TORONTO, Nov. 11, 2015 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
declared a special dividend of $0.62
per share payable on January 8, 2016
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 December 11, 2015. The
special dividend will result in a cash distribution of
approximately $17.7 million to
shareholders and will be sourced from Corby's current surplus cash
position. This payment represents cash the Board of Directors
considers to be in excess of its requirements to fund future growth
opportunities.
The Corby Board of Directors also today declared a dividend of
$0.19 per share payable on
December 11, 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
November 27, 2015. The Company also
reported its financial results for the fourth quarter and year
ended June 30, 2015.
As well, today Corby and Pernod Ricard
S.A. ("Pernod Ricard") entered into a distillate supply
agreement and a co-pack agreement for the continued production and
bottling of Corby`s owned-brands by Pernod Ricard at the Hiram
Walker & Sons Limited production facility in Windsor, Ontario, each for a 10 year term
commencing October 2016. On the same date, Corby and Pernod
Ricard entered into an administrative services agreement, under
which Corby will continue to manage Pernod Ricard's business
interests in Canada, including the
Hiram Walker & Sons Limited production facility, with a similar
term and commencement date. Pernod Ricard indirectly owns in excess
of 50% of the issued and outstanding Voting Class A Common Shares
of Corby and is considered to be Corby's ultimate parent.
Since the agreements with Pernod Ricard constitute a related
party transaction between Corby and Pernod Ricard, the agreements
were approved by the Independent Committee of the Corby Board of
Directors following an extensive review with financial and legal
advice.
"A key factor for future long-term growth is certainty and
stability around production and administrative services. I'm
very pleased that Corby has agreed to continue it's relationship
with Pernod Ricard to ensure production of Corby's owned brands
remains at the world-class distillery in Windsor, Ontario", commented George McCarthy, Chairman of the Board of
Directors of Corby. "Also, as when deemed appropriate in the past,
the Corby Board of Directors decided to return surplus cash to our
shareholders through the special and regular dividend
distributions," continued Mr. McCarthy.
Net earnings for the quarter ended September 30, 2015 totalled $6.3 million (or $0.22 per share), an earnings increase of
$1.4 million, or 28%, when compared
to the same quarter last year. The primary driver of the growth was
an increase in commissions, due to the commission rate increase on
Pernod Ricard brands, following the amendment of the September 29, 2006 Canadian representation
agreements with Pernod Ricard announced on August 26, 2015. The impact on net earnings
of lower case good shipments was offset by changes to the Company's
advertising and promotional strategy in the domestic
market.
"I am pleased to see the positive impact on commissions
following the amendment of our Canadian representation agreements
with Pernod Ricard earlier this year. It emphasizes the
positive earnings potential created through our partnership with
Pernod Ricard, particularly in light of today's announcement
regarding consistent production and administrative services
continuing another ten years", 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-month
period ended September 30, 2015,
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
September
30, 2015
The following Management's Discussion and Analysis ("MD&A")
dated November 11, 2015, should be
read in conjunction with the unaudited interim condensed
consolidated financial statements and accompanying notes for the
three month period ended September 30,
2015, prepared in accordance with International Financial
Reporting Standards ("IFRS"). These interim condensed financial
statements were not audited or reviewed by the Company's external
auditors in accordance with standards established by the Canadian
Institute of Chartered Accountants for a review of unaudited
interim condensed financial statements by an entity's auditor.
These unaudited interim condensed financial statements do not
contain all disclosures required by IFRS for annual financial
statements and, accordingly, should also be read in conjunction
with the most recently prepared annual consolidated financial
statements for the year ended June 30,
2015.
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 November 11, 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
first quarter of fiscal 2016 (three months ended September 30, 2015) are against results for the
first quarter of fiscal 2015 (three months ended September 30, 2014). 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®, Campo
Viejo®, Graffigna® and Kenwood® wines. In addition to
representing PR's brands in Canada, Corby also provides representation for
certain selected, unrelated third-party brands ("Agency brands")
when they fit within the Company's strategic direction and, thus,
complement Corby's existing brand portfolio.
The Company expanded its agency portfolio, with the exclusive
right to represent The Wine Group LLC ("The Wine Group") brands in
Canada 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, Mogen David Wine Co and Benziger.
Pursuant to production agreements that expire in September 2016, PR produces Corby's owned-brands
at HWSL's production facility in Windsor,
Ontario. Under an administrative services agreement, Corby
manages PR's business interests in Canada, including HWSL's production facility,
also until September 2016. The
production agreements and the administrative services agreement
each provide for a ten year term, commencing October 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.
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). Any retail value
trends quoted exclude British
Columbia due to the province changing its value data from
retail dollars to wholesale dollars from the beginning of Fiscal
2016. This change in methodology distorts comparability against
prior periods.
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. See the "Related Party
Transactions" section of this MD&A for additional details. The
market in the US operates a three tier distribution system which
often requires a much longer and larger inventory pipeline than in
other markets, resulting in a disconnect between quarterly shipment
performance, as reported in the financial statements, and the true
underlying performance of the brands at retail level during the
same quarter.
For the 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 specialized to meet the
differing needs of its customers and the selling channels they
inhabit. In all areas of the business, management believes setting
clear strategies, optimizing organization structure and increasing
efficiencies is key to Corby's overall success.
In addition, management is convinced that 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. During
the year, 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 Increases Commission Rate under Pernod Ricard
Canadian Representation Agreements On September 29, 2006, Corby completed a transaction
with PR which, amongst other things, provided the Company the
exclusive right to represent PR's brands in the Canadian market for
15 years and added the Absolut vodka brand in 2008. Commission
revenue earned from the representation of PR's brands in
Canada is presented in the
consolidated statement of earnings as part of "Revenue". On
August 26, 2015, Corby entered into
an agreement with PR and certain affiliates amending the
September 29, 2006 Canadian
representation agreements, to provide that Corby will provide more
specialized marketing, advertising and promotion services for the
brands of PR and its affiliates under the applicable existing
agreements in consideration of an increase to the rate of
commission payable by such entities.
