TORONTO, Feb. 8, 2017 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
reported its financial results for the second quarter ended
December 31, 2016. The Corby Board of
Directors today also declared a dividend of $0.21 per share payable on March 10, 2017 on the Voting Class A Common
Shares and Non-Voting Class B Common Shares of the Company to
shareholders of record as at the close of business on February 24, 2017.
Net earnings of $7.2 million (or
$0.25 per share) were reported for
the three-month period ended December 31,
2016, reflecting an increase of $1.1
million, or 17%, when compared to the same quarter last
year. On a year to date basis, net earnings of $13.6 million reflect an increase of $1.2 million, or 9%, for the six month period
ended December 31, 2016, when
compared to the same period last year.
Net earnings drivers for both the three- and six-month period
results are similar. The overall earnings increase was achieved
mostly from reduced advertising and promotional activities in the
US. An increase in commissions on Pernod Ricard brands, in addition
to the acquisition of Ungava Spirits brands on September 30, 2016, also contributed to the
growth in net earnings.
"I am pleased with the growth in net earnings and the
contribution to net earnings made by the Ungava Spirits brands and
the commissions on Pernod Ricard brands. Reduced US advertising and
promotional spend reflects our strategy to focus on our more
premium craft Canadian whisky offerings in only select
whisky-centric markets", noted Patrick
O'Driscoll, President and Chief Executive Officer of
Corby.
For further details, please refer to Corby's management's
discussion and analysis and interim condensed consolidated
financial statements and accompanying notes for the three-and
six-month period ended December 31,
2016, prepared in accordance with International Financial
Reporting Standards.
About Corby
Corby Spirit and Wine Limited is a leading
Canadian manufacturer, marketer and distributor of spirits and
imported wines. Corby's portfolio of owned-brands includes some of
the most renowned brands in Canada, including J.P.
Wiser's®, Lot 40®, and Pike Creek® Canadian whiskies as well
as Lamb's® rum, Polar Ice® vodka and McGuinness® liqueurs. Through
its affiliation with Pernod Ricard S.A., a global leader in the
spirits and wine industry, Corby also represents leading
international brands such as ABSOLUT® vodka, Chivas Regal®, The
Glenlivet® and Ballantine's® Scotch whiskies, Jameson® Irish
whiskey, Beefeater® gin, Malibu® rum, Kahlúa® liqueur, Mumm®
champagne, and Jacob's Creek®, Wyndham Estate®, Stoneleigh®, Campo
Viejo®, Graffigna® and Kenwood® wines. On September 30, 2016, Corby acquired Ungava®
Premium Canadian gin, Chic Choc® Spiced rum, and a range of
maple-based products. In 2016, Corby was named one of the 50 Best
Workplaces in Canada by The Great
Place to Work® Institute Canada for the fifth consecutive year, and
was also listed among Greater
Toronto's Top 100 Employers. Corby is a publicly traded
company based in Toronto, Ontario,
and listed on the Toronto Stock Exchange under the trading symbols
CSW.A and CSW.B. For further information, please visit our website
or follow us on LinkedIn.
This press release contains forward-looking statements,
including statements concerning possible or assumed future results
of Corby's operations. Forward-looking statements typically are
preceded by, followed by or include the words "believes",
"expects", "anticipates", "estimates", "intends", "plans" or
similar expressions. Forward-looking statements are not guarantees
of future performance. They involve risks, uncertainties and
assumptions and, as such, actual results or expectations could
differ materially from those anticipated in these forward-looking
statements. Accordingly, readers should not place undue reliance on
forward-looking statements. All financial results are reported in
Canadian dollars.
CORBY SPIRIT AND WINE LIMITED
Management's
Discussion and Analysis
December
31, 2016
The following Management's Discussion and Analysis ("MD&A")
dated February 8, 2017, should be
read in conjunction with the unaudited interim condensed
consolidated financial statements and accompanying notes as at and
for the three and six-month periods ended December 31, 2016, prepared in accordance with
International Financial Reporting Standards ("IFRS").These
unaudited interim condensed consolidated financial statements do
not contain all disclosures required by IFRS for annual financial
statements and, accordingly, should also be read in conjunction
with the most recently prepared annual consolidated financial
statements for the year ended June 30,
2016.
This MD&A contains forward-looking statements, including
statements concerning possible or assumed future results of
operations of Corby Spirit and Wine Limited ("Corby" or the
"Company"), including the statements made under the headings
"Strategies and Outlook", "Liquidity and Capital Resources",
"Recent Accounting Pronouncements" and "Risks and Risk Management."
Forward-looking statements typically are preceded by, followed by
or include the words "believes", "expects", "anticipates",
"estimates", "intends", "plans" or similar expressions.
Forward-looking statements are not guarantees of future
performance. They involve risks and uncertainties, including, but
not limited to: the impact of competition; the impact, and
successful integration of, acquisitions; business interruption;
trademark infringement; consumer confidence and spending
preferences; regulatory changes; general economic conditions; and
the Company's ability to attract and retain qualified employees.
There can be no assurance that forward-looking statements will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on
forward-looking statements. These factors are not intended to
represent a complete list of the factors that could affect the
Company and other factors could also affect Corby's results. For
more information, please see the "Risk and Risk Management" section
of this MD&A.
This document has been reviewed by the Audit Committee of
Corby's Board of Directors and contains certain information that is
current as of February 8, 2017.
Events occurring after that date could render the information
contained herein inaccurate or misleading in a material respect.
Corby will provide updates to material forward-looking statements,
including in subsequent news releases and its interim management's
discussion and analyses filed with regulatory authorities as
required under applicable law. Additional information regarding
Corby, including the Company's Annual Information Form, is
available on SEDAR at www.sedar.com.
Unless otherwise indicated, all comparisons of results for the
second quarter of fiscal 2017 (three months ended December 31, 2016) are against results for the
second quarter of fiscal 2016 (three months ended December 31, 2015). 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 and from time to time bulk whisky sales to rebalance
its maturation inventories. Revenue from Corby's owned-brands
predominantly consists of sales made to each of the provincial
liquor boards ("LBs") in Canada,
and also includes sales to international markets.
Corby's portfolio of owned-brands includes some of the most
renowned brands in Canada,
including J.P. Wiser's® Canadian
whisky, Lamb's® rum, Polar Ice® vodka 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. On September 30, 2016,
Corby acquired Ungava® Premium Canadian gin, Chic Choc® Spiced rum,
and a range of maple-based products.
PR produces the majority of 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.
The agreements reflecting these arrangements were scheduled to
expire September 29, 2016. On
November 11, 2015, the parties
entered into new agreements (a distillate supply agreement, a
co-pack agreement and an administrative services agreement) each
for a ten-year term commencing September 30,
2016, thus extending these arrangements to September 30, 2026.
Corby sources more than 90% of its spirits production
requirements from HWSL at its production facility in Windsor, Ontario. As of October 1, 2016, following the acquisition of the
Ungava Spirits brands, certain of Corby's brands are produced at
the facility operated by its new wholly-owned subsidiary, Ungava
Spirits Co. Ltd. ("Ungava Spirits"), located in Cowansville, Quebec. The Company's remaining
production requirements have been outsourced to various third party
vendors including a third-party manufacturer in the United Kingdom ("UK"). The UK site blends and
bottles Lamb's products destined for sale in countries located
outside 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. Exceptions
to this model include Alberta,
where the retail sector is privatized. In this province, Corby
ships products to a bonded warehouse that is managed by a
government-appointed service provider who is responsible for
warehousing and distribution into the retail channel. Other
provinces have aspects of both government-control and private
retailing, including British
Columbia, Saskatchewan and
Quebec.
Corby's shipment patterns to the LBs will not always exactly
match short-term consumer purchase patterns. However, given the
importance of monitoring consumer consumption trends over the long
term, the Company stays abreast of consumer purchase patterns in
Canada through its member
affiliation with the Association of Canadian Distillers ("ACD"),
which tabulates and disseminates consumer purchase information it
receives from the LBs to its industry members. Corby refers to this
data throughout this MD&A as "retail sales", which are measured
in volume (measured in nine-litre case equivalents). In the past,
the Company was able to also provide retail value information
(measured in Canadian dollars). However, retail value information
has no longer been provided due to the province of British Columbia changing its value data from
retail dollars to wholesale dollars. This change in methodology
distorts comparability against prior periods and with other
provincial LB customers. The Company expects to be able to
re-introduce this retail level of analysis starting with the fourth
quarter of the current fiscal year.
In addition to efforts to open new international markets,
Corby's international business is concentrated in the United States ("US") and UK and the
Company has a different route-to-market for each. For the US
market, Corby manufactures 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 in fiscal 2016, Corby utilized a third party
contract bottler and distribution company for the production and
distribution of Lamb's rum. These arrangements were terminated on
June 30, 2016. Effective July 1, 2016, Corby entered into a distribution
agreement with a related party. More information has been provided
in the "Related Party Transactions" section of this MD&A. In
addition, a new co-packing agreement with a new third party
manufacturer was recently finalized.
