TORONTO, May 9, 2018 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
reported its financial results for the third quarter ended
March 31, 2018. The Corby Board of
Directors today also declared a dividend of $0.22 per share payable on June 13, 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 May
25, 2018.
Revenue for both the third quarter and the nine-month period
ended March 31, 2018 increased 2%
despite an earlier 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).
New entrants into international markets, market mix, and the
addition of the premium Ungava Spirits' brands and Foreign Affair
wines drove positive top line results, together with an increase in
commission income from Pernod Ricard brands. Advertising and
promotional investments continue to support the sustained
development of the newly acquired brands and are behind the
Company's 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 $4.8 million (or
$0.17 per share) were reported for
the three-month period ended March 31,
2018, reflecting an increase of $1.4
million, or 43%, when compared to the same quarter last
year. On a year to date basis, net earnings of $16.4 million reflect a slight decrease of
$0.5 million for the nine- month
period ended March 31, 2018, when
compared to the same period last year.
"I am pleased with our third quarter results, particularly with
the resilient performance of J.P. Wiser's in an evolving Canadian
whisky market. Our key brands, including our recent acquisitions of
the Ungava Spirits' brands and the Foreign Affair wines, are
benefitting from our commitment to continue investment in building
sustainable competitive advantage in the spirits and wine industry
and driving premiumization of the Corby portfolio. Recently, in
collaboration with Hiram Walker
& Sons Limited, we opened the J.P. Wiser's Brand Experience
Centre in Walkerville, Ontario
where we are proudly sharing the heritage and story of our award
winning brands and innovations. I invite everyone to visit and
immerse themselves in our products to learn what makes our brands
truly unique in this industry," 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-nine-months ended March 31,
2018, 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® 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 2018,
Corby was named one of the 50 Best Workplaces in Canada by The Great Place to Work® Institute
Canada for the seventh 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
March 31,
2018
The following Management's Discussion and Analysis ("MD&A")
dated May 9, 2018 should be read in
conjunction with the unaudited interim condensed consolidated
financial statements and accompanying notes as at and for the three
and nine-month period ended March 31,
2018, prepared in accordance with International Financial
Reporting Standards ("IFRS"). These interim condensed consolidated
financial statements were not audited or reviewed by the Company's
external auditors in accordance with standards established by the
Canadian Institute of Chartered Accountants for a review of
unaudited interim financial statements by an entity's auditor.
These unaudited interim condensed financial statements do not
contain all disclosures required by IFRS for annual financial
statements and, accordingly, should also be read in conjunction
with the most recently prepared annual consolidated financial
statements for the year ended June 30,
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 May 9, 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
third quarter of fiscal 2018 (three months ended March 31, 2018) are against results for the third
quarter of fiscal 2017 (three months ended March 31, 2017). All dollar amounts are in
Canadian dollars unless otherwise stated.
Business Overview
Corby is a leading Canadian manufacturer and 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® 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. As
the agreement that appointed PRUSA is set to expire on June 30, 2018, Corby is currently finalizing the
process to appoint a new distributor. 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. In addition, retail
sales comparisons can be affected by timing of key holidays and LB
reporting calendars.
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 $6.4
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 $0.7 million
to revenues and are net earnings neutral. More information
regarding the transaction has been provided in Note 5 of the
interim condensed consolidated financial statements for the three
and nine-month periods ended March 31,
2018.
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
|
Nine Months
Ended
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's of 9L cases)
|
2018
|
2017
|
%
|
%
|
2018
|
2017
|
%
|
%
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
173
|
158
|
9%
|
12%
|
581
|
592
|
(2%)
|
(1%)
|
Lamb's rum
|
80
|
83
|
(3%)
|
(2%)
|
312
|
338
|
(8%)
|
(6%)
|
Polar Ice
vodka
|
81
|
80
|
0%
|
(6%)
|
267
|
274
|
(3%)
|
(5%)
|
Mixable
liqueurs
|
27
|
27
|
(1%)
|
1%
|
119
|
122
|
(2%)
|
(1%)
|
Ungava Spirits Brands
1
|
17
|
22
|
(23%)
|
(32%)
|
76
|
47
|
62%
|
54%
|
Foreign Affair
Brands2
|
2
|
-
|
N/A
|
N/A
|
3
|
-
|
N/A
|
N/A
|
Other Corby-owned
brands
|
48
|
48
|
1%
|
9%
|
157
|
157
|
(0%)
|
5%
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
428
|
420
|
2%
|
3%
|
1,515
|
1,530
|
(1%)
|
2%
|
|
|
|
|
|
|
|
|
|
(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 March 31,
2018, shipment volume was 2% higher while value grew 3%
compared to the same period last year, largely due to export sales.
