TORONTO, Feb. 7, 2018 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
reported its financial results for the second quarter ended
December 31, 2017. The Corby Board of
Directors today also declared a dividend of $0.22 per share payable on March 9, 2018 on the Voting Class A Common Shares
and Non-Voting Class B Common Shares of the Company to shareholders
of record as at the close of business on February 23, 2018.
Revenue for the second quarter increased 1% while revenue for
the six-month period ended December 31,
2017 increased 2% despite a lag in shipment performance in
the Canadian market (primarily due to LCBO purchases in Q4 of the
prior year in anticipation of a threatened but averted strike).
The addition of the premium Ungava Spirits' brands and Foreign
Affair wines drove positive top line results in addition to an
increase in commission income from Pernod Ricard brands.
Significant advertising and promotional investments continued to
support the sustained development of the newly acquired brands and
behind our key strategic battlegrounds such as premium innovations
in Canadian whisky and J.P. Wiser's, which continues to grow market
share and outperform its category.
Net earnings of $5.8 million (or
$0.20 per share) were reported for
the three-month period ended December 31,
2017, reflecting a decrease of $1.4
million when compared to the same quarter last year. On a
year to date basis, net earnings of $11.6
million reflect a decrease of $2
million for the six month period ended December 31, 2017, when compared to the same
period last year.
"Our second quarter results demonstrate our commitment to invest
behind our key brands and assets in order to build sustainable
competetitive advantage in the spirits and wine industry,
both domestically and in key international markets. We are
pleased with the performance of our recent acquisitions, the Ungava
Spirits' brands and the Foreign Affair wines, and how they
complement the premium Corby portfolio. Recently released
innovations such as the Northern Border Collection Rare Cask Series
have performed exceedingly well at the 2018 Canadian Whisky Awards
with J.P. Wiser's 35YO awarded Whisky of the Year. It
is through this kind of bold innovation, investment in brand equity
buiding and collaboration with our Hiram
Walker & Sons Limited production facility that we can
establish a solid foundation for success," noted Patrick O'Driscoll, President and Chief
Executive Officer of Corby.
For further details, please refer to Corby's management's
discussion and analysis and interim condensed consolidated
financial statements and accompanying notes for the
three-and-six-months ended December 31,
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 and Foreign Affair® wines. Through its affiliation
with Pernod Ricard S.A., a global leader in the spirits and wine
industry, Corby also represents leading international brands such
as ABSOLUT® vodka, Chivas Regal®, The Glenlivet® and Ballantine's®
Scotch whiskies, Jameson® Irish whiskey, Beefeater® gin, Malibu®
rum, Kahlúa® liqueur, Mumm® champagne, and Jacob's Creek®, Wyndham
Estate®, Stoneleigh®, Campo Viejo®, Graffigna® and Kenwood® wines.
In 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
December
31, 2017
The following Management's Discussion and Analysis ("MD&A")
dated February 7, 2018, should be
read in conjunction with the unaudited interim condensed
consolidated financial statements and accompanying notes as at and
for the three and six-month period ended December 31, 2017, prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
unaudited interim condensed financial statements do not contain all
disclosures required by IFRS for annual financial statements and,
accordingly, should also be read in conjunction with the most
recently prepared annual consolidated financial statements for the
year ended June 30, 2017.
This MD&A contains forward-looking statements, including
statements concerning possible or assumed future results of
operations of Corby Spirit and Wine Limited ("Corby" or the
"Company"), including the statements made under the headings
"Strategies and Outlook", "Liquidity and Capital Resources",
"Recent Accounting Pronouncements" and "Risks and Risk Management."
Forward-looking statements typically are preceded by, followed by
or include the words "believes", "expects", "anticipates",
"estimates", "intends", "plans" or similar expressions.
Forward-looking statements are not guarantees of future
performance. They involve risks and uncertainties, including, but
not limited to: the impact of competition; the impact, and
successful integration of, acquisitions; business interruption;
trademark infringement; consumer confidence and spending
preferences; regulatory changes; general economic conditions; and
the Company's ability to attract and retain qualified employees.
There can be no assurance that forward-looking statements will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on
forward-looking statements. These factors are not intended to
represent a complete list of the factors that could affect the
Company and other factors could also affect Corby's results. For
more information, please see the "Risk and Risk Management" section
of this MD&A.
This document has been reviewed by the Audit Committee of
Corby's Board of Directors and contains certain information that is
current as of February 7, 2018.
Events occurring after that date could render the information
contained herein inaccurate or misleading in a material respect.
Corby will provide updates to material forward-looking statements,
including in subsequent news releases and its interim management's
discussion and analyses filed with regulatory authorities as
required under applicable law. Additional information regarding
Corby, including the Company's Annual Information Form, is
available on SEDAR at www.sedar.com.
Unless otherwise indicated, all comparisons of results for the
second quarter of fiscal 2018 (three months ended December 31, 2017) are against results for the
second quarter of fiscal 2017 (three months ended December 31, 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").
On October 2, 2017, Corby acquired
the Foreign Affair® wine brands, including Temptress, Enchanted,
Amarosé and The Conspiracy brands (collectively, the "Foreign
Affair 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.
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 10-year term commencing September 30,
2016, thus replacing the agreements that expired
September 20, 2016 and 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.
("Ungava Spirits") produces the Ungava Spirits Brands and operates
the Cowansville, Quebec production
facility acquired on September 30,
2016. The Foreign Affair Winery Ltd., produces the Foreign
Affair Brands and operates the winery and vineyard, based in
Ontario's Niagara region, acquired
on October 2, 2017. The Company's
remaining production requirements have been outsourced to various
third-party vendors including a third-party manufacturer in the
United Kingdom ("UK"). The UK site
blends and bottles Lamb's products destined for sale in countries
located outside North America.
In most provinces, Corby's route to market in Canada entails shipping its products to
government-controlled LBs. The LBs then sell directly, or control
the sale of, beverage alcohol products to end consumers. Exceptions
to this model include Alberta,
where the retail sector is privatized. In this province, Corby
ships products to a bonded warehouse that is managed by a
government-appointed service provider who is responsible for
warehousing and distribution into the retail channel. Other
provinces have aspects of both government-controlled and private
retailing, including British
Columbia, Saskatchewan and
Quebec.
Corby's shipment patterns to the LBs will not always exactly
match short-term consumer purchase patterns. However, given the
importance of monitoring consumer consumption trends over the long
term, the Company stays abreast of consumer purchase patterns in
Canada through its member
affiliation with the Association of Canadian Distillers ("ACD"),
which tabulates and disseminates consumer purchase information it
receives from the LBs to its industry members. Corby refers to this
data throughout this MD&A as "retail sales", which are measured
in volume (measured in nine-litre case equivalents). The Company
reintroduced retail level analysis starting the last quarter of
fiscal 2017 as the province of British
Columbia cycled 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, effective July 1,
2016, Corby entered into a distribution agreement with a
related party for the distribution of Lamb's rum (more information
is provided in the "Related Party Transactions" section of this
MD&A) and, a new co-packing agreement for the production of the
brand 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 both innovation and
acquisitions are essential to seizing new profit and growth
opportunities. Successful innovation can be delivered through a
structured and efficient process as well as consistent investment
in consumer insight and research and development. Corby benefits
from having access to leading-edge practices at PR's North American
hub, which is located in Windsor,
Ontario, where most of its products are manufactured. Corby
assesses potential acquisition opportunities against specific
criteria including its core competencies and strategic
priorities.
Finally, the Company is a strong advocate of social
responsibility, especially with respect to its sales and
promotional activities. Corby will continue to promote the
responsible consumption of its products in its activities. As an
example, Corby has an agreement in place to continue its successful
partnership with the Toronto Transit Commission to provide free
transit on New Year's Eve until 2019.
Significant Event
Acquisition of the shares, winery and assets of the
Foreign Affair Winery
On October
2, 2017 Corby acquired all of the shares of Vinnova
Corporation and substantially all of the assets of the Crispino
Estate Vineyard partnership, which together operated as the Foreign
Affair Winery ("Foreign Affair"), a Niagara, Ontario-based wine producer for a purchase
price of $6.2 million. The purchase
price was funded from the Company's Deposits in Cash Management
Pools. The transaction resulted in Corby's acquisition, through a
wholly-owned subsidiary, of the Foreign Affair Brands (Foreign
Affair's portfolio of premium award-wining Ontario red, white and rosé wines, including
Temptress, Enchanted, Amarosé and The Conspiracy brands), as well
as related production assets and inventory.
Since the completion of the transaction on October 2, 2017, the acquired Foreign Affair
Brands have contributed $0.4 million
to revenues and $0.1 million to net
earnings. More information regarding the transaction has been
provided in Note 5 of the interim condensed consolidated financial
statements for the three and six-month periods ended December 31, 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 and Polar Ice
brands and the Ungava Spirits Brands are also sold to international
markets, particularly in the US and UK.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
|
2017
|
2016
|
%
|
%
|
2017
|
2016
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
|
218
|
233
|
(6%)
|
(6%)
|
409
|
434
|
(6%)
|
(6%)
|
Lamb's rum
|
|
127
|
130
|
(2%)
|
1%
|
232
|
255
|
(9%)
|
(7%)
|
Polar Ice
vodka
|
|
94
|
98
|
(4%)
|
(10%)
|
186
|
193
|
(4%)
|
(4%)
|
Mixable
liqueurs
|
|
50
|
52
|
(4%)
|
(3%)
|
92
|
95
|
(3%)
|
(2%)
|
Ungava Spirits Brands
1
|
|
32
|
24
|
30%
|
26%
|
59
|
24
|
140%
|
132%
|
Foreign Affair
Brands2
|
|
1
|
-
|
N/A
|
N/A
|
1
|
-
|
N/A
|
N/A
|
Other Corby-owned
brands
|
|
57
|
58
|
(1%)
|
(4%)
|
108
|
109
|
(0%)
|
3%
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
|
580
|
595
|
(3%)
|
(1%)
|
1,087
|
1,110
|
(2%)
|
1%
|
|
|
|
|
|
|
|
|
|
|
(1)
Comparative information for Ungava Spirits Brands includes three
months of activity, as these brands were not owned by
|
Corby prior to
September 30, 2016.
|
(2)
Comparative information has not been provided for Foreign Affair
Brands, as these brands were not owned by Corby prior
|
to October 2,
2017.
|
For the three months ended December 31,
2017, shipment volume was 3% lower while value edged down 1%
compared to the same period last year, due largely to LB order
patterns impacting J.P. Wiser's in the domestic market, partially
offset by positive export sales. For the six months ended
December 31, 2017, Corby's
owned-brands drove a 1% increase in shipment value despite a volume
decline of 2% when compared to the same period last year. Revenue
increase was driven primarily by the positive performance of the
Ungava Spirits Brands, strategic and tactical price adjustments, as
well as gains in international markets.
