TORONTO, Aug. 23, 2017 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
reported its financial results for the fourth quarter ended
June 30, 2017. The Corby Board of
Directors today also declared a dividend of $0.21 per share payable on September 29, 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 September 15, 2017.
On a quarterly basis, revenue increased 8%, driven by a
significant 9% improvement on shipment volumes largely attributable
to Ungava Spirits' brands, J.P.
Wiser's and Lamb's rum performance. Domestic
advertising and promotional investment supporting the newly
acquired Ungava Spirits' brands (45% retail volume growth) and
J.P. Wiser's development of a
packaging upgrade and new marketing creative impacted the company's
bottom-line earnings.
Revenue for the year increased 3% primarily due to the addition
of Ungava Spirits' brands and increased commissions earned from the
PR brand portfolio. Partially offsetting revenue, increased
promotional investment and overheads supporting Ungava Spirits'
brands also include one-off items related to employee costs and
professional fees associated with the acquisition.
Net earnings of $25.6 million (or
$0.90 per share) were reported for
the year ended June 30, 2017,
reflecting an increase of $0.2
million, or 1%, when compared to the same period last year.
Net earnings of $8.7 million (or
$0.30 per share) were reported for
the three-month period ended June 30,
2017, representing a decrease of $0.6
million or 7% when compared with the same quarter last
year.
"I am pleased with Corby's overall performance for this fiscal
year, particularly how quickly Ungava Spirits' brands were
incorporated into the Corby family and their strong contribution to
top-line growth. With the successful integration of this new
acquisition, I look forward to seeing the potential of these brands
further develop in the new year. It was satisfying to see
J.P. Wiser's return to market share
growth and delivering healthy increases in both volume and
value. The premium craft Canadian whiskies continue to win
awards and recognition in Canadian and International markets. These
results show the strength of our portfolio prioritization, our
vision to improve the portfolio of owned brands and the success of
investing behind a more premium range.," 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 consolidated financial statements and
accompanying notes for the three-months and year ended June 30, 2017, prepared in accordance with
International Financial Reporting Standards.
About Corby
Corby Spirit and Wine Limited is a leading
Canadian manufacturer, marketer and distributor of spirits and
imported wines. Corby's portfolio of owned-brands includes some of
the most renowned brands in Canada, including J.P.
Wiser's®, Lot 40®, and Pike Creek® Canadian whiskies,
Lamb's® rum, Polar Ice® vodka and McGuinness® liqueurs, as well as
the recently acquired Ungava® Premium Canadian gin, Cabot Trail®
maple-based liqueurs and Chic Choc® Spiced rum. Through its
affiliation with Pernod Ricard S.A., a global leader in the spirits
and wine industry, Corby also represents leading international
brands such as ABSOLUT® vodka, Chivas Regal®, The Glenlivet® and
Ballantine's® Scotch whiskies, Jameson® Irish whiskey, Beefeater®
gin, Malibu® rum, Kahlúa® liqueur, Mumm® champagne, and Jacob's
Creek®, Wyndham Estate®, Stoneleigh®, Campo Viejo®, Graffigna® and
Kenwood® wines. In 2017, Corby was named one of the 50 Best
Workplaces in Canada by The Great
Place to Work® Institute Canada for the sixth 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
June 30, 2017
The following Management's Discussion and Analysis ("MD&A")
dated August 23, 2017, should be read
in conjunction with the audited consolidated financial statements
and accompanying notes as at and for the year ended June 30, 2017, prepared in accordance with
International Financial Reporting Standards ("IFRS"). Financial
information for the three months ended June
30, 2017 and 2016 were not audited or reviewed by the
Company's external auditors in accordance with standards
established by the Canadian Institute of Chartered Accountants for
a review of unaudited financial statements by an entity's
auditor.
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 August 23, 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
fourth quarter of fiscal 2017 (three months ended June 30, 2017) are against results for the fourth
quarter of fiscal 2016 (three months ended June 30, 2016). 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 certain brands, including Ungava® Premium Canadian
gin, Chic Choc® Spiced rum, Cabot Trail maple cream liqueur
(Coureur des Bois, in Quebec), and
a range of maple-based products (collectively, the "Ungava Spirits
Brands"). 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. Ungava Spirits Co. Ltd.
produces the Ungava Spirits Brands and operates the Cowansville, Quebec production facility
acquired on September 30, 2016. The
Company's remaining production requirements have been outsourced to
various third party vendors including a third-party manufacturer in
the United Kingdom ("UK"). The UK
site blends and bottles Lamb's products destined for sale in
countries located outside North America.
In most provinces, Corby's route to market in Canada entails shipping its products to
government-controlled LBs. The LBs then sell directly, or control
the sale of, beverage alcohol products to end consumers. Exceptions
to this model include Alberta,
where the retail sector is privatized. In this province, Corby
ships products to a bonded warehouse that is managed by a
government-appointed service provider who is responsible for
warehousing and distribution into the retail channel. Other
provinces have aspects of both government-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 also able to provide retail value information
(measured in Canadian dollars). The Company has reintroduced retail
level of analysis starting this quarter due to the province of
British Columbia cycling their
move to wholesale pricing. Current retail value information as
discussed in this MD&A is based on available pricing
information as provided by the ACD and the LBs.
In addition to a focus on efforts to open new international
markets, Corby's international business is concentrated in
the United States ("US") and UK
and the Company has a different route-to-market for each. For the
US market, Corby manufactures 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 terminated on
June 30, 2016. Effective July 1, 2016, Corby entered into a distribution
agreement with a related party with respect to which more
information is provided in the "Related Party Transactions" section
of this MD&A; and, also effective as of July 1, 2016, a new co-packing agreement was
entered into with Angus Dundee Distillers PLC, a third party
manufacturer.
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 shareholders.
Brand prioritization requires an evaluation of each brand's
potential to deliver upon this strategy, and facilitates Corby's
marketing and sales teams' focus and resource allocation. Over the
long-term, management believes that effective execution of this
strategy will result in value creation for Corby shareholders.
Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our
primary goal is to leverage our Canadian whisky 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.
Significant Event
Extension of US Distribution Agreement
On March 29, 2017, the Company
entered into an amending agreement with Pernod Ricard USA, LLC ("PR USA"), an affiliated company, to
extend the term of the existing distribution agreement between the
parties to June 30, 2018. The amended
agreement was effective as of July 1,
2017, continues PR USA's exclusive rights to represent
certain of the Company's brands, including its J.P. Wiser's, Lot No. 40 and Pike Creek Canadian
whiskies and Polar Ice vodka in the US. Since the agreement with PR
USA is a related party transaction between Corby and PR USA, the
agreement was approved by the Independent Committee of the Board of
Directors of Corby following review, in accordance with Corby's
related party transaction policy.
Acquisition of the spirits assets of Quebec-based Domaines Pinnacle
Inc.
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 Deposits in Cash Management
Pools. The transaction included the Ungava Spirits Brands (Ungava®
Premium Canadian gin, Chic Choc® Spiced rum and Cabot Trail® maple
cream liqueur (Coureur des Bois®, in Quebec) (collectively, the "Ungava Spirits
Brands"), as well as production assets and related inventory. The
brand portfolio and other assets acquired are operated by Ungava
Spirits Co. Ltd. ("Ungava Spirits"), a wholly-owned subsidiary of
Corby based in Cowansville,
Quebec.
Since the completion of the transaction on September 30, 2016, the Ungava Spirits Brands
have contributed $6.2 million to
revenues and -$0.1 million to net
earnings. These results are impacted by seasonal fluctuations in
sales and phasing of advertising and promotional efforts. More
information regarding the transaction has been provided in Note 6
of the consolidated financial statements for the year ended
June 30, 2017.
Three-Year Review of Selected Financial Information
The following table provides a summary of certain selected
consolidated financial information for the Company. This
information has been prepared in accordance with IFRS.
|
|
|
|
(in millions of
Canadian dollars, except per share amounts)
|
2017
|
2016
|
2015
|
|
|
|
|
Revenue
|
$
|
143.9
|
$
|
140.0
|
$
|
132.1
|
|
|
|
|
Earnings from
operations
|
35.0
|
34.6
|
27.2
|
|
- Earnings from
operations per common share
|
1.23
|
1.22
|
0.96
|
|
|
|
|
Net
earnings
|
25.6
|
25.4
|
20.4
|
|
- Basic earnings per
share
|
0.90
|
0.89
|
0.72
|
|
- Diluted earnings
per share
|
0.90
|
0.89
|
0.72
|
|
|
|
|
Total
assets
|
227.8
|
228.5
|
233.7
|
Total
liabilities
|
50.5
|
57.7
|
45.6
|
|
|
|
|
Regular dividends
paid per share
|
0.84
|
0.76
|
0.75
|
Special dividends
paid per share
|
-
|
0.62
|
0.62
|
As depicted in the above chart, revenue and net earnings rose
sharply in 2016 (when compared to 2015) and again in 2017 with
further improvement when compared to 2016. The 2016 improvement was
primarily the result of an increase in commissions, due to the
negotiated commission rate increase on PR brands, following the
amendment of the September 29, 2006
Canadian representation agreements with PR referred to under the
"Related Party Transactions" section of this MD&A.
2017 revenue increased $3.9
million over 2016, while net earnings remained relatively
stable. This year over year improvement in revenues was primarily
the result of the newly acquired Ungava Spirits Brands. Since
the completion of the transaction on September 30, 2016, the Ungava Spirits Brands
have contributed $6.2 million to
revenues. Conversely, international shipments resulting from
our new strategy to focus on fewer US markets with a more premium
portfolio showed a decrease compared to the prior year. In
addition, the Company sold bulk whisky in 2017. The Company sells
bulk whisky when needed to rebalance its maturation inventories and
to align them with long-term strategies and forecasts. This is a
normal industry practice and similar transactions also occurred in
2016, although the 2017 bulk sales were lower. The growth in
revenues did not fully translate into net earnings as we invested
behind our newly acquired brands and incurred one-off acquisition
costs.
Net assets (i.e., total assets less total liabilities) increased
in 2017 after a 3-year declining trend. The decrease was primarily
the result of Corby returning value to shareholders via a special
dividend in each of 2015 and 2016 with a dividend of $0.62 per share or $17.7
million being paid each year. A special dividend was not
declared in 2017.
Brand Performance Review
Corby's portfolio of owned brands accounts for approximately 80% of
the Company's total annual revenue. Included in this portfolio are
its key brands: J.P. Wiser's
Canadian whisky, Lamb's rum, Polar Ice vodka, Corby's mixable
liqueur brands and the Ungava Spirits Brands. The sales performance
of these key brands significantly impacts Corby's net earnings.
Therefore, understanding each key brand is essential to
understanding the Company's overall performance.
Shipment Volume and Shipment Value Performance
The following table summarizes the performance of Corby's
owned-brands (i.e., Case Goods) in terms of both shipment volume
(as measured by shipments to customers in equivalent nine-litre
cases) and shipment value (as measured by the change in net sales
revenue). The table includes results for sales in both Canada and international markets.
Specifically, the J.P. Wiser's, Lamb's, Polar Ice and the Ungava
Spirits Brands are also sold to international markets, particularly
in the US and UK.
|
BRAND PERFORMANCE
CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL
SHIPMENTS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
Shipment
Change
|
|
Shipment
Change
|
|
Jun
30
|
Jun
30
|
Volume
|
Value
|
|
Jun
30
|
Jun
30
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2017
|
2016
|
%
|
%
|
|
2017
|
2016
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
222
|
207
|
7%
|
6%
|
|
815
|
810
|
1%
|
(1%)
|
Lamb's rum
|
109
|
94
|
16%
|
8%
|
|
447
|
450
|
(1%)
|
(7%)
|
Polar Ice
vodka
|
98
|
101
|
(3%)
|
1%
|
|
372
|
375
|
(1%)
|
(1%)
|
Mixable
liqueurs
|
42
|
42
|
(0%)
|
2%
|
|
164
|
167
|
(2%)
|
(3%)
|
Ungava Spirits Brands
1
|
20
|
-
|
N/A
|
N/A
|
|
67
|
-
|
N/A
|
N/A
|
Other Corby-owned
brands
|
53
|
54
|
(1%)
|
(4%)
|
|
209
|
216
|
(3%)
|
(2%)
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
544
|
498
|
9%
|
11%
|
|
2,074
|
2,018
|
3%
|
3%
|
|
|
|
|
|
|
|
|
|
|
(1)
Comparative information has not been provided for Ungava Spirits
Brands, as these brands were not
owned by Corby prior to September 30,
2016.
|
Corby's owned brands experienced strong fourth quarter growth
with a 9% increase in shipment volumes and an 11% increase in
shipment value when compared to the same quarter last year. This
increase was driven primarily by the performance of the newly
acquired Ungava Spirits Brands, J.P.
Wiser's Canadian whisky (Corby's flagship brand) and Lamb's
rum.
On a year-over-year comparison basis, both shipment volumes and
shipment value grew 3% mostly due to the performance of the Ungava
Spirits Brands which helped to balance declines in Corby brands
competing in economy segments Corby's brand portfolio continued to
be significantly impacted by difficult economic conditions in
Alberta.
Trends in Canada differ
significantly from international markets as highlighted in the
following table:
|
|
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
|
|
Shipment
Change
|
|
|
|
Shipment
Change
|
|
Jun
30
|
Jun
30
|
Volume
|
Value
|
|
Jun
30
|
Jun
30
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2017
|
2016
|
%
|
%
|
|
2017
|
2016
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
493
|
451
|
9%
|
12%
|
|
1,877
|
1,819
|
3%
|
5%
|
International
|
51
|
47
|
7%
|
(7%)
|
|
197
|
199
|
(1%)
|
(16%)
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
544
|
498
|
9%
|
11%
|
|
2,074
|
2,018
|
3%
|
3%
|
|
|
|
|
|
|
|
|
|
|
A strong fourth quarter in the domestic market, with both
shipment volume and shipment value higher when compared to the same
period last year, was mostly due to the contribution of
J.P. Wiser's Deluxe, the Ungava
Spirits Brands, and Lamb's rum. J.P.
Wiser's Canadian whisky, Corby's flagship brand, led the
shipment performance during the quarter due to the impact of LCBO
purchases in anticipation of a threatened strike, which was averted
end of June 2017.
For the year ended June 30, 2017,
Corby's domestic shipment volume was 3% higher on a year-over-year
comparative basis as the performance of Ungava Spirits Brands,
J.P. Wiser's Deluxe and premium
craft whiskies helped offset declines experienced by Lamb's rum,
Royal Reserve and Wiser's Special Blend. Economy variants have been
particularly impacted by challenging economic conditions and
aggressive competitor activity in Alberta. Over the same period, Corby's
domestic shipment value increased 5% due primarily to the
favourable mix effect of the premium Ungava Spirits Brands which
are higher priced than most of the other Corby-owned brands.
In international markets, higher shipment volumes in the quarter
were largely attributable to a change in Lamb's shipment patterns
as Corby transitioned to a new UK distributor early in fiscal 2017
as well as the impact of the new Ungava export business. These
positive contributions were partially offset by decreased US
shipments for J.P. Wiser's which
also impacted overall value. Value trailed volume for both the
three months and year ended June 30,
2017 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. Value has also been
impacted by a weakened UK pound sterling compared to the prior
year.