For the nine months ended March 31,
2018, Corby's owned-brands drove a 2% increase in shipment
value despite a slight 1% volume decline when compared to the same
period last year. Revenue increase was driven primarily by the
positive contribution of the Ungava Spirits Brands, as well as
gains in international markets.
Trends in Canada differ
significantly from international markets as highlighted in the
following table:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2018
|
2017
|
%
|
%
|
2018
|
2017
|
%
|
%
|
|
|
|
|
|
|
|
|
|
Domestic
|
379
|
380
|
(0%)
|
(0%)
|
1,354
|
1,383
|
(2%)
|
(0%)
|
International
|
48
|
40
|
22%
|
42%
|
161
|
146
|
10%
|
31%
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
428
|
420
|
2%
|
3%
|
1,515
|
1,530
|
(1%)
|
2%
|
Third quarter domestic shipment volumes and value are flat
compared to the same time last year, while on a year-to-date basis,
volume decreased 2% and value was flat when compared to the same
period last year. Results for the current fiscal year have been
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. Domestic shipment volumes
of J.P. Wiser's Deluxe were primarily impacted. In addition,
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
nine months ended March 31, 2018 were
higher on a year over year comparative basis due to organic growth
in the US and UK, and entry into new international markets. Value
grew significantly over volume for the three-month and nine-month
periods ended March 31, 2018 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 is a result of 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 March 31, 2018.
It should be noted that the retail information presented does
not include international retail sales of Corby-owned brands.
|
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|
|
|
|
|
|
|
|
RETAIL SALES FOR
THE CANADIAN MARKET ONLY (AS PROVIDED BY THE
ACD1)
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Twelve Months
Ended
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
Mar.
31
|
Mar.
31
|
Volume
|
Value
|
|
Mar.
31
|
Mar.
31
|
Volume
|
Value
|
|
Mar.
31
|
Mar.
31
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2018
|
2017
|
Growth
|
Growth
|
|
2018
|
2017
|
Growth
|
Growth
|
|
2018
|
2017
|
Growth
|
Growth
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
163
|
158
|
4%
|
5%
|
|
577
|
570
|
1%
|
3%
|
|
741
|
730
|
1%
|
3%
|
Lamb's rum
|
69
|
72
|
(5%)
|
(3%)
|
|
251
|
269
|
(6%)
|
(5%)
|
|
333
|
353
|
(6%)
|
(4%)
|
Polar Ice
vodka
|
77
|
78
|
(1%)
|
0%
|
|
264
|
267
|
(1%)
|
0%
|
|
347
|
351
|
(1%)
|
0%
|
Mixable
liqueurs
|
31
|
29
|
5%
|
7%
|
|
126
|
127
|
(1%)
|
1%
|
|
160
|
162
|
(1%)
|
0%
|
Ungava Spirits
Brands
|
19
|
15
|
30%
|
31%
|
|
70
|
52
|
34%
|
33%
|
|
85
|
63
|
36%
|
34%
|
Foreign Affair
Brands
|
0
|
1
|
(23%)
|
-28%
|
|
2
|
2
|
10%
|
6%
|
|
3
|
3
|
9%
|
8%
|
Other Corby-owned
brands
|
43
|
44
|
(2%)
|
0%
|
|
142
|
147
|
(3%)
|
(1%)
|
|
186
|
191
|
(3%)
|
(1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
402
|
396
|
2%
|
4%
|
|
1,433
|
1,434
|
(0%)
|
2%
|
|
1,855
|
1,853
|
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 6% growth in retail sales
volume results for the three months ended March 31, 2018 and a modest 2% growth for the
nine months ended March 31, 2018,
when compared to the same period last year. Industry trends are led
by strong retail sales volume growth in the Irish whiskey, cognac,
tequila, bourbon and single malt Scotch categories, in which Corby
does not have owned-brands. Trends for the quarter were heavily
impacted by the timing of the Easter holiday which fell in Q4 last
year. As a result, the following discussion will focus primarily on
the nine months ended March 31,
2018.