It is not unusual for first and second quarter shipments to be
impacted by timing of promotional activity and customers' inventory
management leading into the busy holiday season. However, this
year, results have been additionally impacted by lower ordering
patterns as The Liquor Control Board of Ontario ("LCBO") moved to normalize inventory
levels built in the previous fiscal year in anticipation of
threatened strike action.
Trends in Canada differ
significantly from international markets as highlighted in the
following table:
|
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
|
2017
|
2016
|
%
|
%
|
2017
|
2016
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
517
|
539
|
(4%)
|
(4%)
|
974
|
1,004
|
(3%)
|
(1%)
|
International
|
|
63
|
56
|
13%
|
29%
|
113
|
107
|
6%
|
26%
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
|
580
|
595
|
(3%)
|
(1%)
|
1,087
|
1,110
|
(2%)
|
1%
|
|
Second quarter domestic shipment volumes and value declined 4%
on a year over year comparative basis resulting in fiscal year to
date volume and value decrease of 3% and 1%, respectively. As
in the first quarter, domestic shipments were highly impacted by
customer inventory management activities following the late fiscal
2017 LCBO purchases in anticipation of a threatened strike.
Domestic shipment volumes of J.P. Wiser's Deluxe continued to be
primarily impacted. In addition, while economy variants remain
challenged in regional strongholds by unfavourable economic
conditions and aggressive competitor activity. These factors were
partially mitigated by the solid performance of our more premium
offerings; including Ungava Spirits Brands, the more premium
variants of the J.P. Wiser's family and Pike Creek®, Lot No. 40®
and Gooderham & Worts® (the "Northern Border Collection").
Corby's domestic shipment value benefited from favourable mix
effects of the premium Ungava Spirits Brands and launch of higher
marque innovations, as well as strategic and tactical price
positioning in key regions.
In international markets, shipment volumes for the three and six
months ended December 31, 2017 were
higher on a year over year comparative basis mostly due to the
positive contribution of the Ungava Spirits Brands' export business
as well as entry into new international markets. Value grew
significantly over volume for the three-month and six-month periods
ended December 31, 2017 due to the
addition of the more premium Ungava Spirits Brands to the portfolio
and the launch of higher marque variants. Growth in the US market
also contributed favourably with the reprioritized focus on a
smaller number of markets and on the more premium and
differentiated craft range (Lot No. 40 and Pike Creek).
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.
Given the importance of monitoring consumer consumption trends over
the long term, we have included additional disclosure summarizing
retail sales volume and value data for the twelve-month period
ended December 31, 2017.
It should be noted that the retail information presented does
not include international retail sales of Corby-owned brands.
|
|
|
|
|
|
RETAIL SALES FOR
THE CANADIAN MARKET ONLY (AS PROVIDED BY THE
ACD1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Twelve Months
Ended
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
Dec.
31
|
Dec.
31
|
Volume
|
Value
|
|
Dec.
31
|
Dec.
31
|
Volume
|
Value
|
|
Dec.
31
|
Dec.
31
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2017
|
2016
|
Growth
|
Growth
|
|
2017
|
2016
|
Growth
|
Growth
|
|
2017
|
2016
|
Growth
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
237
|
238
|
(0%)
|
1%
|
|
414
|
412
|
0%
|
2%
|
|
736
|
725
|
1%
|
3%
|
Lamb's rum
|
99
|
106
|
(6%)
|
(5%)
|
|
183
|
196
|
(7%)
|
(5%)
|
|
336
|
354
|
(5%)
|
(3%)
|
Polar Ice
vodka
|
98
|
99
|
(1%)
|
0%
|
|
188
|
189
|
(1%)
|
0%
|
|
348
|
349
|
(0%)
|
1%
|
Mixable
liqueurs
|
55
|
56
|
(2%)
|
(1%)
|
|
95
|
98
|
(2%)
|
(1%)
|
|
159
|
163
|
(2%)
|
(1%)
|
Ungava Spirits
Brands
|
33
|
26
|
26%
|
26%
|
|
51
|
38
|
35%
|
34%
|
|
80
|
58
|
40%
|
38%
|
Foreign Affair
Brands
|
1
|
1
|
3%
|
0%
|
|
2
|
1
|
22%
|
20%
|
|
3
|
2
|
21%
|
23%
|
Other Corby-owned
brands
|
55
|
56
|
(3%)
|
(0%)
|
|
99
|
103
|
(4%)
|
(1%)
|
|
187
|
192
|
(3%)
|
(1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
578
|
582
|
(1%)
|
1%
|
|
1,032
|
1,037
|
(1%)
|
1%
|
|
1,849
|
1,843
|
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 flat retail sales volume
results for the three months ended December
31, 2017 and a modest 1% growth for the six months ended
December 31, 2017, when compared to
the same period last year. Industry trends are led by strong retail
sales volume growth in the Irish whiskey and tequila categories as
well as growth in the cognac, bourbon and single malt Scotch
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 87% of the
Company's total retail volumes. The vodka category led retail
volumes, increasing 1% in the three and six months ended
December 31, 2017. The Canadian
whisky category, however, declined 3% and 2%, respectively, in the
three-month and six-month periods ended December 31, 2017, while the rum category
continued its decline, dropping 3% when compared to the same
periods last year. Gin, Corby's newest participating category,
increased 8% for the three and six months ended December 31, 2017.
Despite the industry performance of the categories in which the
Company is most heavily weighted, Corby's brand portfolio remained
stable with retail value growing 1% for the three- and six-month
periods. J.P. Wiser's remained relatively flat, outperforming the
industry in the key Canadian whisky category while the Ungava
Spirits Brands experienced outstanding retail sales growth. The
following brand discussion provides a more detailed analysis of the
performance of each of Corby's key brands relative to its
respective industry category.
Summary of Corby's Key Brands
J.P. Wiser's Canadian Whisky
J.P. Wiser's Canadian
whisky, one of the top-selling whisky families in Canada, is Corby's flagship brand. The brand's
retail volumes for the three months ended December 31, 2017 remained flat with retail value
growing 1% when compared to the same quarter last year. Retail
sales volumes for the Canadian whisky category declined 3% while
retail value dropped 1% when compared to the same quarter last
year.
The brand's retail volumes for the six months ended December 31, 2017 were flat with retail value
growing 2% when compared to the same period last year. The Canadian
whisky category is showing signs of softness as it decreased 2% in
retail volumes. Retail value for the category remained flat for the
same comparative period as it lapped prior year innovation at
premium price points.
During fiscal 2017, Corby launched several innovative variants
of the J.P. Wiser's family: J.P. Wiser's Apple, 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. In fiscal
2018, Corby began shipping J.P. Wiser's 15-Year-Old and a limited
release of J.P. Wiser's 35-Year-Old. These super-premium offerings
continue to communicate to our consumers J.P. Wiser's unique
heritage and quality credentials. This message is reinforced with a
new high-profile television campaign using the "Hold it High"
commercial, which features Corby and HWSL employees and proudly
celebrates the care and pride of work our people have in creating
our whisky.
Within the range, positive growth was posted by J.P. Wiser's
Apple and Wiser's Special Blend. J.P. Wiser's Deluxe, flat to
the prior year, is experiencing industry-wide softness in
Western Canada. New packaging on
J. P Wiser's Deluxe launched in the previous quarter has been
favourably received, particularly in Ontario, supported in part with a month-long
LCBO Domination activation.
J.P. Wiser's 35-Year-Old was recently awarded the Whisky of
the Year at the 2018 Canadian Whisky Awards. J.P. Wiser's
variants continue to receive prestigious accolades including J.P.
Wiser's Triple Barrel 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 3% for the three and
six months ended December 31, 2017
while retail values declined 2% and 1% respectively when compared
to the same three and six-month periods last year. The economy rum
category declined 6% in retail volumes and 4% in retail value on a
comparable six-month period.
For the three-month and six-month periods ended December 31, 2017, Lamb's experienced a 6% and 7%
decline respectively in retail volumes and a 5% decline in retail
value when compared to the same periods last year. The Lamb's rum
product line is heavily weighted in the dark and white segments and
has faced difficult economic conditions and increased competitor
pressure in its key markets. Our strategy remains to defend its
regional strongholds with targeted campaigns (including the
"Hometown Heroes" campaign), to focus on the most differentiated
variants and to launch new flavour variants such as Lamb's Spiced
Cherry rum and Lamb's Pineapple rum (launched in the previous
quarter).