For the year ended June 30, 2017,
the decline in international shipments was largely attributable to
a change in strategy for our Canadian whisky portfolio in the US.
It was determined 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 addressed 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 volume activity
on deprioritized variants in the comparative periods.
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 and value data, as
provided by the ACD, is set out in the following table and is
discussed throughout this MD&A.
It should be noted that the retail information presented does
not include international retail sales of Corby-owned brands. 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
|
|
Year
Ended
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
Jun
30
|
Jun
30
|
Volume
|
Value
|
|
Jun
30
|
Jun
30
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2017
|
2016
|
Growth
|
Growth
|
|
2017
|
2016
|
Growth
|
Growth
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
164
|
161
|
2%
|
4%
|
|
734
|
726
|
1%
|
3%
|
Lamb's rum
|
81
|
85
|
(4%)
|
(2%)
|
|
350
|
374
|
(6%)
|
(4%)
|
Polar Ice
vodka
|
83
|
83
|
(1%)
|
0%
|
|
350
|
351
|
(0%)
|
1%
|
Mixable
liqueurs
|
34
|
35
|
(4%)
|
(2%)
|
|
161
|
165
|
(2%)
|
(1%)
|
Ungava Spirits
brands
|
15
|
10
|
45%
|
42%
|
|
67
|
48
|
40%
|
39%
|
Other Corby-owned
brands
|
44
|
45
|
(3%)
|
(1%)
|
|
191
|
195
|
(2%)
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
|
421
|
419
|
0%
|
2%
|
|
1,853
|
1,859
|
(0%)
|
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 retail sales volume growth
of 2% for the quarter ended June 30,
2017 and a modest 1% for the full year ended June 30, 2017. These trends were supported by
double digit retail sales volume growth in the Irish whiskey and
cognac categories and volume growth in tequila and bourbon
categories which are categories in which Corby does not have
owned-brands.
Corby's portfolio is heavily weighted in the Canadian whisky,
rum and vodka categories; together they make up almost 88% of the
Company's total retail volumes. The vodka category led retail
volumes, increasing 1%, followed by the Canadian whisky category
which was essentially flat, while the rum category continued its
decline, dropping 1% this year versus last. Gin, Corby's newest
participating category, increased 6% compared to 2016.
Despite the industry performance of the categories in which the
Company is most heavily weighted, Corby's brand portfolio performed
well with retail value growing 2%, ahead of retail volume which was
essentially flat. J.P. Wiser's
outperformed the industry in the key Canadian whisky category. The
Ungava Spirits Brands experienced outstanding retail sales growth
during the year. 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 fourth quarter increased 2% with retail
value growing 4% when compared to the same quarter last year.
Retail sales volumes for the Canadian whisky category grew 1% while
retail value grew 3% when compared to the same quarter last
year.
The brand's retail volumes for the year increased 1% with retail
value up 3% ahead of the Canadian whisky category when compared to
the same period last year. Aggressive competitive retail activity
in the economy segment remains as competitors focus on maintaining
share within a challenging economic environment.
Within the range, positive growth posted by J.P. Wiser's Deluxe and J.P. Wiser's Double Still Rye was dampened by
J.P. Wiser's Special Blend which was
impacted by an increase in competitive retail activity in the
economy segments of Canadian whisky.
During fiscal 2017, Corby launched several innovative variants
of the J.P. Wiser's family:
J.P. Wiser's Apple, our newest
flavour extension, J.P. Wiser's
Union 52 and J.P. Wiser's
Dissertation, super-premium limited editions and J.P. Wiser's One Fifty, in honour of
Canada's 150th birthday. The J.P.
Wiser's 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.
J.P. Wiser's variants continue to
receive accolades including J.P.
Wiser's Double Still Rye and J.P.
Wiser's Dissertation which were awarded Best Canadian Whisky
and Best Blended Limited Release, respectively, at the World
Whiskies Awards for 2017.
Lamb's Rum
Lamb's rum, one of the top-selling rum families in Canada, was significantly impacted by
unfavourable consumer trends and declining economic conditions in
regional strongholds. Retail volumes for the overall rum category
declined 2% for the quarter and 1% for the year, while retail
values remained flat for both the quarter and the year when
compared to the same periods last year. The economy rum category
declined 3% in retail volumes and 2% in retail value on a quarterly
comparable period.
Lamb's experienced a 6% decline in retail volumes and 4% in
retail value when compared to the same period last year. The Lamb's
rum product line is heavily weighted in the dark and white segments
and has faced difficult economic conditions and increased
competitor pressure in its key markets. Our strategy remains to
defend its regional strongholds with new targeted campaigns, to
focus on the most differentiated variants and to launch new flavour
variants such as Lamb's Spiced Cherry rum (launched in the third
quarter of the fiscal year ended June 30,
2017.).
Polar Ice Vodka
Polar Ice vodka is among the top selling vodka brands in
Canada. Retail volume remained
relatively flat for both the quarter and the year ended
June 30, 2017. This is primarily due
to weak economic conditions and aggressive competitive retail
activity in Alberta.
The overall vodka category in Canada grew 2% in both retail volumes and
value when compared to the same three-month period last year and 1%
in retail volume and 2% in retail value on a year-over-year
comparable basis. Positive performance was driven by the
premium segment of the category. The standard vodka category
declined 2% on a rolling twelve-month basis on retail volume and 1%
on retail value.
The focus of advertising and promotion investment continues to
be on driving overall brand awareness and trial especially behind
the more premium Polar Ice 90 North. In a previous quarter, we
launched a successful social cause campaign, including a limited
edition "Bearless" bottle, to support the work done by Polar Bears
International. Most recently, we launched a national "Not your
Ordinary Caesar" campaign in partnership with French's.
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 4% and 2% for the quarter and
year ended June 30, 2017 when
compared to the same periods last year. Retail value declined 2%
and 1% for the same comparable periods.
The liqueurs category grew 2% in retail volume and 3% in retail
value for the three-month comparable period ended June 30, 2017 and was relatively flat at 1%
volume growth and 2% value growth for the year. Category growth was
led 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 and the launch of an expanded range of
flavour offerings in a 375mL format to encourage consumer
trial.
Ungava Spirits Brands
Retail volume for the Ungava Spirits Brands increased 45% and 40%
respectively for the three months and year ended June 30, 2017, when compared to the same periods
last year. Retail value increased 42% and 39% respectively for the
same comparable periods. The flagship brand, Ungava Gin, grew 44%
and 43% respectively for the three-month period and year ended
June 30, 2017, outperforming the
Canadian gin category which grew 6% in retail volume and 9% in
retail value for the same periods. Retail value for Ungava Gin grew
41% and 42% respectively for the three-month and year-over-year
comparable periods. Ungava Gin is now the number one Super Premium
gin in Canada.
Cabot Trail maple-based liqueurs (in Quebec, Coureur des Bois) has performed well
since it's packaging upgrade. Retail volumes were 62% and 46% on
the three months and year, respectively, while retail values were
63% and 47% respectively.
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
15% and 44% for the respective three-month period and year ending
June 30, 2017, outperforming the
Canadian whisky category in Canada, which grew 1% for the three-month
period year.
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. Gooderham & Worts was also awarded World's
Best Canadian Blended at the World Whiskies Awards for 2017.
Royal Reserve® retail volume declined 2% and 3% for the
three-month period and year ended June 30,
2017, respectively, 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 year
ended June 30, 2017 and
2016.
|
|
|
|
|
(in millions of
Canadian dollars, except per share amounts)
|
2017
|
2016
|
$
Change
|
%
Change
|
|
|
|
|
|
Revenue
|
$
|
143.9
|
$
|
140.0
|
$
|
3.9
|
3%
|
|
|
|
|
|
Cost of
sales
|
(51.9)
|
(49.4)
|
(2.5)
|
5%
|
Marketing, sales and
administration
|
(57.0)
|
(55.6)
|
(1.4)
|
3%
|
Other
income
|
-
|
(0.4)
|
0.4
|
(91%)
|
|
|
|
|
|
Earnings from
operations
|
35.0
|
34.6
|
0.4
|
1%
|
|
|
|
|
|
Financial
income
|
0.9
|
1.1
|
(0.2)
|
(15%)
|
Financial
expenses
|
(1.0)
|
(1.0)
|
(0.1)
|
8%
|
|
(0.1)
|
0.1
|
(0.2)
|
(172%)
|
|
|
|
|
|
Earnings before
income taxes
|
34.9
|
34.7
|
0.2
|
1%
|
Income
taxes
|
(9.3)
|
(9.3)
|
-
|
0%
|
|
|
|
|
|
Net
earnings
|
$
|
25.6
|
$
|
25.4
|
$
|
0.2
|
1%
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.90
|
$
|
0.89
|
$
|
0.01
|
1%
|
|
- Diluted net
earnings
|
$
|
0.90
|
$
|
0.89
|
$
|
0.01
|
1%
|
Overall Financial Results
Net earnings, largely driven by solid growth in commissions on PR
Brands, increased $0.2 million or 1%
when compared to last year. The improvement in net earnings was
also impacted by the reduction in advertising and promotional
investment in the US (related to 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). This was offset by increased domestic advertising and
promotional investment to defend market share in regional
strongholds, lower bulk whisky sales in 2017 compared to 2016, and
certain one-off administration expenses related to the acquisition
of the Ungava Spirits Brands.
Revenue
The following highlights the key components of the Company's
revenue streams:
|
|
|
|
|
(in millions of
Canadian dollars)
|
2017
|
2016
|
$
Change
|
%
Change
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
Case goods
|
$
|
114.8
|
$
|
111.1
|
$
|
3.7
|
3%
|
|
Commissions
|
24.9
|
23.0
|
1.9
|
8%
|
|
Other
services
|
4.2
|
5.9
|
(1.7)
|
(29%)
|
|
|
|
|
|
Revenue
|
143.9
|
140.0
|
3.9
|
3%
|
|
|
|
|
|
Case goods revenue increased by $3.7
million, or 3%, for the year ended June 30, 2017, when compared to the same period
last year. The growth is primarily attributable to the performance
of the Ungava Spirits Brands acquired on September 30, 2016, which have offset declines in
US case good shipments. As previously discussed, changes to Corby's
strategy in the US market have impacted case good sales during the
current year.
Commissions increased by $1.9
million, or 8%, attributable to strong performance from the
PR brand portfolio. The PR brand portfolio continues to benefit
from its positioning within the premium spirit and wine categories
along with PR's investment to build these brands in Canada.
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 the year was mostly
attributable to an underlying modification to the logistical
activities Corby performs. While these modifications impact
revenue, net earnings remain virtually unchanged, as the Company no
longer bears the economic risks associated with these
activities. As well, there was a decrease in bulk whisky
sales as the Company continued to rebalance its maturation
inventories.
Cost of sales
Cost of sales was $51.9 million for the year ended June 30, 2017, an increase of $2.5 million, or 5% when compared with last year.
Overall gross margin on case goods was 56% this year, compared to
58% the same period last year impacted by changes to our
distributor co-pack model in the UK (note: commissions are not
included in the gross margin calculation).
Marketing, sales and administration
Marketing, sales and administration expenses increased by
$1.4 million, or 3% when compared to
last year. The change year-over-year is due to an increase in
domestic advertising and promotional investment behind J.P. Wiser's Canadian whisky, Polar Ice vodka,
craft whiskies and, as of the acquisition date, promotional efforts
and overheads related to the Ungava Spirits Brands, partially
offset by the previously mentioned change in advertising and
promotional strategy in the US. In addition, higher overheads
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. On an annual
basis, net financial income is consistent on a comparative
basis.
Income taxes
A reconciliation of the effective tax rate to the statutory rates
for each period is presented below.
|
|
|
|
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
|
|
26.8%
|
26.8%
|
Other
|
|
|
(0.1)%
|
0.0%
|
|
|
|
|
|
Effective tax
rate
|
|
|
26.7%
|
26.8%
|
|
|
|
|
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $74.3 million as at
June 30, 2017, and its cash generated
from operating activities. Corby's total contractual maturities are
represented by its accounts payable and accrued liabilities, which
totalled $31.3 million as at
June 30, 2017, 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
|
|
|
|
(in millions of
Canadian dollars)
|
2017
|
2016
|
$ Change
|
|
|
|
|
Operating
activities
|
|
|
|
|
Net earnings,
adjusted for non-cash items
|
$
|
41.4
|
$
|
41.2
|
$
|
0.2
|
|
Net change in
non-cash working capital
|
(4.1)
|
(3.7)
|
(0.4)
|
|
Net payments for
interest and income taxes
|
(9.5)
|
(4.2)
|
(5.3)
|
|
27.8
|
33.3
|
(5.5)
|
|
|
|
|
Investing
activities
|
|
|
|
|
Additions to capital
assets
|
(3.5)
|
(3.1)
|
(0.4)
|
|
Proceeds from
disposition of capital assets
|
0.1
|
-
|
0.1
|
|
Business
Acquisition
|
(11.9)
|
-
|
(11.9)
|
|
Deposits in cash
management pools
|
10.8
|
9.1
|
1.7
|
|
(4.5)
|
6.0
|
(10.5)
|
|
|
|
|
Financing
activity
|
|
|
|
|
Dividends
paid
|
(23.3)
|
(39.3)
|
16.0
|
|
(23.3)
|
(39.3)
|
16.0
|
|
|
|
|
Net change in
cash
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
Operating activities
Net cash from operating
activities was $27.8 million during
the year ended June 30, 2017,
compared to $33.3 million last year,
representing a decrease of $5.5
million. This decrease is largely a result of increased tax
payments in the current year. Cash flows from operating activities
for the year ended June 30, 2016
included a refund received upon filing of the 2015 taxation
returns. As well, fiscal 2016 tax instalments, as prescribed by the
Canadian tax authorities, were lower as they were based on 2015
taxable income.
Investing activities
During the year ended June 30, 2017,
$4.5 million was used in investing
activities compared to $6.0 million
generated from investing activities 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 during the year ended
June 30, 2017. Cash management pools
represent cash on deposit with Citibank NA via Corby's Mirror
Netting Service Agreement with PR. Corby has daily access to these
funds and earns a market rate of interest from PR on its deposits.
Changes in cash management pools reflect amounts either deposited
in or withdrawn from these bank accounts and are simply a function
of Corby's cash requirements during the period 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 $23.3
million for the year ended June 30,
2017, compared to $39.3
million last year and represents payment of the Company's
regular dividend to shareholders. The comparative period included a
special dividend of $17.7 million or
$0.62 per common share.
The following table summarizes dividends paid and payable by the
Company over the last two fiscal years:
for
|
|
Declaration
date
|
|
Record
Date
|
|
Payment
date
|
|
$ / Share
|
2017 - Q4
|
|
August 23.