Corby's portfolio is heavily weighted in the Canadian whisky,
rum and vodka categories; together they make up over 87% of the
Company's total retail volumes. In the nine-month period ended
March 31, 2018, the vodka category
increased 2% and the gin category increased 10%. The Canadian
whisky category, however, declined 1% in the same comparable
period, while the rum category declined 2%.
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 2% for the nine months ended
March 31, 2018. J.P. Wiser's retail
volume increased 1%, outperforming the industry in the key Canadian
whisky category. The Ungava Spirits Brands experienced outstanding
retail sales volume growth of 34%. 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 nine months ended March 31, 2018 grew 1% with retail value growing
3% when compared to the same period last year. The Canadian whisky
category continues to show signs of softness as it decreased 1% in
retail volumes. Retail value for the category remained flat for the
same comparative period.
In fiscal 2018, Corby introduced J.P. Wiser's 15-Year-Old and a
limited release of J.P. Wiser's 35-Year-Old. These super-premium
offerings, along with innovations launched in Fiscal 2017, continue
to communicate to our consumers J.P. Wiser's unique heritage and
quality credentials. This message is reinforced with a high-profile
television campaign using the "Hold it High" commercial, which
features Corby and HWSL employees. We celebrate the care and pride
of work our people have in creating our whisky and proudly share
this in our newly opened J.P. Wiser's Brand Experience Centre
(located in Walkerville, Ontario).
Within the range, positive growth was posted by Wiser's Special
Blend, J.P. Wiser's Apple Whisky and J.P. Wiser's Toffee Whisky.
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
first quarter has been favourably received.
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; J.P. Wiser's
Dissertation was awarded Best Canadian Blended Whisky
and J.P. Wiser's Toffee Whisky was awarded Best Canadian
Flavoured Whisky at the World Whiskies Awards for 2018.
Lamb's Rum
Lamb's rum, one of the top-selling rum
families in Canada, has been
significantly impacted by unfavourable consumer trends and
declining economic conditions in regional strongholds. Retail
volumes for the overall rum category declined 2% for the nine
months ended March 31, 2018 while
retail values remained flat when compared to the same period last
year. The economy rum category declined 4% in retail volumes and 3%
in retail value on a comparable nine-month period.
For the nine-month period ended March 31,
2018, Lamb's experienced a 6% decline in retail volumes and
a 5% decline in retail value when compared to the same period last
year. The Lamb's rum product line is heavily weighted in the dark
and white segments and has faced difficult economic conditions and
increased competitor pressure in its key markets. Our strategy
remains to defend its regional strongholds with 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.
Polar Ice Vodka
Polar Ice vodka is among the
top-selling vodka brands in Canada. Retail volume decreased 1% for the
nine-month period ended March 31,
2018 while retail value remained flat compared to the same
period last year. This was primarily driven by increased competitor
pricing pressure and promotional activity, as well as LB category
management in Quebec. Alberta performance has shown signs of
stabilization despite slow recovery of overall spirits industry
following economic challenges in the province and continued
aggressive competitive retail activity.
The overall vodka category in Canada grew 2% in retail volume and 3% in
retail value when compared to the same nine-month period last year.
The premium vodka segment continues to drive the vodka category's
positive performance. The standard vodka category grew 2% in both
retail volumes and retail values for the nine-month period ending
March 31, 2018.
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 and Polar Ice Arctic Extreme.
In this quarter, the limited edition "Bear-less" bottle and social
cause campaign was relaunched, supporting 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 1%
for the nine-month period ended March 31,
2018 when compared to the same periods last year. Retail
value grew 1% for the same comparable period.
The liqueurs category grew 3% in retail volume and 5% in retail
value for the nine-month comparable period ended March 31, 2018. 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 34% and 33%,
respectively, for the nine months ended March 31, 2018, when compared to the same period
last year. The flagship brand, Ungava gin, grew 32% and 31%
respectively in the nine-month period ended March 31, 2018 outperforming the Canadian gin
category, which grew 10% in retail volume in the nine-month
comparable period while retail value grew 14%. 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 44% in
the nine months ended March 31, 2018
while retail values grew 46%.
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
centre.
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 10% for the nine months
ended March 31, 2018 when compared to
the same period last year while retail value increased 6%. The
Canadian table wine category retail volumes increased 1% for the
nine-month period ended March 31,
2018 while retail value increased 3%.