Corby Extends Production and Administrative Services
Agreements with Pernod Ricard
On November 11, 2015, Corby and PR entered into a
distillate supply agreement and a co-pack agreement for the
continued production and bottling of Corby`s owned-brands by Pernod
Ricard at the HWSL production facility in Windsor, Ontario, for a 10 year term
commencing October 2016. On the same date, Corby and PR
entered into an administrative services agreement, under which
Corby will continue to manage PR's business interests in
Canada, including the HWSL
production facility, with a similar term and commencement date.
Corby declares special dividend
On November 11, 2015, the Corby Board of Directors
declared a special dividend of $0.62
per share payable on January 8, 2016
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 11, 2015. The
special dividend payment will result in a cash distribution of
approximately $17.7 million to
shareholders and will be sourced from Corby's surplus cash
position. The payment represents cash that the Board considers to
be in excess of its requirements to fund future growth
opportunities.
Brand Performance Review
Corby's portfolio of owned-brands accounts for approximately 80%
of the Company's total annual revenue. Included in this portfolio
are its key brands: J.P. Wiser's
Canadian whisky, Lamb's rum, Polar Ice vodka 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 table summarizes the performance of Corby's
owned-brands (i.e., Case Goods) in terms of both shipment volume
(as measured by shipments to customers in equivalent nine-litre
cases) and shipment value (as measured by the change in net sales
revenue). The table includes results for sales in both Canada and international markets.
Specifically, the J.P. Wiser's, Lamb's and Polar Ice brands are
also sold to international markets, particularly in the US and
UK.
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BRAND PERFORMANCE
CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL
SHIPMENTS
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Three Months
Ended
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%
Shipment
|
%
Shipment
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Sept.
30,
|
Sept.
30,
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Volume
|
Value
|
(Volumes in 000's
of 9L cases)
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2015
|
2014
|
Growth
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Growth
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Brand
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J.P. Wiser's Canadian
whisky
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224
|
224
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0%
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3%
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Lamb's rum
|
|
|
|
111
|
131
|
(15%)
|
(13%)
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Polar Ice
vodka
|
|
|
|
99
|
102
|
(3%)
|
3%
|
Mixable
liqueurs
|
|
|
|
43
|
43
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0%
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(3%)
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Total Key
Brands
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|
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477
|
500
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(5%)
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(1%)
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Other Corby-owned
brands
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51
|
55
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(6%)
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2%
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Total Corby
brands
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528
|
555
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(5%)
|
(1%)
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Overall, volume and shipment value for Corby owned-brands is
lower on a year over year comparative basis. Trends in Corby's
domestic market differ significantly from international markets as
highlighted in the following table:
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Three Months
Ended
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%
Shipment
|
%
Shipment
|
|
|
|
|
Sept.
30,
|
Sept.
30,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
|
|
|
2015
|
2014
|
Growth
|
Growth
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|
|
|
|
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Domestic
|
|
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490
|
507
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(3%)
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0%
|
International
|
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38
|
48
|
(20%)
|
(11%)
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|
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|
|
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Total Corby
brands
|
|
|
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528
|
555
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(5%)
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(1%)
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For the three months ended September 30,
2015, Corby's domestic shipment value was essentially flat
on a year over year comparative basis. Lower shipments are
largely attributable to a significant increase of competitive
retail activity in the economy segments of rum and Canadian whisky,
the impacts of which were offset by improved revenues per case.
In international markets, lower shipments for the three months
ended September 30, 2015 are largely
attributable to the performance of Lamb's rum in the UK market due
to lower production and associated inventory levels at our
third-party bottling facility.
Our entry into the US market achieved significant distribution
points on launch. We've since adjusted our strategy and
concentrated our investment on a smaller number of markets where
the portfolio has performed well and the greatest opportunities
exist. Our focus shifted from distribution gains to retail
velocity driving activities. As a result, we have not refilled the
initial inventory pipeline to non-priority markets.
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 table 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 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.
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RETAIL SALES FOR
THE CANADIAN MARKET ONLY1
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Three Months
Ended
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%
Retail
|
%
Retail
|
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|
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|
Sept.
30,
|
Sept.
30,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
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2015
|
2014
|
Growth
|
Growth
(2)
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Brand
|
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|
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J.P. Wiser's Canadian
whisky
|
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176
|
176
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0%
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0%
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Lamb's rum
|
|
|
|
95
|
98
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(3%)
|
(3%)
|
Polar Ice
vodka
|
|
|
|
91
|
93
|
(2%)
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0%
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Mixable
liqueurs
|
|
|
|
41
|
42
|
(1%)
|
0%
|
|
|
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Total Key
Brands
|
|
|
|
403
|
408
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(1%)
|
(1%)
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Other Corby-owned
brands
|
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45
|
50
|
(10%)
|
(7%)
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Total
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447
|
457
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(2%)
|
(1%)
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(1)Refers to sales at the retail store
level in Canada, as provided by the Association of Canadian
Distillers.
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(2)Retail Value trends exclude British
Columbia due to the province changing Value data from Retail
dollars to Wholesale dollars in July 2015. This change in
methodology distorts comparability vs prior
periods.
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The Canadian spirits industry posted positive retail sales
volume growth of 2% for the three months ended September 30, 2015. These trends are supported by
double digit retail sales volume growth in the Irish whiskey and
single malt Scotch whisky categories.
As illustrated above, Corby's portfolio of owned brands
underperformed the spirits industry for the three months ending
September 30, 2015. The following
brand discussion provides a more detailed analysis of how each of
Corby's key brands performed relative to its 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 is the top selling whisky in
Canada. For the three months ended September 30, 2015, J.P.