2017
|
|
September 15,
2017
|
|
September 29,
2017
|
|
$
|
0.21
|
2017 - Q3
|
|
May 10,
2017
|
|
May 26,
2017
|
|
June 14,
2017
|
|
0.21
|
2017 - Q2
|
|
February 8,
2017
|
|
February 24,
2017
|
|
March 10,
2017
|
|
0.21
|
2017 - Q1
|
|
November 9,
2016
|
|
November 25,
2016
|
|
December 9,
2017
|
|
0.21
|
2016 - Q4
|
|
August 24,
2016
|
|
September 15,
2016
|
|
September 30,
2016
|
|
0.19
|
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
|
Outstanding Share Data
As at August 23, 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.
Contractual Obligations
The following table presents a summary of the maturity periods
of the Company's contractual obligations as at June 30, 2017:
|
|
|
|
|
|
|
|
Payments
|
Payments
|
Payments
|
Payments
|
Obligations
|
|
|
During
|
due in
2019
|
due in
2021
|
due after
|
with no
fixed
|
|
|
2018
|
and 2020
|
and 2022
|
2022
|
maturity
|
Total
|
|
|
|
|
|
|
|
Operating lease
obligations
|
$
|
1.6
|
$
|
2.6
|
$
|
1.6
|
$
|
2.2
|
$
|
-
|
$
|
8.0
|
Employee future
benefits
|
-
|
-
|
-
|
-
|
18.3
|
18.3
|
|
|
|
|
|
|
|
|
$
|
1.6
|
$
|
2.6
|
$
|
1.6
|
$
|
2.2
|
$
|
18.3
|
$
|
26.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
North American entities, as approved by Corby's Board of Directors.
On August 26, 2015, Corby entered
into an agreement with PR and certain affiliates amending the
September 29, 2006 Canadian
representation agreements, pursuant to which Corby agreed to
provide more specialized marketing, advertising and promotion
services for the PR and affiliate brands under the applicable
representation agreements in consideration of an increase to the
rate of commission payable to Corby by such entities. On
November 11, 2015, Corby and PR
entered into agreements for the continued production and bottling
of Corby`s owned-brands by Pernod Ricard at the HWSL production
facility in Windsor, Ontario, for
a 10-year term commencing September
30, 2016. On the same date, Corby and PR also entered
into an administrative services agreement, under which Corby agreed
to continue to manage PR's business interests in Canada, including the HWSL production
facility, with a similar term and commencement date.
In addition to the 2006 Agreements, Corby signed an agreement on
September 26, 2008, with its ultimate
parent to be the exclusive Canadian representative for the ABSOLUT
vodka and Plymouth gin brands, for
a five-year term which expired October 1,
2013 and was extended as noted below. These brands were
acquired by PR subsequent to the original representation rights
agreement dated September 29, 2006.
Corby also agreed to continue with the mirror netting arrangement
with PR and its affiliates, under which Corby's excess cash 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 "US Representation Agreement"). The
US Representation 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. This agreement
ended June 30, 2017. On March 29, 2017, the Company entered into an
amending agreement with PR USA to extend the term of the US
Representation Agreement to June 30,
2018 (the "Amending Agreement"). As the US Representation
Agreement and the Amending Agreement with PR USA is a related party
transaction between Corby and PR USA; as such, the agreements were
approved by the Independent Committee of the Board of Directors of
Corby following 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
August 23, 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.
Results of Operations – Fourth Quarter of Fiscal 2017
The following table presents a summary of certain selected
consolidated financial information for the Company for the
three-month periods ended June 30,
2017 and 2016:
|
|
|
|
|
Three Months
Ended
|
|
|
|
June
30,
|
June 30,
|
|
|
(in millions of
Canadian dollars, except per share amounts)
|
2017
|
2016
|
$
Change
|
%
Change
|
|
|
|
|
|
Revenue
|
$
|
40.2
|
$
|
37.2
|
$
|
3.0
|
8%
|
|
|
|
|
|
Cost of
sales
|
(13.8)
|
(12.1)
|
(1.7)
|
14%
|
Marketing, sales and
administration
|
(14.6)
|
(12.1)
|
(2.5)
|
21%
|
Other income
(expense)
|
(0.0)
|
(0.2)
|
0.2
|
(92%)
|
|
|
|
|
|
Earnings from
operations
|
11.8
|
12.8
|
(1.0)
|
(8%)
|
|
|
|
|
|
Financial
income
|
0.2
|
0.2
|
(0.0)
|
(12%)
|
Financial
expenses
|
(0.3)
|
(0.2)
|
(0.0)
|
10%
|
|
(0.0)
|
0.0
|
(0.1)
|
(510%)
|
|
|
|
|
|
Earnings before
income taxes
|
11.7
|
12.8
|
(1.1)
|
(8%)
|
Income
taxes
|
(3.0)
|
(3.4)
|
0.4
|
(12%)
|
|
|
|
|
|
Net
earnings
|
$
|
8.7
|
$
|
9.3
|
$
|
(0.6)
|
(7%)
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.30
|
$
|
0.33
|
$
|
(0.03)
|
(9%)
|
|
- Diluted net
earnings
|
$
|
0.30
|
$
|
0.33
|
(0.03)
|
(9%)
|
Revenue
The following table highlights the various components of the
Company's revenue streams for the quarter:
|
|
|
|
|
Three Months
Ended
|
|
|
|
June
30,
|
June 30,
|
|
|
(in millions of
Canadian dollars)
|
2017
|
2016
|
$
Change
|
%
Change
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
Case goods
|
$
|
31.7
|
$
|
28.6
|
3.0
|
11%
|
|
Commissions
|
6.6
|
5.9
|
0.6
|
11%
|
|
Other
services
|
2.0
|
2.6
|
(0.7)
|
(25%)
|
|
|
|
|
|
Revenue
|
$
|
40.2
|
$
|
37.2
|
$
|
3.0
|
8%
|
|
|
|
|
|
|
|
|
Total revenue increased 8% on a quarter-over-quarter comparison
basis, or $3.0 million. This was
driven by Corby's Case Goods business (up $3.0 million) and a significant 9% improvement in
shipment volumes which were largely attributable to the Ungava
Spirits Brands and order timing in Ontario due to the impact of LCBO purchases in
anticipation of a threatened strike. Case Goods revenue also
benefitted from improved pricing and portfolio mix. Commissions
compared to the same period last year were up $0.6 million due to increased volumes and general
price increases from represented brands.
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 the quarter was
mostly attributable to the modification to the logistical
activities Corby performs and decreased bulk whisky sales, as the
Company continued to rebalance its maturation inventories.
Cost of Sales
Cost of goods sold was $13.8 million,
representing a $1.7 million, or 14%
increase this period when compared with the same three-month period
last year. Gross margin was 59% for the current year quarter
compared to 61% the same quarter last year impacted by changes to
our distributor co-pack model in the UK (note: commissions are not
included in the gross margin calculation).
Marketing, sales and administration
Marketing, sales and administration expenses increased $2.5 million, or 21% over the same quarter last
year. The increase is the combination of increased domestic
advertising and promotional investment behind J.P. Wiser's Canadian whisky in support of a
packaging upgrade and new advertising creative development; Polar
Ice vodka and Lamb's rum to maintain market share in regional
strongholds; as well as promotional efforts and overheads related
to the Ungava Spirits Brands.
Increased advertising and promotional spend has been invested
behind craft whiskies in international markets.
Net earnings and earnings per share
Net earnings for the fourth quarter were $8.7 million, or $0.30 per share, which is a decrease of
$0.6 million over the same quarter
last year. As discussed previously, increased promotional
investment, administration costs related to the management of the
Ungava Spirits Brands and decreased bulk sales offset strong Case
Goods performance and higher commissions from PR brands.
Selected Quarterly Information
Summary of Quarterly Financial Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of
Canadian dollars,
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
except per share
amounts)
|
2017
|
2017
|
2017
|
2017
|
2016
|
2016
|
2016
|
2016
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
40.2
|
$
|
28.8
|
$
|
40.3
|
$
|
34.6
|
$
|
37.2
|
$
|
28.0
|
$
|
38.3
|
$
|
36.4
|
Earnings from
operations
|
11.7
|
4.6
|
9.8
|
8.8
|
12.8
|
5.0
|
8.2
|
8.6
|
Net
earnings
|
8.7
|
3.3
|
7.2
|
6.4
|
9.3
|
3.7
|
6.1
|
6.3
|
Basic EPS
|
0.30
|
0.12
|
0.25
|
0.23
|
0.33
|
0.13
|
0.22
|
0.22
|
Diluted
EPS
|
0.30
|
0.12
|
0.25
|
0.23
|
0.33
|
0.13
|
0.22
|
0.22
|
|
|
|
|
|
|
|
|
|
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.
Revenues for the second, third and forth quarters of 2017
include case good sales for the Ungava Spirit Brands. The Ungava
Spirits Brand were acquired on September 30,
2016 and since the completion, the acquired Ungava Spirits
Brands have contributed $6.2 million
to revenues and -$0.1 million to net
earnings.
Recent Accounting Pronouncements
Recent accounting pronouncements
A number of new standards, amendments to standards and
interpretations have been issued but are not yet effective for the
financial year ending June 30, 2017,
and accordingly, have not been applied in preparing these
consolidated financial statements:
(i) Revenue
In May 2014, the International
Accounting Standards Board ("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
continues to assess the impact of the adoption of this standard on
its financial statements and disclosures.
(ii) Financial Instruments
The IASB has issued a new standard, IFRS 9, "Financial
Instruments" ("IFRS 9"), which will ultimately replace IAS 39,
"Financial Instruments: Recognition and Measurement" ("IAS 39").
The replacement of IAS 39 is a multi-phase project with the
objective of improving and simplifying the reporting for financial
instruments and the issuance of IFRS 9 is part of the first phase
of this project. IFRS 9 uses a single approach to determine whether
a financial asset or liability is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. For financial
assets, the approach in IFRS 9 is based on how an entity manages
its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets.
IFRS 9 requires a single impairment method to be used, replacing
multiple impairment methods in IAS 39. For financial liabilities
measured at fair value, fair value changes due to changes in an
entity's credit risk are presented in other comprehensive
income.
This standard is effective for annual periods beginning on or
after January 1, 2018 and must be
applied retrospectively. For Corby, this standard will become
effective July 1, 2018. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
(iii) 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.
Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and
procedures that has been designed to provide reasonable assurance
that information required to be disclosed by the Company in its
public filings is recorded, processed, summarized and reported
within required time periods and includes controls and procedures
designed to ensure that all relevant information is accumulated and
communicated to senior management, including the Company's Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), to
allow timely decisions regarding required disclosure.
Management, with the participation of the CEO and CFO, has
evaluated the effectiveness of the Company's disclosure controls
and procedures (as defined in National Instrument 52-109) as at
June 30, 2017, and has concluded that
such disclosure controls and procedures are effective based upon
such evaluation.
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 Inc." in this MD&A and in Note 6 in the Notes
to the Company's consolidated financial statements for year ended
June 30, 2017.
Since the completion of the Ungava Spirits Brands transaction on
September 30, 2016, the acquired
Ungava Spirits Brands have contributed $6.2
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
allocated as described in Note 6 to the consolidated financial
statements for the year ended June 30,
2017.
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. Subsequent to the acquisition on September 30, 2016, the Company began and is now
well underway on the integration of Ungava Spirits into our systems
and control structures. The assessment on the design effectiveness
of DC&P and internal controls over financial reporting is on
track for completion by the first quarter of 2018 and the
assessment of operating effectiveness thereafter.
Except for the preceding changes, there were no changes in
internal control over financial reporting during the Company's most
recent annual period that have materially affected, or are
reasonably likely to materially affect, the Company's internal
controls over financial reporting.
Risks & Risk Management
The Company is exposed to a number of risks in the normal course
of its business that have the potential to affect its operating and
financial performance.
Industry and Regulatory
The beverage alcohol
industry in Canada is subject to
government policy, extensive regulatory requirements) and
significant rates of taxation at both the federal and provincial
levels. As a result, changes in the government policy, regulatory
and/or taxation environments within the 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 maturing products there is a potential for
shortages or surpluses in future years if demand and supply are
materially different from long-term forecasts. Additionally, the
loss through contamination, fire or other natural disaster of the
stock of maturing products may result in significant reduction in
supply and as a result, Corby may not be able to meet customer
demands. The Company monitors category trends and regularly reviews
maturing inventory levels.
Environmental Compliance
Environmental liabilities may potentially arise when companies are
in the business of manufacturing products and, thus, required to
handle potentially hazardous materials. As Corby largely outsources
its production, including all of its storage and handling of
maturing alcohol, the risk of environmental liabilities is
considered minimal. Corby currently has no significant recorded or
unrecorded environmental liabilities.
Industry Consolidation
In recent years, the global beverage alcohol industry has continued
to experience consolidation. Industry consolidation can have
varying degrees of impact and, in some cases, may even create
exceptional opportunities. Either way, management believes that the
Company is well positioned to deal with this or other changes to
the competitive landscape in Canada and other markets in which it carries
on business.
Corby's ability to properly complete acquisitions and
subsequently integrate them may affect its results
Corby monitors growth opportunities that may present themselves to
Corby, including by way of acquisitions. While we believe that an
acquisition may create the opportunity to realize certain benefits,
achieving these benefits will depend in part on successfully
consolidating functions and integrating operations, procedures and
personnel in an efficient manner, as well as our ability to realize
any anticipated growth opportunities or costs-savings from
combining the target's assets and operations with our existing
brands and operations. Integration efforts following any
acquisition may require the dedication of substantial management
effort, time and resources which may divert management's focus and
resources from other strategic opportunities and from operational
matters during this process. In addition, Corby may be required to
assume greater than expected liabilities due to liabilities that
are undisclosed at the time of completion of an acquisition. A
failure to realize, in whole or in part, the anticipated benefits
of an acquisition may have a negative impact on the results or
financial position of Corby.
Competition
The Canadian and international beverage alcohol industry is
extremely competitive. Competitors may take actions to establish
and sustain a competitive advantage through advertising and
promotion and pricing strategies in an effort to maintain market
share, which may negatively affect our sales, revenues and
profitability. Corby constantly monitors the market and adjusts its
own advertising, promotion and pricing strategies as
appropriate.
Competitors may also affect Corby's ability to attract and
retain high-quality employees. The Company's long heritage attests
to Corby's strong foundation and successful execution of its
strategies. Its role as a leading Canadian beverage alcohol company
helps facilitate recruitment efforts.
Credit Risk
Credit risk arises from deposits in cash management pools held with
PR via Corby's participation in the Mirror Netting Service
Agreement (as previously described in the "Related Party
Transactions" section of this MD&A), as well as credit exposure
to customers, including outstanding accounts receivable. The
maximum exposure to credit risk is equal to the carrying value of
the Company's financial assets. The objective of managing
counter-party credit risk is to prevent losses in financial assets.
The Company assesses the credit quality of its counter-parties,
taking into account their financial position, past experience and
other factors. As the large majority of Corby's accounts receivable
balances are 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
while Corby constantly watches for and responds to competitive
threats, as necessary, the Company cannot predict challenges to, or
prevent a competitor from challenging the validity of any existing
or future trademark issued or licensed to Corby.