Other Corby-Owned Brands
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 43% for the nine-month period ended March 31, 2018, outperforming the Canadian whisky
category in Canada, which declined
2% for the same comparable periods. Innovation remains an important
pillar for delivering new profit and growth opportunities to the
Corby domestic business. The Rare Range 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. Gooderham & Worts Little Trinity
(17-Year-Old) was awarded Best Canadian Blended Limited
Release at the World Whiskies Award for 2018.
Royal Reserve® retail volume declined 5% for the nine-month
period ended March 31, 2018 when
compared to the same periods last year due to slow recovery of
spirits consumption in Alberta, a
significant increase in competitive retail activity in the economy
segment of Canadian whisky and industry-wide softness in the
Canadian whisky category.
Financial and Operating Results
The following table presents a summary of certain selected
consolidated financial information of the Company for the three and
nine-month periods ended March 31,
2018 and 2017.
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in millions of
Canadian dollars,
|
Mar.
31,
|
Mar.
31,
|
|
|
|
Mar.
31,
|
Mar.
31,
|
|
|
except per share
amounts)
|
2018
|
2017
|
$
Change
|
%
Change
|
|
2018
|
2017
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
29.5
|
$
|
28.8
|
$
|
0.7
|
2%
|
|
$
|
106.2
|
$
|
103.7
|
$
|
2.5
|
2%
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(11.5)
|
(11.2)
|
(0.2)
|
2%
|
|
(40.2)
|
(38.1)
|
(2.1)
|
6%
|
Marketing, sales and
administration
|
(11.8)
|
(12.9)
|
1.2
|
-9%
|
|
(44.0)
|
(42.3)
|
(1.7)
|
4%
|
Other income
(expense)
|
0.2
|
0.0
|
0.2
|
N/A
|
|
0.3
|
(0.0)
|
0.3
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
6.5
|
4.6
|
1.8
|
40%
|
|
22.3
|
23.3
|
(1.0)
|
-4%
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
0.3
|
0.2
|
0.1
|
39%
|
|
0.9
|
0.7
|
0.2
|
21%
|
Financial
expenses
|
(0.2)
|
(0.3)
|
0.1
|
-27%
|
|
(0.6)
|
(0.8)
|
0.2
|
-27%
|
Net financial
income
|
0.1
|
(0.0)
|
0.2
|
N/A
|
|
0.3
|
(0.1)
|
0.4
|
-593%
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
6.6
|
4.6
|
2.0
|
44%
|
|
22.6
|
23.3
|
(0.7)
|
-3%
|
Income
taxes
|
(1.8)
|
(1.2)
|
(0.6)
|
45%
|
|
(6.2)
|
(6.3)
|
0.1
|
-2%
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
4.8
|
$
|
3.3
|
$
|
1.4
|
43%
|
|
$
|
16.4
|
$
|
17.0
|
$
|
(0.5)
|
(3%)
|
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.17
|
$
|
0.12
|
$
|
0.05
|
42%
|
|
$
|
0.58
|
$
|
0.60
|
$
|
(0.02)
|
(3%)
|
|
- Diluted net
earnings
|
$
|
0.17
|
$
|
0.12
|
$
|
0.05
|
42%
|
|
$
|
0.58
|
$
|
0.60
|
$
|
(0.02)
|
(3%)
|
|
|
|
|
|
|
|
|
|
|
Overall Financial Results
Net earnings for the
three months ended March 31, 2018
increased $1.4 million, or 43% when
compared to the same three-month period last year. Quarterly
results benefited from improved product and market mix and new
international market entrants, as well as lower marketing, sales
and administration expenses.
On a year-to-date basis, net earnings decreased $0.5 million, or 3% when compared to the same
period last year. Net earnings from domestic case goods were
impacted by lower LB ordering patterns in the first half of the
year following the LCBO contingency inventory build in the
comparative 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. These results were partially offset by
increased commissions from PR brands and reduced advertising and
promotional spend in the US market.
Revenue
The following highlights the key
components of the Company's revenue streams:
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Mar.
31,
|
Mar.
31,
|
|
|
|
Mar.
31,
|
Mar.
