2014, the IASB released
IFRS 15, "Revenue from contracts with customers" ("IFRS 15"), which
supersedes IAS 11, "Construction Contracts", IAS 18, "Revenues",
IFRIC 13, "Customer Loyalty Programmes", IFRIC 15, "Agreement for
the Construction of Real Estate", IFRIC 18, "Transfers of Assets
from Customers" and SIC-31, "Revenue - Barter Transactions
Involving Advertising Services". The core principle of IFRS 15 is
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. IFRS 15 will also result in
enhanced disclosures about revenue, provide guidance for
transactions that were not previously addressed comprehensively
(for example, service revenue and contract modifications) and
improve guidance for multiple-element arrangements. IFRS 15 will be
effective for Corby's fiscal year beginning on July 1, 2017, with earlier application permitted.
The Company has not yet assessed the impact of the adoption of this
standard on its financial statements and disclosures.
(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 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 will become effective
July 1, 2018. 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.
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.
Management currently has a project in place to update the internal
control framework the Company uses, the Internal Control -
Integrated Framework (COSO Framework), to the 2013 version from
the original 1992 version as published by The Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
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. 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 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. Corby offers a diverse
portfolio of products across all major spirits categories and at
various price points, which complements consumer desires and offers
exciting innovation.
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 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.
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 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.
Competition
The Canadian 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. Corby constantly monitors
the market and adjusts its own 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 and note 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 collectable from government-controlled LBs, management
believes the Company's credit risk relating to accounts receivable
is at an acceptably low level. The Company's note receivable is
secured.
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 and also has a note
receivable that earns a fixed rate of interest. 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 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.
The Company registers trademarks, as applicable, while constantly
watching for and responding to competitive threats, as
necessary.
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 chart summarizes Corby's goodwill and intangible
assets and details the amounts associated with each brand (or
basket of brands) and market:
| |
|
|
|
Carrying Values as at December 31, 2014 |
| |
|
|
|
|
|
|
|
|
|
| Associated Brand |
|
Associated Market |
|
|
Goodwill |
|
Intangibles |
|
Total |
| |
|
|
|
|
|
|
|
|
|
| Various PR brands |
|
Canada |
|
$ |
- |
$ |
39.4 |
$ |
39.4 |
| Lamb's rum |
|
United Kingdom(1) |
|
|
1.4 |
|
11.8 |
|
13.2 |
| Corby domestic brands |
|
Canada |
|
|
1.9 |
|
- |
|
1.9 |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
3.3 |
$ |
51.2 |
$ |
54.5 |
| |
|
|
|
|
|
|
|
|
|
(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. |
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 consolidated financial
statements for the year ended June 30,
2014.
| CORBY SPIRIT AND
WINE LIMITED |
| INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS |
| |
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
|
|
|
|
|
|
|
|
|
|
| (in thousands of Canadian
dollars) |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Dec. 31, |
|
Dec. 31, |
|