Information Technology and Cyber Security
The
Company uses technology supplied by third parties, both related and
non-related, to support operations and invests in information
technology to improve route to market, reporting, analysis, and
marketing initiatives. Issues with availability, reliability
and security of systems and technology could adversely impact the
Company's ability to compete resulting in corruption or loss of
data, regulatory related issues, litigation or brand reputation
damage. With the fast-paced changing nature of the technology
environment including digital marketing, the Company works with 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
June 30, 2017
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
|
-
|
$
|
24.6
|
$
|
24.6
|
Lamb's rum
|
|
United
Kingdom(1)
|
|
1.4
|
11.8
|
13.2
|
Ungava brands
(2)
|
|
Canada
|
|
5.1
|
3.2
|
8.3
|
Other domestic
brands
|
|
Canada
|
|
1.9
|
-
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8.4
|
$
|
39.6
|
$
|
48.0
|
|
|
|
|
|
|
|
(1)The
international business for Lamb's rum is primarily focused in the
UK, however, the trademarks and licences purchased
relate to all international markets
outside of Canada, as Corby previously owned the Canadian
rights.
|
(2)The
Ungava brands include trademarks related to Ungava Premium Canadian
Gin, Chic Choc Spiced Rum and Cabot Trail
maple-based liqueurs.
|
Therefore, economic factors (such as consumer consumption
patterns) specific to these brands and markets are primary drivers
of the risk associated with their respective goodwill and
intangible assets valuations.
Employee Future Benefits
The Company has certain obligations under its registered and
non-registered defined benefit pension plans and other
post-retirement benefit plan. There is no assurance that the
Company's benefit plans will be able to earn the assumed rate of
return. New regulations and market-driven changes may result in
changes in the discount rates and other variables, which would
result in the Company being required to make contributions in the
future that differ significantly from estimates. An extended period
of depressed capital markets and low interest rates could require
the Company to make contributions to these plans in excess of those
currently contemplated, which, in turn, could have an adverse
impact on the financial performance of the Company. Somewhat
mitigating the impact of a potential market decline is the fact
that the Company monitors its pension plan assets closely and
follows strict guidelines to ensure that pension fund investment
portfolios are diversified in-line with industry best practices.
For further details, related to Corby's defined benefit pension
plans, please refer to Note 16 of the consolidated financial
statements for the year ended June 30,
2017.
CORBY SPIRIT AND WINE LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND YEAR ENDED JUNE 30, 2017 AND 2016
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
June
30,
|
June 30,
|
|
Notes
|
2017
|
2016
|
|
|
|
|
ASSETS
|
|
|
|
Deposits in cash
management pools
|
|
$
74,253
|
$
85,031
|
Accounts
receivable
|
8
|
34,828
|
30,045
|
Inventories
|
9
|
55,359
|
54,173
|
Prepaid
expenses
|
|
527
|
476
|
|
|
|
|
Total current
assets
|
|
164,967
|
169,725
|
Deferred income
taxes
|
10
|
-
|
2,099
|
Property, plant and
equipment
|
11
|
14,777
|
11,003
|
Goodwill
|
12
|
8,403
|
3,278
|
Intangible
assets
|
13
|
39,675
|
42,398
|
|
|
|
|
Total
assets
|
|
$
227,822
|
$
228,503
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Accounts payable and
accrued liabilities
|
15
|
$
31,317
|
$
30,719
|
Income and other
taxes payable
|
|
912
|
2,359
|
|
|
|
|
Total current
liabilities
|
|
32,229
|
33,078
|
Provision for
employee benefits
|
16
|
18,249
|
24,640
|
Deferred income
taxes
|
10
|
66
|
-
|
|
|
|
|
Total
liabilities
|
|
50,544
|
57,718
|
|
|
|
|
Shareholders'
equity
|
|
|
|
Share
capital
|
17
|
14,304
|
14,304
|
Accumulated other
comprehensive loss
|
18
|
(6,017)
|
(10,220)
|
Retained
earnings
|
|
168,991
|
166,701
|
|
|
|
|
Total
shareholders' equity
|
|
177,278
|
170,785
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
227,822
|
$
228,503
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
CONSOLIDATED
STATEMENTS OF EARNINGS
|
|
|
|
(The three months
ended June 30, 2017 and 2016 have not been audited or reviewed by
the Company's external auditor)
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Year
Ended
|
|
|
|
|
|
|
|
|
June
30,
|
June 30,
|
June
30,
|
June 30,
|
|
Notes
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Revenue
|
19
|
$
|
40,188
|
$
|
37,202
|
$
|
143,869
|
$
|
140,002
|
|
|
|
|
|
|
Cost of
sales
|
|
(13,816)
|
(12,147)
|
(51,899)
|
(49,344)
|
Marketing, sales and
administration
|
|
(14,616)
|
(12,107)
|
(56,877)
|
(55,635)
|
Other
expenses
|
20
|
(14)
|
(185)
|
(36)
|
(400)
|
|
|
|
|
|
|
Earnings from
operations
|
|
11,742
|
12,763
|
35,057
|
34,623
|
|
|
|
|
|
|
Financial
income
|
21
|
214
|
242
|
937
|
1,102
|
Financial
expenses
|
21
|
(255)
|
(232)
|
(1,039)
|
(961)
|
|
|
(41)
|
10
|
(102)
|
141
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
11,701
|
12,773
|
34,955
|
34,764
|
|
|
|
|
|
|
Current income
taxes
|
10
|
(2,753)
|
(3,380)
|
(8,915)
|
(8,983)
|
Deferred income
taxes
|
10
|
(267)
|
(65)
|
(406)
|
(346)
|
Income
taxes
|
|
(3,020)
|
(3,445)
|
(9,321)
|
(9,329)
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
8,681
|
$
|
9,328
|
$
|
25,634
|
$
|
25,435
|
|
|
|
|
|
|
Basic earnings per
share
|
22
|
$
|
0.30
|
$
|
0.33
|
$
|
0.90
|
$
|
0.89
|
Diluted earnings
per share
|
22
|
$
|
0.30
|
$
|
0.33
|
$
|
0.90
|
$
|
0.89
|
|
|
|
|
|
|
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
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
June 30,
|
|
|
Notes
|
2017
|
2016
|
|
|
|
|
|
Net
earnings
|
|
|
$
|
25,634
|
$
|
25,435
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
Net actuarial
gains (losses)
|
|
16
|
5,752
|
(4,767)
|
Income
taxes
|
|
10
|
(1,549)
|
1,280
|
|
|
|
4,203
|
(3,487)
|
|
|
|
|
|
Total
comprehensive income
|
|
|
$
|
29,837
|
$
|
21,948
|
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|
(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
|
-
|
4,203
|
25,634
|
29,837
|
Dividends
|
-
|
-
|
(23,344)
|
(23,344)
|
|
|
|
|
|
Balance as at June
30, 2017
|
$
|
14,304
|
$
|
(6,017)
|
$
|
168,991
|
$
|
177,278
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2015
|
$
|
14,304
|
$
|
(6,733)
|
$
|
180,553
|
$
|
188,124
|
Total comprehensive
income
|
-
|
(3,487)
|
25,435
|
21,948
|
Dividends
|
-
|
-
|
(39,287)
|
(39,287)
|
|
|
|
|
|
Balance as at June
30, 2016
|
$
|
14,304
|
$
|
(10,220)
|
$
|
166,701
|
$
|
170,785
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOW
|
|
|
|
|
(The three months
ended June 30, 2017 and 2016 have not been audited or reviewed by
the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Year
Ended
|
|
|
|
|
|
|
|
|
June
30,
|
June 30,
|
June
30,
|
June 30,
|
|
Notes
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
8,681
|
$
|
9,328
|
$
|
25,634
|
$
|
25,435
|
Adjustments
for:
|
|
|
|
|
|
Amortization and
depreciation
|
23
|
2,048
|
1,916
|
8,039
|
7,611
|
Net financial
income
|
21
|
41
|
(10)
|
102
|
(141)
|
Gain on disposal of
property and equipment
|
|
(27)
|
106
|
(33)
|
99
|
Income tax
expense
|
|
3,020
|
3,445
|
9,321
|
9,329
|
Provision for
employee benefits
|
|
(1,079)
|
(148)
|
(1,676)
|
(1,136)
|
|
|
12,684
|
14,637
|
41,387
|
41,197
|
Net change in
non-cash working capital balances
|
25
|
160
|
2,371
|
(4,127)
|
(3,668)
|
Interest
received
|
|
213
|
251
|
936
|
1,102
|
Income taxes
paid
|
|
(2,286)
|
(1,510)
|
(10,362)
|
(5,367)
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
10,771
|
15,749
|
27,834
|
33,264
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Additions to property
and equipment
|
11
|
(1,570)
|
(922)
|
(3,477)
|
(3,074)
|
Proceeds from
disposition of property and equipment
|
|
73
|
15
|
136
|
28
|
Business
acquisition
|
6
|
-
|
-
|
(11,927)
|
-
|
Deposits in cash
management pools
|
|
(3,296)
|
(9,433)
|
10,778
|
9,069
|
|
|
|
|
|
|
Net cash from
investing activities
|
|
(4,793)
|
(10,340)
|
(4,490)
|
6,023
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
Dividends
paid
|
|
(5,978)
|
(5,409)
|
(23,344)
|
(39,287)
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
(5,978)
|
(5,409)
|
(23,344)
|
(39,287)
|
|
|
|
|
|
|
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 CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended June 30, 2017 and
2016
(in thousands of Canadian dollars, except per share
amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian marketer of spirits and importer of wines. The
Company derives its revenues from the sale of its owned-brands in
Canada and other international
markets, as well as earning commissions from the representation of
selected non-owned brands in the Canadian marketplace. Revenues
predominantly consist of sales made to each of the provincial
liquor boards in Canada. The
Company also supplements these primary sources of revenue with
other ancillary activities incidental to its core business, such as
logistics fees.
Corby is controlled by Hiram Walker & Sons Limited ("HWSL"),
which is a wholly owned subsidiary of Pernod Ricard, S.A. ("PR"), a
French public limited company that controls 51.6% of the
outstanding Voting Class A Common Shares of Corby as at
June 30, 2017.
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 consolidated
financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and using the
accounting policies described herein.
These consolidated financial statements were approved by the
Company's Board of Directors on August 23,
2017.
Functional and presentation currency
The
Company's 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 consolidated
financial statements are prepared in accordance with the historical
cost model, except for certain categories of assets and
liabilities, which are measured in accordance with other methods
provided for by IFRS as explained in the accounting policies below.
Historical cost is generally based on the fair value of the
consideration given in exchange for assets.
Use of Estimates and Judgements
The preparation
of the 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 consolidated
financial statements, and the reported amounts of revenues and
expenses during the reporting period.
Judgement is commonly used in determining whether a balance or
transaction should be recognized in the 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 associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Estimates are made on the assumption the Company will continue as a
going concern and are based on information available at the time of
preparation. Estimates may be revised where the circumstance on
which they were based change or where new information becomes
available. Future outcomes can differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods
affected.
Critical judgements, estimate and assumptions are used in
applying accounting policies and have the most significant effect
on the following:
(i)
Impairment
The Company uses judgment in determining the grouping of assets
to identify its Cash Generating Units ("CGUs") for purposes of
testing for impairment of goodwill, intangible assets and property,
plant and equipment. A CGU is defined as the smallest identifiable
group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of
assets.
Intangible assets and property, plant and equipment are subject
to impairment tests whenever there is an indication that the value
of the asset has been impaired and at least once a year for
non-current assets with indefinite useful lives (goodwill and
trademarks and licences). Judgment has been used in determining
whether there has been an indication of impairment.
The Company uses estimates to determine a CGU's or group of
CGUs' recoverable amount based on the higher of fair value less
costs to sell and value in use ("VIU") which involves estimating
future cash flows before taxes. The process of determining the
recoverable amount requires the Company to make estimates and
assumptions of a long term nature regarding discount rates,
projected revenues, royalty rates and margins, as applicable,
derived from past experience, actual operating results and budgets.
These estimates and assumptions may change in the future due to
uncertain competitive and economic market conditions or changes in
business strategies.
(ii)
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.
(iii)
Income and other taxes
In calculating current and deferred income and other taxes, the
Company uses judgment when interpreting the tax rules in
jurisdictions where the Company operates. The Company also uses
judgment in classifying transactions and assessing probable
outcomes of claimed deductions, which considers expectations of
future operating results, the timing and reversal of temporary
differences, and possible audits of income tax and other tax
filings by tax authorities.
Deferred income tax assets require management judgment in order
to determine the amounts to be recognized. This includes assessing
the timing of the reversal of temporary differences to which
deferred income tax rates are applied.
(iv)
Post-employment benefits
The accounting for the Company's post-employment benefit plan
requires the use of estimates and assumptions. The accrued benefit
liability is calculated using actuarial determined data and the
Company's best estimates of future salary escalations, retirement
ages of employees, employee turnover, mortality rates, market
discount rates, and expected health and dental care costs.
(v)
Other
Other estimates include determining the useful lives of
property, plant and equipment and intangible assets for the purpose
of depreciation and amortization, as well as measuring items such
as allowances for uncollectible accounts receivable and inventory
obsolescence and certain fair value measures including those
related to the valuation of share-based payments and financial
instruments.
3. ADOPTION OF NEW AND REVISED STANDARDS AND
INTERPRETATIONS
Recent accounting pronouncements
A number of new standards, amendments to standards and
interpretations have been issued but are not yet effective for the
financial year ending June 30, 2017,
and accordingly, have not been applied in preparing these
consolidated financial statements:
(i)
Revenue
In May 2014, the International
Accounting Standards Board ("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
continutes to assess the impact of the adoption of this standard on
its financial statements and disclosures.
(ii)
Financial Instruments
The IASB has issued a new standard, IFRS 9, "Financial
Instruments" ("IFRS 9"), which will ultimately replace IAS 39,
"Financial Instruments: Recognition and Measurement" ("IAS 39").
The replacement of IAS 39 is a multi-phase project with the
objective of improving and simplifying the reporting for financial
instruments and the issuance of IFRS 9 is part of the first phase
of this project. IFRS 9 uses a single approach to determine whether
a financial asset or liability is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. For financial
assets, the approach in IFRS 9 is based on how an entity manages
its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets.
IFRS 9 requires a single impairment method to be used, replacing
multiple impairment methods in IAS 39. For financial liabilities
measured at fair value, fair value changes due to changes in an
entity's credit risk are presented in other comprehensive
income.
This standard is effective for annual periods beginning on or
after January 1, 2018 and must be
applied retrospectively. For Corby, this standard will become
effective July 1, 2018. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
(iii)
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. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied
consistently to all years presented in these consolidated financial
statements.
Basis of Consolidation
The consolidated
financial statements include the accounts of Corby Spirit and Wine
Limited and its subsidiaries, collectively referred to as "Corby"
or the "Company."
Subsidiaries are entities controlled by the Company. Control
exists where the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. The financial statements of subsidiaries are included
in the Company's consolidated financial statement from the date
that the control commences until the date that control ceases.