31,
|
|
|
(in millions of
Canadian dollars)
|
2018
|
2017
|
$
Change
|
%
Change
|
|
2018
|
2017
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
|
Case goods
|
$
|
23.7
|
$
|
23.1
|
$
|
0.6
|
3%
|
|
$
|
84.7
|
$
|
83.1
|
$
|
1.6
|
2%
|
|
Commissions
|
5.1
|
5.1
|
-
|
0%
|
|
18.9
|
18.3
|
0.6
|
3%
|
|
Other
services
|
0.7
|
0.6
|
0.1
|
19%
|
|
2.6
|
2.2
|
0.4
|
18%
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
29.5
|
$
|
28.8
|
$
|
0.7
|
2%
|
|
$
|
106.2
|
$
|
103.7
|
$
|
2.5
|
2%
|
|
|
|
|
|
|
|
|
|
|
Case Goods revenue increased $0.6
million, or 3% and $1.6
million, or 2%, respectively, for the three and nine-month
periods ended March 31, 2018, when
compared to the same periods last year. Growth 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 international market mix which have
helped offset domestic case good performance.
Commissions were flat for the three-month period ended
March 31, 2018 and increased
$0.6 million, or 3%, for the
nine-month comparable periods. Strong PR wines portfolio
performance helped to offset the effects of the 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 nine-month periods ended March 31, 2018 attributable to bulk whisky
sales.
Cost of sales
Cost of sales increased by
$0.2 million, or 2%, for the
three-month period ended March 31,
2018 when compared to the same period last year. Overall
gross margin on case goods remains flat at 54% compared to the same
period last year.
Cost of sales increased by $2.1
million, or 6%, for the nine-month period ended March 31, 2018 when compared to the same period
last year. Overall gross margin on case goods was 55%, compared to
57% in the same period last year and was impacted by costs
associated with the J.P. Wiser's packaging redesign and increased
input costs and higher standard costs of the premium Ungava Spirits
Brands. In addition, last year's comparative numbers benefitted
from a one-off accrual reversal.
Marketing, sales and administration
Marketing,
sales and administration expenses decreased by $1.2 million, or 9% for the three-month period
ended March 31, 2018 when compared to
the same period last year. This is driven by phasing of domestic
and international advertising and promotional activities as well as
administration expense reduction.
For the nine-month period ended March 31,
2018, marketing, sales and administration expenses increased
$1.7 million, or 4% 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 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 in interest income
for both the three and nine-month period ended March 31, 2018 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
|
|
Nine Months
Ended
|
|
|
Mar.
31
|
Mar.
31
|
|
Mar.
31
|
Mar.
31
|
|
|
2018
|
2017
|
|
2018
|
2017
|
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
|
27%
|
27%
|
|
27%
|
27%
|
Other
|
|
0%
|
0%
|
|
0%
|
0%
|
|
|
|
|
|
|
|
Effective tax
rate
|
|
27%
|
27%
|
|
27%
|
27%
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $64.9 million as at
March 31, 2018, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities, which totalled $28.6
million as at March 31, 2018,
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
|
|
Nine Months
Ended
|
|
Mar.
31,
|
Mar.
31,
|
|
|
Mar.
31,
|
Mar.
31,
|
|
(in millions of
Canadian dollars)
|
2018
|
2017
|
$
Change
|
|
2018
|
2017
|
$
Change
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net earnings,
adjusted for non-cash items
|
$
|
7.8
|
$
|
6.2
|
$
|
1.6
|
|
$
|
26.3
|
$
|
28.7
|
$
|
(2.4)
|
|
Net change in
non-cash working capital
|
(11.4)
|
(1.0)
|
(10.4)
|
|
(1.9)
|
(3.9)
|
2.0
|
|
Net payments for
interest and income taxes
|
(2.2)
|
(2.6)
|
0.4
|
|
(6.5)
|
(7.4)
|
0.9
|
|
(5.7)
|
2.6
|
(8.4)
|
|
18.0
|
17.5
|
0.5
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
(1.4)
|
(0.6)
|
(0.8)
|
|
(2.9)
|
(1.9)
|
(1.0)
|
|
Proceeds from
disposition of property and equipment
|
0.2
|
0.1
|
0.1
|
|
0.4
|
0.1
|
0.4
|
|
Business
acquisition
|
-
|
(0.3)
|
0.3
|
|
(6.4)
|
(12.3)
|
5.9
|
|
Deposits in cash
management pools
|
13.2
|
4.3
|
9.0
|
|
9.3
|
14.1
|
(4.7)
|
|
12.0
|
3.4
|
8.7
|
|
0.5
|
(0.1)
|
0.6
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Dividends
paid
|
(6.3)
|
(6.0)
|
(0.3)
|
|
(18.5)
|
(17.4)
|
(1.1)
|
|
|
|
|
|
|
|
|
Net change in
cash
|
$
|
-
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
$
|
-
|
Operating activities
Net cash used in operating
activities was $5.7 million during
the quarter ended March 31, 2018,
compared to $2.6 million in net cash
generated from operating activities during the same quarter last
year, representing a decrease of $8.4
million. Cash flows from operating activities are heavily
impacted by the timing of collections from customers and payments
to vendors. The timing of advertising and promotional expenses
incurred in the months leading up to the holiday season impacted
third quarter payments to vendors.