June 30, |
|
June 30, |
| |
|
Notes |
|
2014 |
|
2013 (1) |
|
2014 (1) |
|
2013 (1) |
| |
|
|
|
|
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
|
|
| Deposits in cash management pools |
|
$ |
112,439 |
$ |
102,185 |
$ |
108,029 |
$ |
108,043 |
| Accounts receivable |
|
5 |
|
30,901 |
|
30,666 |
|
24,818 |
|
25,125 |
| Income and other taxes
recoverable |
|
|
1,163 |
|
496 |
|
346 |
|
493 |
| Inventories |
|
6 |
|
51,415 |
|
50,009 |
|
52,561 |
|
49,083 |
| Prepaid expenses |
|
|
|
446 |
|
301 |
|
256 |
|
533 |
| Current portion of note
receivable |
7 |
|
600 |
|
600 |
|
600 |
|
600 |
| |
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
196,964 |
|
184,257 |
|
186,610 |
|
183,877 |
| Note receivable |
|
7 |
|
- |
|
600 |
|
- |
|
600 |
| Deferred income taxes |
|
|
660 |
|
1,567 |
|
658 |
|
1,699 |
| Property and equipment |
|
|
9,035 |
|
7,620 |
|
8,632 |
|
8,092 |
| Goodwill |
|
|
|
3,278 |
|
3,278 |
|
3,278 |
|
3,278 |
| Intangible assets |
|
|
|
51,222 |
|
57,456 |
|
54,163 |
|
49,665 |
| |
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
|
$ |
261,159 |
$ |
254,778 |
$ |
253,341 |
$ |
247,211 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued
liabilities |
8 |
$ |
34,728 |
$ |
27,078 |
$ |
27,709 |
$ |
25,106 |
| Dividend payable |
|
14 |
|
17,651 |
|
- |
|
- |
|
- |
| |
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
52,379 |
|
27,078 |
|
27,709 |
|
25,106 |
| Provision for employee benefits |
|
|
17,316 |
|
20,950 |
|
16,491 |
|
20,794 |
| Total liabilities |
|
|
|
69,695 |
|
48,028 |
|
44,200 |
|
45,900 |
| |
|
|
|
|
|
|
|
|
|
|
| Shareholders' equity |
|
|
|
|
|
|
|
|
|
| Share capital |
|
|
|
14,304 |
|
14,304 |
|
14,304 |
|
14,304 |
| Accumulated other comprehensive
loss |
|
|
(4,503) |
|
(7,023) |
|
(4,303) |
|
(7,363) |
| Retained earnings |
|
|
|
181,663 |
|
199,469 |
|
199,140 |
|
194,370 |
| |
|
|
|
|
|
|
|
|
|
|
| Total shareholders' equity |
|
|
191,464 |
|
206,750 |
|
209,141 |
|
201,311 |
| |
|
|
|
|
|
|
|
|
|
|
| Total liabilities and shareholders'
equity |
|
$ |
261,159 |
$ |
254,778 |
$ |
253,341 |
$ |
247,211 |
| |
|
|
|
|
|
|
|
|
|
|
1 In
preparing its comparative information, the Company has adjusted
amounts reported previously in the condensed consolidated
balance sheets as a result of the retrospective application of the
amendments to IAS 32, Financial Instruments -
Presentation. |
| Refer to Note 3 for details regarding
adjusted amounts. |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of
these condensed consolidated financial statements. |
|
|
|
|
|
|
| CORBY SPIRIT AND WINE
LIMITED |
| INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS |
| |
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
|
|
|
|
|
|
|
|
|
| (in thousands of Canadian dollars,
except per share amounts) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Three Months Ended |
For the Six Months Ended |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
Notes |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
| Revenue |
9 |
$ |
38,000 |
$ |
38,536 |
$ |
72,755 |
$ |
75,271 |
| |
|
|
|
|
|
|
|
|
|
|
| Cost of sales |
|
|
(14,602) |
|
(14,393) |
|
(26,985) |
|
(27,192) |
| Marketing, sales and
administration |
|
|
(15,682) |
|
(14,244) |
|
(31,496) |
|
(28,271) |
| Other income |
10 |
|
9 |
|
316 |
|
33 |
|
339 |
| |
|
|
|
|
|
|
|
|
|
|
| Earnings from operations |
|
|
7,725 |
|
10,215 |
|
14,307 |
|
20,147 |
| |
|
|
|
|
|
|
|
|
|
|
| Financial income |
11 |
|
448 |
|
422 |
|
908 |
|
881 |
| Financial expenses |
11 |
|
(295) |
|
(319) |
|
(582) |
|
(638) |
| |
|
|
|
153 |
|
103 |
|
326 |
|
243 |
| |
|
|
|
|
|
|
|
|
|
|
| Earnings before income taxes |
|
|
7,878 |
|
10,318 |
|
14,633 |
|
20,390 |
| |
|
|
|
|
|
|
|
|
|
|
| Current income taxes |
|
|
(2,326) |
|
(2,864) |
|
(3,853) |
|
(5,319) |
| Deferred income taxes |
|
|
219 |
|
90 |
|
(74) |
|
(8) |
| Income taxes |
|
|
(2,107) |
|
(2,774) |
|
(3,927) |
|
(5,327) |
| |
|
|
|
|
|
|
|
|
|
|
| Net earnings |
|
$ |
5,771 |
$ |
7,544 |
$ |
10,706 |
$ |
15,063 |
| |