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
those brands to promote its premium offerings where it makes the
most sense and drives the most value for Corby's shareholders.
Brand prioritization requires an evaluation of each brand's
potential to deliver upon this strategy, and facilitates Corby's
marketing and sales teams' focus and resource allocation. Over the
long-term, management believes that effective execution of this
strategy will result in value creation for Corby's
shareholders.
Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our
primary goal is to leverage our Canadian whisky expertise and
expand our business into markets where we believe there is growth
potential in both volume and margin.
Of primary importance to the successful implementation of our
brand strategies is an effective route-to-market strategy. Corby is
committed to investing in its trade marketing expertise and
ensuring that its commercial resources are specialized to meet the
differing needs of its customers and the selling channels they
inhabit. In all areas of the business, management believes setting
clear strategies, optimizing organization structure and increasing
efficiencies is key to Corby's overall success.
In addition, management is convinced that 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. Corby benefits from having
access to leading-edge practices at PR's North American hub, which
is located in Windsor, Ontario,
where most of its products are manufactured.
Finally, the Company is a strong advocate of social
responsibility, especially with respect to its sales and
promotional activities. Corby will continue to promote the
responsible consumption of its products in its activities. As an
example, Corby has an agreement in place to continue its successful
partnership with the Toronto Transit Commission to provide free
transit on New Year's Eve until 2019.
The Company stresses its core values throughout its organization,
including those of conviviality, straightforwardness, commitment,
integrity and entrepreneurship.
Significant Event
Acquisition of the spirits assets of Quebec-based Domaines Pinnacle
On
September 30, 2016, Corby acquired
the spirits assets of Domaines Pinnacle Inc. ("Domaines Pinnacle")
for a purchase price of $12 million
which was funded from the Company's existing cash deposits. The
transaction included the spirit brands Ungava® Premium Canadian
gin, Chic Choc® Spiced rum, and a range of maple-based products as
well as the related working capital and production assets located
in Cowansville, Quebec. The brand
portfolio and other assets acquired (collectively, the "Ungava
Spirits Brands") are operated by Ungava Spirits, a wholly-owned
subsidiary of Corby from Cowansville,
Quebec.
Since the completion of the transaction on September 30, 2016, the acquired Ungava Spirits
Brands have contributed $2.4 million
to revenues and $0.1 million to net
earnings. These results are impacted by seasonal fluctuations, with
the holiday season generally resulting in an increase in consumer
purchases over the course of October, November and December. It is
currently anticipated that Ungava Spirits, with its newly acquired
Ungava Spirits Brands, will be operating on a break-even earnings
basis during its first full year of operations. More information
regarding the transaction has been provided in Note 4 of the
interim condensed consolidated financial statements for the three
and six-month periods ended December 31,
2016.
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
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.
|
BRAND PERFORMANCE
CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL
SHIPMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
|
Shipment
Change
|
|
|
|
Shipment
Change
|
|
Dec
31
|
Dec
31
|
Volume
|
Value
|
|
Dec
31
|
Dec
31
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2016
|
2015
|
%
|
%
|
|
2016
|
2015
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
232
|
218
|
7%
|
13%
|
|
434
|
443
|
(2%)
|
1%
|
Lamb's rum
|
130
|
162
|
(20%)
|
(26%)
|
|
255
|
272
|
(6%)
|
(13%)
|
Polar Ice
vodka
|
98
|
96
|
2%
|
6%
|
|
193
|
194
|
(1%)
|
(2%)
|
Mixable
liqueurs
|
52
|
53
|
(2%)
|
(1%)
|
|
95
|
96
|
(1%)
|
(1%)
|
Ungava Spirits Brands
1
|
25
|
N/A
|
N/A
|
N/A
|
|
25
|
N/A
|
N/A
|
N/A
|
Other Corby-owned
brands
|
58
|
61
|
(6%)
|
(9%)
|
|
108
|
113
|
(4%)
|
(5%)
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
595
|
590
|
1%
|
6%
|
|
1,110
|
1,118
|
(1%)
|
0%
|
|
|
|
|
|
|
|
|
|
|
(1)
Comparative information has not been provided for Ungava Spirits
Brands as these brands were not owned by
Corby prior to
|
September 30,
2016.
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
2016, shipment volume and value were higher when compared
with the same period last year, mostly due to the performance of
J.P. Wiser's and Ungava Spirits
Brands. For the six months ended December
31, 2016 shipment volume was 1% lower and value flat when
compared to the same period last year, mostly due to the
performance of Lamb's rum, which was significantly impacted by
difficult economic conditions in regional strongholds.
Trends in Canada differ
significantly from international markets as highlighted in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
|
Shipment
Change
|
|
|
|
Shipment
Change
|
|
Dec
31
|
Dec
31
|
Volume
|
Value
|
|
Dec
31
|
Dec
31
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2016
|
2015
|
%
|
%
|
|
2016
|
2015
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
539
|
527
|
2%
|
9%
|
|
1,004
|
1,017
|
(1%)
|
2%
|
International
|
56
|
63
|
(11%)
|
(24%)
|
|
106
|
101
|
6%
|
(14%)
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
595
|
590
|
1%
|
6%
|
|
1,110
|
1,118
|
(1%)
|
0%
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
2016, Corby's domestic shipment volume and value were higher
on a year over year comparative basis mostly due to the positive
performance of the Ungava Spirits Brands and of J.P. Wiser's. For the six months ended
December 31, 2016, Corby's domestic
shipment volume was 1% lower on a year over year comparative basis
mostly due to the performance of Lamb's rum as previously
discussed. For the same six-month period, Corby's domestic shipment
value was 2% higher due to the higher priced Ungava Spirits
Brands.
In international markets, completion of our transition to a new
UK distributor for our Lamb's rum international business resulted
in favourable shipment timing for the six months ended December 31, 2016 on a year over year comparative
basis. For the three months ended December
31, 2016, the decline in shipments was largely attributable
to a change in strategy for our Canadian whisky portfolio in the
US. It was decided last fiscal year to change our US strategy as
the expected consumer demand did not materialize and these products
struggled against long-established brands in an increasingly price
competitive segment. Corby is addressing this by reprioritizing its
focus on a smaller number of markets in the US and on the more
premium and differentiated craft range (Lot No. 40 and Pike Creek),
both of which have achieved a small but growing base of business.
As a result of this change, the Company is lapping large pipeline
fill volume activity in the comparative periods. Value trailed
volume for both the three and six months ended December 31, 2016 on a year over year comparative
basis as the Company's underlying pricing model with the new UK
distributor has changed so that advertising and promotional spend
is now included in the selling price.
Retail Sales Volume 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 volume data, as provided by the ACD, is set out in the
following table and is discussed throughout this MD&A. Note
that retail sales value information has not been provided.
Staring in July 2015, the
province of British Columbia began
to provide wholesale pricing data only, thus significantly
impacting any meaningful comparison against prior periods and with
other LB customers. The Company expects to be able to re-introduce
this retail level of analysis starting with the fourth quarter of
this fiscal year. Retail sales for the Ungava Spirits Brands,
acquired on September 30, 2016, are
included in the table below for all periods presented.
It should be noted that the retail information presented does
not include international retail sales of Corby-owned brands. While
Corby's focus on the US business is increasing, retail data in the
US is prepared using limited sampling techniques, which does not
provide meaningful trend analysis on a brand that has not yet
reached sufficient scale to make such disclosure meaningful. Corby
will provide such data as and when it is considered to offer
meaningful analysis of brand performance.
|
|
|
|
|
|
|
|
|
RETAIL SALES FOR
THE CANADIAN MARKET ONLY (AS PROVIDED BY THE
ACD1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
|
|
%
Retail
|
|
|
|
%
Retail
|
|
|
Dec
31
|
Dec
31
|
Volume
|
|
Dec
31
|
Dec
31
|
Volume
|
(Volumes in 000's
of 9L cases)
|
|
2016
|
2015
|
Growth
|
|
2016
|
2015
|
Growth
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
|
238
|
236
|
1%
|
|
412
|
412
|
0%
|
Lamb's rum
|
|
106
|
121
|
(12%)
|
|
196
|
216
|
(9%)
|
Polar Ice
vodka
|
|
99
|
101
|
(2%)
|
|
189
|
192
|
(1%)
|
Mixable
liqueurs
|
|
56
|
58
|
(3%)
|
|
97
|
99
|
(2%)
|
Ungava Spirits
brands
|
|
26
|
19
|
37%
|
|
38
|
28
|
36%
|
Other Corby-owned
brands
|
|
57
|
61
|
(7%)
|
|
103
|
105
|
(2%)
|
|
|
|
|
|
|
|
|
|
Total
|
|
582
|
596
|
(2%)
|
|
1,035
|
1,052
|
(2%)
|
|
|
|
|
|
|
|
|
|
(1)
Refers to sales at the retail store level in Canada, as provided by
the Association of Canadian Distillers.
|
The Canadian spirits industry posted positive retail sales
volume growth of 1% for both the three and six months ended
December 31, 2016. These trends were
supported by double digit retail sales volume growth in the Irish
whiskey category and high single digit sales volume growth in
bourbon and tequila categories which are categories in which Corby
does not have owned-brands.