Polar Ice Vodka
Polar Ice vodka is among the
top-selling vodka brands in Canada. Retail volume decreased 1% for both
the three-month and six-month periods ended December 31, 2017 while retail value remained
flat compared to the same periods last year. This was primarily
driven by increased competitor promotional activity and LB category
management in Quebec. Alberta performance has shown signs of
stabilization despite slow recovery of the overall spirits industry
following economic challenges in the province and continued
aggressive competitive retail activity.
The overall vodka category in Canada grew 1% in retail volume and 1% in
retail value when compared to the same three-month period last year
and 1% in retail volume and 2% in retail value when compared to the
same six-month period last year. The premium vodka segment
continues to drive the vodka category's positive performance. The
standard vodka category was essentially flat on both retail volumes
and retail values for the rolling 6-month period ending
December 31, 2017.
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 the last fiscal year, we
launched a successful social cause campaign, including a limited
edition "Bearless" bottle, to support the work done by Polar Bears
International. Polar Ice recently won Gold at the 2017 Global Vodka
Masters Competition and Polar Ice 90 North won Double Gold at the
2017 San Francisco World Spirits Competition.
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 2%
for the three- and six-month periods ended December 31, 2017 when compared to the same
periods last year. Retail value declined 1% for the same comparable
periods.
The liqueurs category grew 2% in retail volume and 1% in retail
value for the three-month comparable period and 3% and 1%
respectively for the six-month comparable period ended December 31, 2017. Category growth was led by new
innovations, particularly in cream-based offerings with which
McGuinness does not compete directly.
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. Recent innovation includes
McGuinness Butterscotch as well as the launch of an expanded range
of flavour offerings in a convenient 375mL format to encourage
consumer trial.
Ungava Spirits Brands
Retail volume and value for the
Ungava Spirits Brands (which Corby acquired on September 30, 2016) increased 26% for the three
months ended December 31, 2017, when
compared to the same period last year. Retail volume
increased 35% while retail value increased 34% for the six months
ended December 31, 2017. The flagship
brand, Ungava gin, grew 22% and 31% respectively in the three and
six-month periods ended December 31,
2017 outperforming the Canadian gin category, which grew 8%
in retail volume in both the three month and six-month comparable
periods. Retail value grew 12% and 11% in the same periods. Ungava
gin is the number one Super Premium gin in Canada.
Cabot Trail maple-based liqueurs (in Quebec, Coureur des Bois) continued to perform
strongly benefiting from increased distribution and successful
recruitment from retail tastings. Retail volumes increased 35% and
47% on the three and six months ended December 31, 2017 while retail values grew 37%
and 48% respectively.
Foreign Affair Brands
The Foreign Affair Brands (which
Corby acquired on October 2, 2017)
represent Corby's first foray into the Canadian wine category.
Sales are conducted through many channels including LB, direct
delivery (on-premise and wine club) and at the winery visitor
center.
The largest percentage of sales are conducted at the winery.
Retail volume through the liquor stores, as reported by the ACD,
for the Foreign Affair Brands increased 3% and 22% respectively for
the three and six months ended December 31,
2017 when compared to the same periods last year while
retail value remained flat on a three-month comparable basis and
increased 20% on a six-month comparable basis. The Canadian table
wine category retail volumes decreased 3% and 1% for the three and
six-month periods ended December 31,
2017 while retail value decreased 1% for the three-month
comparable period and increased 1% on the six-month comparable
period.
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 known as the Northern Border Collection) grew
retail volume 48% for the three-month period and 55% for the
six-month periods ended December 31,
2017, outperforming the Canadian whisky category in
Canada, which declined 2% for the
same comparable periods. The Rare Range innovation series
(featuring Pike Creek 21-Year-Old, Lot No. 40 12-Year-Old Cask
Strength and Gooderham & Worts Little Trinity 17-Year-Old)
launched this fiscal has received wide acclaim, winning various
medals at the Canadian Whisky Awards 2018.
In addition, Lot No. 40 and Gooderham & Worts were both
awarded Canadian Connoisseur Whisky of the Year at the
seventh annual Canadian Whisky Awards for 2017. Lot No.40 has
consistently won top awards in the most prestigious Canadian and
International competitions. Gooderham & Worts was also
awarded World's Best Canadian Blended at the World
Whiskies Awards for 2017.
Royal Reserve® retail volume declined 5% and 6% for the three
and six-month periods ended December 31,
2017 when compared to the same periods last year due to slow
recovery of spirits consumption in Alberta and a significant increase in
competitive retail activity in the economy segment of Canadian
whisky.
Financial and Operating Results
The following table presents a summary of certain selected
consolidated financial information of the Company for the three and
six-month periods ended December 31,
2017 and 2016.
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
(in millions of
Canadian dollars,
|
Dec.
31,
|
Dec.
31,
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
except per share
amounts)
|
2017
|
2016
|
$
Change
|
%
Change
|
|
2017
|
2016
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
40.7
|
$
|
40.3
|
$
|
0.5
|
1%
|
|
$
|
76.7
|
$
|
74.9
|
$
|
1.8
|
2%
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(15.5)
|
(15.1)
|
(0.4)
|
3%
|
|
(28.8)
|
(26.8)
|
(1.9)
|
7%
|
Marketing, sales and
administration
|
(17.4)
|
(15.3)
|
(2.2)
|
14%
|
|
(32.3)
|
(29.3)
|
(3.0)
|
10%
|
Other income
(expense)
|
0.1
|
(0.0)
|
0.2
|
0%
|
|
0.2
|
(0.0)
|
0.2
|
0%
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
7.9
|
9.8
|
(2.0)
|
(20%)
|
|
15.8
|
18.7
|
(2.9)
|
(15%)
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
0.3
|
0.2
|
0.1
|
26%
|
|
0.6
|
0.5
|
0.1
|
13%
|
Financial
expenses
|
(0.2)
|
(0.3)
|
0.1
|
(27%)
|
|
(0.4)
|
(0.5)
|
0.1
|
0%
|
Net financial
income
|
0.1
|
(0.0)
|
(0.1)
|
313%
|
|
0.2
|
(0.0)
|
0.2
|
(773%)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
8.0
|
9.8
|
(1.8)
|
(19%)
|
|
16.0
|
18.7
|
(2.7)
|
(14%)
|
Income
taxes
|
(2.2)
|
(2.6)
|
0.4
|
(17%)
|
|
(4.4)
|
(5.1)
|
0.7
|
(14%)
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
5.8
|
$
|
7.2
|
$
|
(1.4)
|
(19%)
|
|
$
|
11.6
|
$
|
13.6
|
$
|
(2.0)
|
(14%)
|
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.20
|
$
|
0.25
|
$
|
(0.05)
|
(20%)
|
|
$
|
0.41
|
$
|
0.48
|
$
|
(0.07)
|
(15%)
|
|
- Diluted net
earnings
|
$
|
0.20
|
$
|
0.25
|
$
|
(0.05)
|
(20%)
|
|
$
|
0.41
|
$
|
0.48
|
$
|
(0.07)
|
(15%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall Financial Results
Net earnings
decreased $1.4 million, or 19%, and
by $2.0 million, or 14%,
respectively, for the three and six months ended December 31, 2017, when compared to the same
periods last year. Results were impacted by lower LB ordering
patterns following the LCBO contingency inventory build in the
comparable fiscal period, pre-emptive of threatened strike action,
as well as phasing of domestic advertising and promotional
investment behind our key strategic brand J.P. Wiser's and the
Northern Border Collection.
Revenue
The following highlights the key
components of the Company's revenue streams:
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Dec.
31,
|
Dec.
31,
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
(in millions of
Canadian dollars)
|
2017
|
2016
|
$
Change
|
%
Change
|
|
2017
|
2016
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
|
Case goods
|
$
|
32.5
|
$
|
32.8
|
$
|
(0.4)
|
(1%)
|
|
$
|
61.0
|
$
|
60.1
|
$
|
0.9
|
2%
|
|
Commissions
|
7.2
|
6.6
|
0.6
|
9%
|
|
13.8
|
13.2
|
0.6
|
5%
|
|
Other
services
|
1.1
|
0.9
|
0.2
|
27%
|
|
1.9
|
1.6
|
0.3
|
22%
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
40.7
|
$
|
40.3
|
$
|
0.5
|
1%
|
|
$
|
76.7
|
$
|
74.9
|
$
|
1.8
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Goods revenue decreased by $0.4
million, or 1% and increased $0.9
million, or 2%, respectively, for the three and six-month
period ended December 31, 2017, when
compared to the same periods last year. Growth during the six-month
period is attributable to the performance of the Ungava Spirits
Brands (which were acquired on September 30,
2016), the addition of the Foreign Affair Brands (which were
acquired on October 2, 2017),
strategic and tactical price initiatives and favourable market mix
which have helped offset domestic case good performance.
Commissions increased $0.6
million, or 9%, and $0.6
million, or 5%, respectively, for the three and six-month
periods ended December 31, 2017 when
compared to the same periods last year. Strong PR wines portfolio
performance helped to offset the effects of fiscal 2017 LCBO strike
contingency spirits inventory build. The PR brand portfolio
continues to benefit from its positioning within the premium
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. Revenue from other services grew slightly
in both the three and six-month periods ended December 31, 2017 attributable to bulk whisky
sales.
Cost of sales
Cost of sales increased by
$0.4 million, or 3%, for the
three-month period ended December 31,
2017 when compared to the same period last year. Overall
gross margin on case goods was 52%, compared to 54% in the same
period last year and was impacted by the higher standard costs of
the premium Ungava Spirits Brands where the full benefits of the
expected synergies have not yet fully materialized.