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share |
|
$ |
0.20 |
$ |
0.26 |
$ |
0.38 |
$ |
0.53 |
| Diluted earnings per share |
|
$ |
0.20 |
$ |
0.26 |
$ |
0.38 |
$ |
0.53 |
| |
|
|
|
|
|
|
|
|
|
|
| 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 |
| |
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of
these condensed consolidated financial statements. |
| CORBY SPIRIT AND WINE LIMITED |
|
|
|
|
|
|
|
|
| INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
|
|
|
|
|
|
|
|
|
|
| (in thousands of Canadian
dollars) |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Three Months Ended |
For the Six Months Ended |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
| Net earnings |
|
|
$ |
5,771 |
$ |
7,544 |
$ |
10,706 |
$ |
15,063 |
| |
|
|
|
|
|
|
|
|
|
|
| Amounts that will not be subsequently reclassified
to earnings: |
|
|
|
|
|
|
|
| Net actuarial (losses) gains |
|
|
(510) |
|
233 |
|
(276) |
|
465 |
| Income taxes |
|
|
|
141 |
|
(63) |
|
76 |
|
(125) |
| |
|
|
|
(369) |
|
170 |
|
(200) |
|
340 |
| |
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income |
|
$ |
5,402 |
$ |
7,714 |
$ |
10,506 |
$ |
15,403 |
| INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY |
| |
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
|
|
|
|
|
|
|
|
|
|
| (in thousands of Canadian
dollars) |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Share Capital |
|
Accumulated
Other
Comprehensive
Loss |
|
Retained
Earnings |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
| Balance as at June 30, 2014 |
|
$ |
14,304 |
$ |
(4,303) |
$ |
199,140 |
$ |
209,141 |
| Total comprehensive income |
|
|
- |
|
(200) |
|
10,706 |
|
10,506 |
| Dividends |
|
|
|
- |
|
- |
|
(28,183) |
|
(28,183) |
| |
|
|
|
|
|
|
|
|
|
|
| Balance as at December 31, 2014 |
|
$ |
14,304 |
$ |
(4,503) |
$ |
181,663 |
$ |
191,464 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Balance as at June 30, 2013 |
|
$ |
14,304 |
$ |
(7,363) |
$ |
194,370 |
$ |
201,311 |
| Total comprehensive income |
|
|
- |
|
340 |
|
15,063 |
|
15,403 |
| Dividends |
|
|
|
- |
|
- |
|
(9,964) |
|
(9,964) |
| |
|
|
|
|
|
|
|
|
|
|
| Balance as at December 31, 2013 |
|
$ |
14,304 |
$ |
(7,023) |
$ |
199,469 |
$ |
206,750 |
| |
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of
these condensed consolidated financial statements.
|
| CORBY SPIRIT AND WINE LIMITED |
|
|
|
|
|
|
|
|
| INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOW |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
|
|
|
|
|
|
|
|
|
| (in thousands of Canadian
dollars) |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Three Months Ended |
For the Six Months Ended |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
Notes |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
| Operating activities |
|
|
|
|
|
|
|
|
|
| Net earnings |
|
$ |
5,771 |
$ |
7,544 |
$ |
10,706 |
$ |
15,063 |
| Adjustments for: |
|
|
|
|
|
|
|
|
|
| Amortization and depreciation |
12 |
|
1,860 |
|
1,792 |
|
3,729 |
|
3,236 |
| Net financial income |
11 |
|
(153) |
|
(103) |
|
(326) |
|
(243) |
| Gain on disposal of property and
equipment |
|
|
(56) |
|
(92) |
|
(83) |
|
(107) |
| Income tax expense |
|
|
2,107 |
|
2,774 |
|
3,927 |
|
5,327 |
| Provision for employee benefits |
|
|
1 |
|
(15) |
|
(25) |
|
(17) |
| |
|
|
|
9,530 |
|
11,900 |
|
17,928 |
|
23,259 |
| Net change in non-cash working capital
balances |
13 |
|
3,870 |
|
2,471 |
|
1,906 |
|
(4,375) |
| Interest received |
|
|
433 |
|
406 |
|
885 |
|
850 |
| Income taxes paid |
|
|
(2,270) |
|
(2,523) |
|
(4,671) |
|
(5,322) |
| |
|
|
|
|
|
|
|
|
|
|
| Net cash from operating
activities |
|
|
11,563 |
|
12,254 |
|
16,048 |
|
14,412 |
| |
|
|
|
|
|
|
|
|
|
|
| Investing activities |
|
|
|
|
|
|
|
|
|
| Additions to property and equipment |
|
|
(531) |
|
(149) |
|
(1,245) |
|
(259) |
| Additions to intangible assets |
|
|
- |
|
- |
|
- |
|
(10,293) |
| Proceeds from disposition of property and
equipment |
|
94 |
|
210 |
|
139 |
|
246 |
| Deposits in cash management pools |