As illustrated above, the performance of Corby's portfolio of
owned brands trailed behind the spirits industry for the three and
six months ended December 31, 2016.
The following brand discussion provides a more detailed analysis of
the performance of each of Corby's key brands relative to its
respective industry category.
Summary of Corby's Key Brands
J.P. Wiser's Canadian
Whisky
J.P. Wiser's Canadian
whisky, one of the top selling whisky families in Canada, is Corby's flagship brand. The brand's
retail volumes for the three months ended December 31, 2016 grew 1% when compared to the
same period last year. The Canadian whisky category was essentially
flat for the same three-month period.
The brand's retail volumes for the six months ended December 31, 2016 were flat when compared to the
same period last year. The Canadian whisky category grew 1% for the
same six-month period supported by successful innovation at premium
price points and aggressive competitive retail activity in the
economy segment.
Within the range, positive growth posted by J.P. Wiser's Deluxe was undercut by J.P. Wiser's Special Blend and the flavoured
range, which were impacted by a significant increase of competitive
retail activity in the economy and flavoured segments of Canadian
whisky.
During the first half of fiscal 2017, Corby launched two
innovative new variants of the J.P.
Wiser's family, J.P. Wiser's
Apple, our newest flavour extension, and J.P. Wiser's Union 52, a super-premium limited
edition. The brand was supported by a high profile television
campaign using the "J.P. Wiser's, Tastes Like Whisky, Since 1857"
commercial that significantly focused on sports broadcasts.
A review of J.P. Wiser's Special
Blend pricing has also been completed to ensure competitiveness in
its key markets.
Lamb's Rum
Lamb's rum, one of the top-selling rum
families in Canada, was
significantly impacted by unfavourable consumer trends. Retail
volumes for the overall rum category declined 2% and 1%
respectively for the three and six month periods ended December 31, 2016 when compared to the same three
and six month periods last year.
For the three-month and six-month periods ended December 31, 2016, Lamb's declined 12% and 9%
respectively in retail volume when compared to the same periods
last year. The Lamb's rum product line is heavily weighted in the
dark and white segments and has faced difficult economic conditions
in regional strongholds. Our strategy remains to defend these
regional strongholds with new targeted campaigns, to focus on the
most differentiated variants, and to launch new flavour
variants.
Polar Ice Vodka
Polar Ice vodka is among the top
selling vodka brands in Canada.
Retail volume decreased 2% and 1% respectively for the three and
six month periods ended December 31,
2016 when compared to the same period last year primarily
due to the deteriorating economy in Alberta.
The overall vodka category in Canada grew 1% in retail volumes when compared
to the same three and six month periods last year, with positive
performance driven by the premium segment of the category.
The focus of advertising and promotion investment continues to
be on driving overall brand awareness and trial of the more premium
Polar Ice 90 North with innovative value added promotions, tastings
and loyalty rewards programs. As well, we continued digital media
to promote 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 3%
and 2% respectively for the three and six month periods ended
December 31, 2016 when compared to
the same periods last year.
The liqueurs category grew 1% for the three and six-month
periods ended December 31, 2016 when
compared to the same periods last year driven by new innovations
and cream based offerings with which McGuinness does not directly
compete.
Our current strategy is to expand innovation and focus on strong
programming in the retail environment, ensuring that our flavour
offering is aligned to consumer trends. Two new flavours,
McGuinness Simple Syrup and McGuinness Apple Whisky were launched
in the fourth quarter of 2016, followed by McGuinness Butterscotch
at the end of September.
Ungava Spirits Brands
Retail volume for the Ungava
Spirits Brands increased 37% and 36% respectively for the three and
six months ended December 31, 2016,
when compared to the same periods last year. The flagship brand,
Ungava Dry Gin, grew 42% and 37% respectively for the three and
six-month period ended December 31,
2016, outperforming the Canadian gin category which grew 5%
and 6%, respectively, for the same three and six month periods.
Other Corby-Owned Brands
Innovation remains an
important pillar for delivering new profit and growth opportunities
to the Corby domestic business. Relatively new premium offerings in
Canadian whisky such as Pike Creek®, Lot No. 40® and Gooderham
& Worts® collectively grew retail volume 69% and 82% for the
respective three and six month periods ending December 31, 2016, outperforming the Canadian
whisky category in Canada, which
was essentially flat for the three-month period and grew 1% for the
six-month period.
Lot No. 40 and Gooderham & Worts were both
awarded Canadian Connoisseur Whisky of the Year at the
seventh annual Canadian Whisky Awards for 2017. This is the third
time Lot No. 40 has received a top honour in the last four years.
Lot No. 40 was also named Best Canadian Rye Whisky at the
2016 San Francisco World Spirits Competition.
Royal Reserve® retail volume declined 10% and 5% respectively
for the three and six month periods ended December 31, 2016 when compared to the same
periods last year due to challenging economic conditions in
Alberta and a significant increase
in 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 and
six-month periods ended December 31,
2016 and 2015.
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
(in millions of
Canadian dollars,
|
Dec.
31,
|
Dec.
31,
|
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
|
except per share
amounts)
|
2016
|
2015
|
$
Change
|
%
Change
|
|
2016
|
2015
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
40.3
|
$
|
38.3
|
$
|
2.0
|
5%
|
|
$
|
74.9
|
$
|
74.8
|
$
|
0.1
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
(15.1)
|
|
(15.0)
|
|
(0.1)
|
1%
|
|
|
(26.8)
|
|
(27.2)
|
|
0.4
|
(1%)
|
Marketing, sales and
administration
|
|
(15.3)
|
|
(15.1)
|
|
(0.2)
|
1%
|
|
|
(29.3)
|
|
(30.7)
|
|
1.4
|
(4%)
|
Other income
(expense)
|
|
(0.0)
|
|
(0.0)
|
|
0.0
|
(41%)
|
|
|
(0.0)
|
|
(0.0)
|
|
(0.0)
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
9.8
|
|
8.2
|
|
1.6
|
20%
|
|
|
18.7
|
|
16.8
|
|
1.9
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
|
0.2
|
|
0.3
|
|
(0.1)
|
(23%)
|
|
|
0.5
|
|
0.6
|
|
(0.1)
|
(17%)
|
Financial
expenses
|
|
(0.2)
|
|
(0.2)
|
|
0.0
|
0%
|
|
|
(0.5)
|
|
(0.5)
|
|
(0.0)
|
0%
|
Net financial
income
|
|
0.0
|
|
0.1
|
|
(0.1)
|
(185%)
|
|
|
(0.0)
|
|
0.1
|
|
(0.1)
|
(123%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
9.8
|
|
8.2
|
|
1.6
|
19%
|
|
|
18.7
|
|
16.9
|
|
1.7
|
10%
|
Income
taxes
|
|
(2.6)
|
|
(2.1)
|
|
(0.5)
|
25%
|
|
|
(5.1)
|
|
(4.5)
|
|
(0.6)
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
7.2
|
$
|
6.1
|
$
|
1.1
|
17%
|
|
$
|
13.6
|
$
|
12.4
|
$
|
1.2
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.25
|
$
|
0.22
|
$
|
0.03
|
14%
|
|
$
|
0.48
|
$
|
0.44
|
$
|
0.04
|
9%
|
|
- Diluted net
earnings
|
$
|
0.25
|
$
|
0.22
|
$
|
0.03
|
14%
|
|
$
|
0.48
|
$
|
0.44
|
$
|
0.04
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall Financial Results
Net earnings
increased by $1.1 million, or 17%,
and by $1.2 million, or 9%,
respectively, for the three and six months ended December 31, 2016, when compared to the same
periods last year. The increase was mostly due to the reduction in
advertising and promotional investment in the US, given the
Company's change in strategy with respect to Canadian whisky in
that market (as previously mentioned in the "Brand Performance
Review" section of this MD&A). An increase in commissions, in
addition to the acquisition of the Ungava Spirits Brands on
September 30, 2016, also contributed
to the growth in net earnings.
Revenue
The following highlights the key
components of the Company's revenue streams:
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Dec.
31,
|
Dec.