Intra-company balances and transactions and any unrealized
income and expenses arising from intra-company transactions are
eliminated in preparing the consolidated financial statements.
Deposits in Cash Management Pools
Corby
participates in a cash pooling arrangement under a Mirror Netting
Services 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.
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.
Inventories
Inventories
are measured at the lower of cost (acquisition cost and cost of
production, including indirect production overheads) and net
realizable value. Net realizable value is the selling price less
the estimated cost of completion and sale of the inventories. Most
inventories are valued using the average cost method. The cost of
long-cycle inventories is calculated using a single method which
includes distilling and ageing maturing costs but excludes finance
costs. These inventories are classified in current assets, although
a substantial part remains in inventory for more than one year
before being sold in order to undergo the ageing maturing process
used for certain spirits.
Property, plant and equipment
Property, plant
and equipment are recognized at acquisition cost and broken down by
component. Cost includes expenditures that are directly
attributable to the acquisition of the asset.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the assets. Useful life and depreciation
methods are reviewed at each reporting date. Items of property,
plant and equipment are written down when impaired.
The range of depreciable lives for the major categories of
property, plant and equipment are as follows:
|
|
|
|
Buildings
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|
|
25
years
|
Leasehold
improvements
|
|
|
5 to 10
years
|
Machinery and
equipment
|
|
|
3 to 12
years
|
Casks
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12
years
|
Other capital
assets
|
|
|
3 to 20
years
|
Depreciation of property, plant and equipment is recognized
within earnings from operations. The Company commences recognition
of depreciation in earnings when the item of property, plant and
equipment is ready for its intended use.
Gains and losses on disposal of an item of property, plant and
equipment are determined by comparing the proceeds from disposal
with the carrying amount of property, plant and equipment and are
recognized net, within earnings from operations.
Fully-depreciated items of property, plant and equipment that
are still in use continue to be recognized in the cost and
accumulated depreciation.
The cost of replacing part of an item of property, plant and
equipment is recognized in the carrying amount of the item if it is
probable that the future economic benefits embodied within the part
will flow to the Company and its cost can be measured reliably. The
carrying amount of the replaced part is derecognized. The costs of
repairs and maintenance of property, plant and equipment are
recognized in earnings from operations as incurred.
Leases
The Company leases certain premises and
equipment. Terms vary in length and typically permit renewal for
additional periods. These leases are classified as operating leases
under which minimum rent, including scheduled escalations, is
expensed on a straight-line basis over the term of the lease.
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases. The Company currently has no finance leases.
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 (not greater
than one year from acquisition date) 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.
Goodwill
Goodwill arising in a
business combination is recognized as an asset at the date that
control is acquired. Goodwill is measured as the excess of
the sum of the fair value of the consideration transferred over the
fair value of the identifiable assets acquired less the fair value
of the liabilities assumed. Goodwill is tested for impairment at
least annually and whenever there is an indication that the asset
may be impaired.
Goodwill is measured at cost less any accumulated impairment
losses.
Intangible Assets
Intangible assets include the
following:
(i)
Long-term Representation Rights
Long-term representation
rights represent the cost of the Company's exclusive right to
represent PR's brands in Canada.
These representation rights are carried at cost, less accumulated
amortization. Amortization is provided for on a straight-line
basis, over the term of their respective agreements. Representation
rights are scheduled to expire on September
30, 2021. Amortization is recognized as a reduction to
commission revenue earned from the representation of PR brands.
(ii)
Trademarks and licences
Trademarks and licences represent
the value of trademarks and licences of businesses acquired and are
measured at cost on initial recognition. These intangible assets
are deemed to have an indefinite life and are, therefore, not
amortized. Trademarks and licences are tested for impairment on an
annual basis or more frequently if events or changes in
circumstances indicate that the assets might be impaired.
(iii)
Non-refundable upfront fees
Non-refundable upfront fees
are carried at cost, less accumulated amortization. Amortization is
provided for on a straight-line basis over the term of the
associated agreement and recognized within revenue.
Impairment
(i)
Financial Assets
A financial asset is assessed at each reporting date to
determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have occurred
that have had a negative effect on the estimated future cash flows
of that asset.
Objective evidence that a financial asset is impaired includes,
but is not limited to, default or delinquency by a debtor,
restructuring of an amount due to the Company on terms the Company
would not consider otherwise, indicators the debtor will enter
bankruptcy, or adverse changes in the status of the debtor's
economic conditions.
An impairment loss in respect of a financial asset measured at
amortized cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows,
discounted at the original effective interest rate.
Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets
are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognized in net earnings.
An impairment loss is reversed if the reversal can be
objectively related to an event occurring after the impairment loss
was recognized. For financial assets measured at amortized cost,
the reversal is recognized in earnings.
(ii)
Non-financial assets
The carrying amount of the Company's non-financial assets are
reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indications exist, the
asset's recoverable amount is estimated.
Intangible assets and property, plant and equipment are subject
to impairment tests whenever there is an indication that the value
of the asset has been impaired and at least once a year for
non-current assets with indefinite useful lives (goodwill and
trademarks and licences).
Assets subject to impairment tests are included in
Cash-Generating Units ("CGUs"), corresponding to linked groups of
assets, which generate identifiable cash flows. For the purpose of
impairment testing, assets are grouped together into the smallest
group of assets that generates cash inflows from continuing use
that are largely independent of the cash inflows of other assets or
CGUs. CGUs to which goodwill has been allocated are aggregated so
that the level at which impairment testing is performed reflects
the lowest level at which goodwill is monitored for internal
reporting purposes. When the recoverable amount of a CGU is less
than its carrying amount, an impairment loss is recognized within
earnings from operations. The recoverable amount of the CGU is the
higher of its fair value less costs to sell and its value in
use.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a discount rate that
reflects current market assessments of the time value of money and
the risks specific to the asset or CGU. Projected cash flows are
discounted to present based on annual budgets and multi-year
strategies, extrapolated into subsequent years based on the medium
and long-term trends for each market and brand. The calculation
includes a terminal value derived by capitalizing the cash flows
generated in the last forecasted year. Assumptions applied to sales
and advertising spending are determined by management based on
previous results and long-term development trends in the markets
concerned. The present values of discounted cash flows are
sensitive to these assumptions as well as to consumer trends and
economic factors.
Fair value is based either on the sale price, net of selling
costs, obtained under normal market conditions or earnings
multiples observed in recent transactions concerning similar
assets.
Impairment losses are recognized in the statement of earnings.
Impairment losses recognized in respect of CGUs are allocated first
to reduce the carrying amount of any goodwill allocated to the CGU
and then to reduce the carrying amounts of the other assets in the
CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. With
respect to other assets, impairment losses recognized in prior
periods are assessed at each reporting date for any indicators that
the impairment loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the carrying amount of the
assets does not exceed the carrying amount that would have been
determined, net of depreciation and amortization, if no impairment
loss had been recognized.
Provisions
Provisions are recognized when there
is a present legal or constructive obligation as a result of a past
event, it is probable that an outflow of economic benefits will be
required to settle the obligation and that obligation can be
measured reliably. If the effect of the time value of money is
material, provisions are discounted using a current pre-tax rate
that reflects the risk specific to the liability. Provisions are
reviewed on a regular basis and adjusted to reflect management's
best current estimates. Due to the judgmental nature of these
items, future settlements may differ from amounts recognized.
Provisions notably include: provisions for employee benefits (Note
16) and provisions for uncertain tax positions (Note 10).
Employee Benefits
Short-term employee benefit
obligations are measured on an undiscounted basis and are expensed
as the related service is provided. The Company recognizes a
liability and an expense for short-term benefits such as bonuses if
the Company has a present legal obligation or constructive
obligation to pay this amount as a result of past service provided
by the employee and the obligation can be reasonably estimated.
The Company maintains registered defined benefit pension plans
under which benefits are available to certain employee groups. The
Company makes supplementary retirement benefits available to
certain employees under a non-registered defined benefit pension
plan. The Company also provides a defined contribution plan.
(i)
Defined Benefit Plans
For defined benefit plans, the cost of providing benefits is
determined using the projected unit credit method. The measurement
is made at each balance sheet date and the personnel data
concerning employees is revised at least every three years.
Remeasurement, comprising actuarial gains and losses, the effect of
the changes to the asset ceiling (if applicable) and the return on
plan assets (excluding interest), is reflected immediately in the
statement of financial position with a charge or credit recognized
in other comprehensive income in the period in which they occur.
Remeasurement recognized in other comprehensive income is reflected
immediately in retained earnings and will not be reclassified to
profit or loss. Past service cost is recognized in profit or loss
in the period of a plan amendment. Net interest is calculated by
applying the discount rate at the beginning of the period to the
net defined benefit liability or asset.
Defined benefit costs are categorized as follows:
- Service costs (including current service costs, past service
cost and gains and losses on curtailments and settlements)
- Net interest expense or income
- Remeasurement
Service costs are presented in marketing, sales and
administration in the consolidated statement of earnings.
Curtailment gains and losses are accounted for as past service
costs. Net interest cost is included in net financial income and
expenses.
The provision for employee benefits recognized in the balance
sheet represents the actual deficit or surplus in the Company's
defined benefit plans. Any surplus resulting from this calculation
is limited to the present value of any economic benefits available
in the form of refunds from the plans or reductions in future
contributions to the plans.
(ii)
Defined contribution plans
Contributions are recognized as expenses when the employees have
rendered services. As the Company is not committed beyond the
amount of such contributions, no provision is recognized in respect
of defined contribution plans.
(iii)
Termination benefits
A liability for a termination benefit is recognized at the
earlier of when the entity can no longer withdraw the offer of the
termination benefit and when the entity recognizes any related
restructuring costs.
Income Taxes
Income tax expense comprises current and
deferred income tax. Income tax expense is recognized in net
earnings except to the extent that it relates to items recognized
either in other comprehensive income or directly in equity, in
which case it is recognized in other comprehensive income or in
equity, respectively.
Current income tax expense comprises the tax payable on the
taxable income for the current financial year using tax rates
enacted or substantively enacted at the reporting date, and any
adjustment to income taxes payable in respect of previous
years.
Deferred tax is recognized on temporary differences between the
tax and book value of assets and liabilities in the consolidated
balance sheet and is measured using the balance sheet approach.
Deferred tax is measured at the tax rates that are expected to
apply to temporary differences when they reverse, using tax rates
enacted or substantively enacted at the reporting date. Deferred
tax assets and liabilities are offset if there is a legally
enforceable right to offset the recognized amounts and the Company
intends to settle on a net basis or to realize the asset and settle
the liability simultaneously.
A deferred tax asset is recognized for unused tax losses, tax
credits and deductible temporary differences to the extent that it
is probable that future taxable earnings will be available against
which they can be utilized. Deferred tax assets are reviewed
at each reporting date and are reduced to the extent that it is no
longer probable that all or part of the related tax benefit will be
realized.
In determining the amount of current and deferred tax the
Company takes into account the impact of uncertain tax positions
and whether additional taxes and interest may be due. The Company
believes that its accruals for tax liabilities are adequate for all
open tax years based on its assessment of many factors, including
interpretations of tax law and prior experience. This assessment
relies on estimates and assumptions and may involve a series of
judgements about future events. New information may become
available that causes the Company to change its judgement regarding
the adequacy of existing tax liabilities; such changes to tax
liabilities will impact tax expense in the period that such a
determination is made.
Revenue
Recognition
Revenue is comprised of case good sales, commissions and
revenues from ancillary activities and is measured at the fair
value of the consideration received or to be received, after
deducting trade discounts, volume rebates and sales-related taxes
and duties. Sales are recognized when the significant risks and
rewards of ownership have been transferred, generally at the date
of transfer of ownership
title.
(i)
Costs of services rendered in connection with sales
In accordance with IAS 18 – Revenue ("IAS 18"), certain
costs of services rendered in connection with sales, such as
advertising programmes in conjunction with distributors, listing
costs for new products, and promotional activities at point of
sale, are deducted directly from sales if there is no separately
identifiable service whose fair value can be reliably measured.
(ii)
Commissions
When the Company acts in the capacity of an agent rather than as
the principal in a transaction, the revenue recognized is the net
amount of commissions earned by the Company. Commissions are
reported net of amortization of long-term representation rights and
non-refundable upfront fees. The long-term representation rights
represent the Company's exclusive right to represent PR's brands in
Canada and are being amortized on
a straight-line basis over the term of their respective
agreements.
(iii)
Interest
Interest income is recognized on an accrual basis using the
effective interest method. Primarily interest income is earned on
deposits in cash management pools.
Stock-Based Compensation Plans
The Company
utilizes a Restricted Share Units Plan as its long-term incentive
plan. Through this plan, restricted share units ("RSUs") will be
granted to certain officers and employees at a grant price equal to
the market closing price of the Company's Voting Class A Common
Shares on the last day prior to grant. RSUs vest at the end of a
three-year term, subject to the achievement of pre-determined
corporate performance targets, and are settled in cash. The related
compensation expense is recognized over the the three year vesting
period. Accrued RSUs are valued at the closing market price of the
Company's Voting Class A Common shares at each balance sheet
date.
Unvested RSUs will attract dividend-equivalent units whenever
dividends are paid on the Voting Class A Common Shares of the
Company and will be immediately reinvested into additional RSUs,
which will vest and become payable at the end of the three-year
vesting period, subject to the same performance conditions as the
original RSU award. On the date of vesting, the holder will be
entitled to the cash value of the number of RSUs granted, plus any
RSUs received from reinvested dividend-equivalents, at the market
closing price of the Company's Voting Class A Common Shares as at
the vesting date. RSUs do not entitle participants to acquire any
rights or entitlements as a shareholder of the Company.
Earnings per Common Share
The Company presents
basic and diluted earnings per share ("EPS") amounts for its common
shares. Basic EPS is calculated by dividing the net earnings
attributable to common shareholders of the Company by the weighted
average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting the net income attributable
to shareholders and the weighted average number of shares
outstanding for the effect of potentially dilutive shares. There
are no potentially dilutive shares as at June 30, 2017.
Classification of Financial
Instruments
Financial assets and financial liabilities
are recognized when the Company becomes a party to the contractual
provisions of the instruments. Financial instruments are classified
into one of the following categories: fair value through profit or
loss, held-to-maturity investments, loans and receivables,
available-for-sale financial assets, or other financial
liabilities. The classification determines the accounting treatment
of the instrument. The classification is determined by the Company
when the financial instrument is initially recorded, based on the
underlying purpose of the instrument.
Corby's financial assets and liabilities are classified and
measured as follows:
Financial
Asset/Liability
|
|
|
Category
|
|
Measurement
|
|
|
|
|
|
|
Deposits in cash
management pools
|
|
|
Loans and
receivables
|
|
Amortized
cost
|
Accounts
receivable
|
|
|
Loans and
receivables
|
|
Amortized
cost
|
Accounts payable and
accrued liabilities
|
|
|
Loans and
receivables
|
|
Amortized
cost
|
Financial instruments measured at amortized cost are initially
recognized at fair value plus any directly attributable transaction
costs and then, subsequently, at amortized cost using the effective
interest method, less any impairment losses, with gains and losses
recognized in earnings in the period in which the gain or loss
occurs.