Cost of sales increased by $1.9
million, or 7%, for the six-month period ended December 31, 2017 when compared to the same
period last year. Overall gross margin on case goods was 53%,
compared to 55% in the same period last year and was also impacted
by costs associated with the J.P. Wiser's packaging redesign and
increased input costs. In addition, last year's comparative numbers
benefitted from a one-off accrual reversal.
Marketing, sales and administration
Marketing,
sales and administration expenses increased by $2.2 million, or 14% for the three-month period
ended December 31, 2017 when compared
to the same period last year. For the six-month period ended
December 31, 2017, marketing, sales
and administration expenses increased $3
million, or 10% year over year. This was driven by phasing
of domestic advertising and promotional investment behind J.P.
Wiser's Canadian whisky, the Northern Border Collection and
promotional efforts related to the Ungava Spirits Brands and the
Foreign Affair Brands. Overheads also increased year over year as
we integrated the structures that support Ungava Spirits Brands and
Foreign Affair Brands, as well as certain one-off items related to
employee costs and professional fees associated with the
acquisition of the Foreign Affair 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. A slight increase for both the three
and six-month period ended December 31,
2017 is due to lower pension related interest charges.
Income taxes
A reconciliation of the effective
tax rate to the statutory rates for each period is presented
below.
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
Dec.
31
|
Dec.
31
|
|
Dec.
31
|
Dec.
31
|
|
|
2017
|
2016
|
|
2017
|
2016
|
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
|
27%
|
27%
|
|
27%
|
27%
|
Other
|
|
1%
|
0%
|
|
0%
|
0%
|
|
|
|
|
|
|
|
Effective tax
rate
|
|
28%
|
27%
|
|
27%
|
27%
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $78.2 million as at
December 31, 2017, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities, which totalled $39.8
million as at December 31,
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
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Dec.
31,
|
Dec.
31,
|
|
|
Dec.
31,
|
Dec.
31,
|
|
(in millions of
Canadian dollars)
|
2017
|
2016
|
$
Change
|
|
2017
|
2016
|
$
Change
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net earnings,
adjusted for non-cash items
|
$
|
8.8
|
$
|
11.8
|
$
|
(3.0)
|
|
$
|
18.5
|
$
|
22.5
|
$
|
(4.0)
|
|
Net change in
non-cash working capital
|
10.6
|
2.3
|
8.3
|
|
9.5
|
(2.9)
|
12.4
|
|
Net payments for
interest and income taxes
|
(2.0)
|
(1.3)
|
(0.7)
|
|
(4.3)
|
(4.7)
|
0.4
|
|
17.4
|
12.8
|
4.6
|
|
23.7
|
14.9
|
8.8
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
(1.1)
|
(0.7)
|
(0.4)
|
|
(1.4)
|
(1.3)
|
(0.1)
|
|
Proceeds from
disposition of property and equipment
|
0.2
|
-
|
0.2
|
|
0.3
|
-
|
0.3
|
|
Business
acquisition
|
(0.4)
|
-
|
(0.4)
|
|
(6.4)
|
(12.0)
|
5.9
|
|
Deposits in cash
management pools
|
(9.8)
|
(6.1)
|
(3.7)
|
|
(3.9)
|
9.8
|
(13.7)
|
|
(11.1)
|
(6.8)
|
(4.3)
|
|
(11.5)
|
(3.5)
|
(7.6)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Dividends
paid
|
(6.3)
|
(6.0)
|
(0.3)
|
|
(12.2)
|
(11.4)
|
(0.8)
|
|
|
|
|
|
|
|
|
Net change in
cash
|
$
|
-
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
$
|
-
|
Operating activities
Net cash from operating
activities was $17.4 million during
the quarter ended December 31, 2017,
compared to $12.8 million last year,
representing an increase of $4.6
million. Cash flows from operating activities are heavily
impacted by the timing of collections from customers and payments
to vendors. The holiday season favourably impacted cash flows at
December 2017 by advancing the
collections from customers into December, whereas a significant
number of vendor payments fell into January.
For the six-month period ended December
31, 2017, net cash from operating activities was
$23.7 million reflecting an increase
of $8.8 million compared to the same
six-month period last year, and the impact of the holiday season on
cash flows as previously mentioned.
Investing activities
Net cash used in investing
activities was $11.1 million for the
three-month period ended December 31,
2017 and $11.5 million for the
six-month period ending December 31,
2017, compared to $6.8 million
and $3.5 million, respectively, for
the same three and six-month periods last year.
The Company's completion of the acquisition of the Foreign
Affair Brands and additions to capital assets were funded by
withdrawals from cash management pools. In the prior year, the
Company completed the acquisition of Ungava Spirits Brands.
Investing activities also include additions to capital assets
in both current and prior year periods.
Cash management pools represent cash on deposit with Citibank NA
via Corby's Mirror Netting Service Agreement with PR. Corby has
daily access to these funds and earns a market rate of interest
from PR on its deposits. Changes in cash management pools reflect
amounts either deposited in or withdrawn from these bank accounts
and are simply a function of Corby's cash requirements during the
period. For more information related to these deposits please refer
to the "Related Party Transactions" section of this MD&A.
Financing activities
Cash used for financing
activities was $6.3 million for the
three-month period ended December 31,
2017 and $12.2 million for the
six-month period ended December 31,
2017 and represents payment of the Company's regular
dividend to shareholders. In the three-month period ending
December 31, 2017, regular quarterly
dividends increased to $0.22 per
share, compared to $0.21 per share
during the same quarter last year.
The following table summarizes dividends paid and payable by the
Company over the last two fiscal years:
for
|
|
Declaration
date
|
|
Record
Date
|
|
Payment
date
|
|
$ / Share
|
2018 - Q2
|
|
February 7,
2018
|
|
February 23,
2018
|
|
March 9,
2018
|
|
$
0.22
|
2018 - Q1
|
|
November 8,
2017
|
|
November 24,
2017
|
|
December 8,
2017
|
|
0.22
|
2017 - Q4
|
|
August 23.
2017
|
|
September 15,
2017
|
|
September 29,
2017
|
|
0.21
|
2017 - Q3
|
|
May 10,
2017
|
|
May 26,
2017
|
|
June 14,
2017
|
|
0.21
|
2017 - Q2
|
|
February 8,
2017
|
|
February 24,
2017
|
|
March 10,
2017
|
|
0.21
|
2017 - Q1
|
|
November 9,
2016
|
|
November 25,
2016
|
|
December 9,
2017
|
|
0.21
|
2016 - Q4
|
|
August 24,
2016
|
|
September 15,
2016
|
|
September 30,
2016
|
|
0.19
|
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
|
Outstanding Share Data
As at February 7, 2018, Corby had
24,274,320 Voting Class A Common Shares and 4,194,536 Non-Voting
Class B Common Shares outstanding. The Company does not have a
stock option plan, and therefore, there are no options
outstanding.
Related Party Transactions
Transactions with parent, ultimate parent, and
affiliates
Corby engages in a significant number of
transactions with its parent company, its ultimate parent and
various affiliates. Specifically, Corby renders services to its
parent company, its ultimate parent, and affiliates for the
marketing and sale of beverage alcohol products in Canada. Furthermore, Corby outsources the
large majority of its distilling, maturing, storing, blending,
bottling and related production activities to its parent company. A
significant portion of Corby's bookkeeping, recordkeeping services,
data processing and other administrative services are also
outsourced to its parent company. Transactions with the parent
company, ultimate parent and affiliates are subject to Corby's
related party transaction policy, which requires such transactions
to undergo an extensive review and require approval from an
Independent Committee of the Board of Directors.
The companies operate under the terms of agreements that became
effective on September 29, 2006 (the
"2006 Agreements"). These agreements provide the Company with the
exclusive right to represent PR's brands in the Canadian market for
fifteen years, as well as providing for the continuing production
of certain Corby brands by PR at its production facility in
Windsor, Ontario, for ten years.
Corby also manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
North American entities, as approved by Corby's Board of Directors.
On August 26, 2015, Corby entered
into an agreement with PR and certain affiliates amending the
September 29, 2006 Canadian
representation agreements, pursuant to which Corby agreed to
provide more specialized marketing, advertising and promotion
services for the PR and affiliate brands under the applicable
representation agreements in consideration of an increase to the
rate of commission payable to Corby by such entities. On
November 11, 2015, Corby and PR
entered into agreements for the continued production and
bottling of Corby`s owned-brands by Pernod Ricard at the HWSL
production facility in Windsor,
Ontario, for a 10-year term commencing September 30, 2016. On the same date, Corby
and PR also entered into an administrative services agreement,
under which Corby agreed to continue to manage PR's business
interests in Canada, including the
HWSL production facility, with a similar term and commencement
date.
In addition to the 2006 Agreements, Corby signed an agreement on
September 26, 2008, with its ultimate
parent to be the exclusive Canadian representative for the ABSOLUT
vodka and Plymouth gin brands, for
a five-year term, which expired October 1,
2013 and was extended as noted below. These brands were
acquired by PR subsequent to the original representation rights
agreement dated September 29, 2006.
Corby also agreed to continue with the mirror netting arrangement
with PR and its affiliates, under which Corby's excess cash 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. The term of this agreement ended
June 30, 2017 and 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.
On March 21, 2016, the Company
entered into an agreement with Pernod Ricard UK Ltd. ("PRUK"), an
affiliated company, which provides PRUK the exclusive right to
represent Lamb's rum in Great
Britain effective July 1,
2016. Previously, Lamb's rum was represented by an unrelated
third party in this market. The agreement provides Lamb's with
access to PRUK's extensive national distribution network throughout
Great Britain. The agreement is
effective for a five-year period ending June
30, 2021.