For the nine-month period ended March 31,
2018, net cash from operating activities was $18.0 million reflecting an increase of
$0.5 million compared to the same
nine-month period last year, lower cash generated from net earnings
was offset by increased year-to-date cash collected from customers
and lower tax payments.
Investing activities
Net cash used in investing
activities was $12.0 million for the
three-month period ended March 31,
2018 and $0.5 million for the
nine-month period ending March 31,
2018, compared to $3.4 million
and a use of $0.1 million,
respectively, for the same three and nine-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 March 31,
2018 and $18.5 million for the
nine-month period ended March 31,
2018 and represents payment of the Company's regular
dividend to shareholders. In the three-month period ending
March 31, 2018, 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 - Q3
|
|
May 9,
2018
|
|
May 25,
2018
|
|
June 13,
2018
|
|
$
0.22
|
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
|
Outstanding Share Data
As at May 9, 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
May 9, 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,
|
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
except per share
amounts)
|
|
2018
|
2018
|
2018
|
2017
|
2017
|
2017
|
2017
|
2016
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
29.5
|
$
|
40.7
|
$
|
36.0
|
$
|
40.2
|
$
|
28.8
|
$
|
40.3
|
$
|
34.6
|
$
|
37.2
|
Earnings from
operations
|
|
6.5
|
7.9
|
7.9
|
11.7
|
4.6
|
9.8
|
8.8
|
12.8
|
Net
earnings
|
|
4.8
|
5.8
|
5.8
|
8.7
|
3.3
|
7.2
|
6.4
|
9.3
|
Basic EPS
|
|
0.17
|
0.20
|
0.21
|
0.30
|
0.12
|
0.25
|
0.23
|
0.33
|
Diluted
EPS
|
|
0.17
|
0.20
|
0.21
|
0.30
|
0.12
|
0.25
|
0.23
|
0.33
|
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, second and third quarters of 2018 include Case Good
sales for the Ungava Spirits Brands. The Ungava Spirits Brands were
acquired on September 30, 2016.
Year-to-date, the Ungava Spirits Brands have contributed
$6.6 million to revenues and
-$0.1 million to net earnings.
Revenues for the second and third quarters 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
$0.7 million to revenues and were net
earnings neutral.
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
nine-month periods ended March 31,
2018.
Since the completion of the acquisition of Foreign Affair Brands
on October 2, 2017, the acquired
brands and assets have contributed $0.7
million to revenues and was net earnings neutral. The
purchase price has been preliminarily allocated as described in
Note 5 to the interim condensed consolidated financial statements
for the three- and nine-months ended March
31, 2018.
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.