All financial assets are recognized and derecognized on the
trade date. A financial asset is derecognized when the contractual
rights to the cash flows from the asset expired or when the Company
transferred the financial asset to another party without retaining
control or substantially all the risks and rewards of ownership of
the asset. Any interest in transferred financial assets that is
created or retained by the Company is recognized as a separate
asset or liability.
A financial liability is derecognized when its contractual
obligations are discharged, cancelled or expire.
Transaction costs are added to the initial fair value of
financial assets and liabilities when those financial assets and
liabilities are not measured at fair value subsequent to initial
measurement. Transaction costs are amortized to net earnings, in
finance expense, using the effective interest method.
Segmented Reporting
An operating segment is a
component of the Company that engages in business activities from
which it may earn revenues and incur expenses, including revenues
and expenses that relate to transactions with any of the Company's
other operations. Segment operating results are reviewed regularly
by the Company's CEO to make decisions about resources to be
allocated to the segment and assess its performance, and for which
discrete financial information is available.
5. FINANCIAL INSTRUMENTS
Corby's financial instruments consist of its deposits in cash
management pools, accounts receivable and accounts payable and
accrued liabilities balances.
Financial Risk Management Objectives and
Policies
In the normal course of business, the Company
is exposed to financial risks that have the potential to negatively
impact its financial performance. The Company does not use
derivative financial instruments to manage these risks, as
management believes that the risks arising from the Company's
financial instruments are already at an acceptably low level. These
risks are discussed in more detail below.
Credit Risk
Credit risk arises from cash held with PR via Corby's participation
in the Mirror Netting Services Agreement (further described in Note
27), 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 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.
Management believes that the Company's credit risk relating to
accounts receivable is at an acceptably low level. Over 85% of
Corby's trade receivable balances are collectable from
government-controlled liquor boards. The remaining trade receivable
balances relate to agency sales and sales generated from export
sales. Receivables that are neither past due nor impaired are
considered credit of high quality.
With respect to Corby's deposits in PR's cash management pools,
the Company monitors PR's credit rating in the normal course of
business and has the right to terminate its participation in the
Mirror Netting Services Agreement at any time, subject to five
days' written notice.
Liquidity Risk
Corby's sources of liquidity are its
deposits in cash management pools of $74,253 and its cash generated by operating
activities. Corby's total contractual maturities are represented by
its accounts payable and accrued liabilities balances which totaled
$32,229 as at June 30, 2017, and are all due to be paid within
one year. The Company believes that its deposits in cash management
pools, combined with its historically strong and consistent
operational cash flows, are more than sufficient to fund its
operations, investing activities and commitments for the
foreseeable future.
Interest Rate Risk
Interest rate risk is the risk that
the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. 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 program 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.
Foreign Currency Risk
The Company has exposure to
foreign currency risk as it conducts business in multiple foreign
currencies; however, its exposure is primarily limited to the US
dollar ("USD") and UK pound sterling ("GBP"). Corby does not
utilize derivative instruments to manage this risk. Subject to
competitive conditions, changes in foreign currency rates may be
passed on to consumers through pricing over the long-term.
USD Exposure
The Company's demand for USD has traditionally outpaced its supply,
due to USD sourcing of production inputs exceeding that of the
Company's USD sales. Therefore, decreases in the value of the
Canadian dollar ("CAD") relative to the USD will have an
unfavourable impact on the Company's earnings.
GBP Exposure
The Company's supply of GBP outpaces demand, as Corby's sales into
the UK market are denominated in GBP, while having only certain
production inputs denominated in GBP. Therefore, increases in the
value of the CAD relative to the GBP will have an unfavourable
impact on the Company's earnings.
Commodity Risk
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 via pricing.
Fair Value of Financial Instruments
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. BUSINESS ACQUISITION
On September 30, 2016, the Company
acquired the spirits assets of Quebec-based Domaines Pinnacle for a purchase
price of $11,927. The transaction
includes Domaines Pinnacle's spirits portfolio, including the
Ungava® Premium Canadian gin brand, Chic Choc® Spiced rum, a range
of maple-based liqueur products as well as production assets and
related working capital. The acquired brand portfolio and other
assets is operated as Ungava Spirits Co. Ltd., ("Ungava Spirits") a
new, 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 liqueurs including Coureur des Bois® and Cabot
Trail®, complementing Corby's existing Canadian portfolio. The
acquisition was accounted for using the acquisition method and was
funded from the Company's desposits in cash management pools.
Acquisition costs of $625 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 $422
was recognized in the year ended June 30,
2017.
The total purchase consideration of $11,927 was allocated to net tangible assets
acquired based on their fair value of $3,642, identifiable intangible assets
(trademarks) of $3,160 and
$5,125 to goodwill. The fair value of
the indentifiable intangible assets related to trademarks were
based on the relief from royality method, using level 3 inputs
within the fair value hierarchy, which included forecasted future
cash flows, long-term revenue growth rates, royalty rates and
discount rates.
Assets acquired and liabilities recognized at the date of
acquisition are as follows:
Fair value of
consideration transferred:
|
|
|
|
|
Cash
|
|
|
$
|
10,632
|
|
Working capital
adjustment
|
|
|
1,295
|
|
|
|
|
$
|
11,927
|
|
|
|
|
|
|
|
|
|
|
Identifiable net
assets acquired:
|
|
|
|
|
Trade
receivables
|
|
|
405
|
|
Inventory
|
|
|
1,267
|
|
Property, plant and
equipment
|
|
|
2,557
|
|
Trademarks
|
|
|
3,160
|
|
Trade
payables
|
|
|
(377)
|
|
Deferred tax
liabilities
|
|
|
(210)
|
|
|
|
|
$
|
6,802
|
|
|
|
|
|
Excess allocated
to goodwill
|
|
|
$
|
5,125
|
Goodwill arising from this transaction is expected to be
deductible for tax purposes and represents expected synergies,
revenue growth and future market development. The benefits are not
recognized separately from goodwill because they do not meet the
recognition criteria for identifiable intangible assets.
Since the transaction date, the acquired brands and assets have
contributed $6,224 to revenues and a
net loss of $124. 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 19.
7. CAPITAL MANAGEMENT
The Company's objectives when managing capital are:
- To ensure sufficient capital exists to allow management the
flexibility to execute its strategic plans; and
- To ensure shareholders receive a reasonable return on their
investment in the form of quarterly dividends.
Management includes the following items in its definition of
capital:
|
June
30,
|
June 30,
|
|
2017
|
2016
|
|
|
|
Share
capital
|
$
|
14,304
|
$
|
14,304
|
Accumulated other
comprehensive loss
|
(6,017)
|
(10,220)
|
Retained
earnings
|
168,991
|
166,701
|
|
|
|
Net capital under
management
|
$
|
177,278
|
$
|
170,785
|
The Company is not subject to any externally imposed capital
requirements.
The Company's dividend policy stipulates that, barring any
unanticipated developments, regular dividends will be paid
quarterly, on the basis of an annual amount equal to the greater of
85% of net earnings per share in the preceding fiscal year ended
June 30, and $0.60 per share.
The Company is meeting all of its objectives and stated policies
with respect to its management of capital.
8. ACCOUNTS RECEIVABLE
|
June
30,
|
June 30,
|
|
2017
|
2016
|
|
|
|
Trade
receivables
|
$
|
17,246
|
$
|
15,342
|
Due from related
parties
|
15,619
|
13,055
|
Other
|
2,153
|
1,838
|
|
35,018
|
30,235
|
Allowance for
uncollectible amounts
|
(190)
|
(190)
|
|
|
|
|
$
|
34,828
|
$
|
30,045
|
9. INVENTORIES
|
June
30,
|
June 30,
|
|
2017
|
2016
|
|
|
|
Raw
materials
|
$
|
3,137
|
$
|
2,088
|
Work-in-progress
|
44,486
|
44,005
|
Finished
goods
|
7,736
|
8,080
|
|
|
|
|
$
|
55,359
|
$
|
54,173
|
The cost of inventory recognized as an expense and included in
cost of goods sold during the year ended June 30, 2017 was $42,585 (2016 – $39,605). During the year, there were write-downs
of $199 (2016 -$178) on 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.
10. INCOME TAXES
|
2017
|
2016
|
Current income tax
expense
|
|
|
Current
period
|
$
|
9,196
|
$
|
8,970
|
Change in provisions
for uncertain tax positions
|
(150)
|
-
|
Adjustments with
respect to prior period tax estimates
|
(131)
|
13
|
|
|
|
|
$
|
8,915
|
$
|
8,983
|
|
|
|
Deferred income
tax expense
|
|
|
Origination and
reversal of temporary differences
|
$
|
282
|
$
|
475
|
Change in tax
rate
|
-
|
(1)
|
Adjustments with
respect to prior period tax estimates
|
124
|
(128)
|
|
|
|
|
406
|
346
|
|
|
|
Total income tax
expense
|
$
|
9,321
|
$
|
9,329
|
There are no capital loss carry-forwards for tax puproses.
The Company's effective tax rates comprise the following
items:
|
2017
|
2016
|
|
|
|
|
|
Net earnings for the
financial year
|
$
|
25,634
|
|
$
|
25,435
|
|
Total income tax
expense
|
9,321
|
|
9,329
|
|
Earnings before
income tax expense
|
$
|
34,755
|
|
$
|
34,764
|
|
|
|
|
|
|
Income tax using the
combined Federal and Provincial
|
|
|
|
|
|
statutory tax
rates
|
$
|
9,358
|
26.9%
|
$
|
9,320
|
26.8%
|
|
|
|
|
|
Non-deductible
expenses
|
121
|
0.3%
|
125
|
0.4%
|
Adjustments with
respect to prior period tax estimates
|
(8)
|
(0.0%)
|
(115)
|
(0.3%)
|
Other
|
(150)
|
(0.4%)
|
(1)
|
0.0%
|
|
|
|
|
|
Effective income tax
rate
|
$
|
9,321
|
26.8%
|
$
|
9,329
|
26.8%
|
Deferred tax assets (liabilities) are broken down by nature as
follows:
|
June
30,
|
Recognized
in
|
June
30,
|
|
2016
|
Earnings
|
OCI
|
Equity
|
Acquisitions
|
2017
|
Provision for
pensions
|
$
|
6,730
|
$
|
8
|
$
|
(1,549)
|
$
|
-
|
$
|
-
|
$
|
5,189
|
Property, plant and
equipment
|
(2,051)
|
(309)
|
-
|
-
|
-
|
$
|
(2,360)
|
Inventory
|
(182)
|
91
|
-
|
-
|
-
|
$
|
(91)
|
Intangibles
|
(2,642)
|
(221)
|
-
|
-
|
(210)
|
$
|
(3,073)
|
Other
|
244
|
25
|
-
|
-
|
-
|
$
|
269
|
|
|
|
|
|
|
|
|
$
|
2,099
|
$
|
(406)
|
$
|
(1,549)
|
$
|
-
|
$
|
(210)
|
$
|
(66)
|
|
|
|
|
|
|
|
|
June
30,
|
Recognized
in
|
June 30,
|
|
2015
|
Earnings
|
OCI
|
Equity
|
Acquisitions
|
2016
|
Provision for
pensions
|
$
|
5,525
|
$
|
(75)
|
$
|
1,280
|
$
|
-
|
$
|
-
|
$
|
6,730
|
Property, plant and
equipment
|
(1,676)
|
(375)
|
-
|
-
|
-
|
$
|
(2,051)
|
Inventory
|
(273)
|
91
|
-
|
-
|
-
|
$
|
(182)
|
Intangibles
|
(2,642)
|
-
|
-
|
-
|
-
|
$
|
(2,642)
|
Other
|
231
|
13
|
-
|
-
|
-
|
$
|
244
|
|
|
|
|
|
|
|
|
$
|
1,165
|
$
|
(346)
|
$
|
1,280
|
$
|
-
|
$
|
-
|
$
|
2,099
|
Income taxes payable includes a provision for uncertain tax
risks in the amount of $636 at
June 30, 2017 ($786 – June 30,
2016).
11. PROPERTY, PLANT AND EQUIPMENT
|
June
30,
|
Acquisition
|
|
|
|
June
30,
|
|
2016
|
(Note
6)
|
Additions
|
Depreciation
|
Disposals
|
2017
|
|
|
|
|
|
|
|
Land
|
$
|
-
|
$
|
27
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
27
|
Building
|
-
|
1,800
|
-
|
-
|
-
|
1,800
|
Leasehold
improvements
|
1,002
|
-
|
220
|
-
|
-
|
1,222
|
Machinery and
equipment
|
6,795
|
730
|
753
|
-
|
-
|
8,278
|
Casks
|
10,649
|
-
|
1,542
|
-
|
(178)
|
12,013
|
Other
|
2,162
|
-
|
962
|
-
|
-
|
3,124
|
Gross
value
|
20,607
|
2,557
|
3,477
|
-
|
(178)
|
26,463
|
|
|
|
|
|
|
|
Building
|
-
|
-
|
-
|
(58)
|
-
|
(58)
|
Leasehold
improvements
|
(760)
|
-
|
-
|
(114)
|
-
|
(874)
|
Machinery and
equipment
|
(3,751)
|
-
|
-
|
(672)
|
-
|
(4,423)
|
Casks
|
(4,286)
|
-
|
-
|
(891)
|
74
|
(5,103)
|
Other
|
(807)
|
-
|
-
|
(421)
|
-
|
(1,228)
|
Accum.
depreciation
|
(9,604)
|
-
|
-
|
(2,156)
|
74
|
(11,686)
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
$
|
11,003
|
$
|
2,557
|
$
|
3,477
|
$
|
(2,156)
|
$
|
(104)
|
$
|
14,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
June 30,
|
|
2015
|
Acquisition
|
Additions
|
Depreciation
|
Disposals
|
2016
|
|
|
|
|
|
|
|
Leasehold
improvements
|
$
|
1,002
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,002
|
Machinery and
equipment
|
6,323
|
-
|
838
|
-
|
(366)
|
6,795
|
Casks
|
9,068
|
-
|
1,605
|
-
|
(24)
|
10,649
|
Other
|
1,531
|
-
|
631
|
-
|
-
|
2,162
|
Gross
value
|
17,924
|
-
|
3,074
|
-
|
(390)
|
20,607
|
|
|
|
|
|
|
|
Leasehold
improvements
|
(646)
|
-
|
-
|
(114)
|
-
|
(760)
|
Machinery and
equipment
|
(3,488)
|
-
|
-
|
(523)
|
260
|
(3,751)
|
Casks
|
(3,525)
|
-
|
-
|
(765)
|
3
|
(4,286)
|
Other
|
(481)
|
-
|
-
|
(326)
|
-
|
(807)
|
Accum.
depreciation
|
(8,140)
|
-
|
-
|
(1,728)
|
264
|
(9,604)
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
$
|
9,784
|
$
|
-
|
$
|
3,074
|
$
|
(1,728)
|
$
|
(127)
|
$
|
11,003
|
12. GOODWILL
|
June
30,
|
June 30,
|
|
2017
|
2016
|
|
|
|
Balance, beginning of
year
|
$
|
3,278
|
$
|
3,278
|
Acquisitons during
the year (Note 6)
|
5,125
|
-
|
|
|
|
Balance, end of
year
|
$
|
8,403
|
$
|
3,278
|
There have been no impairment losses recognized with respect to
goodwill during 2017 (2016 - $nil).
13. INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movements in the
Year
|
|
|
|
Opening
|
|
|
|
|
|
|
|
|
Ending
|
|
Book
Value
|
Additions
|
Amortization
|
Impairments
|
Disposals
|
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
representation rights
|
$
|
30,412
|
$
|
-
|
$
|
(5,780)
|
$
|
-
|
$
|
-
|
$
|
24,632
|
Trademarks and
licenses
|
|
11,801
|
|
3,160
|
|
-
|
|
-
|
|
-
|
|
14,961
|
Non-refundable
upfront fees
|
|
185
|
|
-
|
|
(103)
|
|
-
|
|
-
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,398
|
$
|
3,160
|
$
|
(5,883)
|
$
|
-
|
$
|
-
|
$
|
39,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movements in the
Year
|
|
|
|
Opening
|
|
|
|
|
|
|
|
|
Ending
|
|
Book
Value
|
Additions
|
Amortization
|
Impairments
|
Disposals
|
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
representation rights
|
$
|
36,192
|
$
|
-
|
$
|
(5,780)
|
$
|
-
|
$
|
-
|
$
|
30,412
|
Trademarks and
licenses
|
|
11,801
|
|
-
|
|
-
|
|
-
|
|
-
|
|
11,801
|
Non-refundable
upfront fees
|
|
288
|
|
-
|
|
(103)
|
|
-
|
|
-
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,281
|
$
|
-
|
$
|
(5,883)
|
$
|
-
|
$
|
-
|
$
|
42,398
|
14. IMPAIRMENT
The Company tests goodwill and indefinite-lived intangibles
(trademarks and licences) for impairment on an annual basis.The
carrying value of goodwill and indefinite-lived intangibles at
June 30, 2017, along with the data
and assumptions applied to the Cash Generating Units ("CGUs") of
the Case Goods Segment are as follows:
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Carrying
|
Value
|
|
Terminal
|
|
|
|
Value
|
Trademarks
|
Discount
|
Growth
|
|
|
|
Goodwill
|
&
Licences
|
Rate
|
Rate
|
|
|
|
|
|
|
|
|
|
|
Case Goods
Segment
|
|
|
$
|
8,403
|
$
|
14,961
|
7.4% to
9.5%
|
|
2.0%
|
The Company's commissions segment has no goodwill or indefinite
lived intangibles.
For purposes of impairment testing, goodwill and intangibles
with an indefinite life (trademarks and licences) were allocated to
the group of CGUs which represent the lowest level within the group
at which the goodwill is monitored for internal management
purposes.
During the financial year ended June 30,
2017, the Company performed impairment testing on goodwill
and indefinite-lived intangible assets in accordance with its
accounting policy and identified no impairment.
The discount rate used for these calculations is a pre-tax rate
which corresponds to the weighted average cost of capital.
Different discount rates were used to allow for risks specific to
certain markets or geographical areas in calculating cash flows.
Assumptions made in terms of future changes in sales and of
terminal values are reasonable and in accordance with market data
available for each of the CGUs. Additional impairment tests are
applied where events or specific circumstances suggest that a
potential impairment exists.
A 50 basis points ("bp") increase in the discount rates would
result in no impairment to goodwill or the indefinite-lived
intangibles. A 50bp decrease in the terminal growth rate would
result in no impairment to goodwill or indefinite-lived
intangibles.
15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
|
$
|
22,937
|
|
$
|
22,570
|
Due to related
parties
|
|
|
|
|
6,747
|
|
|
6,657
|
Other
|
|
|
|
|
1,633
|
|
|
1,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,317
|
|
$
|
30,719
|
16. PROVISION FOR EMPLOYEE BENEFITS
The Company provides pension benefits to its employees through
defined contribution pension plan and defined benefit pension
plans. Employees hired after July 1,
2010 are no longer offered enrolment into the Company's
defined benefit pension plans. Instead, the Company provides these
employees a defined contribution pension plan. To become eligible
to join the defined contribution pension plan, most employees must
first accrue one year of service. For the year ended June 30, 2017, the Company recognized
contributions of $360 as expense
(2016 - $323) with respect to the
defined contribution pension plan.
The Company has two defined benefit pension plans for executives
and salaried employees (the "registered pension plans"), two
supplementary executive retirement plans for retired and current
senior executives of the Company (the "non-registered pension
plans"), and a post-retirement benefit plan ("other benefit plan")
covering retiree life insurance, health care and dental care.
Benefits under these plans are based on years of service and
compensation levels.
The registered pension plans are registered under the Pension
Benefits Act (Ontario) (the "Act")
with regulatory oversight by the Financial Services Commission of
Ontario. The latest valuations
completed for these plans are dated December
31, 2016. The next required valuations must be completed
with an effective date no later than December 31, 2019. The Act requires funding
valuations for the registered pension plans to be performed at
least once every three years and plan deficits must be funded over
a period of up to five years. The registered pension plans are
funded through a combination of employee and employer
contributions.
The Company is under no obligation to make any funding in
respect to the benefits accruing under the non-registered pension
plans. However, the Company has adopted a funding policy to make
periodic contributions to the non-registered pension plans to
provide security for the benefits accrued by the members. Such
funding policy may be reviewed and amended at any time by the
Company.
The post-retirement benefit plan is unfunded.
As at June 30, 2017, the average
duration of the defined benefit obligation for the registered and
non-registered pension plans and the post retirement benefit plan
is 13.8 years.
Company contributions to the registered and non-registered
pension plans are expected to be $2,469 for the fiscal year ended June 30, 2018.
The Company maintains a Canadian Pension Committee, which
provides oversight of the Company's pension benefit policies,
investment policies and plan administration. The Company uses the
service of third parties to provide investment management services
such as managing the pension plan assets in accordance with the
established investment policies.
The Company is subject to certain risks as a result of the
existence of its registered and non-registered pension plans and
its post-retirement benefit plan. These risks include actuarial
risks such as investment risk, interest rate risk as this impacts
the discount rate, longevity risk and compensation risk.
The present value of the defined benefit obligation is
calculated using a discount rate. If the return on plan assets is
below this rate, a plan's surplus is reduced or a plan deficit
occurs. The Company mitigates this investment risk by establishing
an investment policy to be followed by the registered pension
plans' investment managers and providing oversight to the Canadian
Pension Committee. The Company's investment policy requires the
registered pension plans' assets be invested in a diversified
portfolio that does not concentrate investment in any one security
or bond.
An increase in interest rates will increase the discount rate,
which will subsequently decrease the present value of the defined
benefit obligation. An increase in longevity and compensation will
increase the present value of the defined benefit obligation.
Longevity risk is impacted by mortality assumptions, which are
based on the 2014 Private Canadian Pensioners Mortality
tables as prepared by the Canadian Institute of Actuaries.
The significant actuarial assumptions are as follows:
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
Registered
|
Non-registered
|
Other
|
|
Registered
|
Non-registered
|
Other
|
|
|
|
|
Pension
|
Pension
|
Benefit
|
|
Pension
|
Pension
|
Benefit
|
|
|
|
|
Plans
|
Plans
|
Plan
|
|
Plans
|
Plans
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit
obligation, end of year
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
3.4%
|
3.4%
|
3.4%
|
|
3.4%
|
3.4%
|
3.4%
|
Compensation
increase
|
3.0-3.5%
|
3.5%
|
N/A
|
|
3.0-3.5%
|
3.5%
|
N/A
|
Inflation
|
|
|
2.0%
|
2.0%
|
2.0%
|
|
2.0%
|
2.0%
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
Benefit expense,
for the year
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
3.4%
|
3.4%
|
3.4%
|
|
3.9%
|
3.9%
|
3.9%
|
Compensation
increase
|
3.0%
|
3.0%
|
N/A
|
|
3.0-3.5%
|
3.5%
|
N/A
|
Inflation
|
|
|
2.0%
|
2.0%
|
2.0%
|
|
2.0%
|
2.0%
|
2.0%
|
The discount rate has been set based on current market rates at
the end of the Company's financial year, assuming a rate of return
comparable to high quality fixed income securities of equivalent
currency and term that approximate the terms of the pension plan
liabilities. A 50 basis points ("bp") increase in the assumed
discount rate would decrease the amount of the Company's provision
for pensions and pension expense in respect of its registered and
non-registered defined benefit plans by $4,513 and $175,
respectively. Conversely, a 50bp decrease in the assumed discount
rate would increase the amount of the Company's provision for
pensions and pension expense in respect of its registered and
non-registered defined benefit plans by $4,914 and $199,
respectively. The method used to determined the impact of the
discount rate changes is consistent with the method used to
determine the amounts recognized in the financial statements.
The medical cost trend rate used was 5.8% for 2017 (2016 –
5.8%), with 4.7% being the ultimate trend rate for 2026 and years
thereafter. The dental cost trend rate used was 5.0% for 2017 (2016
– 5.0%). Assumed health care cost trend rates have a significant
effect on the amounts reported for the other benefit plans. A 1%
increase in the assumed medical cost trend rate would increase the
amount of the Company's provision for pensions and pension expense
by $1,487 and $122, respectively. Conversely, a 1% decrease in
the medical cost trend rate would decrease the amount of the
Company's provision for pensions and pension expense by
$1,187 and $92, respectively. The method used to determine
the impact of compensation rate changes is consistent with the
method used to determine the amounts recognized in the financial
statements.
A summary of the Company's defined benefit obligation and plan
assets is as follows:
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
Present value of
defined benefit obligation of unfunded plans
|
$
|
(11,056)
|
|
$
|
(11,068)
|
Present value of
defined benefit obligation of partially funded plans
|
|
(10,840)
|
|
|
(10,682)
|
Present value of
defined benefit obligation of fully funded plans
|
|
(45,955)
|
|
|
(48,733)
|
Total present value
of defined benefit obligation
|
|
|
(67,851)
|
|
|
(70,483)
|
Fair value of plan
assets
|
|
|
|
49,602
|
|
|
45,843
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit
liability
|
|
|
$
|
(18,249)
|
|
$
|
(24,640)
|
Information about the Company's pension and other benefit plans
for the year ended June 30, 2017 is
as follows:
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
Registered
|
Non-registered
|
|
Other
|
|
|
|
|
|
Pension
|
|
Pension
|
|
Benefit
|
|
|
|
|
|
Plans
|
|
Plans
|
|
Plan
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets, beginning of year
|
|
$
|
36,291
|
$
|
9,552
|
$
|
-
|
$
|
45,843
|
|
Interest
income
|
|
|
1,214
|
|
322
|
|
-
|
|
1,536
|
|
Actuarial
gains
|
|
|
2,670
|
|
519
|
|
-
|
|
3,189
|
|
Company
contributions
|
|
|
2,294
|
|
303
|
|
-
|
|
2,597
|
|
Plan participants'
contributions
|
|
|
151
|
|
-
|
|
-
|
|
151
|
|
Benefits
paid
|
|
|
(2,976)
|
|
(498)
|
|
-
|
|
(3,474)
|
|
Administrative
costs
|
|
|
(200)
|
|
(40)
|
|
-
|
|
(240)
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets, end of year
|
|
$
|
39,444
|
$
|
10,158
|
$
|
-
|
$
|
49,602
|
|
|
|
|
|
|
|
|
|
|
Present value of
defined benefit obligation
|
|
|
|
|
|
|
|
|
|
Defined benefit
obligation, beginning of year
|
|
$
|
48,733
|
$
|
10,682
|
$
|
11,068
|
$
|
70,483
|
|
Current service
cost
|
|
|
1,044
|
|
208
|
|
246
|
|
1,498
|
|
Interest
cost
|
|
|
1,614
|
|
354
|
|
366
|
|
2,334
|
|
Plan participants'
contributions
|
|
|
151
|
|
-
|
|
-
|
|
151
|
|
Actuarial (gains)
losses:
|
|
|
|
|
|
|
|
|
|
|
|
Experience (gains)
and losses
|
|
|
|
(1,860)
|
|
255
|
|
(92)
|
|
(1,697)
|
|
|
Losses due to
financial assumption changes
|
|
|
64
|
|
78
|
|
-
|
|
142
|
|
|
Gains due to
demographic assumption changes
|
|
|
(815)
|
|
(193)
|
|
-
|
|
(1,008)
|
|
Benefits
paid
|
|
|
(2,976)
|
|
(544)
|
|
(532)
|
|
(4,052)
|
|
|
|
|
|
|
|
|
|
|
Present value of the
defined benefit obligations, end of year
|
|
$
|
45,955
|
$
|
10,840
|
$
|
11,056
|
$
|
67,851
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit
liability
|
|
$
|
6,511
|
$
|
682
|
$
|
11,056
|
$
|
18,249
|
The actual return on plan assets for the financial year ended
June 30, 2017 was $4,725, which was composed of interest income and
actuarial gains and losses included in the reconciliation of the
fair value of plan assets above.
Information about the Company's pension and other benefit plans
for the year ended June 30, 2016 is
as follows:
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
Registered
|
Non-registered
|
|
Other
|
|
|
|
|
|
Pension
|
|
Pension
|
|
Benefit
|
|
|
|
|
|
Plans
|
|
Plans
|
|
Plan
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets, beginning of year
|
|
$
|
36,268
|
$
|
9,791
|
$
|
-
|
$
|
46,059
|
|
Interest
income
|
|
|
1,381
|
|
373
|
|
-
|
|
1,754
|
|
Actuarial
losses
|
|
|
(226)
|
|
(384)
|
|
-
|
|
(610)
|
|
Company
contributions
|
|
|
1,550
|
|
303
|
|
-
|
|
1,853
|
|
Plan participants'
contributions
|
|
|
170
|
|
-
|
|
-
|
|
170
|
|
Benefits
paid
|
|
|
(2,562)
|
|
(491)
|
|
-
|
|
(3,053)
|
|
Membership
transfers
|
|
|
(90)
|
|
-
|
|
-
|
|
(90)
|
|
Administrative
costs
|
|
|
(200)
|
|
(40)
|
|
-
|
|
(240)
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets, end of year
|
|
$
|
36,291
|
$
|
9,552
|
$
|
-
|
$
|
45,843
|
|
|
|
|
|
|
|
|
|
|
Present value of
defined benefit obligation
|
|
|
|
|
|
|
|
|
|
Defined benefit
obligation, beginning of year
|
|
$
|
45,650
|
$
|
10,019
|
$
|
10,438
|
$
|
66,107
|
|
Current service
cost
|
|
|
898
|
|
184
|
|
210
|
|
1,292
|
|
Interest
cost
|
|
|
1,709
|
|
376
|
|
390
|
|
2,475
|
|
Past service cost,
including curtailments
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Plan participants'
contributions
|
|
|
170
|
|
-
|
|
-
|
|
170
|
|
Actuarial (gains)
losses:
|
|
|
|
|
|
|
|
|
|
|
|
Experience (gains)
and losses
|
|
|
8
|
|
16
|
|
(83)
|
|
(59)
|
|
|
Losses due to
financial assumption changes
|
|
|
2,949
|
|
624
|
|
643
|
|
4,216
|
|
|
Losses due to
demographic assumption changes
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Membership
transfers
|
|
|
(90)
|
|
-
|
|
-
|
|
(90)
|
|
Benefits
paid
|
|
|
(2,561)
|
|
(537)
|
|
(530)
|
|
(3,628)
|
|
|
|
|
|
|
|
|
|
|
Present value of the
defined benefit obligations, end of year
|
|
$
|
48,733
|
$
|
10,682
|
$
|
11,068
|
$
|
70,483
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit
liability
|
|
$
|
12,442
|
$
|
1,130
|
$
|
11,068
|
$
|
24,640
|
The actual return on plan assets for the financial year ended
June 30, 2016 was $1,144, which was composed of interest income and
actuarial gains and losses included in the reconciliation of the
fair value of plan assets above.