Deposits in cash management pools
Corby
participates in a cash pooling arrangement under a Mirror Netting
Service Agreement, together with PR's other Canadian affiliates,
the terms of which are administered by Citibank N.A. effective
July 17, 2014. The Mirror Netting
Service Agreement acts to aggregate each participant's net cash
balance for purposes of having a centralized cash management
function for all of PR's Canadian affiliates, including Corby. As a
result of Corby's participation in this agreement, Corby's credit
risk associated with its deposits in cash management pools is
contingent upon PR's credit rating. PR's credit rating as at
February 7, 2018, as published by
Standard & Poor's and Moody's, was BBB and Baa2, respectively.
PR compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Service Agreement by
paying interest to Corby based upon the 30-day Canadian Dealer
Offered Rate ("CDOR") plus 0.40%. Corby accesses these funds on a
daily basis and has the contractual right to withdraw these funds
or terminate these cash management arrangements upon providing five
days' written notice.
Selected Quarterly Information
Summary of Quarterly Financial Results
|
|
|
|
|
|
|
|
|
(in millions of
Canadian dollars,
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
except per share
amounts)
|
2018
|
2018
|
2017
|
2017
|
2017
|
2017
|
2016
|
2016
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
40.7
|
$
|
36.0
|
$
|
40.2
|
$
|
28.0
|
$
|
40.3
|
$
|
34.6
|
$
|
37.2
|
$
|
28.0
|
Earnings from
operations
|
7.9
|
7.9
|
11.7
|
5.0
|
9.8
|
8.8
|
12.8
|
5.0
|
Net
earnings
|
5.8
|
5.8
|
8.7
|
3.7
|
7.2
|
6.4
|
9.3
|
3.7
|
Basic EPS
|
0.20
|
0.21
|
0.30
|
0.13
|
0.25
|
0.23
|
0.33
|
0.13
|
Diluted
EPS
|
0.20
|
0.21
|
0.30
|
0.13
|
0.25
|
0.23
|
0.33
|
0.13
|
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 fourth quarters of 2017 and
the first and second quarters of 2018 include Case Good sales for
the Ungava Spirits Brands. The Ungava Spirits Brands were acquired
on September 30, 2016 and since, the
completion of the acquisition, the acquired Ungava Spirits Brands
have contributed $11.4 million to
revenues and are net earnings favourable.
Revenues for the second quarter of 2018 include Case Good sales
for the Foreign Affair Brands. The Foreign Affair Brands were
acquired on October 2, 2017 and since
the completion of the acquisition have contributed $0.4 million to revenues and are net earnings
accretive.
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 ended June 30, 2018
and, accordingly, have not been applied in preparing Corby's
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 lessee accounting model, requiring
lessees to recognize assets and liability for all leases unless the
lease term is 12 months or less or the underlying asset has a low
value. The standard is effective for annual periods beginning on or
after January 1, 2019 and must be
applied retrospectively. For Corby, this standard will become
effective July 1, 2019. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
Internal Controls Over Financial Reporting
The Company maintains a system of disclosure controls and
procedures to provide reasonable assurance that all material
information relating to the Company is gathered and reported to
senior management on a timely basis so that appropriate decisions
can be made regarding public disclosure.
In addition, the CEO and CFO have designed, or caused to be
designed under their supervision, internal controls over financial
reporting to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. Internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be designed effectively
can provide only reasonable assurance with respect to financial
reporting and financial statement preparation.
Acquisition of Foreign Affair Brands
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 Foreign
Affair Winery Limited ("Foreign Affair Winery"). Corby acquired the
Foreign Affair Brands on October 2,
2017, and the brand portfolio and other assets acquired are
currently operated by Corby's wholly-owned subsidiary, Foreign
Affair Winery.
Further details related to the acquisition of the Foreign Affair
Brands is disclosed under "Significant Event – Acquisition of the
shares, winery and assets of the Foreign Affair Winery" in this
MD&A and in Note 5 in the Notes to the Company's interim
condensed consolidated financial statements for the three- and
six-month periods ended December 31,
2017.
Since the completion of the acquisition of Foreign Affair Brands
on October 2, 2017, the acquired
brands and assets have contributed $0.4
million to revenues and $0.1
million to net earnings. The purchase price has been
preliminarily allocated as described in Note 5 to the interim
condensed consolidated financial statements for the three- and
six-months ended December 31,
2017.
The scope limitation discussed under this section is primarily
based on the time required to assess Foreign Affair Winery's
disclosure controls and procedures and internal controls over
financial reporting in a manner that is consistent with the
Company's other operations.
Acquisition of Ungava Spirits Brands
In
accordance with the provisions of National Instrument 52-109 –
Certification of disclosure in Issuers' Annual and Interim
Filings, Ungava Spirits was excluded from the Company's
conclusions over disclosure controls and procedures and internal
controls over financial reporting for the 365 day allowable period
subsequent to the acquisition to allow for the assessment of the
design effectiveness of Ungava Spirits disclosure controls and
procedures and internal controls over financial reporting. The
Company has completed its assessment of Ungava Spirits control
environment and incorporated it in the Company's assessment of the
design effectiveness of disclosure controls and procedures and
internal controls over financial reporting.
Except for the preceding changes, there were no changes in
internal control over financial reporting during the Company's most
recent interim period that have materially affected, or are
reasonably likely to materially affect, the Company's internal
controls over financial reporting.
Risks & Risk Management
The Company is exposed to a number of risks in the normal course
of its business that have the potential to affect its operating and
financial performance.
Industry and Regulatory
The beverage alcohol
industry in Canada is subject to
government policy, extensive regulatory requirements and
significant rates of taxation at both the federal and provincial
levels. As a result, changes in the government policy, regulatory
and/or taxation environments within the beverage alcohol industry
may affect Corby's business operations, causing changes in market
dynamics or changes in consumer consumption patterns. In addition,
the Company's provincial LB customers have the ability to mandate
changes that can lead to increased costs, as well as other factors
that may impact financial results.
Additionally, as the Company becomes more reliant on
international product sales in the US, UK and other countries,
exposure to changes in the laws and regulations (including on
matters such as regulatory requirements, import duties and
taxation) in those countries could also adversely affect the
operations, financial performance or reputation of the Company.
The Company continuously monitors the potential risk associated
with any proposed changes to its government policy, regulatory and
taxation environments and, as an industry leader, actively
participates in trade association discussions relating to new
developments.
Consumer Consumption Patterns
Beverage alcohol
companies are susceptible to risks relating to changes in consumer
consumption patterns. Consumer consumption patterns are affected by
many external influences, not the least of which is economic
outlook and overall consumer confidence in the stability of the
economy as a whole. Additionally, the proposed legalization of
recreational cannabis in Canada
could have the potential to impact consumer consumption patterns
with respect to beverage alcohol products. Corby offers a diverse
portfolio of products across all major spirits categories and at
various price points. Corby continues to identify and offer
new innovations in order to address consumer desires.
Distribution/Supply Chain Interruption
The
Company is susceptible to risks relating to distributor and supply
chain interruptions. Distribution in Canada is largely accomplished through the
government-owned provincial LBs and, therefore, an interruption
(e.g., a labour strike) for any length of time 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 collectible from
government-controlled LBs, management believes the Company's credit
risk relating to accounts receivable is at an acceptably low
level.
Exposure to Interest Rate Fluctuations
The
Company does not have any short- or long-term debt facilities.
Interest rate risk exists, as Corby earns market rates of interest
on its deposits in cash management pools. An active risk management
programme does not exist, as management believes that changes in
interest rates would not have a material impact on Corby's
financial position over the long term.
Exposure to Commodity Price
Fluctuations
Commodity risk exists, as the manufacture
of Corby's products requires the procurement of several known
commodities, such as grains, sugar and natural gas. The Company
strives to partially mitigate this risk through the use of
longer-term procurement contracts where possible. In addition,
subject to competitive conditions, the Company may pass on
commodity price changes to consumers through pricing over the long
term.
Foreign Currency Exchange Risk
The Company has
exposure to foreign currency risk, as it conducts business in
multiple foreign currencies; however, its exposure is primarily
limited to the US dollar ("USD") and UK pound sterling ("GBP").
Corby does not utilize derivative instruments to manage this risk.
Subject to competitive conditions, changes in foreign currency
rates may be passed on to consumers through pricing over the long
term.
USD Exposure
The Company's demand for USD has traditionally outpaced its supply,
due to USD sourcing of production inputs and Advertising &
Promotion expenses exceeding that of the Company's USD sales.
Therefore, decreases in the value of the Canadian dollar ("CAD")
relative to the USD will have an unfavourable impact on the
Company's earnings.
GBP Exposure
The Company's exposure to fluctuations in the value of the GBP
relative to the CAD was reduced as both sales and cost of
production are denominated in GBP. While Corby's exposure has been
minimized, increases in the value of the CAD relative to the GBP
will have an unfavourable impact on the Company's earnings.
Third-Party Service Providers
HWSL, which Corby
manages on behalf of PR, provides more than 90% of the Company's
production requirements, among other services including
administration and information technology. However, the Company is
reliant upon certain third-party service providers in respect of
certain of its operations. It is possible that negative events
affecting these third-party service providers could, in turn,
negatively impact the Company. While the Company has no direct
control over how such third parties are managed, it has entered
into contractual arrangements to formalize these relationships. In
order to minimize operating risks, the Company actively monitors
and manages its relationships with its third-party service
providers.
Brand Reputation and Trademark Protection
The
Company promotes nationally branded, non-proprietary products as
well as proprietary products. Damage to the reputation of any of
these brands, or to the reputation of any supplier or manufacturer
of these brands, could negatively impact consumer opinion of the
Company or the related products, which could have an adverse impact
on the financial performance of the Company. The Company strives to
mitigate such risks by selecting only those products from suppliers
that strategically complement Corby's existing brand portfolio and
by actively monitoring brand advertising and promotion
activities.