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 March 31,
2018:
|
|
|
|
|
|
|
|
|
Carrying Values as at
March 31, 2018
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
|
-
|
$
|
20.2
|
$
|
20.2
|
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
|
$
|
35.2
|
$
|
47.2
|
|
|
|
|
|
|
|
(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 NINE MONTHS ENDED MARCH 31, 2018 AND 2017
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
|
Mar. 31
|
|
Jun. 30
|
|
|
Notes
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Deposits in cash
management pools
|
|
|
$
|
64,921
|
$
|
70,957
|
$
|
74,253
|
Accounts
receivable
|
|
6
|
|
29,265
|
|
27,885
|
|
34,828
|
Income taxes
recoverable
|
|
|
|
610
|
|
-
|
|
-
|
Inventories
|
|
7
|
|
61,107
|
|
56,739
|
|
55,359
|
Prepaid
expenses
|
|
|
|
950
|
|
815
|
|
527
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
156,853
|
|
156,396
|
|
164,967
|
Deferred income
taxes
|
|
|
|
-
|
|
1,745
|
|
-
|
Property, plant and
equipment
|
|
|
|
17,097
|
|
13,839
|
|
14,777
|
Goodwill
|
|
8
|
|
11,991
|
|
11,347
|
|
8,403
|
Intangible
assets
|
|
|
|
35,263
|
|
37,986
|
|
39,675
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$
|
221,204
|
$
|
221,313
|
$
|
227,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
9
|
$
|
28,649
|
$
|
25,882
|
$
|
31,317
|
Income and other
taxes payable
|
|
|
|
-
|
|
445
|
|
912
|
Total current
liabilities
|
|
|
|
28,649
|
|
26,327
|
|
32,229
|
Provision for
employee benefits
|
|
|
|
16,048
|
|
24,033
|
|
18,249
|
Deferred income
taxes
|
|
|
|
655
|
|
-
|
|
66
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
|
45,352
|
|
50,360
|
|
50,544
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
14,304
|
|
14,304
|
|
14,304
|
Accumulated other
comprehensive loss
|
|
|
|
(5,365)
|
|
(9,639)
|
|
(6,017)
|
Retained
earnings
|
|
|
|
166,913
|
|
166,288
|
|
168,991
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
|
175,852
|
|
170,953
|
|
177,278
|
|
|
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
|
$
|
221,204
|
$
|
221,313
|
$
|
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
|
(not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
Notes
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
|
Revenue
|
|
10
|
$
|
29,472
|
$
|
28,783
|
$
|
106,190
|
$
|
103,681
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
(11,461)
|
(11,247)
|
(40,213)
|
(38,083)
|
Marketing, sales and
administration
|
|
|
(11,750)
|
(12,917)
|
(44,057)
|
(42,261)
|
Other income
(expense)
|
|
11
|
206
|
5
|
379
|
(22)
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
6,467
|
4,624
|
22,299
|
23,315
|
|
|
|
|
|
|
|
Financial
income
|
|
12
|
319
|
230
|
875
|
723
|
Financial
expense
|
|
12
|
(193)
|
(265)
|
(574)
|
(784)
|
|
|
|
126
|
(35)
|
301
|
(61)
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
|
6,593
|
4,589
|
22,600
|
23,254
|
|
|
|
|
|
|
|
Current income
taxes
|
|
|
(1,682)
|
(1,216)
|
(5,824)
|
(6,162)
|
Deferred income
taxes
|
|
|
(125)
|
(27)
|
(349)
|
(139)
|
Income
taxes
|
|
|
(1,807)
|
(1,243)
|
(6,173)
|
(6,301)
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
$
|
4,786
|
$
|
3,346
|
|
16,427
|
$
|
16,953
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
|
$
|
0.17
|
$
|
0.12
|
$
|
0.58
|
$
|
0.60
|
Diluted earnings
per share
|
|
|
$
|
0.17
|
$
|
0.12
|
$
|
0.58
|
$
|
0.60
|
|
|
|
|
|
|
|
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
|
(not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
4,786
|
$
|
3,346
|
$
|
16,427
|
$
|
16,953
|
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
|
Net actuarial
gains
|
|
297
|
265
|
891
|
794
|
|
Income
taxes
|
|
(80)
|
(71)
|
(239)
|
(213)
|
|
|
217
|
194
|
652
|
581
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
5,003
|
$
|
3,540
|
$
|
17,079
|
$
|
17,534
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN
|
SHAREHOLDERS'
EQUITY
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|
|
|
|
|
|
Balance as at June
30, 2017
|
|
$
|
14,304
|
$
|
(6,017)
|
$
|
168,991
|
$
|
177,278
|
Total comprehensive
income
|
|
-
|
652
|
16,427
|
17,079
|
Dividends
|
|
-
|
-
|
(18,505)
|
(18,505)
|
|
|
|
|
|
|
Balance as at
March 31, 2018
|
|
$
|
14,304
|
$
|
(5,365)
|
$
|
166,913
|
$
|
175,852
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2016
|
|
$
|
14,304
|
$
|
(10,220)
|
$
|
166,701
|
$