Wiser's Canadian whisky retail volume was essentially flat
on a year-over-year comparison basis. The Canadian whisky category
grew 2% in retail volume, when compared to the same three month
period last year driven by aggressive competitor activity at
retail.
Within the J.P. Wiser's range, positive growth posted by
J.P. Wiser's Deluxe and the
flavoured range was undercut by J.P.
Wiser's Special Blend which was impacted by a significant
increase of competitive retail activity in the economy segment of
Canadian whisky.
In July 2015, Corby began shipping
two innovative new variants of the J.P.
Wiser's family across Canada, J.P.
Wiser's Hopped and J.P.
Wiser's Double Still Rye. During the first quarter of
fiscal 2016, Corby launched new, premium point of sale material
featuring quality cues and the "J.P. Wiser's, Tastes Like Whisky,
Since 1857" campaign.
Lamb's Rum
Lamb's rum, one of the top-selling rum
families in Canada, was
significantly impacted by consumer trends, particularly in respect
of the overall rum and white rum segments which declined 1% and 4%,
respectively, in retail volumes when compared to the same three
month period last year.
For the three-month period ended September 30, 2015, Lamb's declined 3% in retail
volume when compared to same period last year, reflective of the
overall decline in rum and white rum categories. Corby's Lamb's rum
product line is heavily weighted in the dark and white
segments. Our strategy is to defend our regional strongholds
and to strongly promote the entire range.
Polar Ice Vodka
Polar Ice vodka is among the top three
largest vodka brands in Canada.
Retail volume decreased 2% when compared to the same three month
period last year, consistent with the standard segment of the vodka
category. Positive trends in Ontario and Quebec were impacted by timing of retail
activity in Western Canada.
Performance of the overall vodka category in Canada which grew retail volumes 2% when
compared to the same three month period last year was driven by the
premium segment of the category.
Advertising and promotion investment included driving awareness
and trial of Polar Ice 90 North via strong off-trade programming
(tastings, value-add promotions, loyalty rewards programs).
As well, digital media continues to support the launch of Polar Ice
90 North, driving consumers to online (polarice.ca) and social
media channels.
Mixable Liqueurs
Corby's portfolio of mixable liqueur
brands consists of McGuinness liqueurs (which is Canada's largest mixable liqueur brand family)
and Meaghers liqueurs. Retail volume for Corby's mixable liqueurs
portfolio lagged category trends with retail volume declining 1%
for the three month period ended September
30, 2015. The Liqueurs category, which is growing at
3% in retail value, is being driven by new innovations and cream
based offerings with which McGuinness does not directly
compete.
Our current strategy is to use alternative branded offerings
such as Criollo® to benefit from these trends. For McGuinness and
Meaghers, our focus is on strong programming in the retail
environment and ensuring that our flavour offering is aligned to
consumer trends.
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 No. 40® collectively
grew retail volume 38% compared to the same three month period last
year.
Criollo®, like many other premium liqueurs, is heavily dependent
on the key holiday period for sales. Retail volume
performance was modest with a decline of 1% for the three months
ended September 30, 2015.
Royal Reserve® Canadian whisky retail volume declined 11% for
the three months ended September 30,
2015 when compared to the same period last year. Performance
has been impacted by the timing of retail activations in
Western Canada and by a
significant increase of competitive retail activity in the economy
segment of Canadian whisky.
Financial and Operating Results
The following table presents a summary of certain selected
consolidated financial information of the Company for the three
month period ended September 30, 2015
and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
(in millions of
Canadian dollars,
|
|
|
Sept.
30,
|
|
Sept.
30,
|
|
|
|
except per share
amounts)
|
|
|
2015
|
|
2014
|
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
36.4
|
$
|
34.8
|
$
|
1.6
|
5%
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
(12.2)
|
|
(12.4)
|
|
0.2
|
(2%)
|
Marketing, sales and
administration
|
|
|
(15.6)
|
|
(15.8)
|
|
0.2
|
(1%)
|
Other
income
|
|
|
0.0
|
|
0.0
|
|
-
|
0%
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
8.6
|
|
6.6
|
|
2.0
|
30%
|
|
|
|
|
|
|
|
|
|
Financial
income
|
|
|
0.3
|
|
0.4
|
|
(0.1)
|
(25%)
|
Financial
expenses
|
|
|
(0.2)
|
|
(0.3)
|
|
0.1
|
(33%)
|
Net financial
income
|
|
|
0.1
|
|
0.1
|
|
-
|
0%
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
|
8.7
|
|
6.7
|
|
2.0
|
30%
|
Income
taxes
|
|
|
(2.4)
|
|
(1.8)
|
|
(0.6)
|
33%
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
6.3
|
|
$4.9
|
$
|
1.4
|
29%
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
|
$
|
0.22
|
$
|
0.17
|
$
|
0.05
|
29%
|
|
- Diluted net
earnings
|
|
$
|
0.22
|
$
|
0.17
|
$
|
0.05
|
29%
|
|
|
|
|
|
|
|
|
|
|
Overall Financial Results
For the quarter ended September 30,
2015, net earnings increased $1.4
million or 29% when compared to the same quarter last year.
The primary driver of the growth was an increase in commissions,
due to the commission rate increase on PR brands, following the
amendment of the September 29, 2006
Canadian representation agreements with PR referred to under
Significant Events.
The impact on net earnings of lower case good shipments was
offset by changes to the Company's advertising and promotional
strategy in the domestic market.
Revenue
The following highlights the key components of the Company's
revenue streams:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
Sept.
30,
|
|
Sept.