|
|
(5,717) |
|
(7,191) |
|
(4,410) |
|
5,858 |
| |
|
|
|
|
|
|
|
|
|
|
| Net cash used in investing
activities |
|
|
(6,154) |
|
(7,130) |
|
(5,516) |
|
(4,448) |
| |
|
|
|
|
|
|
|
|
|
|
| Financing activity |
|
|
|
|
|
|
|
|
|
| Dividends paid |
|
|
(5,409) |
|
(5,124) |
|
(10,532) |
|
(9,964) |
| |
|
|
|
|
|
|
|
|
|
|
| Net cash used in financing
activity |
|
|
(5,409) |
|
(5,124) |
|
(10,532) |
|
(9,964) |
| |
|
|
|
|
|
|
|
|
|
|
| Net increase in cash |
|
|
- |
|
- |
|
- |
|
- |
| Cash, beginning of period |
|
|
- |
|
- |
|
- |
|
- |
| |
|
|
|
|
|
|
|
|
|
|
| Cash, end of period |
|
$ |
- |
$ |
- |
$ |
- |
$ |
- |
| |
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of
these condensed consolidated financial statements. |
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
(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 marketer of spirits and importer of wines. The
Company derives its revenues from the sale of its owned-brands in
Canada and other international
markets, as well as commissions earned 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 ("LBs") 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 December 31,
2014.
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.
Effective November 7, 2013, Corby
changed its name and began operating as Corby Spirit and Wine
Limited. Prior to this date, Corby operated as Corby Distilleries
Limited. Reflecting the change, Corby began trading on the TSX
under the symbols CSW.A and CSW.B.
2. 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 in Note 3 to these condensed consolidated
financial statements. These interim condensed consolidated
financial statements should be read in conjunction with the
Company's 2014 annual financial statements.
These interim condensed consolidated financial statements were
approved by the Company's Board of Directors on February 4, 2015.
Functional and presentation currency
The Company's interim condensed consolidated financial statements
are presented in Canadian dollars, which is the Company's
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 explained in
the accounting policies below. Historical cost is generally based
on the fair value of the consideration given in exchange for
assets.
Seasonality
These interim condensed consolidated financial statements should
not be taken as indicative of the performance to be expected for
the full year due to the seasonal nature of the spirits business.
Corby's operations are subject to seasonal fluctuations as 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.
Use of Estimates and Judgements
The preparation of the 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 change or where new information becomes available. Future
outcomes can differ from these estimates.
Judgement 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, judgement and estimates are
often interrelated.
The Company has applied judgement in determining the tax rates
used for measuring deferred taxes and identifying the indicators of
impairment for property and equipment, goodwill and intangible
assets. In the absence of standards or interpretations applicable
to a specific transaction, management uses its judgement to define
and apply accounting policies that provide relevant and reliable
information in the context of the preparation of the financial
statements.
Estimates are used when estimating the useful lives of property
and equipment and intangible assets for the purpose of depreciation
and amortization, when accounting for or measuring items such as
allowances for uncollectible accounts receivable and inventory
obsolescence, assumptions underlying the actuarial determination of
provision for pensions, income and other taxes, provisions, certain
fair value measures including those related to the valuation of
share-based payments and financial instruments, and when testing
goodwill, intangible assets and other assets for impairment. Actual
results may 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.