31,
|
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
|
(in millions of
Canadian dollars)
|
2016
|
2015
|
$
Change
|
%
Change
|
|
2016
|
2015
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case goods
|
$
|
32.8
|
$
|
30.9
|
$
|
1.9
|
6%
|
|
$
|
60.1
|
$
|
59.9
|
$
|
0.2
|
0%
|
|
Commissions
|
|
6.6
|
|
6.2
|
|
0.4
|
6%
|
|
|
13.2
|
|
12.5
|
|
0.7
|
6%
|
|
Other
services
|
|
0.9
|
|
1.2
|
|
(0.3)
|
(28%)
|
|
|
1.6
|
|
2.4
|
|
(0.8)
|
(33%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
40.3
|
$
|
38.3
|
$
|
2.0
|
5%
|
|
$
|
74.9
|
$
|
74.8
|
$
|
0.1
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case goods revenue increased by $1.9
million and $0.2 million,
respectively, for the three and six-month periods ended
December 31, 2016, when compared to
the same periods last year. The growth is primarily attributable to
the performance of the Ungava Spirits Brands acquired on
September 30, 2016.
Commissions increased by $0.4
million, or 6%, and $0.7
million, or 6%, respectively, for the three and six-month
periods ended December 31, 2016 when
compared to the same periods last year. The growth was attributable
to an increase in commissions from the PR brand portfolio. The PR
brand portfolio continues to benefit from its positioning within
the premium spirit and wine categories.
Other services represent ancillary revenue incidental to Corby's
core business activities, such as logistical fees and from time to
time bulk whisky sales. The reduced revenue for both the three and
six-month periods ended December 31,
2016 was mostly attributable to an underlying modification
to the logistical activities Corby performs. While these
modifications impact revenue, net earnings remain virtually
unchanged, whereas the Company no longer bears the economic risks
associated with these activities.
Cost of sales
Cost of sales increased by
$0.1 million, or 1%, for the
three-month period ended December 31,
2016 when compared to the same period last year. Overall
gross margin on case goods was 55% this quarter, compared to 53%
the same period last year. The prior year quarter recognized the
cost of the settlement reached with the former third-party
distributor and bottler of Lamb's rum in the UK market which was
related to the transition and termination of that arrangement.
Cost of sales decreased by $0.4
million, or 1%, for the six-month period ended December 31, 2016, when compared to the same
period last year. Overall gross margin was 56%, which is consistent
with the prior year period. The current year-to-date period was
impacted by changes to our distributor and co-pack model in the UK
while the prior year period reflects the recognition of the
settlement costs described in the above paragraph.
Marketing, sales and administration
Marketing,
sales and administration expenses increased by 1% for the
three-month period ended December 31,
2016, when compared to the same period last year, due to an
increase in domestic advertising and promotional investment on
J.P. Wiser's and Polar Ice and new
overheads related to the Ungava Spirits Brands, partially offset by
the aforementioned change in advertising and promotional strategy
in the US.
For the six-month period ended December
31, 2016, marketing, sales and administration expenses
decreased by 4% year over year. The decrease is due to the
aforementioned change in strategy in the US, being partially offset
by higher overheads which included certain one-off items related to
employee costs as well as professional fees associated with the
acquisition of the Ungava Spirits Brands.
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. The significant decline for both the
three and six-month period ended December
31, 2016 is due to a reduction in deposits in cash
management pools.
Income taxes
A reconciliation of the effective
tax rate to the statutory rates for each period is presented
below.
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
Dec.
31
|
Dec.
31
|
|
Dec.
31
|
Dec.
31
|
|
|
2016
|
2015
|
|
2016
|
2015
|
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
|
27%
|
27%
|
|
27%
|
27%
|
Other
|
|
0%
|
(1%)
|
|
0%
|
0%
|
|
|
|
|
|
|
|
Effective tax
rate
|
|
27%
|
26%
|
|
27%
|
27%
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $75.2 million as at
December 31, 2016, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities, which totalled $31.1
million as at December 31,
2016, and are all due to be paid within one year. The
Company does not have any liabilities under short- or long-term
debt facilities.
The Company believes that its deposits in cash management pools,
combined with its historically strong operational cash flows,
provide for sufficient liquidity to fund its operations, investing
activities and commitments for the foreseeable future. The
Company's cash flows from operations are subject to fluctuation due
to commodity, foreign exchange and interest rate risks. Please
refer to the "Risks and Risk Management" section of this MD&A
for further information.
Cash Flows
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Dec.
31,
|
Dec.
31,
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
(in millions of
Canadian dollars)
|
2016
|
2015
|
$
Change
|
|
2016
|
2015
|
$
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings,
adjusted for non-cash items
|
$
|
11.8
|
$
|
9.8
|
$
|
2.0
|
|
$
|
22.5
|
$
|
20.1
|
$
|
2.4
|
|
Net change in
non-cash working capital
|
|
2.3
|
|
2.6
|
|
(0.3)
|
|
|
(2.9)
|
|
(0.9)
|
|
(2.0)
|
|
Net payments for
interest and income taxes
|
|
(1.3)
|
|
(1.1)
|
|
(0.2)
|
|
|
(4.7)
|
|
(3.0)
|
|
(1.7)
|
|
|
12.8
|
|
11.3
|
|
1.5
|
|
|
14.9
|
|
16.2
|
|
(1.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
|
(0.7)
|
|
(0.7)
|
|
-
|
|
|
(1.3)
|
|
(1.1)
|
|
(0.2)
|
|
Business
acquisition
|
|
-
|
|
-
|
|
-
|
|
|
(12.0)
|
|
-
|
|
(12.0)
|
|
Deposits in cash
management pools
|
|
(6.1)
|
|
(5.2)
|
|
(0.9)
|
|
|
9.8
|
|
(4.3)
|
|
14.1
|
|
|
(6.8)
|
|
(5.9)
|
|
(0.9)
|
|
|
(3.5)
|
|
(5.4)
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
(6.0)
|
|
(5.4)
|
|
(0.6)
|
|
|
(11.4)
|
|
(10.8)
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash
|
$
|
-
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
Net cash from operating
activities was $12.8 million during
the quarter ended December 31, 2016,
compared to $11.3 million in the same
quarter last year, representing an increase of $1.5 million. This increase is largely a result
of improved earnings.
For the six-month period ended December
31, 2016, net cash from operating activities was
$14.9 million, reflecting a decrease
of $1.3 million compared to the same
six-month period last year and also reflecting an increase in
ending inventory levels as they were considered unusually low at
December 31, 2015, combined with an
increase in our regular tax instalments as prescribed by Canadian
tax authorities.
Investing activities
Net cash used in investing
activities was $6.8 million for the
three-month period ended December 31,
2016 and $3.5 million for the
six-month period ending December 31,
2016, compared to $5.9 million
and $5.4 million, respectively, for
the same three and six-month periods last year.
The Company's completion of the acquisition of the Ungava
Spirits Brands and additions to capital assets were funded by
withdrawals from cash management pools on a year-to-date basis.
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 $6.0 million the
three-month period ended December 31,
2016 and $11.4 million for the
six-month period ended December 31,
2016 and represents payment of the Company's regular
dividend to shareholders. In the three-month period ending
December 31, 2016, regular quarterly
dividends increased to $0.21 per
share, compared to $0.19 per share
during the same quarter last year.
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
|
2017 - Q2
|
|
February 8,
2017
|
|
February 24,
2017
|
|
March 10,
2017
|
|
$
0.21
|
2017 - Q1
|
|
November 9,
2016
|
|
November 25,
2016
|
|
December 9,
2016
|
|
0.21
|
2016 - Q4
|
|
August 24,
2016
|
|
September 15,
2016
|
|
September 30,
2016
|
|
0.19
|
2016 - Q3
|
|
May 4,
2016
|
|
May 27,
2016
|
|
June 15,
2016
|
|
0.19
|
2016 - Q2
|
|
February 3,
2016
|
|
February 26,
2016
|
|
March 11,
2016
|
|
0.19
|
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
|
Outstanding Share Data
As at February 8, 2017, 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. On November 11, 2015, Corby and PR entered into
agreements for the continued production and bottling of
Corby`s owned-brands by Pernod Ricard at the HWSL production
facility in Windsor, Ontario, for
a 10-year term commencing September
30, 2016. On the same date, Corby and PR also entered
into an administrative services agreement, under which Corby will
continue to manage PR's business interests in Canada, including the HWSL production
facility, with a similar term and commencement date.
In addition to the 2006 Agreements, Corby signed an agreement on
September 26, 2008, with its ultimate
parent to be the exclusive Canadian representative for the ABSOLUT
vodka and Plymouth gin brands, for
a five-year term which expired October 1,
2013 and was extended as noted below. These brands were
acquired by PR subsequent to the original representation rights
agreement dated September 29, 2006.
Corby also agreed to continue with the mirror netting arrangement
with PR and its affiliates, under which Corby's excess cash 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 (the
"2011 Agreement"). On September 30,
2013, Corby paid the present value of $10 million, or $10.3
million, for the additional eight years of the new term
pursuant to an agreement entered into between Corby and The Absolut
Company Aktiebolag, an affiliate of PR and owner of the Absolut
brand, to satisfy the parties' obligations under the 2011
Agreement. Since the 2011 Agreement is a related party transaction,
the agreement was approved by the Independent Committee of the
Corby Board of Directors, in accordance with Corby's related party
transaction policy, following an extensive review and with external
financial and legal advice.