30,
|
|
|
|
(in millions of
Canadian dollars)
|
|
|
|
2015
|
|
2014
|
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
|
Case goods
|
|
|
$
|
29.0
|
$
|
29.3
|
$
|
(0.3)
|
(1%)
|
|
Commissions
|
|
|
|
6.3
|
|
4.5
|
|
1.8
|
40%
|
|
Other
services
|
|
|
|
1.1
|
|
1.0
|
|
0.1
|
10%
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
36.4
|
$
|
34.8
|
$
|
1.6
|
5%
|
Case goods revenue declined $0.3
million for the three month period ended September 30, 2015 when compared to the same
period last year. The decline is largely attributable to the
performance of Lamb's rum in the UK market due to lower production
and associated inventory levels at our third-party bottling
facility. Higher sales value per case on our core
brands partially offset the impact of lower case good sales volumes
in the domestic market.
Commissions increased $1.8 million
or 40% when compared with the same quarter last year. The
primary driver of the growth was a commission rate increase on PR
brands supplemented by strong shipments for the PR brands portfolio
in the three month period ending September
30, 2015.
Other services represents ancillary revenue incidental to
Corby's core business activities such as logistical fees.
Cost of sales
Cost of sales was $12.2 million
for the three month period ended September
30, 2015, which is 2% lower than the same period last year.
Gross margin on case goods for the quarter was 59% in both the
current and prior year quarter.
Marketing, sales and administration
Marketing, sales and administration expenses decreased 1% for
the quarter ended September 30, 2015.
The decrease reflects changes to the Company's advertising and
promotional strategy in the domestic market. In the prior quarter,
the Company incurred set up costs for the Wiserfund campaign
launched in Canada in October 2014. This year, investment is focused on
the launches of J.P. Wiser's Hopped
and J.P. Wiser's Double Still
Rye.
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.
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 period.
Income taxes
A reconciliation of the effective tax rate to the statutory
rates for each period is presented below.
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
Sept.
30,
|
|
Sept.
30,
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
|
|
|
26.9%
|
|
26.6%
|
Other
|
|
|
|
0.4%
|
|
0.3%
|
|
|
|
|
|
|
|
Effective tax
rate
|
|
|
|
27.3%
|
|
26.9%
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $93.2 million as at
September 30, 2015, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities, which totalled $31.0
million as at September 30,
2015, 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
|
|
|
|
|
|
Sept.
30,
|
|
Sept.
30,
|
|
$
|
(in millions of
Canadian dollars)
|
|
|
|
|
2015
|
|
2014
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net earnings,
adjusted for non-cash items
|
|
|
|
$
|
10.3
|
$
|
8.4
|
$
|
1.9
|
|
Net change in
non-cash working capital
|
|
|
|
|
(3.5)
|
|
(2.0)
|
|
(1.5)
|
|
Net payments for
interest and income taxes
|
|
|
|
|
(1.9)
|
|
(1.9)
|
|
-
|
|
|
|
|
|
4.9
|
|
4.5
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
|
|
|
|
(0.4)
|
|
(0.7)
|
|
0.3
|
|
Deposits in cash
management pools
|
|
|
|
|
0.9
|
|
1.3
|
|
(0.4)
|
|
|
|
|
|
0.5
|
|
0.6
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
|
|
(5.4)
|
|
(5.1)
|
|
(0.3)
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash
|
|
|
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating activities
For the three months ending September 30,
2015, net cash from operating activities was $4.9 million, an increase of $0.4 million compared to the same period last
year reflecting higher net earnings, partially offset by an
increase in working capital.
Investing activities
Cash inflows for investing activities was $0.5 million for the three months ended
September 30, 2015, compared to cash
inflows of $0.6 million for the same
three month period last year.
Investment in property and equipment is offset by deposits 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 for the three months ended
September 30, 2015, an increase of
$0.3 million over last year, and
reflects dividend payments paid to shareholders.
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
|
2016 -
special
|
|
November 11, 2015
(special dividend)
|
|
December 11,
2015
|
|
January 8,
2016
|
|
0.62
|
2016 - Q1
|
|
November 11,
2015
|
|
November 27,
2015
|
|
December 11,
2015
|
|
0.19
|
2015 - Q4
|
|
August 26,
2015
|
|
September 16,
2015
|
|
September 30,
2015
|
|
0.19
|
2015 - Q3
|
|
May 6,
2015
|
|
May 29,
2015
|
|
June 12,
2015
|
|
0.19
|
2015 - Q2
|
|
February 4,
2015
|
|
February 27,
2015
|
|
March 13,
2015
|
|
0.19
|
2015 -
special
|
|
November 05, 2014
(special dividend)
|
|
December 12,
2014
|
|
January 9,
2015
|
|
0.62
|
2015 - Q1
|
|
November 05,
2014
|
|
November 28,
2014
|
|
December 14,
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
|
Outstanding Share Data
As at November 11, 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 (the
"2006 Agreements"). These agreements provide the Company with the
exclusive right to represent PR's brands in the Canadian market for
fifteen years, as well as providing for the continuing production
of certain Corby brands by PR at its production facility in
Windsor, Ontario, for ten years.
Corby also manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
Canadian entities, as approved by Corby's Board of Directors. On
August 26, 2015, Corby entered into
an agreement with PR and certain affiliates amending the
September 29, 2006 Canadian
representation agreements, pursuant to which Corby will provide
more specialized marketing, advertising and promotion services for
the PR and affiliate brands under the applicable representation
agreements in consideration of an increase to the rate of
commission payable to Corby by such entities.
In addition to the 2006 Agreements, Corby signed an agreement on
September 26, 2008, with its ultimate
parent to be the exclusive Canadian representative for the ABSOLUT
vodka and Plymouth gin brands, for
a five-year term which expired October 1,
2013 and was extended as noted below. These brands were
acquired by PR subsequent to the original representation rights
agreement dated September 29, 2006.