3. ADOPTION OF NEW AND REVISED STANDARDS AND
INTERPRETATIONS
The following new and revised standards and interpretations were
effective for Corby on July 1,
2014:
(i) Financial Instruments - Asset and Liability
Offsetting
The IASB has issued amendments to IAS 32, "Financial
Instruments: Presentation" ("IAS 32"), which provides further
guidance on the requirements for offsetting of financial
instruments. The amendments to IAS 32 are effective for annual
periods beginning on or after January 1,
2014 and must be applied retrospectively. For Corby, this
amendment was effective July 1, 2014.
The implementation of IAS 32 amendments resulted in a
reclassification of assets and liabilities related to other taxes
to accounts receivable and accounts payable balances. The
implementation of these amendments had the following impacts as at
December 31, 2013, June 30, 2014 and June 30,
2013:
| |
|
|
|
|
increase (decrease) |
| |
|
|
|
|
|
Dec. 31, |
|
June 30, |
|
June 30, |
| Balance sheet impacts |
|
|
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
|
$ |
1,838 |
$ |
1,569 |
$ |
1,483 |
| Income and other taxes
recoverable |
|
|
(1,093) |
|
(634) |
|
(562) |
| Accounts payable and accrued
liabilities |
|
|
(745) |
|
(935) |
|
(921) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
$ |
- |
$ |
- |
$ |
- |
The implementation of these amendments did not impact equity,
net earnings or cash flows in the current and comparative
periods.
(ii) Levies
The IFRS Interpretations Committee ("IFRIC") of the IASB has
issued a new interpretation, "Levies" ("IFRIC 21"), which addresses
the accounting for a liability to pay a levy to a government.
IFRIC 21 applies to levy liabilities within the scope of IAS 37,
"Provisions, Contingent Liabilities and Contingent Assets", and to
levy liabilities when the timing and amount is certain. IFRIC 21 is
effective for annual periods beginning on or after January 1, 2014 and must be applied
retrospectively. For Corby, this interpretation was effective
July 1, 2014. The implementation of
IFRIC 21 did not have an impact on the Company's consolidated
results of operations and financial position.
Recent accounting pronouncements
A number of new standards, amendments to standards and
interpretations have been issued but are not yet effective for the
financial year ending June 30, 2015,
and accordingly, have not been applied in preparing these interim
condensed consolidated financial statements:
(i) Revenue
In May 2014, the IASB released
IFRS 15, "Revenue from contracts with customers" ("IFRS 15"), which
supersedes IAS 11, "Construction Contracts", IAS 18, "Revenues",
IFRIC 13, "Customer Loyalty Programmes", IFRIC 15, "Agreement for
the Construction of Real Estate", IFRIC 18, "Transfers of Assets
from Customers" and SIC-31, "Revenue - Barter Transactions
Involving Advertising Services". The core principle of IFRS 15 is
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. IFRS 15 will also result in
enhanced disclosures about revenue, provide guidance for
transactions that were not previously addressed comprehensively
(for example, service revenue and contract modifications) and
improve guidance for multiple-element arrangements. IFRS 15 will be
effective for Corby's fiscal year beginning on July 1, 2017, with earlier application permitted.
The Company has not yet assessed the impact of the adoption of this
standard on its financial statements and disclosures.
(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 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 will become
effective July 1, 2018. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
4. 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.
The carrying value of the note receivable approximates fair
value based on the present value of future cash flows, based on
estimated market rates for instruments of similar terms and
conditions. Fair value is determined using Level 2 inputs.
5. ACCOUNTS RECEIVABLE
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
June 30, |
|
June 30, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Trade receivables |
|
|
$ |
21,018 |
$ |
19,538 |
$ |
16,343 |
$ |
16,491 |
| Due from related parties |
|
|
8,387 |
|
9,290 |
|
6,906 |
|
7,151 |
| Other |
|
|
|
1,496 |
|
1,838 |
|
1,569 |
|
1,483 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
30,901 |
$ |
30,666 |
$ |
24,818 |
$ |
25,125 |
6. INVENTORIES
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
June 30, |
|
June 30, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Raw materials |
|
|
$ |
2,107 |
$ |
2,476 |
$ |
2,058 |
$ |
2,132 |
| Work-in-progress |
|
|
|
40,593 |
|
40,098 |
|
41,081 |
|
39,669 |
| Finished goods |
|
|
|
8,715 |
|
7,435 |
|
9,422 |
|
7,282 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
51,415 |
$ |
50,009 |
$ |
52,561 |
$ |
49,083 |
The cost of inventory recognized as an expense and included in
cost of goods sold for the three and six months ended
December 31, 2014 was $11,273
and $21,909 (2013 - $11,318 and $22,141), respectively. During the three and six
month periods ended December 31, 2014
and 2013, there were no significant write-downs of inventory as a
result of net realizable value being lower than cost, and no
inventory write-downs recognized in previous years were
reversed.