Additionally, although the Company registers trademarks, as
applicable, it cannot be certain that trademark registrations will
be issued with respect to all 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
these third parties to maintain policies, processes and procedures
to help secure and protect these information systems as well as
consumer, corporate and employee data.
Valuation of Goodwill and Intangible
Assets
Goodwill and intangible assets account for a
significant amount of the Company's total assets. Goodwill and
intangible assets are subject to impairment tests that involve the
determination of fair value. Inherent in such fair value
determinations are certain judgments and estimates including, but
not limited to, projected future sales, earnings and capital
investment, discount rates, and terminal growth rates. These
judgments and estimates may change in the future due to uncertain
competitive market and general economic conditions, or as the
Company makes changes in its business strategies. Given the current
state of the economy, certain of the aforementioned factors
affecting the determination of fair value may be impacted and, as a
result, the Company's financial results may be adversely
affected.
The following table summarizes Corby's goodwill and intangible
assets and details the amounts associated with each brand (or
basket of brands) and market as at December
31, 2017:
|
|
|
|
|
|
|
|
|
Carrying Values as at
December 31, 2017
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
|
-
|
$
|
21.7
|
$
|
21.7
|
Lamb's rum
|
|
United
Kingdom(1)
|
|
1.4
|
11.8
|
13.2
|
Ungava brands
(2)
|
|
Canada
|
|
5.1
|
3.2
|
8.3
|
Foreign Affair Winery
brands
|
|
Canada
|
|
3.6
|
-
|
3.6
|
Other domestic
brands
|
|
Canada
|
|
1.9
|
-
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12.0
|
$
|
36.7
|
$
|
48.7
|
|
|
|
|
|
|
|
|
|
|
(1) The
international business for Lamb's rum is primarily focused in the
UK, however, the trademarks and licences
|
purchased relate to
all international markets outside of Canada, as Corby previously
owned the Canadian rights.
|
(2) The
Ungava brands include trademarks related to Ungava Premium Canadian
Gin, Chic Choc Spiced Rum and
|
Cabot Trail
maple-based liqueurs.
|
Therefore, economic factors (such as consumer consumption
patterns) specific to these brands and markets are primary drivers
of the risk associated with their respective goodwill and
intangible assets valuations.
Employee Future Benefits
The Company has
certain obligations under its registered and non-registered defined
benefit pension plans and other post-retirement benefit plan. There
is no assurance that the Company's benefit plans will be able to
earn the assumed rate of return. New regulations and market-driven
changes may result in changes in the discount rates and other
variables, which would result in the Company being required to make
contributions in the future that differ significantly from
estimates. An extended period of depressed capital markets and low
interest rates could require the Company to make contributions to
these plans in excess of those currently contemplated, which, in
turn, could have an adverse impact on the financial performance of
the Company. Somewhat mitigating the impact of a potential market
decline is the fact that the Company monitors its pension plan
assets closely and follows strict guidelines to ensure that pension
fund investment portfolios are diversified in-line with industry
best practices. For further details, related to Corby's defined
benefit pension plans, please refer to Note 16 of the consolidated
financial statements for the year ended June
30, 2017.
CORBY SPIRIT AND WINE LIMITED
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2017 AND 2016
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Jun. 30
|
|
|
Notes
|
2017
|
2016
|
2017
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Deposits in cash
management pools
|
|
|
$
|
78,163
|
$
|
75,218
|
$
|
74,253
|
Accounts
receivable
|
|
6
|
31,793
|
33,526
|
34,828
|
Inventories
|
|
7
|
58,635
|
55,499
|
55,359
|
Prepaid
expenses
|
|
|
649
|
552
|
527
|
|
|
|
|
|
|
Total current
assets
|
|
|
169,240
|
164,795
|
164,967
|
Deferred income
taxes
|
|
|
-
|
1,843
|
-
|
Property, plant and
equipment
|
|
|
16,373
|
13,779
|
14,777
|
Goodwill
|
|
8
|
11,991
|
11,142
|
8,403
|
Intangible
assets
|
|
|
36,733
|
39,456
|
39,675
|
|
|
|
|
|
|
Total
assets
|
|
|
$
|
234,337
|
$
|
231,015
|
$
|
227,822
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
9
|
$
|
39,817
|
$
|
31,128
|
$
|
31,317
|
Income and other
taxes payable
|
|
|
192
|
2,059
|
912
|
Total current
liabilities
|
|
|
40,009
|
33,187
|
32,229
|
Provision for
employee benefits
|
|
|
16,766
|
24,436
|
18,249
|
Deferred income
taxes
|
|
|
450
|
-
|
66
|
|
|
|
|
|
|
Total
liabilities
|
|
|
57,225
|
57,623
|
50,544
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
Share
capital
|
|
|
14,304
|
14,304
|
14,304
|
Accumulated other
comprehensive loss
|
|
|
(5,582)
|
(9,832)
|
(6,017)
|
Retained
earnings
|
|
|
168,390
|
168,920
|
168,991
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
177,112
|
173,392
|
177,278
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
|
$
|
234,337
|
$
|
231,015
|
$
|
227,822
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
|
(Unaudited)
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
Notes
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
|
Revenue
|
|
10
|
$
|
40,748
|
$
|
40,266
|
$
|
76,718
|
$
|
74,898
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
(15,547)
|
(15,112)
|
(28,752)
|
(26,836)
|
Marketing, sales and
administration
|
|
|
(17,447)
|
(15,284)
|
(32,307)
|
(29,344)
|
Other income
(expense)
|
|
11
|
138
|
(22)
|
173
|
(27)
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
7,892
|
9,848
|
15,832
|
18,691
|
|
|
|
|
|
|
|
Financial
income
|
|
12
|
285
|
227
|
556
|
493
|
Financial
expense
|
|
12
|
(190)
|
(259)
|
(381)
|
(519)
|
|
|
|
95
|
(32)
|
175
|
(26)
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
|
7,987
|
9,816
|
16,007
|
18,665
|
|
|
|
|
|
|
|
Current income
taxes
|
|
|
(2,159)
|
(2,547)
|
(4,142)
|
(4,946)
|
Deferred income
taxes
|
|
|
(37)
|
(98)
|
(224)
|
(112)
|
Income
taxes
|
|
|
(2,196)
|
(2,645)
|
(4,366)
|
(5,058)
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
$
|
5,791
|
$
|
7,171
|
$
|
11,641
|
$
|
13,607
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
|
$
|
0.20
|
$
|
0.25
|
$
|
0.41
|
$
|
0.48
|
Diluted earnings
per share
|
|
|
$
|
0.20
|
$
|
0.25
|
$
|
0.41
|
$
|
0.48
|
|
|
|
|
|
|
|
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 interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
(Unaudited)
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
5,791
|
$
|
7,171
|
$
|
11,641
|
$
|
13,607
|
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
|
Net actuarial
losses
|
|
297
|
265
|
594
|
530
|
|
Income
taxes
|
|
(79)
|
(71)
|
(159)
|
(142)
|
|
|
218
|
194
|
435
|
388
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
6,009
|
$
|
7,365
|
$
|
12,076
|
$
|
13,995
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN
|
SHAREHOLDERS'
EQUITY
|
(unaudited)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|
|
|
|
|
|
|
Balance as at June
30, 2017
|
|
|
$
|
14,304
|
$
|
(6,017)
|
$
|
168,991
|
$
|
177,278
|
Total comprehensive
income
|
|
|
-
|
435
|
11,641
|
12,076
|
Dividends
|
|
|
-
|
-
|
(12,242)
|
(12,242)
|
|
|
|
|
|
|
|
Balance as at
December 31, 2017
|
|
|
$
|
14,304
|
$
|
(5,582)
|
$
|
168,390
|
$
|
177,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2016
|
|
|
$
|
14,304
|
$
|
(10,220)
|
$
|
166,701
|
$
|
170,785
|
Total comprehensive
income
|
|
|
-
|
388
|
13,607
|
13,995
|
Dividends
|
|
|
-
|
-
|
(11,388)
|
(11,388)
|
|
|
|
|
|
|
|
Balance as at
December 31, 2016
|
|
|
$
|
14,304
|
$
|
(9,832)
|
$
|
168,920
|
$
|
173,392
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
(Unaudited)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
Notes
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
5,791
|
$
|
7,171
|
$
|
11,641
|
$
|
13,607
|
Adjustments
for:
|
|
|
|
|
|
Amortization and
depreciation
|
13
|
2,015
|
2,027
|
4,024
|
3,964
|
Net financial
income
|
12
|
(95)
|
32
|
(175)
|
26
|
Gain on disposal of
property and equipment
|
|
(98)
|
-
|
(100)
|
-
|
Income tax
expense
|
|
2,196
|
2,645
|
4,366
|
5,058
|
Provision for
employee benefits
|
|
(1,049)
|
(96)
|
(1,270)
|
(193)
|
|
|
8,760
|
11,779
|
18,486
|
22,462
|
Net change in
non-cash working capital balances
|
14
|
10,601
|
2,328
|
9,539
|
(2,857)
|
Interest
received
|
|
287
|
232
|
558
|
496
|
Income taxes
paid
|
|
(2,292)
|
(1,557)
|
(4,862)
|
(5,246)
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
17,356
|
12,782
|
23,721
|
14,855
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Additions to property
and equipment
|
|
(1,085)
|
(681)
|
(1,432)
|
(1,280)
|
Proceeds from
disposition of property and equipment
|
|
243
|
-
|
260
|
-
|
Business
acquisition
|
|
(440)
|
-
|
(6,397)
|
(12,000)
|
Deposits in cash
management pools
|
|
(9,810)
|
(6,122)
|
(3,910)
|
9,813
|
|
|
|
|
|
|
Net cash from
investing activities
|
|
(11,092)
|
(6,803)
|
(11,479)
|
(3,467)
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
Dividends
paid
|
|
(6,264)
|
(5,979)
|
(12,242)
|
(11,388)
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
(6,264)
|
(5,979)
|
(12,242)
|
(11,388)
|
|
|
|
|
|
|
Net increase in
cash
|
|
-
|
-
|
-
|
-
|
Cash, beginning of
year
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Cash, end of
year
|
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands of Canadian dollars, except
per share amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian marketer of spirits and importer of wines. The
Company derives its revenues from the sale of its owned-brands in
Canada and other international
markets, as well as earning commissions from the representation of
selected non-owned brands in the Canadian marketplace. Revenues
predominantly consist of sales made to each of the provincial
liquor boards in Canada. The
Company also supplements these primary sources of revenue with
other ancillary activities incidental to its core business, such as
logistics fees.