On 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 March 21, 2016 the Company
entered into an agreement with Pernod Ricard UK Ltd. ("PRUK"), an
affiliated company, which provides PRUK the exclusive right to
represent Lamb's rum in Great
Britain effective July 1,
2016. Previously, Lamb's rum was represented by an unrelated
third party in this market. The agreement provides Lamb's with
access to PRUK's extensive national distribution network throughout
Great Britain. The agreement is
effective for a five-year period ending June
30, 2021. Since the agreement with PRUK is a related party
transaction between Corby and PRUK, the agreement was approved by
the Independent Committee of the Board of Directors of Corby
following a thorough review, in accordance with Corby's related
party transaction policy.
Deposits in cash management pools
Corby
participates in a cash pooling arrangement under a Mirror Netting
Service Agreement, together with PR's other Canadian affiliates,
the terms of which are administered by Citibank N.A. effective
July 17, 2014. 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
February 8, 2017, as published by
Standard & Poor's and Moody's, was BBB- and Baa2, respectively.
PR compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Service Agreement by
paying interest to Corby based upon the 30-day Canadian Dealer
Offered Rate ("CDOR") plus 0.40%. Corby accesses these funds on a
daily basis and has the contractual right to withdraw these funds
or terminate these cash management arrangements upon providing five
days' written notice.
Selected Quarterly Information
Summary of Quarterly Financial Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of
Canadian dollars,
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
except per share
amounts)
|
|
2017
|
|
2017
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
40.3
|
$
|
34.6
|
$
|
37.2
|
$
|
28.0
|
$
|
38.3
|
$
|
36.4
|
$
|
32.5
|
$
|
26.8
|
Earnings from
operations
|
|
9.8
|
|
8.8
|
|
12.8
|
|
5.0
|
|
8.2
|
|
8.6
|
|
9.8
|
|
3.1
|
Net
earnings
|
|
7.2
|
|
6.4
|
|
9.3
|
|
3.7
|
|
6.1
|
|
6.3
|
|
7.3
|
|
2.4
|
Basic EPS
|
|
0.25
|
|
0.23
|
|
0.33
|
|
0.13
|
|
0.22
|
|
0.22
|
|
0.26
|
|
0.08
|
Diluted
EPS
|
|
0.25
|
|
0.23
|
|
0.33
|
|
0.13
|
|
0.22
|
|
0.22
|
|
0.26
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Revenue and net earnings of each the four individual 2016
quarters were higher than that of each of the 2015 quarters. This
was primarily attributable to an increase in commissions, due to a
negotiated commission rate increase on PR brands effective
July 1, 2015. In addition, the fourth
quarter of 2016 included bulk whisky sales to a third party
customer as the Company rebalanced its maturing inventories.
Recent Accounting Pronouncements
Adoption of new and revised accounting
standards
The Company implemented the amendments to IAS
1, "Presentation of Financial Statements", on July 1, 2016, with no significant impact on the
Company's interim condensed consolidated financial statements.
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, 2017, 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) Leases
In January 2016, the IASB issued a
new standard IFRS 16, "Leases" ("IFRS 16"), which will ultimately
replace IAS 17, "Leases" ("IAS 17"). IFRS 16 specifies how an
entity will recognize, measure, present and disclose leases. The
standard provides a single lessees accounting model, requiring
lessees to recognize assets and liability for all leases unless the
lease term is 12 months or less or the underlying asset has a low
value. The standard is effective for annual periods beginning on or
after January 1, 2019 and must be
applied retrospectively. For Corby, this standard will become
effective July 1, 2019. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
Internal Controls Over Financial Reporting
The Company maintains a system of disclosure controls and
procedures to provide reasonable assurance that all material
information relating to the Company is gathered and reported to
senior management on a timely basis so that appropriate decisions
can be made regarding public disclosure.
In addition, the CEO and CFO have designed, or caused to be
designed under their supervision, internal controls over financial
reporting to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. Internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be designed effectively
can provide only reasonable assurance with respect to financial
reporting and financial statement preparation.
In accordance with the provisions of National Instrument 52-109
– Certification of disclosure in Issuers' Annual and Interim
Filings, the Company has limited the design of its disclosure
controls and procedures and internal control over financial
reporting to exclude controls, policies and procedures of Ungava
Spirits. Corby acquired the Ungava Spirits Brands on September 30, 2016, and the brand portfolio and
other assets acquired are currently operated by Corby's
wholly-owned subsidiary, Ungava Spirits.
Further details related to the acquisition of the Ungava Spirits
Brands is disclosed under "Significant Event – Acquisition of the
spirits assets of Quebec-based
Domaines Pinnacle" in this MD&A and in Note 4 in the Notes to
the Company's interim condensed consolidated financial statements
for the three and six-month periods ended December 31, 2016.
Since the completion of the Ungava Spirits transaction on
September 30, 2016, the acquired
Ungava Spirits Brands have contributed $2.4
million to revenues and $0.1
million to net earnings. These results are impacted by
seasonal fluctuations in that the retail holiday season generally
results in an increase in consumer purchases over the course of
October, November and December. The purchase price has been
preliminarily allocated as described in Note 4 to the interim
condensed consolidated financial statements for the three and six
months ended December 31, 2016.
The scope limitation discussed under this section is primarily
based on the time required to assess Ungava Spirits' disclosure
controls and procedures and internal controls over financial
reporting in a manner that is consistent with the Company's other
operations.
Except for the preceding changes, there were no changes in
internal control over financial reporting during the Company's most
recent interim period that have materially affected, or are
reasonably likely to materially affect, the Company's internal
controls over financial reporting.
Risks & Risk Management
The Company is exposed to a number of risks in the normal course
of its business that have the potential to affect its operating and
financial performance.
Industry and Regulatory
The beverage alcohol
industry in Canada is subject to
government policy, extensive regulatory requirements (including
with regards to labelling, warning requirements and limitations in
the sale and marketing of alcoholic beverage products) 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 alcoholic beverage industry
may affect Corby's business operations, causing changes in market
dynamics or changes in consumer consumption patterns. In addition,
the Company's provincial LB customers have the ability to mandate
changes that can lead to increased costs, as well as other factors
that may impact financial results.
Additionally, as the Company becomes more reliant on
international product sales in the US, UK and other countries,
exposure to changes in the laws and regulations (including on
matters such as regulatory requirements, import duties and
taxation) in those countries could also adversely affect the
operations, financial performance or reputation of the Company.
The Company continuously monitors the potential risk associated
with any proposed changes to its government policy, regulatory and
taxation environments and, as an industry leader, actively
participates in trade association discussions relating to new
developments.
Consumer Consumption Patterns
Beverage alcohol
companies are susceptible to risks relating to changes in consumer
consumption patterns. Consumer consumption patterns are affected by
many external influences, not the least of which is economic
outlook and overall consumer confidence in the stability of the
economy as a whole. 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.
Inherent to producing mature products there is a
potential for shortages or surpluses in future years if demand and
supply are materially different from long-term
forecasts. Additionally, the loss through contamination, fire
or other natural disaster of the stock of mature products may
result in significant reduction in supply and as a result, Corby
may not be able to meet customer demands.
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, which may negatively affect our
sales, revenues and profitability. Corby constantly monitors the
market and adjusts its own advertising, promotion and pricing
strategies as appropriate.
Competitors may also affect Corby's ability to attract and
retain high-quality employees. The Company's long heritage attests
to Corby's strong foundation and successful execution of its
strategies. Its role as a leading Canadian beverage alcohol company
helps facilitate recruitment efforts.
Credit Risk
Credit risk arises from deposits in
cash management pools held with PR via Corby's participation in the
Mirror Netting Service Agreement (as previously described in the
"Related Party Transactions" section of this MD&A), as well as
credit exposure to customers, including outstanding accounts
receivable. The maximum exposure to credit risk is equal to the
carrying value of the Company's financial assets. The objective of
managing counter-party credit risk is to prevent losses in
financial assets. The Company assesses the credit quality of its
counter-parties, taking into account their financial position, past
experience and other factors. As the large majority of Corby's
accounts receivable balances are 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 and Advertising &
Promotion expenses exceeding that of the Company's USD sales.
Therefore, decreases in the value of the Canadian dollar ("CAD")
relative to the USD will have an unfavourable impact on the
Company's earnings.
GBP Exposure
The Company's exposure to fluctuations in the value of the GBP
relative to the CAD was reduced as both sales and cost of
production are denominated in GBP. While Corby's exposure has been
minimized, increases in the value of the CAD relative to the GBP
will have an unfavourable impact on the Company's earnings.