7. NOTE RECEIVABLE
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
June 30, |
|
June 30, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Note receivable |
|
|
$ |
600 |
$ |
1,200 |
$ |
600 |
$ |
1,200 |
| Less: current portion |
|
|
|
600 |
|
600 |
|
600 |
|
600 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
- |
$ |
600 |
$ |
- |
$ |
600 |
As part of the Company's sale of the Seagram Coolers brand on
March 15, 2011, the purchase price
was satisfied in part by a promissory note secured by specific
property and issued by the purchaser in favour of Corby for
$2,400, which is to be paid in equal
annual instalments of $600 plus
interest of 5% per annum. The final payment is due January 31, 2015.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
June 30, |
|
June 30, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Trade payables and accruals |
|
$ |
21,938 |
$ |
19,580 |
$ |
17,724 |
$ |
17,715 |
| Due to related parties |
|
|
|
11,803 |
|
6,753 |
|
9,050 |
|
6,470 |
| Other |
|
|
|
987 |
|
745 |
|
935 |
|
921 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
34,728 |
$ |
27,078 |
$ |
27,709 |
$ |
25,106 |
9. REVENUE
The Company's revenue consists of the following streams:
| |
|
|
|
Three
months ended |
Six
months ended |
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Case goods sales |
|
|
$ |
32,506 |
$ |
32,815 |
$ |
61,820 |
$ |
63,355 |
| Commissions (net of amortization of
representation rights) |
|
4,364 |
|
4,540 |
|
8,771 |
|
9,563 |
| Other services |
|
|
|
1,130 |
|
1,181 |
|
2,164 |
|
2,353 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
38,000 |
$ |
38,536 |
$ |
72,755 |
$ |
75,271 |
Commissions for the three and six month periods are shown net of
amortization of long-term representation rights and non-refundable
upfront fees of $1,471 and
$2,941, (2013 - $1,483 and $2,643),
respectively. Other services include revenues incidental to the
manufacture of case goods, such as logistics fees.
10. OTHER INCOME
The Company's other income consists of the following
amounts:
| |
|
|
|
Three months ended |
Six months ended |
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Foreign exchange (loss) gain |
|
$ |
(44) |
$ |
224 |
$ |
(65) |
$ |
232 |
| Gain on disposal of property and
equipment |
|
53 |
|
92 |
|
83 |
|
107 |
| Other |
|
|
|
- |
|
- |
|
15 |
|
- |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
9 |
$ |
316 |
$ |
33 |
$ |
339 |
11. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
| |
|
|
|
Three
months ended |
Six
months ended |
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Interest income |
|
|
$ |
448 |
$ |
422 |
$ |
908 |
$ |
881 |
| Net financial impact of pensions |
|
(295) |
|
(319) |
|
(582) |
|
(638) |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
153 |
$ |
103 |
$ |
326 |
$ |
243 |
12. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses as follows:
| |
|
|
|
Three
months ended |
Six
months ended |
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Depreciation of property and
equipment |
$ |
389 |
$ |
308 |
$ |
788 |
$ |
592 |
| Amortization of intangible assets |
|
1,471 |
|
1,484 |
|
2,941 |
|
2,644 |
| Salary and payroll costs |
|
|
5,870 |
|
5,103 |
|
11,216 |
|
10,310 |
| Expenses related to pensions and
benefits |
|
356 |
|
445 |
|
712 |
|
890 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
8,086 |
$ |
7,340
|
$ |
15,657 |
$ |
14,436 |
13. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
| |
|
|
|
Three months ended |
Six months ended |
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
$ |
(1,591) |
$ |
566 |
$ |
(6,068) |
$ |
(5,511) |
| Inventories |
|
|
|
2,589 |
|
1,496 |
|
1,146 |
|
(926) |
| Prepaid expenses |
|
|
|
(3) |
|
119 |
|
(190) |
|
232 |
| Accounts payable and accrued liabilities |
|
2,875 |
|
290 |
|
7,018 |
|
1,830 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
3,870 |
$ |
2,471 |
$ |
1,906 |
$ |
(4,375) |
14. DIVIDENDS
On November 5, 2014, the Board of
Directors declared a special dividend in the amount of $0.62 per common share, payable January 9, 2015, on 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 December 12, 2014. Subsequent to the
quarter ended December 31, 2014, and
in line with the terms of the dividend declaration just described,
the Company paid the full amount of the dividend of $17,651 on January 9,
2015. The payment was sourced from the Company's deposits in
cash management pools.