Corby also agreed to continue with the mirror netting arrangement
with PR and its affiliates, under which Corby's excess cash will
continue to be deposited to cash management pools. The mirror
netting arrangement with PR and its affiliates is further described
below. On November 9, 2011, Corby
entered into an agreement with a PR affiliate for a new term for
Corby's exclusive right to represent ABSOLUT vodka in Canada from September
30, 2013 to September 29,
2021, which is consistent with the term of Corby's Canadian
representation of the other PR brands in Corby's portfolio. 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.
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.
On November 11, 2015, Corby and PR
entered into agreements for the continued production of Corby`s
owned-brands by Pernod Ricard at the HWSL production facility in
Windsor, Ontario, for a 10 year
term commencing October 2016. On the same date, Corby and PR
also entered into an administrative services agreement, under which
Corby will continue to manage PR's business interests in
Canada, including the HWSL
production facility, with a similar term and commencement date.
Deposits in cash management pools
Corby participates in a cash pooling arrangement under a Mirror
Netting Service Agreement, together with PR's other Canadian
affiliates, the terms of which are administered by Citibank N.A.
effective July 17, 2014. The Mirror
Netting Service Agreement acts to aggregate each participant's net
cash balance for purposes of having a centralized cash management
function for all of PR's Canadian affiliates, including Corby. As a
result of Corby's participation in this agreement, Corby's credit
risk associated with its deposits in cash management pools is
contingent upon PR's credit rating. PR's credit rating as at
November 11, 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,
|
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
except per share
amounts)
|
|
|
2016
|
|
2015
|
|
2015
|
|
2015
|
|
2015
|
|
2014
|
|
2014
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
36.4
|
$
|
32.5
|
$
|
26.8
|
$
|
38.0
|
$
|
34.8
|
$
|
33.4
|
$
|
28.6
|
$
|
38.5
|
Earnings from
operations
|
|
|
8.6
|
|
9.8
|
|
3.1
|
|
7.7
|
|
6.6
|
|
9.2
|
|
4.1
|
|
10.2
|
Net
earnings
|
|
|
6.3
|
|
7.3
|
|
2.4
|
|
5.8
|
|
4.9
|
|
6.9
|
|
3.1
|
|
7.5
|
Basic EPS
|
|
|
0.22
|
|
0.26
|
|
0.08
|
|
0.20
|
|
0.17
|
|
0.24
|
|
0.11
|
|
0.26
|
Diluted
EPS
|
|
|
0.22
|
|
0.26
|
|
0.08
|
|
0.20
|
|
0.17
|
|
0.24
|
|
0.11
|
|
0.26
|
The above table demonstrates the seasonality of Corby's
business, as sales are typically strong in the first and second
quarters, while third-quarter sales (January, February and March)
usually decline after the end of the retail holiday season. Fourth
quarter sales typically increase again with the onset of warmer
weather, as consumers tend to increase their purchasing levels
during the summer season. The overall decline experienced in 2015
compared to 2014 is largely attributable to lapping the J.P.
Wiser's Rye and J.P. Wiser's Spiced
whisky launch in the US in 2014. In addition to the
non-repeat of inventory pipe-line build-up for the US launch,
advertising and promotional investment for these brands ramped up
in 2015 to drive awareness and trial.
Recent Accounting Pronouncements
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, 2016,
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, 2018, 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.
(iii) Disclosure initiative
In December 2014, the IASB issued
Disclosure Initiative Amendments to IAS 1 as part of the IASB's
Disclosure Initiative. These amendments encourage entities to apply
professional judgement regarding disclosure and presentation in
their financial statements. These amendments are effective for
annual periods beginning on or after January
1, 2016. Earlier application is permitted. For Corby, these
amendments will become effective July 1,
2016. The Company is assessing the potential impact of these
amendments.
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.
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. Corby continues to identify and offer new innovations
in order to address consumer desires.
Distribution/Supply Chain Interruption
The
Company is susceptible to risks relating to distributor and supply
chain interruptions. Distribution in Canada is largely accomplished through the
government-owned provincial LBs and, therefore, an interruption
(e.g., a labour strike) for any length of time 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 and international
beverage alcohol industry is extremely competitive. Competitors may
take actions to establish and sustain a competitive advantage
through advertising and promotion and pricing strategies in an
effort to maintain market share. 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
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.
Exposure to Interest Rate Fluctuations
The
Company does not have any short- or long-term debt facilities.
Interest rate risk exists, as Corby earns market rates of interest
on its deposits in cash management pools. An active risk management
programme does not exist, as management believes that changes in
interest rates would not have a material impact on Corby's
financial position over the long term.
Exposure to Commodity Price
Fluctuations
Commodity risk exists, as the manufacture
of Corby's products requires the procurement of several known
commodities, such as grains, sugar and natural gas. The Company
strives to partially mitigate this risk through the use of
longer-term procurement contracts where possible. In addition,
subject to competitive conditions, the Company may pass on
commodity price changes to consumers through pricing over the long
term.
Foreign Currency Exchange Risk
The Company has
exposure to foreign currency risk, as it conducts business in
multiple foreign currencies; however, its exposure is primarily
limited to the US dollar ("USD") and UK pound sterling ("GBP").
Corby does not utilize derivative instruments to manage this risk.
Subject to competitive conditions, changes in foreign currency
rates may be passed on to consumers through pricing over the long
term.
USD Exposure
The Company's demand for USD has traditionally outpaced its supply,
due to USD sourcing of production inputs 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.
Information Technology
The Company uses
technology supplied by third parties, both related and non-related,
to support operations and invests in information technology to
improve route to market, reporting, analysis, and marketing
initiatives. Issues with availability, reliability and
security of systems and technology could adversely impact the
Company's ability to compete resulting in corruption or loss of
data, regulatory related issues, litigation or brand reputation
damage. With the fast paced changing nature of the technology
environment including digital marketing the Company works with our
third parties to maintain policies, processes and procedures to
help secure and protect these information systems as well as
consumer, corporate and employee data.