Corby is controlled by Hiram
Walker & Sons Limited ("HWSL"), which is a wholly-owned
subsidiary of Pernod Ricard, S.A. ("PR"), a French public limited
company that controls 51.6% of the outstanding Voting Class A
Common Shares of Corby as at December 31,
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 interim condensed
consolidated financial statements have been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting" ("IAS 34"), as issued by the International Accounting
Standards Board ("IASB"). These interim condensed consolidated
financial statements follow the same accounting policies as the
most recent annual consolidated financial statements, except for
changes in accounting policies and methods described in Note 3 to
these interim condensed consolidated financial statements. These
interim condensed consolidated financial statements should be read
in conjunction with the Company's 2017 annual financial
statements.
These interim condensed consolidated financial statements were
approved by the Company's Board of Directors on February 7, 2018.
Functional and presentation currency
The
Company's interim condensed consolidated financial statements are
presented in Canadian dollars, which is the Company's functional
and presentation currency.
Foreign currency translation
Transactions
denominated in foreign currencies are translated into the
functional currency using the exchange rate applying at the
transaction date. Non-monetary assets and liabilities denominated
in foreign currencies are recognized at the historical exchange
rate applicable at the transaction date. Monetary assets and
liabilities denominated in foreign currencies are translated at the
exchange rate applying at the balance sheet date. Foreign
currency differences related to operating activities are recognized
in earnings from operations for the period; foreign currency
differences related to financing activities are recognized within
net financial income.
Basis of Measurement
These interim condensed
consolidated financial statements are prepared in accordance with
the historical cost model, except for certain categories of assets
and liabilities, which are measured in accordance with other
methods provided for by IFRS as explained in the accounting
policies as described in the most recent annual consolidated
financial statements, except for policies and methods described in
Note 3 to these interim condensed consolidated financial
statements. Historical cost is generally based on the fair value of
the consideration given in exchange for assets.
Use of Estimates and Judgements
The preparation
of these interim condensed consolidated financial statements in
conformity with IFRS requires management to make certain
judgements, estimates and assumptions that affect the application
of accounting policies, the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the interim condensed consolidated financial statements,
and the reported amounts of revenues and expenses during the
reporting period. These estimates are made on the assumption the
Company will continue as a going concern and are based on
information available at the time of preparation. Estimates may be
revised where the circumstance on which they were based change or
where new information becomes available. Future outcomes can differ
from these estimates.
Judgment is commonly used in determining whether a balance or
transaction should be recognized in the interim condensed
consolidated financial statements and estimates and assumptions are
more commonly used in determining the measurement of recognized
transactions and balances. However, judgment and estimates are
often interrelated.
Estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Estimates are made on the assumption the Company will continue as a
going concern and are based on information available at the time of
preparation. Estimates may be revised where the circumstance on
which they were based 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.
Management's most critical estimates in determining the value of
assets and liabilities and the most critical judgements in applying
accounting policies that have a significant risk of causing
material adjustments to the carrying amounts of assets and
liabilities within the next year have been described in Note 2 of
the Company's most recent annual consolidated financial statements.
The following discussion is an additional application of critical
estimates and assumptions.
(i) Fair value of grapes
at point of harvest
Where possible, the fair value of grapes at the point of harvest
is determined by reference to local market prices for grapes of a
similar quality and varietal. For grapes for which local market
prices are not readily available, the average price of similar
grapes is used.
Seasonality
The interim condensed consolidated
financial statements should not be taken as indicative of the
performance to be expected for the full fiscal year due to the
seasonal nature of the spirits business. Corby's operations are
typically subject to seasonal fluctuations in that the retail
holiday season generally results in an increase in consumer
purchases over the course of October, November and December.
Further, the summer months traditionally result in higher consumer
purchases of spirits as compared to the winter and spring months.
As a result, the Company's first and second quarter of each fiscal
year tend to reflect the impact of seasonal fluctuations in that
more shipments are typically made during those quarters.
3. SIGNIFICANT ACCOUNTING POLICIES
In addition to the accounting policies described in the most
recent annual consolidated financial statements, the following
policies have been applied to these interim condensed consolidated
financial statements.
Inventories
Grapes produced from vineyards controlled
by the Company that are part of inventory are measured at their
fair value less costs to sell at the point of harvest.
Inventory of wine that is produced by the Company is valued at
the lower of cost and net realizable value, with cost being
determined on an average cost basis.
Inventory of bulk wine and grapes is included in
work-in-progress inventory in Note 7.
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, 2018, and accordingly, have
not been applied in preparing these interim condensed consolidated
financial statements:
(i) Revenue
In May 2014, the IASB released
IFRS 15, "Revenue from contracts with customers" ("IFRS 15"), which
supersedes IAS 11, "Construction Contracts", IAS 18, "Revenues",
IFRIC 13, "Customer Loyalty Programmes", IFRIC 15, "Agreement for
the Construction of Real Estate", IFRIC 18, "Transfers of Assets
from Customers" and SIC-31, "Revenue – Barter Transactions
Involving Advertising Services". The core principle of IFRS 15 is
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. IFRS 15 will also result in
enhanced disclosures about revenue, provide guidance for
transactions that were not previously addressed comprehensively
(for example, service revenue and contract modifications) and
improve guidance for multiple-element arrangements. IFRS 15 will be
effective for Corby's fiscal year beginning on July 1, 2018, with earlier application permitted.
The Company continues to assess the impact of the adoption of this
new standard on its financial statements and disclosures.
(ii) Financial
Instruments
The IASB has issued a new standard, IFRS 9, "Financial
Instruments" ("IFRS 9"), which will ultimately replace IAS 39,
"Financial Instruments: Recognition and Measurement" ("IAS 39").
The replacement of IAS 39 is a multi-phase project with the
objective of improving and simplifying the reporting for financial
instruments and the issuance of IFRS 9 is part of the first phase
of this project. IFRS 9 uses a single approach to determine whether
a financial asset or liability is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. For financial
assets, the approach in IFRS 9 is based on how an entity manages
its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets.
It also amends the impairment model by introducing a new 'expected
credit loss' model for calculating impairment. The standard
introduces additional changes relating to financial liabilities.
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. FAIR VALUE
The Company uses a fair value hierarchy in order to classify the
fair value measurements and disclosures related to the Company's
financial assets and financial liabilities. The fair value
hierarchy has the following levels:
- Level 1 – Quoted market prices in active markets for identical
assets or liabilities;
- Level 2 – Inputs other than quoted market prices included in
Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices); and
- Level 3 – Unobservable inputs such as inputs for the asset or
liability that are not based on observable market data.
The level in the fair value hierarchy within which the fair
value measurement is categorized in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety.
The Company has no financial instruments carried at fair value
on its balance sheet. For financial assets and liabilities that are
valued at other than fair value on its balance sheets (i.e.,
deposits in cash management pools, deposit on business acquisition,
accounts receivable, accounts payable and accrued liabilities),
fair value approximates their carrying value at each balance sheet
date due to their short-term maturities. Fair value is determined
using Level 2 inputs.
5. BUSINESS ACQUISITION
On October 2, 2017 the Company
acquired the all the shares of Vinnova Corporation and
substantially all of the assets of the Crispino Estate Vineyard
partnership, which together operate as the Foreign Affair Winery, a
Niagara, Ontario-based wine
producer for a purchase price of $6,397. The transaction, through a wholly-owned
subsidiary, includes Foreign Affair's portfolio of wines as well as
related production assets and inventory. The acquisition was
accounted for using the acquisition method.
Acquisition costs of $446 arose as
a result of the transaction. These costs have been recognized as
part of marketing, sales and administration expenses in the interim
condensed consolidated statement of earnings. The purchase price
was funded from the Company's Deposits in cash management pools.
Since the transaction date, the acquired brands and assets have
contributed $402 to revenues and
$65 to net earnings. The proforma
results, which would represent the results for the acquired brands
and assets had the purchase transaction occurred at the beginning
of the fiscal year, have not been presented as they are not
materially different from the actuals presented. Revenues are
included in case goods sales in Note 10.
The fair values of the identifiable net assets acquired and the
total consideration as at October 2,
2017 have been determined provisionally and are subject to
adjustment. Provisional amounts for intangible assets have not been
separately identified, valued or recognized as part of the purchase
price allocation, and are pending completion of a comprehensive
valuation. As a result, goodwill, which is the excess of the
purchase price over the fair value of the net identifiable assets
acquired, will be adjusted retrospectively to the acquisition date
in future reporting periods.