Third-Party Service Providers
HWSL, which Corby
manages on behalf of PR, provides more than 90% of the Company's
production requirements, among other services including
administration and information technology. However, the Company is
reliant upon certain third-party service providers in respect of
certain of its operations. It is possible that negative events
affecting these third-party service providers could, in turn,
negatively impact the Company. While the Company has no direct
control over how such third parties are managed, it has entered
into contractual arrangements to formalize these relationships. In
order to minimize operating risks, the Company actively monitors
and manages its relationships with its third-party service
providers.
Brand Reputation and Trademark Protection
The
Company promotes nationally branded, non-proprietary products as
well as proprietary products. Damage to the reputation of any of
these brands, or to the reputation of any supplier or manufacturer
of these brands, could negatively impact consumer opinion of
the Company or the related products, which could have an adverse
impact on the financial performance of the Company. The Company
strives to mitigate such risks by selecting only those products
from suppliers that strategically complement Corby's existing brand
portfolio and by actively monitoring brand advertising and
promotion activities.
Additionally, although the Company registers trademarks, as
applicable, it cannot be certain that trademark registrations will
be issued with respect to all of the Company's applications. Also,
there is a risk that Corby may fail to timely renew or protect a
trademark and while it constantly watches for and responds to
competitive threats, as necessary, the Company cannot predict or
prevent a competitor from challenging the validity of any existing
or future trademark issued or licensed to Corby.
Information Technology and Cyber Security
The
Company uses technology supplied by third parties, both related and
non-related, to support operations and invests in information
technology to improve route to market, reporting, analysis, and
marketing initiatives. Issues with availability, reliability
and security of systems and technology could adversely impact the
Company's ability to compete resulting in corruption or loss of
data, regulatory related issues, litigation or brand reputation
damage. With the fast paced changing nature of the technology
environment including digital marketing, the Company works with 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
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
|
-
|
$
|
27.7
|
$
|
27.7
|
Lamb's rum
|
|
United
Kingdom(1)
|
|
|
1.4
|
|
11.8
|
|
13.2
|
Corby domestic
brands
|
|
Canada
|
|
|
1.9
|
|
-
|
|
1.9
|
Ungava brands
(preliminary allocation)
|
|
Canada
|
|
|
7.8
|
|
-
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11.1
|
$
|
39.5
|
$
|
50.6
|
|
|
|
|
|
|
|
|
|
|
(1)The
international business for Lamb's rum is primarily focused in the
UK, however, the trademarks and licences purchased,
|
relate to all
international markets outside of Canada, as Corby previously owned
the Canadian rights.
|
Therefore, economic factors (such as consumer consumption
patterns) specific to these brands and markets are primary drivers
of the risk associated with their respective goodwill and
intangible assets valuations.
Employee Future Benefits
The Company has
certain obligations under its registered and non-registered defined
benefit pension plans and other post-retirement benefit plan. There
is no assurance that the Company's benefit plans will be able to
earn the assumed rate of return. New regulations and market-driven
changes may result in changes in the discount rates and other
variables, which would result in the Company being required to make
contributions in the future that differ significantly from
estimates. An extended period of depressed capital markets and low
interest rates could require the Company to make contributions to
these plans in excess of those currently contemplated, which, in
turn, could have an adverse impact on the financial performance of
the Company. Somewhat mitigating the impact of a potential market
decline is the fact that the Company monitors its pension plan
assets closely and follows strict guidelines to ensure that pension
fund investment portfolios are diversified in-line with industry
best practices. For further details, related to Corby's defined
benefit pension plans, please refer to Note 15 of the consolidated
financial statements for the year ended June
30, 2016.
CORBY SPIRIT AND WINE LIMITED
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER
31, 2016 AND 2015
CORBY SPIRIT AND WINE
LIMITED
|
|
|
|
|
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31,
|
|
Dec. 31,
|
|
June 30,
|
|
|
Notes
|
|
2016
|
|
2015
|
|
2016
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Deposits in cash
management pools
|
|
|
$
|
75,218
|
$
|
98,376
|
$
|
85,031
|
Accounts
receivable
|
|
6
|
|
33,526
|
|
30,598
|
|
30,045
|
Income taxes
recoverable
|
|
|
|
-
|
|
390
|
|
-
|
Inventories
|
|
7
|
|
55,499
|
|
51,383
|
|
54,173
|
Prepaid
expenses
|
|
|
|
552
|
|
371
|
|
476
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
164,795
|
|
181,118
|
|
169,725
|
Deferred income
taxes
|
|
|
|
1,843
|
|
979
|
|
2,099
|
Property and
equipment
|
|
|
|
13,779
|
|
10,083
|
|
11,003
|
Goodwill
|
|
|
|
11,142
|
|
3,278
|
|
3,278
|
Intangible
assets
|
|
|
|
39,456
|
|
45,339
|
|
42,398
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$
|
231,015
|
$
|
240,797
|
$
|
228,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
8
|
$
|
31,128
|
$
|
31,154
|
$
|
30,719
|
Dividend
payable
|
|
|
|
-
|
|
17,651
|
|
-
|
Income and other
taxes payable
|
|
|
|
2,059
|
|
-
|
|
2,359
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
|
33,187
|
|
48,805
|
|
33,078
|
Provision for
employee benefits
|
|
|
|
24,436
|
|
19,527
|
|
24,640
|
Total
liabilities
|
|
|
|
57,623
|
|
68,332
|
|
57,718
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
14,304
|
|
14,304
|
|
14,304
|
Accumulated other
comprehensive loss
|
|
|
|
(9,832)
|
|
(6,367)
|
|
(10,220)
|
Retained
earnings
|
|
|
|
168,920
|
|
164,528
|
|
166,701
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
|
173,392
|
|
172,465
|
|
170,785
|
|
|
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
|
$
|
231,015
|
$
|
240,797
|
$
|
228,503
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
CORBY SPIRIT AND WINE
LIMITED
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31,
|
|
Dec. 31,
|
|
Dec.
31,
|
|
Dec. 31,
|
|
|
Notes
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
9
|
$
|
40,266
|
$
|
38,301
|
$
|
74,898
|
$
|
74,758
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
|
(15,112)
|
|
(14,957)
|
|
(26,836)
|
|
(27,193)
|
Marketing, sales and
administration
|
|
|
|
(15,284)
|
|
(15,118)
|
|
(29,344)
|
|
(30,720)
|
Other (expense)
income
|
|
10
|
|
(22)
|
|
(37)
|
|
(27)
|
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
|
9,848
|
|
8,189
|
|
18,691
|
|
16,828
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
|
11
|
|
227
|
|
293
|
|
493
|
|
591
|
Financial
expenses
|
|
11
|
|
(259)
|
|
(239)
|
|
(519)
|
|
(479)
|
|
|
|
|
(32)
|
|
54
|
|
(26)
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
|
|
9,816
|
|
8,243
|
|
18,665
|
|
16,940
|
|
|
|
|
|
|
|
|
|
|
|
Current income
taxes
|
|
|
|
(2,547)
|
|
(2,165)
|
|
(4,946)
|
|
(4,444)
|
Deferred income
taxes
|
|
|
|
(98)
|
|
46
|
|
(112)
|
|
(52)
|
Income
taxes
|
|
|
|
(2,645)
|
|
(2,119)
|
|
(5,058)
|
|
(4,496)
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
$
|
7,171
|
$
|
6,124
|
$
|
13,607
|
$
|
12,444
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
|
$
|
0.25
|
$
|
0.22
|
$
|
0.48
|
$
|
0.44
|
Diluted earnings
per share
|
|
|
$
|
0.25
|
$
|
0.22
|
$
|
0.48
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
28,468,856
|
|
28,468,856
|
|
28,468,856
|
|
28,468,856
|
|
Diluted
|
|
|
|
28,468,856
|
|
28,468,856
|
|
28,468,856
|
|
28,468,856
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
CORBY SPIRIT AND WINE
LIMITED
|
|
|
|
|
|
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31,
|
|
Dec. 31,
|
|
Dec.
31,
|
|
Dec. 31,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
7,171
|
$
|
6,124
|
$
|
13,607
|
$
|
12,444
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
|
|
|
|
|
|
Net actuarial
losses
|
|
|
265
|
|
250
|
|
530
|
|
500
|
|
Income
taxes
|
|
|
(71)
|
|
(67)
|
|
(142)
|
|
(134)
|
|
|
|
194
|
|
183
|
|
388
|
|
366
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
7,365
|
$
|
6,307
|
$
|
13,995
|
$
|
12,810
|
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2016
|
|
$
|
14,304
|
$
|
(10,220)
|
$
|
166,701
|
$
|
170,785
|
Total comprehensive
income
|
|
|
-
|
|
388
|
|
13,607
|
|
13,995
|
Dividends
|
|
|
-
|
|
-
|
|
(11,388)
|
|
(11,388)
|
|
|
|
|
|
|
|
|
|
|
Balance as at
December 31, 2016
|
|
$
|
14,304
|
$
|
(9,832)
|
$
|
168,920
|
$
|
173,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2015
|
|
$
|
14,304
|
$
|
(6,733)
|
$
|
180,553
|
$
|
188,124
|
Total comprehensive
income
|
|
|
-
|
|
366
|
|
12,444
|
|
12,810
|
Dividends
|
|
|
-
|
|
-
|
|
(28,469)
|
|
(28,469)
|
|
|
|
|
|
|
|
|
|
|
Balance as at
December 31, 2015
|
|
$
|
14,304
|
$
|
(6,367)
|
$
|
164,528
|
$
|
172,465
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
CORBY SPIRIT AND WINE
LIMITED
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31,
|
|
Dec. 31,
|
|
Dec.