Amounts recognized in comprehensive income in respect to the
defined benefit plans are as follows:
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net defined
benefit pension (income) expense recognized in Total Comprehensive
Income
|
Current service
costs
|
|
|
|
$
|
1,498
|
$
|
1,292
|
Interest
costs
|
|
|
|
|
1,038
|
|
961
|
|
|
|
|
|
|
|
|
|
|
Net expense
recognized in Net Earnings
|
|
|
2,536
|
|
2,253
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gains)
losses recognized in Other Comprehensive Income
|
|
(5,752)
|
|
4,767
|
|
|
|
|
|
|
|
|
|
|
Total net (income)
expense recognized in Total Comprehensive Income
|
$
|
(3,216)
|
$
|
7,020
|
The assets of the registered pension plans consist of cash,
contributions receivable and investments held in the Hiram Walker
& Corby Canadian Pooled Fund Trust. As at June 30, 2017, the fair value of the Trust's
assets totaled $337,221, of which the
Company's registered pension plans hold approximately 12% of the
total Trust assets.
The fair value of assets held on behalf of the Company's
registered pension plans are categorized in the fair value
hierarchy as at June 30 are as
follows:
|
|
|
|
|
|
June
30,
|
|
June 30,
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Cash and Canadian
Equities - level 1
|
|
$
|
8,205
|
$
|
8,184
|
Bond funds - level
2
|
|
|
|
|
12,367
|
|
12,329
|
Foreign equities and
Foreign Equity funds - level 2
|
|
|
10,707
|
|
9,105
|
Infrastructure and
real estate funds - level 3
|
|
|
8,165
|
|
6,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,444
|
$
|
36,291
|
The assets of the non-registered pension plan consist of cash,
investments and refundable taxes on account with Canada Revenue
Agency. The investments held by the non-registered pension plan are
invested in a limited number of pooled funds. The assets, based on
market values at June 30, are as
follows:
|
|
|
|
|
|
June
30,
|
|
June 30,
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Canadian equity
pooled funds
|
|
|
$
|
2,049
|
$
|
1,957
|
Foreign equity pooled
funds
|
|
|
|
3,223
|
|
3,035
|
Refundable tax on
account with Canada Revenue Agency
|
|
4,886
|
|
4,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,158
|
$
|
9,552
|
The fair values of the investments held by the non-registered
plan as at June 30, 2017 are
categorized as Level 2 in the fair value hierarchy.
17. SHARE CAPITAL
|
|
|
|
|
June
30,
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Number of shares
authorized:
|
|
|
|
|
|
|
|
Voting Class A Common
Shares - no par value
|
|
|
|
Unlimited
|
|
Unlimited
|
|
Non-voting Class B
Common Shares - no par value
|
|
|
|
Unlimited
|
|
Unlimited
|
|
|
|
|
|
|
|
|
Number of shares
issued and fully paid:
|
|
|
|
|
|
|
|
Voting Class A Common
Shares
|
|
|
|
24,274,320
|
|
24,274,320
|
|
Non-voting Class B
Common Shares
|
|
|
|
4,194,536
|
|
4,194,536
|
|
|
|
|
|
|
|
|
|
|
|
28,468,856
|
|
28,468,856
|
|
|
|
|
|
|
|
Stated
value
|
|
|
$
|
14,304
|
$
|
14,304
|
18. ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
June
30,
|
|
June 30,
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Actuarial losses on
pension obligations
|
|
|
$
|
8,269
|
$
|
14,021
|
|
less: income
taxes
|
|
|
|
|
(2,252)
|
|
(3,801)
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive loss
|
|
|
$
|
6,017
|
$
|
10,220
|
19. REVENUE
The Company's revenue consists of the following streams:
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Case good
sales
|
|
|
|
$
|
114,784
|
$
|
111,105
|
Commissions (net of
amortization)
|
|
|
|
24,908
|
|
23,029
|
Other
services
|
|
|
|
|
4,177
|
|
5,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
143,869
|
$
|
140,002
|
Commissions for the year are shown net of amortization of
long-term representation rights and non-refundable upfront fees of
$5,883 (2016 - $5,883). Other services include revenues
incidental to the manufacture of case goods, such as logistics fees
and miscellaneous bulk spirit sales.
20. OTHER EXPENSES
The Company's other expenses consists of the following
amounts:
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Foreign exchange
loss
|
|
|
|
$
|
(68)
|
$
|
(301)
|
Gain (loss) on
disposal of property and equipment
|
|
|
32
|
|
(99)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(36)
|
$
|
(400)
|
21. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
$
|
937
|
$
|
1,102
|
Net financial impact
of pensions
|
|
|
|
(1,039)
|
|
(961)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(102)
|
$
|
141
|
22. EARNINGS PER SHARE
The following table sets forth the numerator and denominator
utilized in the computation of basic and diluted earnings per
share:
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
$
|
25,634
|
$
|
25,435
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
|
|
|
28,468,856
|
|
28,468,856
|
23. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses as follows:
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
|
$
|
2,156
|
$
|
1,728
|
Amortization of
intangible assets
|
|
|
|
5,883
|
|
5,883
|
Salary and payroll
costs
|
|
|
|
|
25,380
|
|
22,518
|
Expenses related to
pensions and benefits
|
|
|
|
1,498
|
|
1,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,917
|
$
|
31,421
|
24. RESTRICTED SHARE UNITS PLAN
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
Restricted
|
|
Average
|
|
|
Restricted
|
|
Average
|
|
|
|
Share
|
|
Grant
Date
|
|
|
Share
|
|
Grant
Date
|
|
|
|
Units
|
|
Fair
Value
|
|
|
Units
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, beginning
of year
|
|
|
42,115
|
$
|
19.75
|
|
|
62,154
|
$
|
19.49
|
|
Granted
|
|
|
18,790
|
|
22.69
|
|
|
21,359
|
|
18.96
|
|
Reinvested dividend
equivalent units
|
|
|
2,102
|
|
22.15
|
|
|
2,775
|
|
18.54
|
|
Performance
adjustments
|
|
|
1,238
|
|
22.74
|
|
|
(19,025)
|
|
20.84
|
|
Vested
|
|
|
(8,888)
|
|
21.55
|
|
|
(25,148)
|
|
17.47
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, end of
year
|
|
|
55,357
|
$
|
20.62
|
|
|
42,115
|
$
|
19.75
|
Compensation expense related to this plan for the year ended
June 30, 2017 was $424 (2016 - $40).
25. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
$
|
(4,403)
|
$
|
(5,282)
|
Inventories
|
|
|
|
|
82
|
|
(3,315)
|
Prepaid
expenses
|
|
|
|
|
(27)
|
|
(250)
|
Accounts payable and
accrued liabilities
|
|
|
|
221
|
|
5,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,127)
|
$
|
(3,668)
|
26. DIVIDENDS
On August 23, 2017 subsequent to
the year ended June 30, 2017, the
Board of Directors declared its regular quarterly dividend of
$0.21 per common share, to be paid on
September 29, 2017, to shareholders
of record as at the close of business on September 15, 2017. This dividend is in
accordance with the Company's dividend policy.
27. RELATED PARTY TRANSACTIONS
Transactions with parent, ultimate parent, and
affiliates
The majority of Corby's issued and
outstanding voting Class A shares are owned by HWSL. HWSL is a
wholly-owned subsidiary of PR. Therefore, HWSL is Corby's parent
and PR is Corby's ultimate parent. Affiliated companies are
subsidiaries which are controlled by Corby's parent and/or ultimate
parent.
The companies operate under the terms of agreements that became
effective on September 29, 2006.
These agreements provide the Company with the exclusive right to
represent PR's brands in the Canadian market for 15 years, as well
as providing for the continuing production of certain Corby brands
by PR at its production facility in Windsor, Ontario, for 10 years. Corby also
manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
North American entities, as approved by Corby's Board of Directors.
In 2015, the production and administrative agreements were each
renewed for a further ten year term, commencing October 2016.
In addition to the aforementioned agreements, Corby signed an
agreement on September 26, 2008, with
its ultimate parent to be the exclusive Canadian representative for
the ABSOLUT vodka and Plymouth gin
brands, for a five-year term which expired October 1, 2013 and was extended as noted below.
These brands were acquired by PR subsequent to the original
representation rights agreement dated September 29, 2006.
On November 9, 2011, Corby entered
into an agreement with a PR affiliate for a new term for Corby's
exclusive right to represent ABSOLUT vodka in Canada from September
30, 2013 to September 29,
2021, which is consistent with the term of Corby's Canadian
representation of the other PR brands in Corby's portfolio. On
September 30, 2013, Corby paid the
present value of $10 million, or
$10.3 million, for the additional
eight years of the new term pursuant to an agreement entered into
between Corby and The Absolut Company Aktiebolag, an affiliate of
PR and owner of the Absolut brand, to satisfy the parties'
obligations under the 2011 agreement.
On July 1, 2012, the Company
entered into a five-year agreement with PR USA, an affiliated
company, which provides PR USA the exclusive right to represent
J.P. Wiser's Canadian whisky and
Polar Ice vodka in the US (the "US Representation Agreement"). The
US Representation 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. This agreement
ended June 30, 2017. On March 29, 2017, the Company entered into an
amending agreement with PR USA to extend the term of the US
Representation Agreement to June 30,
2018 (the "Amending Agreement"). As the US Representation
Agreement and the Amending Agreement with PR USA is a related party
transaction between Corby and PR USA; as such, the agreements were
approved by the Independent Committee of the Board of Directors of
Corby following 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 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:
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
|
|
$
|
28,953
|
$
|
26,613
|
Products for resale
at an export level - affiliated companies
|
|
|
|
6,279
|
|
6,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,232
|
$
|
32,674
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
|
$
|
20,766
|
$
|
22,853
|
|
|
|
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
|
|
Marketing, sales and
administraton services - parent
|
|
|
$
|
2,612
|
$
|
2,550
|
Marketing, sales and
administraton services - affiliate
|
|
|
$
|
1,207
|
$
|
4,708
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the year ended June 30,
2017, Corby sold casks to its parent company for net
proceeds of $136 (2016 - $27).
During the year ended June 30,
2017, Corby entered into a transaction with its parent
whereby Corby exchanged certain vintages and varieties of bulk
whisky inventory with a fair value of $1,305 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
August 23, 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 year ended June 30,
2017, Corby earned interest income of $980 from PR (2016 – $1,127). Corby has the right to terminate its
participation in the Mirror Netting Services Agreement at any time,
subject to five days' written notice.
Key management personnel
Key management
personnel are those individuals having authority and responsibility
for planning, directing and controlling the activities of the
Company, including members of the Company's Board of Directors. The
Company considers key management to be the members of the Board of
Directors and the Senior Management Team (which includes the CEO,
CFO, and Vice Presidents).
Certain key management personnel also participate in the
company's RSU plan.
Key management personnel compensation is comprised of:
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Wages, salaries and
short term employee benefits
|
|
$
|
4,140
|
$
|
4,075
|
Other long term
benefits
|
|
|
|
|
715
|
|
702
|
Share-based payment
transactions
|
|
|
|
387
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,242
|
$
|
5,175
|
Certain members of the board and key management personnel are
provided benefits and or salary and wages through the parent
company or the ultimate parent company in addition to the amounts
reported above.
28. SEGMENT INFORMATION
Corby has two reportable segments: Case Goods and Commissions.
Corby's Case Goods segment derives its revenue from the production
and distribution of its owned beverage alcohol brands. Corby's
portfolio of owned-brands includes some of the most renowned and
respected brands in Canada, such
as J. P. Wiser's Canadian whisky,
Lamb's rum, Polar Ice vodka, and McGuinness liqueurs.
Corby's Commissions segment earns commission income from the
representation of non-owned beverage alcohol brands in Canada. Corby represents leading international
brands such as ABSOLUT vodka, Chivas
Regal, The Glenlivet and Ballantine's scotches, Jameson Irish whiskey, Beefeater gin, Malibu
rum, Kahlúa liqueur, Mumm champagne, and Jacob's Creek and Wyndham
Estate wines.
The Commissions segment's financial results are fully reported
as "Commissions" in Note 19 of the consolidated financial
statements. Therefore, a table detailing operational results by
segment has not been provided as no additional meaningful
information would result.
Geographic information regarding the Company is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
United
States
|
|
United
|
|
Rest
of
|
|
|
|
|
|
|
Canada
|
|
of America
|
|
Kingdom
|
|
World
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
134,135
|
$
|
4,191
|
$
|
3,101
|
$
|
2,442
|
$
|
143,869
|
Capital assets and
goodwill
|
|
|
21,580
|
|
-
|
|
1,600
|
|
-
|
|
23,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
United
States
|
|
United
|
|
Rest
of
|
|
|
|
|
|
|
Canada
|
|
of America
|
|
Kingdom
|
|
World
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
128,251
|
$
|
6,861
|
$
|
3,567
|
$
|
1,323
|
$
|
140,002
|
Capital assets and
goodwill
|
|
|
12,577
|
|
-
|
|
1,704
|
|
-
|
|
14,281
|
In 2017, revenue to three major customers accounted for 44%, 17%
and 14%, respectively (2016 – 39%, 17% and 14%). These major
customers are located in Canada
and revenues are derived from the Case Goods segment.
29. COMMITMENTS
Future minimum payments under operating leases for premises and
equipment for the next five years and thereafter are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
$
|
1,608
|
2019
|
|
|
|
|
|
|
|
|
1,391
|
2020
|
|
|
|
|
|
|
|
|
1,240
|
2021
|
|
|
|
|
|
|
|
|
854
|
2022
|
|
|
|
|
|
|
|
|
786
|
Thereafter
|
|
|
|
|
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,060
|
Total lease payments recognized as an expense during the year
total $1,980 (2016 - $2,147). The Company has commitments of
$455 (2016 - $268) as at June 30,
2017 for the acquisition of capital assets.
SOURCE Corby Spirit and Wine Limited