Valuation of Goodwill and Intangible
Assets
Goodwill and intangible assets account for a
significant amount of the Company's total assets. Goodwill and
intangible assets are subject to impairment tests that involve the
determination of fair value. Inherent in such fair value
determinations are certain judgments and estimates including, but
not limited to, projected future sales, earnings and capital
investment; discount rates; and terminal growth rates. These
judgments and estimates may change in the future due to uncertain
competitive market and general economic conditions, or as the
Company makes changes in its business strategies. Given the current
state of the economy, certain of the aforementioned factors
affecting the determination of fair value may be impacted and, as a
result, the Company's financial results may be adversely
affected.
The following table summarizes Corby's goodwill and intangible
assets and details the amounts associated with each brand (or
basket of brands) and market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values as at
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
|
Goodwill
|
|
Intangibles
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
|
-
|
$
|
35.0
|
$
|
|
35.0
|
Lamb's rum
|
|
International(1)
|
|
|
1.4
|
|
11.8
|
|
|
13.2
|
Corby domestic
brands
|
|
Canada
|
|
|
1.9
|
|
-
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.3
|
$
|
46.8
|
$
|
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
(1)The
international business for Lamb's rum is primarily focused in the
UK, however, the trademarks and licenses
puchased 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 9 of the consolidated
financial statements for the year ended June
30, 2015.
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
Notes
|
|
2015
|
2014
|
2015
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Deposits in cash
management pools
|
|
|
$
93,200
|
$ 106,722
|
$
94,100
|
Accounts
receivable
|
|
5
|
|
32,962
|
29,303
|
24,763
|
Income taxes
recoverable
|
|
|
1,105
|
1,221
|
1,257
|
Inventories
|
|
6
|
|
51,407
|
54,004
|
50,858
|
Prepaid
expenses
|
|
|
|
497
|
443
|
226
|
Current portion of
note receivable
|
|
|
-
|
600
|
-
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
179,171
|
192,293
|
171,204
|
Deferred income
taxes
|
|
|
1,001
|
300
|
1,165
|
Property and
equipment
|
|
|
9,784
|
8,929
|
9,784
|
Goodwill
|
|
|
|
3,278
|
3,278
|
3,278
|
Intangible
assets
|
|
|
|
46,810
|
52,693
|
48,281
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
$
240,044
|
$ 257,493
|
$ 233,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
7
|
|
$
31,031
|
$
31,853
|
$
25,540
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
31,031
|
31,853
|
25,540
|
Provision for
employee benefits
|
|
|
19,795
|
16,518
|
20,048
|
Total
liabilities
|
|
|
|
50,826
|
48,371
|
45,588
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
Share
capital
|
|
|
|
14,304
|
14,304
|
14,304
|
Accumulated other
comprehensive loss
|
|
|
(6,550)
|
(4,134)
|
(6,733)
|
Retained
earnings
|
|
|
|
181,464
|
198,952
|
180,553
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
189,218
|
209,122
|
188,124
|
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
|
$
240,044
|
$ 257,493
|
$ 233,712
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept.
30,
|
|
|
|
|
Notes
|
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
8
|
|
$
36,457
|
$
34,755
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
|
|
|
(12,236)
|
(12,383)
|
Marketing, sales and
administration
|
|
|
|
|
|
(15,602)
|
(15,814)
|
Other
income
|
|
|
|
9
|
|
20
|
24
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
|
|
|
8,639
|
6,582
|
|
|
|
|
|
|
|
|
Financial
income
|
|
|
|
10
|
|
298
|
460
|
Financial
expenses
|
|
|
|
10
|
|
(240)
|
(287)
|
|
|
|
|
|
|
58
|
173
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
|
|
|
|
8,697
|
6,755
|
|
|
|
|
|
|
|
|
Current income
taxes
|
|
|
|
|
|
(2,279)
|
(1,527)
|
Deferred income
taxes
|
|
|
|
|
|
(98)
|
(293)
|
Income
taxes
|
|
|
|
|
|
(2,377)
|
(1,820)
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
|
|
$
6,320
|
$
4,935
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
|
|
|
|
$
0.22
|
$
0.17
|
Diluted earnings
per share
|
|
|
|
|
|
$
0.22
|
$
0.17
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
28,468,856
|
28,468,856
|
|
Diluted
|
|
|
|
|
|
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
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
Sept.
30
|
Sept. 30
|
|
|
|
2015
|
2014
|
|
|
|
|
|
Net
earnings
|
|
|
$
6,320
|
$
4,935
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
|
Net actuarial
gains
|
|
|
250
|
234
|
|
Income
taxes
|
|
|
(67)
|
(65)
|
|
|
|
183
|
169
|
|
|
|
|
|
Total
comprehensive income
|
|
$
6,503
|
$
5,104
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|
|
|
|
|
|
|
Balance as at June
30, 2015
|
|
$
14,304
|
$
(6,733)
|
$ 180,553
|
$ 188,124
|
Total comprehensive
income
|
|
-
|
183
|
6,320
|
6,503
|
Dividends
|
|
|
-
|
-
|
(5,409)
|
(5,409)
|
|
|
|
|
|
|
|
Balance as at
September 30, 2015
|
|
$
14,304
|
$
(6,550)
|
$
181,464
|
$
189,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2014
|
|
$
14,304
|
$
(4,303)
|
$ 199,140
|
$ 209,141
|
Total comprehensive
income
|
|
-
|
169
|
4,935
|
5,104
|
Dividends
|
|
|
-
|
-
|
(5,123)
|
(5,123)
|
|
|
|
|
|
|
|
Balance as at
September 30, 2014
|
|
$
14,304
|
$
(4,134)
|
$ 198,952
|
$ 209,122
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept.