On February 4, 2015, subsequent to
the quarter ended December 31, 2014,
the Board of Directors declared a regular quarterly dividend of
$0.19 per common share, to be paid on
March 13, 2015 to shareholders of
record as at the close of business on February 27, 2015.
All 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 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 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 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
Canadian entities, as approved by Corby's Board of Directors.
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. Corby also agreed to continue
with the mirror netting arrangement with PR and its affiliates,
under which Corby's excess cash will continue to be deposited to
cash management pools. The mirror netting arrangement with PR and
its affiliates is further described below.
Further, 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 the present value of $10 million, or $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 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 July 1, 2012, the Company
entered into a five year agreement with PR USA, an affiliated
company, which provides PR USA the exclusive right to represent
Wiser's Canadian whisky and Polar Ice vodka in the US. The
agreement provides these key brands with access to PR USA's
extensive national distribution network throughout the US and
complements PR USA's premium brand portfolio. The agreement is
effective for a five year period ending June
30, 2017. The agreement with PR USA is a related party
transaction between Corby and PR USA, as such; the agreement was
approved by the Independent Committee of the Board of Directors of
Corby following an extensive review, in accordance with Corby's
related party transaction policy.
Transactions between Corby and its parent, ultimate parent and
affiliates during the period are as follows:
| |
|
|
|
Three months ended |
Six months ended |
| |
|
|
|
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Sales to related parties |
|
|
|
|
|
|
|
|
|
|
| Commissions - parent, ultimate parent and
affiliated companies |
$ |
5,138 |
$ |
5,011 |
$ |
10,239 |
$ |
10,113 |
| Products for resale at an export level - affiliated
companies |
|
1,843 |
|
2,846 |
|
3,140 |
|
6,616 |
| Bulk spirits - parent |
|
|
|
- |
|
- |
|
- |
|
6 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
6,981 |
$ |
7,857 |
$ |
13,379 |
$ |
16,735 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Cost of goods sold, purchased from
related parties |
|
|
|
|
|
|
|
|
| Distilling, blending, and production services -
parent |
$ |
4,819 |
$ |
4,960 |
$ |
10,477 |
$ |
11,483 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Administrative services purchased
from related parties |
|
|
|
|
|
|
|
|
| Marketing, selling and administration services -
parent |
$ |
625 |
$ |
600 |
$ |
1,250 |
$ |
1,200 |
| Marketing, selling and administration services -
affiliate |
|
2,648 |
|
1,690 |
|
4,444 |
|
2,408 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
3,273 |
$ |
2,290 |
$ |
5,694 |
$ |
3,608 |
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the three and six month periods ending December 31, 2014, Corby sold casks to its parent
company for net proceeds of $90 and
$138 (2013 - $210 and $246),
respectively.
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.
effective July 17, 2014. The Mirror
Netting Services 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 February 4, 2015, as published by
Standard & Poor's and Moody's, was BBB- and Baa3, respectively.
PR compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Services Agreement by
paying interest to Corby based upon the 30-day CDOR rate plus
0.40%. During the three and six month periods ending December 31, 2014, Corby earned interest income
of $443 and $904 from PR (2013 - $409 and $855),
respectively. Corby has the right to terminate its participation in
the Mirror Netting Services 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 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, Wyndham
Estate, Stoneleigh and Graffigna wines.
The Commissions segment's financial results are fully reported
as "Commissions" in Note 9 of these interim condensed consolidated
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