Details of the fair value of identifiable assets and liablities
acquired, purchase consideration and goodwill are as follows:
Purchase
consideration transferred:
|
|
|
|
|
|
$
|
6,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable net
assets acquired:
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
|
|
|
210
|
|
Inventory
|
|
|
|
|
|
1,400
|
|
Prepaid
expenses
|
|
|
|
|
|
62
|
|
Property, plant and
equipment
|
|
|
|
|
|
1,405
|
|
Trade
payables
|
|
|
|
|
|
(268)
|
|
|
|
|
|
|
|
$
|
2,809
|
|
|
|
|
|
|
|
|
Excess initially
allocated to goodwill
|
|
|
|
|
|
$
|
3,588
|
6. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Jun. 30
|
|
|
|
|
|
|
2017
|
2016
|
2017
|
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
|
|
|
$
|
18,328
|
$
|
21,759
|
$
|
17,056
|
Due from related
parties
|
|
|
|
|
|
11,768
|
9,959
|
15,619
|
Other
|
|
|
|
|
|
1,697
|
1,808
|
2,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,793
|
$
|
33,526
|
$
|
34,828
|
7. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Jun. 30
|
|
|
|
|
|
|
2017
|
2016
|
2017
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
|
|
|
$
|
3,899
|
$
|
2,833
|
$
|
3,137
|
Work-in-progress
|
|
|
|
|
|
44,314
|
44,129
|
44,487
|
Finished
goods
|
|
|
|
|
|
10,422
|
8,537
|
7,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,635
|
$
|
55,499
|
$
|
55,359
|
The cost of inventory recognized as an expense and included in
cost of goods sold during the three and six months ended
December 31, 2017 were $13,738 and $25,459
(2016 – $13,112 and $23,418). During the three and six month periods
ended December 31, 2017 and 2016
there were no significant write-downs of inventory as a result of
net realizable value being lower than cost. No inventory
write-downs recognized in previous years were reversed. Inventory
write-downs are included in cost of goods sold.
8. GOODWILL
|
|
Dec.
31
|
Dec. 31
|
Jun. 30
|
|
|
2017
|
2016
|
2017
|
|
|
|
|
|
Goodwill,
beginning of period
|
|
$
|
8,403
|
$
|
3,278
|
$
|
3,278
|
Impact of
acquisitions during the period (Note 5)
|
|
3,588
|
7,864
|
5,125
|
|
|
|
|
|
Goodwill, end of
period
|
|
$
|
11,991
|
$
|
11,142
|
$
|
8,403
|
There have been no impairment losses recognized with respect to
goodwill during the period (2017 - $nil).
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
Dec.
31
|
Dec. 31
|
Jun. 30
|
|
|
|
|
2017
|
2016
|
2017
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
|
$
|
28,318
|
$
|
19,364
|
$
|
22,937
|
Due from related
parties
|
|
|
|
9,832
|
10,531
|
6,747
|
Other
|
|
|
|
1,667
|
1,233
|
1,633
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,817
|
$
|
31,128
|
$
|
31,317
|
10. REVENUE
The Company's revenue consists of the following streams:
|
|
Three
months ended
|
Six months
ended
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Case goods
sales
|
|
$
|
32,452
|
$
|
32,815
|
$
|
60,978
|
$
|
60,061
|
Commissions (net of
amortization of representation rights)
|
|
7,158
|
6,554
|
13,791
|
13,187
|
Other
services
|
|
1,138
|
897
|
1,949
|
1,650
|
|
|
|
|
|
|
|
|
$
|
40,748
|
$
|
40,266
|
$
|
76,718
|
$
|
74,898
|
Commissions for the three and six month periods are shown net of
amortization of long-term representation rights and non-refundable
upfront fees of $1,471 and
$2,941 (2016 - $1,471 and $2,941).
Other services include revenues incidental to the manufacture of
case goods, such as logistics fees and miscellaneous bulk spirit
sales.
11. OTHER INCOME (EXPENSE)
The Company's other income (expense) consist of the following
amounts:
|
|
Three
months ended
|
Six months
ended
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Foreign exchange gain
(loss)
|
|
$
|
40
|
$
|
(22)
|
$
|
73
|
$
|
(27)
|
Gain on disposal of
property and equipment
|
|
98
|
-
|
100
|
-
|
|
|
|
|
|
|
|
|
$
|
138
|
$
|
(22)
|
$
|
173
|
$
|
(27)
|
12. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
$
|
285
|
$
|
227
|
$
|
556
|
$
|
493
|
Net financial impact
of pensions
|
|
|
|
(190)
|
(259)
|
(381)
|
(519)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
95
|
$
|
(32)
|
$
|
175
|
$
|
(26)
|
13. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses, as follows:
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
|
$
|
544
|
$
|
556
|
$
|
1,083
|
$
|
1,023
|
Amortization of
intangible assets
|
|
|
1,471
|
1,471
|
2,941
|
2,941
|
Salary and payroll
costs
|
|
|
6,968
|
6,129
|
13,115
|
12,066
|
Expenses related to
pensions and benefits
|
|
|
354
|
375
|
710
|
749
|
|
|
|
|
|
|
|
|
|
|
$
|
9,337
|
$
|
8,531
|
$
|
17,849
|
$
|
16,779
|
14. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
Three
months ended
|
Six months
ended
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
(255)
|
$
|
(4,732)
|
$
|
3,244
|
$
|
(2,364)
|
Inventories
|
|
497
|
1,998
|
(1,877)
|
(179)
|
Prepaid
expenses
|
|
259
|
(166)
|
(60)
|
(76)
|
Accounts payable and
accrued liabilities
|
|
10,100
|
5,228
|
8,232
|
(238)
|
|
|
|
|
|
|
|
|
$
|
10,601
|
$
|
2,328
|
$
|
9,539
|
$
|
(2,857)
|
15. DIVIDENDS
On February 7, 2018 subsequent to
the quarter ended December 31, 2017,
the Board of Directors declared its regular quarterly dividend of
$0.22 per common share, to be paid on
March 9, 2018, to shareholders of
record as at the close of business on February 23, 2018. This dividend is in accordance
with the Company's dividend policy.
16. RELATED PARTY TRANSACTIONS
Transactions with parent, ultimate parent, and
affiliates
The majority of Corby's issued and
outstanding voting Class A shares are owned by HWSL. HWSL is a
wholly-owned subsidiary of PR. Therefore, HWSL is Corby's parent
and PR is Corby's ultimate parent. Affiliated companies are
subsidiaries, which are controlled by Corby's parent and/or
ultimate parent.
Corby engages in a significant number of transactions with its
parent company, its ultimate parent and various affiliates.
Specifically, Corby renders services to its parent company, its
ultimate parent, and affiliates for the marketing and sale of
beverage alcohol products in Canada. Furthermore, Corby outsources the
large majority of its distilling, maturing, storing, blending,
bottling and related production activities to its parent company. A
significant portion of Corby's bookkeeping, recordkeeping services,
data processing and other administrative services are also
outsourced to its parent company. Transactions with the parent
company, ultimate parent and affiliates are subject to Corby's
related party transaction policy, which requires such transactions
to undergo an extensive review and receive approval from an
Independent Committee of the Board of Directors.
The companies operate under the terms of agreements that became
effective on September 29, 2006.
These agreements provide the Company with the exclusive right to
represent PR's brands in the Canadian market for 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").
On March 21, 2016, the Company
entered into an agreement with Pernod Ricard UK Ltd. ("PRUK"), an
affiliated company, which provides PRUK the exclusive rights to
represent Lamb's rum in Great
Britain effective July 1,
2016. Previously, Lamb's rum was represented by an unrelated
third party in this market. The agreement is effective for a
five-year period ending June 30,
2021.
Transactions between Corby and its parent, ultimate parent and
affiliates during the period are as follows:
|
|
Three
months ended
|
Six months
ended
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
|
$
|
8,126
|
$
|
7,562
|
$
|
15,728
|
$
|
15,195
|
Products for resale
at an export level - affiliated companies
|
|
2,508
|
1,737
|
4,265
|
3,417
|
|
|
|
|
|
|
|
|
$
|
10,634
|
$
|
9,299
|
$
|
19,993
|
$
|
18,612
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
$
|
5,737
|
$
|
5,048
|
$
|
11,891
|
$
|
11,016
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
|
Marketing, selling
and administration services - parent
|
|
$
|
671
|
$
|
658
|
$
|
1,129
|
$
|
1,295
|
Marketing, selling
and administration services - affiliate
|
|
277
|
313
|
468
|
599
|
|
|
|
|
|
|
|
|
$
|
948
|
$
|
971
|
$
|
1,597
|
$
|
1,894
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the three and six month periods ended December 31, 2017, Corby sold casks to its parent
company for net proceeds of $243 and
$260 (2016 - $nil).
Deposits in cash management pools
Corby
participates in a cash pooling arrangement under the Mirror Netting
Service Agreement together with PR's other Canadian affiliates, the
terms of which are administered by Citibank N.A.. The Mirror
Netting Services Agreement acts to aggregate each participant's net
cash balance for the purposes of having a centralized cash
management function for all of PR's Canadian affiliates, including
Corby.
As a result of Corby's participation in this agreement, Corby's
credit risk associated with its deposits in cash management pools
is contingent upon PR's credit rating. PR's credit rating as at
February 7, 2018, as published by
Standard & Poor's and Moody's, was BBB and Baa2, respectively.
PR compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Services Agreement by
paying interest to Corby based upon the 30-day CDOR rate plus
0.40%. During the three and six months ended December 31, 2017, Corby earned interest income
of $305 and $586 from PR (2016 – $237 and $507).
Corby has the right to terminate its participation in the Mirror
Netting Services Agreement at any time, subject to five days'
written notice.
17. 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 10 of the interim condensed consolidated
financial statements. Therefore, a table detailing operational
results by segment has not been provided as no additional
meaningful information would result.
SOURCE Corby Spirit and Wine Limited