30,
|
|
|
Notes
|
|
2015
|
2014
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
|
|
$
6,320
|
$
4,935
|
Adjustments
for:
|
|
|
|
|
|
Amortization and
depreciation
|
|
11
|
|
1,887
|
1,869
|
Net financial
income
|
|
10
|
|
(58)
|
(173)
|
Gain on disposal of
property and equipment
|
|
|
|
(7)
|
(30)
|
Income tax
expense
|
|
|
|
2,377
|
1,820
|
Provision for
employee benefits
|
|
|
|
(243)
|
(26)
|
|
|
|
|
10,276
|
8,395
|
Net change in
non-cash working capital balances
|
|
12
|
|
(3,528)
|
(1,964)
|
Interest
received
|
|
|
|
298
|
452
|
Income taxes
paid
|
|
|
|
(2,127)
|
(2,401)
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
|
|
4,919
|
4,482
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Additions to property
and equipment
|
|
|
|
(421)
|
(714)
|
Proceeds from
disposition of property and equipment
|
|
|
|
11
|
48
|
Deposits in cash
management pools
|
|
|
|
900
|
1,307
|
|
|
|
|
|
|
Net cash used in
investing activities
|
|
|
|
490
|
641
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
Dividends
paid
|
|
|
|
(5,409)
|
(5,123)
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
|
|
(5,409)
|
(5,123)
|
|
|
|
|
|
|
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
(Not audited or reviewed by the Company's external
auditor)
(in thousands of Canadian dollars, except per
share amounts)
1. GENERAL INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian 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 earning commissions from the representation of
selected non-owned brands in the Canadian marketplace. Revenues
predominantly consist of sales made to each of the provincial
liquor boards in Canada. The
Company also supplements these primary sources of revenue with
other ancillary activities incidental to its core business, such as
logistics fees.
Corby is controlled by Hiram Walker & Sons Limited ("HWSL"),
which is a wholly owned subsidiary of Pernod Ricard, S.A. ("PR"), a
French public limited company that controls 51.6% of the
outstanding Voting Class A Common Shares of Corby as at
September 30, 2015.
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 interim condensed consolidated financial statements. These
interim condensed consolidated financial statements should be read
in conjunction with the Company's 2015 annual financial
statements.
These interim condensed consolidated financial statements were
approved by the Company's Board of Directors on November 11, 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.
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.
Seasonality
The interim condensed consolidated
financial statements should not be taken as indicative of the
performance to be expected for the full fiscal year due to the
seasonal nature of the spirits business. Corby's operations are
typically subject to seasonal fluctuations in that the retail
holiday season generally results in an increase in consumer
purchases over the course of October, November and December.
Further, the summer months traditionally result in higher consumer
purchases of spirits as compared to the winter and spring months.
As a result, the Company's first and second quarter of each fiscal
year tend to reflect the impact of seasonal fluctuations in that
more shipments are typically made during those quarters.
3. ADOPTION OF NEW AND REVISED STANDARDS AND
INTERPRETATIONS
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, 2016,
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, 2018, with earlier application permitted.
The Company is currently assessing the impact of the new 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.
(iii) Disclosure initiative
In December 2014, the IASB issued
Disclosure Initiative Amendments to IAS 1 as part of the IASB's
Disclosure Initiative. These amendments encourage entities to apply
professional judgement regarding disclosure and presentation in
their financial statements. These amendments are effective for
annual periods beginning on or after January
1, 2016. Earlier application is permitted. For Corby, these
amendments will become effective July 1,
2016. The Company is assessing the potential impact of these
amendments.
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.
5. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
|
|
|
|
|
2015
|
2014
|
2015
|
|
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
|
|
|
$
19,557
|
$ 18,598
|
$ 14,401
|
Due from related
parties
|
|
|
|
|
11,710
|
9,032
|
8,721
|
Other
|
|
|
|
|
|
1,695
|
1,673
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
32,962
|
$ 29,303
|
$ 24,763
|
6. INVENTORIES
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
|
|
|
|
|
|
2015
|
2014
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
|
|
|
|
$
2,216
|
$
2,473
|
$
2,113
|
Work-in-progress
|
|
|
|
|
|
|
42,901
|
40,739
|
42,426
|
Finished
goods
|
|
|
|
|
|
|
6,290
|
10,792
|
6,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
51,407
|
$ 54,004
|
$ 50,858
|
The cost of inventory recognized as an expense and included in
cost of goods sold during the three months ended September 30, 2015 was $10,636 (2014 – $10,636). During the three month periods ended
September 30, 2015 and 2014, 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. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
|
|
|
|
2015
|
2014
|
2015
|
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
|
$
21,306
|
$ 22,623
|
$ 17,950
|
Due from related
parties
|
|
|
|
8,586
|
7,521
|
6,386
|
Other
|
|
|
|
|
1,139
|
1,709
|
1,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
31,031
|
$ 31,853
|
$ 25,540
|
8. REVENUE
The Company's revenue consists of the following streams:
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Case goods
sales
|
|
|
|
|
$
28,998
|
$ 29,313
|
Commissions (net of
amortization of representation rights)
|
|
6,322
|
4,408
|
Other
services
|
|
|
|
|
1,137
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
36,457
|
$ 34,755
|
Commissions for the quarter are shown net of amortization of
long-term representation rights and non-refundable upfront fees of
$1,471 (2014 - $1,470). Other services include revenues
incidental to the manufacture of case goods, such as logistics
fees.