31,
|
|
Dec. 31,
|
|
|
Notes
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
$
|
7,171
|
$
|
6,124
|
$
|
13,607
|
$
|
12,444
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
Amortization and
depreciation
|
|
12
|
|
2,027
|
|
1,897
|
|
3,964
|
|
3,784
|
Net financial
income
|
|
11
|
|
32
|
|
(54)
|
|
26
|
|
(112)
|
Loss (gain) on
disposal of property and equipment
|
|
|
|
-
|
|
-
|
|
-
|
|
(7)
|
Income tax
expense
|
|
|
|
2,645
|
|
2,119
|
|
5,058
|
|
4,496
|
Provision for
employee benefits
|
|
|
|
(96)
|
|
(258)
|
|
(193)
|
|
(501)
|
|
|
|
|
11,779
|
|
9,828
|
|
22,462
|
|
20,104
|
Net change in
non-cash working capital balances
|
|
13
|
|
2,328
|
|
2,638
|
|
(2,857)
|
|
(890)
|
Interest
received
|
|
|
|
232
|
|
294
|
|
496
|
|
592
|
Income taxes
paid
|
|
|
|
(1,557)
|
|
(1,450)
|
|
(5,246)
|
|
(3,577)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
|
|
12,782
|
|
11,310
|
|
14,855
|
|
16,229
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
|
|
|
(681)
|
|
(725)
|
|
(1,280)
|
|
(1,146)
|
Proceeds from
disposition of property and equipment
|
|
|
|
-
|
|
-
|
|
-
|
|
11
|
Business
acquisition
|
|
|
|
-
|
|
-
|
|
(12,000)
|
|
-
|
Deposits in cash
management pools
|
|
|
|
(6,122)
|
|
(5,176)
|
|
9,813
|
|
(4,276)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from
investing activities
|
|
|
|
(6,803)
|
|
(5,901)
|
|
(3,467)
|
|
(5,411)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
|
(5,979)
|
|
(5,409)
|
|
(11,388)
|
|
(10,818)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
|
|
(5,979)
|
|
(5,409)
|
|
(11,388)
|
|
(10,818)
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in
cash
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
Cash, beginning of
year
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of
year
|
|
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands of Canadian dollars,
except per share amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian marketer of spirits and importer of wines. The
Company derives its revenues from the sale of its owned-brands in
Canada and other international
markets, as well as 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 untilmately controls 51.6% of the outstanding Voting
Class A Common Shares of Corby as at December 31, 2016.
Corby is a public company incorporated and domiciled in
Canada, whose shares are traded on
the Toronto Stock Exchange. The Company's registered address is 225
King Street West, Suite 1100, Toronto,
ON M5V 3M2.
2. 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 2016 annual financial
statements.
These interim condensed consolidated financial statements were
approved by the Company's Board of Directors on February 8, 2017.
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 as described in the most recent annual consolidated
financial statements, except for policies and methods described in
Note 3 to these interim condensed consolidated financial
statements. Historical cost is generally based on the fair value of
the consideration given in exchange for assets.
Use of Estimates and Judgements
The preparation
of these interim condensed consolidated financial statements in
conformity with IFRS requires management to make certain
judgements, estimates and assumptions that affect the application
of accounting policies, the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the interim condensed consolidated financial statements,
and the reported amounts of revenues and expenses during the
reporting period. These estimates are made on the assumption the
Company will continue as a going concern and are based on
information available at the time of preparation. Estimates may be
revised where the circumstance on which they were based 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.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods
affected.
Management's most critical estimates in determining the value of
assets and liabilities and the most critical judgements in applying
accounting policies that have a significant risk of causing
material adjustments to the carrying amounts of assets and
liabilities within the next year have been described in Note 2 of
the Company's most recent annual consolidated financial statements.
The following discussion is an additional application of critical
estimates and assumptions.
(i) Purchase Price
Allocation
The purchase price related to a business combination is
allocated to the underlying acquired assets and liabilities based
on their estimated fair values at the time of acquisition. The
determination of fair value requires the Company to make
assumptions, estimates and judgements regarding future events. The
allocation process is inherently subjective and impacts the amounts
assigned to individually identifiable assets and liabilities. As a
result, the purchase price allocation impacts the Company's
reported assets and liabilities and future net earnings due to the
impact on future depreciation and amortization expense and
impairment tests. In addition, due to the timing and complexities
related to business combinations, adjustments to provisional
amounts recorded are expected subsequent to the reporting period
until the allocation is finalized.
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. SIGNIFICANT ACCOUNTING POLICIES
In addition to the accounting policies described in the most
recent annual consolidated financial statements, the following
policies have been applied to these interim condensed consolidated
financial statements.
Business Combinations
The Company applies the
acquisition method in accounting for business combinations. The
cost of an acquisition is the aggregate of the consideration
transferred, measured at the acquisition date fair value.
Acquisition related costs are expensed as incurred.
Goodwill represents the excess of the consideration transferred
over the fair value of identifiable assets acquired and liabilities
assumed in business combinations, all measured at fair value.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Company reports provisional amounts for the
items for which the accounting is incomplete. Those provisional
amounts are adjusted during the measurement period to reflect new
information about facts and circumstances that existed at the
acquisition date that, if known would have affected the amounts
recognized at that time.
Adoption of new and revised accounting
standards
The Company implemented the amendments to IAS
1, "Presentation of Financial Statements", on July 1, 2016, with no significant impact on the
Company's interim condensed consolidated financial statements.
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, 2017, 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) Leases
In January 2016, the IASB issued a
new standard IFRS 16, "Leases" ("IFRS 16"), which will ultimately
replace IAS 17, "Leases" ("IAS 17"). IFRS 16 specifies how an
entity will recognize, measure, present and disclose leases. The
standard provides a single lessees accounting model, requiring
lessees to recognize assets and liability for all leases unless the
lease term is 12 months or less or the underlying asset has a low
value. The standard is effective for annual periods beginning on or
after January 1, 2019 and must be
applied retrospectively. For Corby, this standard will become
effective July 1, 2019. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
4. BUSINESS ACQUISITION
On September 30, 2016, the Company
acquired the spirits assets of Quebec-based Domaines Pinnacle for a purchase
price of $12,000. The transaction
includes Domaines Pinnacle's spirits portfolio, including the
Ungava® Premium Canadian gin brand, Chic Choc® Spiced rum, a range
of maple-based products as well as production assets and related
working capital. The acquired brand portfolio and other assets are
operated bys Ungava Spirits Co. Ltd., ("Ungava Spirits") a
wholly-owned subsidiary of Corby.
The acquisition added the Ungava Spirits brands, which include
Ungava® Premium Canadian gin brand, Chic Choc® spiced rum, and a
range of maple-based products including Coureur des Bois® and Cabot
Trail®, complementing Corby's existing Canadian portfolio. The
acquisition was accounted for using the acquisition method.
Acquisition costs of $602 arose as
a result of the transaction. These costs have been recognized as
part of marketing, sales and administration expenses in the
statement of earnings, of which $398
was recognized in the six-month period ended December 31, 2016.
The purchase price was funded from the Company's deposits in
cash management pools and is subject to final working capital
adjustments.
The Ungava Spirits transaction was completed on September 30, 2016. Since the completion of the
transaction, the acquired brands and assets have contributed
$2,432 to revenues and $90 to net earnings. These results are impacted
by seasonal fluctuations in that the retail holiday season
generally results in an increase in consumer purchases over the
course of October, November and December. Revenues are included in
case goods sales in Note 9.
The fair values of the identifiable net assets acquired and the
total consideration as at September 30,
2016 have been determined provisionally and are subject to
adjustment. Provisional amounts for intangible assets have not been
separately identified, valued or recognized as part of the purchase
price allocation, and are pending completion of a comprehensive
valuation. As a result, goodwill, which is the excess of the
purchase price over the fair value of the net identifiable assets
acquired, will be adjusted retrospectively to the acquisition date
in future reporting periods.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill are as follows:
Fair value of
consideration transferred:
|
|
|
|
|
|
Cash
|
|
|
|
|
|
$
10,383
|
|
Working capital
adjustment
|
|
|
|
1,617
|
|
|
|
|
|
|
|
$
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable net
assets acquired:
|
|
|
|
|
|
Trade
receivables
|
|
|
|
|
1,117
|
|
Inventory
|
|
|
|
|
|
1,147
|
|
Property, plant and
equipment
|
|
|
|
2,519
|
|
Trade
payables
|
|
|
|
|
|
(647)
|
|
|
|
|
|
|
|
$
4,136
|
|
|
|
|
|
|
|
|
Excess initially
allocated to goodwill
|
|
|
|
$
7,864
|
Goodwill arising from this transaction is expected to be
deductible for tax purposes.