9. OTHER INCOME
The Company's other income consists of the following
amounts:
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Foreign exchange
(loss) gain
|
|
|
|
$
13
|
$
(21)
|
Gain on disposal of
property and equipment
|
|
|
7
|
30
|
Other
income
|
|
|
|
|
-
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
20
|
$
24
|
10. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
|
|
|
2015
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
$
298
|
$
460
|
Net financial impact
of pensions
|
|
|
|
|
|
(240)
|
(287)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
58
|
$
173
|
11. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses as follows:
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
|
2015
|
2014
|
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
|
|
$
416
|
$
399
|
Amortization of
intangible assets
|
|
|
|
1,471
|
1,470
|
Salary and payroll
costs
|
|
|
|
|
5,368
|
5,345
|
Expenses related to
pensions and benefits
|
|
|
|
323
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
7,578
|
$
7,570
|
12. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
|
2015
|
2014
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
|
|
$
(8,199)
|
$
(4,477)
|
Inventories
|
|
|
|
|
|
(549)
|
(1,443)
|
Prepaid
expenses
|
|
|
|
|
|
(271)
|
(187)
|
Accounts payable and
accrued liabilities
|
|
|
|
5,491
|
4,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(3,528)
|
$
(1,964)
|
13. DIVIDENDS
On November 11, 2015 subsequent to
the quarter ended September 30, 2015,
the Board of Directors declared its regular quarterly dividend of
$0.19 per common share, to be paid on
December 11, 2015, to shareholders of
record as at the close of business on November 27, 2015. The Board of Directors also
declared a special dividend of $0.62
per common share, payable January 8,
2016, to shareholders of record as at the close of business
on December 11, 2015. The
dividends are in accordance with the Company's dividend policy.
14. 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.
The companies operate under the terms of agreements that became
effective on September 29, 2006.
These agreements provide the Company with the exclusive right to
represent PR's brands in the Canadian market for 15 years, as well
as providing for the continuing production of certain Corby brands
by PR at its production facility in Windsor, Ontario, for 10 years. Corby also
manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
Canadian entities, as approved by Corby's Board of Directors.
Recently, the production and administrative agreements were each
renewed for a further ten year term, commencing October 2016.
In addition to the aforementioned agreements, Corby signed an
agreement on September 26, 2008, with
its ultimate parent to be the exclusive Canadian representative for
the ABSOLUT vodka and Plymouth gin
brands, for a five-year term which expired October 1, 2013 and was extended as noted below.
These brands were acquired by PR subsequent to the original
representation rights agreement dated September 29, 2006.
On November 9, 2011, Corby entered
into an agreement with a PR affiliate for a new term for Corby's
exclusive right to represent ABSOLUT vodka in Canada from September
30, 2013 to September 29,
2021, which is consistent with the term of Corby's Canadian
representation of the other PR brands in Corby's portfolio. On
September 30, 2013, Corby paid 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.
Effective as of July 1, 2012, the
Company entered into a five year agreement with Pernod Ricard
USA, LLC ("PR USA"), an affiliated
company, which provides PR USA the exclusive rights to represent
J. P. Wiser's Canadian whisky and
Polar Ice vodka in the US. Previously, J.
P. Wiser's Canadian whisky and Polar Ice vodka were
represented by an unrelated third party in this market. The
agreement is effective for a five year period ending June 30, 2017.
Transactions between Corby and its parent, ultimate parent and
affiliates during the period are as follows:
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
|
|
$
5,646
|
$
5,101
|
Products for resale
at an export level - affiliated companies
|
|
|
1,394
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
7,040
|
$
6,398
|
|
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
|
$
6,088
|
$
5,658
|
|
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
Marketing, selling
and administration services - parent
|
|
|
$
638
|
$
625
|
Marketing, selling
and administration services - affiliate
|
|
|
1,931
|
$
1,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
2,569
|
$
2,428
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the three month period ending September 30, 2015, Corby sold casks to its
parent company for net proceeds of $11 (2014 - $48).
Deposits in cash management pools
Corby
participates in a cash pooling arrangement under the Mirror Netting
Service Agreement together with PR's other Canadian affiliates, the
terms of which are administered by Citibank N.A.. The Mirror
Netting 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
November 11, 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 month period ending September 30, 2015, Corby earned interest income
of $298 from PR (2014 – $460). Corby has the right to terminate its
participation in the Mirror Netting Services Agreement at any time,
subject to five days' written notice.
15. SEGMENT INFORMATION
Corby has two reportable segments: Case Goods and Commissions.
Corby's Case Goods segment derives its revenue from the production
and distribution of its owned beverage alcohol brands. Corby's
portfolio of owned-brands includes some of the most renowned and
respected brands in Canada, such
as J. P. Wiser's Canadian whisky,
Lamb's rum, Polar Ice vodka, and McGuinness liqueurs.
Corby's Commissions segment earns commission income from the
representation of non-owned beverage alcohol brands in Canada. Corby represents leading international
brands such as ABSOLUT vodka, Chivas
Regal, The Glenlivet and Ballantine's scotches, Jameson Irish whiskey, Beefeater gin, Malibu
rum, Kahlúa liqueur, Mumm champagne, and Jacob's Creek and Wyndham
Estate wines.
The Commissions segment's financial results are fully reported
as "Commissions" in Note 8 of the interim condensed consolidated
financial statements. Therefore, a table detailing operational
results by segment has not been provided as no additional
meaningful information would result.
16. SUBSEQUENT EVENTS
On November 11, 2015, subsequent
to the first quarter ended September 30,
2015, the Board of Directors of Corby declared a special
dividend in the amount of $0.62 per
common share. This dividend will be paid on January 8, 2016, 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 11, 2015. This dividend will be in
addition to Corby's regular dividend of $0.19 per share which was also declared by
Corby's Board of Directors on the same day. The special dividend
will result in a cash distribution of approximately $17.7 million to shareholders and will be sourced
from the Company's current surplus cash deposits.
SOURCE Corby Spirit and Wine Limited