5. 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.
6. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
June 30,
|
|
|
|
|
|
|
2016
|
2015
|
2016
|
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
|
|
$
21,759
|
$
19,654
|
$
15,152
|
Due from related
parties
|
|
|
|
9,959
|
9,104
|
13,055
|
Other
|
|
|
|
|
1,808
|
1,840
|
1,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
33,526
|
$
30,598
|
$
30,045
|
7. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
June 30,
|
|
|
|
|
|
|
2016
|
2015
|
2016
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
|
|
$
2,833
|
$
2,037
|
$
2,088
|
Work-in-progress
|
|
|
|
|
44,129
|
43,144
|
44,005
|
Finished
goods
|
|
|
|
|
8,537
|
6,202
|
8,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
55,499
|
$
51,383
|
$
54,173
|
The cost of inventory recognized as an expense and included in
cost of goods sold for the three and six months ended December 31, 2016 were $13,112 and $23,418
(2015 – $10,723 and $21,359), respectively. During the three and six
month periods ended December 31, 2016
and 2015, there were no significant write-downs of inventory as a
result of net realizable value being lower than cost. No inventory
write-downs recognized in previous years were reversed. Inventory
write-downs are included in cost of goods sold.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
June 30,
|
|
|
|
|
|
|
2016
|
2015
|
2016
|
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
|
$
19,364
|
$
19,214
|
$
22,570
|
Due from related
parties
|
|
|
|
10,531
|
10,716
|
6,657
|
Other
|
|
|
|
|
1,233
|
1,224
|
1,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
31,128
|
$
31,154
|
$
30,719
|
9. REVENUE
The Company's revenue consists of the following streams:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
Dec.
31,
|
Dec. 31,
|
|
|
|
|
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
Case goods
sales
|
|
|
|
$
32,815
|
$
30,898
|
$
60,061
|
$
59,896
|
Commissions (net of
amortization of representation rights)
|
6,554
|
6,158
|
13,187
|
12,480
|
Other
services
|
|
|
|
897
|
1,245
|
1,650
|
2,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
40,266
|
$
38,301
|
$
74,898
|
$
74,758
|
Commissions for the three and six month periods are shown net of
amortization of long-term representation rights and non-refundable
upfront fees of $1,471 and
$2,941 (2015 - $1,471 and $2,941).
Other services include revenues incidental to the manufacture of
case goods, such as logistics fees.
10. OTHER (EXPENSE) AND INCOME
The Company's other (expense) income consists of the following
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
Dec.
31,
|
Dec. 31,
|
|
|
|
|
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
Foreign exchange
loss
|
|
|
$
(22)
|
$
(37)
|
$
(27)
|
$
(24)
|
Gain on disposal of
property and equipment
|
|
-
|
-
|
-
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(22)
|
$
(37)
|
$
(27)
|
$
(17)
|
11. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
Dec.
31,
|
Dec. 31,
|
|
|
|
|
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
$
227
|
$
293
|
$
493
|
$
591
|
Net financial impact
of pensions
|
|
(259)
|
(239)
|
(519)
|
(479)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(32)
|
$
54
|
$
(26)
|
$
112
|
12. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
Dec.
31,
|
Dec. 31,
|
|
|
|
|
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
$
556
|
$
426
|
$
1,023
|
$
843
|
Amortization of
intangible assets
|
|
1,471
|
1,471
|
2,941
|
2,941
|
Salary and payroll
costs
|
|
|
6,129
|
5,464
|
12,066
|
10,831
|
Expenses related to
pensions and benefits
|
|
375
|
322
|
749
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
8,531
|
$
7,683
|
$
16,779
|
$
15,260
|
13. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
Dec.
31,
|
Dec. 31,
|
|
|
|
|
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
$
(4,732)
|
$
2,364
|
$
(2,364)
|
$
(5,835)
|
Inventories
|
|
|
|
1,998
|
24
|
(179)
|
(525)
|
Prepaid
expenses
|
|
|
|
(166)
|
126
|
(76)
|
(145)
|
Accounts payable and
accrued liabilities
|
|
5,228
|
124
|
(238)
|
5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
2,328
|
$
2,638
|
$
(2,857)
|
$
(890)
|
14. DIVIDENDS
On February 8, 2017 subsequent to
the quarter ended December 31, 2016,
the Board of Directors declared its regular quarterly dividend of
$0.21 per common share, to be paid on
March 10, 2017, to shareholders of
record as at the close of business on February 24, 2017. This dividend is in
accordance with the Company's dividend policy.
15. RELATED PARTY TRANSACTIONS
Transactions with parent, ultimate parent, and
affiliates
The majority of Corby's issued and
outstanding voting Class A shares are owned by HWSL. HWSL is a
wholly-owned subsidiary of PR. Therefore, HWSL is Corby's parent
and PR is Corby's ultimate parent. Affiliated companies are
subsidiaries which are controlled by Corby's parent and/or ultimate
parent.
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, and also
provided 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.
On March 21, 2016 the Company
entered into an agreement with Pernod Ricard UK Ltd. ("PRUK"), an
affiliated company, which provides PRUK the exclusive rights to
represent Lamb's rum in Great
Britain effective July 1,
2016. Previously, Lamb's rum was represented by an unrelated
third party in this market. The agreement is effective for a
five-year period ending June 30,
2021.
Transactions between Corby and its parent, ultimate parent and
affiliates during the period are as follows:
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31,
|
Dec. 31,
|
Dec.
31,
|
Dec. 31,
|
|
|
|
|
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
$
7,562
|
$
8,632
|
$
15,195
|
$
14,277
|
Products for resale
at an export level - affiliated companies
|
1,737
|
1,274
|
3,417
|
2,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
9,299
|
$
9,906
|
$
18,612
|
$
16,945
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
$
5,048
|
$
6,156
|
$
11,016
|
$
12,245
|
|
|
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
Marketing, selling
and administration services - parent
|
$
658
|
$
638
|
$
1,295
|
$
1,275
|
Marketing, selling
and administration services - affiliate
|
313
|
2,167
|
599
|
3,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
971
|
$
2,805
|
$
1,894
|
$
4,688
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the three and six month periods ending December 31, 2016, there was no sale by Corby of
casks to its parent company (2015 - $nil and $11).
During the six-month period ended December 31, 2016, Corby entered into a
transaction with its parent whereby Corby exchanged certain
vintages and varieties of bulk whisky inventory with a fair value
of $383 for differing vintages and
varieties of bulk whisky with an equivalent fair value in an effort
to balance each companies' future inventory requirements. The
exchange was not a culmination of the earnings process and as such
did not impact Corby's net earnings nor its financial position.
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
February 8, 2017, as published by
Standard & Poor's and Moody's, was BBB- and Baa2, respectively.
PR compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Services Agreement by
paying interest to Corby based upon the 30-day CDOR rate plus
0.40%. During the three and six month periods ending December 31, 2016, Corby earned interest income
of $237 and $507 from PR (2015 – $292 and $596),
respectively. Corby has the right to terminate its participation in
the Mirror Netting Services Agreement at any time, subject to five
days' written notice.
16. SEGMENT INFORMATION
Corby has two reportable segments: Case Goods and Commissions.
Corby's Case Goods segment derives its revenue from the production
and distribution of its owned beverage alcohol brands. Corby's
portfolio of owned-brands includes some of the most renowned and
respected brands in Canada, such
as J. P. Wiser's Canadian whisky,
Lamb's rum, Polar Ice vodka, and McGuinness liqueurs. On
September 30, 2016, Corby acquired
Ungava Premium Canadian gin, Chic Choc Spiced rum, and a range of
maple-based liqueur products.
Corby's Commissions segment earns commission income from the
representation of non-owned beverage alcohol brands in Canada. Corby represents leading international
brands such as ABSOLUT vodka, Chivas
Regal, The Glenlivet and Ballantine's scotches, Jameson Irish whiskey, Beefeater gin, Malibu
rum, Kahlúa liqueur, Mumm champagne, and Jacob's Creek and Wyndham
Estate wines.
The Commissions segment's financial results are fully reported
as "Commissions" in Note 9 of the interim condensed consolidated
financial statements. Therefore, a table detailing operational
results by segment has not been provided as no additional
meaningful information would result.
SOURCE Corby Spirit and Wine Limited