|
170,785
|
Total comprehensive
income
|
|
-
|
581
|
16,953
|
17,534
|
Dividends
|
|
-
|
-
|
(17,366)
|
(17,366)
|
|
|
|
|
|
|
Balance as at March
31, 2017
|
|
$
|
14,304
|
$
|
(9,639)
|
$
|
166,288
|
$
|
170,953
|
|
|
|
|
|
|
|
|
|
|
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
|
(not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
Notes
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
earnings
|
|
|
$
|
4,786
|
$
|
3,346
|
$
|
16,427
|
$
|
16,953
|
Adjustments
for:
|
|
|
|
|
|
|
Amortization and
depreciation
|
|
13
|
2,066
|
2,027
|
6,090
|
5,991
|
Net financial
income
|
|
12
|
(126)
|
35
|
(301)
|
61
|
Gain on disposal of
property and equipment
|
|
|
(80)
|
(6)
|
(180)
|
(6)
|
Income tax
expense
|
|
|
1,807
|
1,243
|
6,173
|
6,301
|
Provision for
employee benefits
|
|
|
(614)
|
(404)
|
(1,884)
|
(597)
|
|
|
|
7,839
|
6,241
|
26,325
|
28,703
|
Net change in
non-cash working capital balances
|
|
14
|
(11,413)
|
(1,011)
|
(1,874)
|
(3,868)
|
Interest
received
|
|
|
318
|
227
|
876
|
723
|
Income taxes
paid
|
|
|
(2,484)
|
(2,830)
|
(7,346)
|
(8,076)
|
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
|
(5,740)
|
2,627
|
17,981
|
17,482
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
Additions to property
and equipment
|
|
|
(1,426)
|
(627)
|
(2,858)
|
(1,907)
|
Proceeds from
disposition of property and equipment
|
|
|
187
|
63
|
447
|
63
|
Business
acquisition
|
|
|
-
|
(346)
|
(6,397)
|
(12,346)
|
Deposits in cash
management pools
|
|
|
13,242
|
4,261
|
9,332
|
14,074
|
|
|
|
|
|
|
|
Net cash from
investing activities
|
|
|
12,003
|
3,351
|
524
|
(116)
|
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(6,263)
|
(5,978)
|
(18,505)
|
(17,366)
|
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
|
(6,263)
|
(5,978)
|
(18,505)
|
(17,366)
|
|
|
|
|
|
|
|
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
(not audited
or reviewed by the Company's external auditor)
(in
thousands of Canadian dollars, except per share amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian marketer of spirits and importer of wines. The
Company derives its revenues from the sale of its owned-brands in
Canada and other international
markets, as well as earning commissions from the representation of
selected non-owned brands in the Canadian marketplace. Revenues
predominantly consist of sales made to each of the provincial
liquor boards in Canada. The
Company also supplements these primary sources of revenue with
other ancillary activities incidental to its core business, such as
logistics fees.
Corby is controlled by Hiram
Walker & Sons Limited ("HWSL"), which is a wholly-owned
subsidiary of Pernod Ricard, S.A. ("PR"), a French public limited
company that controls 51.6% of the outstanding Voting Class A
Common Shares of Corby as at March 31,
2018.
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 May 9, 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 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 $372 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 $702 to revenues with
$20 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 purchas
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
|
|
|
|
Mar.
31
|
|
Mar. 31
|
|
Jun. 30
|
|
|
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
$
|
15,426
|
$
|
15,809
|
$
|
17,056
|
Due from related
parties
|
|
|
|
12,317
|
|
10,467
|
|
15,619
|
Other
|
|
|
|
1,522
|
|
1,609
|
|
2,153
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,265
|
$
|
27,885
|
$
|
34,828
|
7. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
|
Mar. 31
|
|
Jun. 30
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
|
|
$
|
2,929
|
$
|
2,781
|
$
|
3,137
|
Work-in-progress
|
|
|
|
|
|
45,873
|
|
44,669
|
|
44,487
|
Finished
goods
|
|
|
|
|
|
12,305
|
|
9,289
|
|
7,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,107
|
$
|
56,739
|
$
|
55,359
|
The cost of inventory recognized as an expense and included in
cost of goods sold during the three and nine months ended
March 31, 2018 were $10,036 and $35,495
(2017 – $10,263 and $33,681). During the three and nine month periods
ended March 31, 2018 and 2017 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
|
|
|
Mar.
31
|
|
Mar. 31
|
|
Jun. 30
|
|
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
|
Goodwill,
beginning of period
|
|
$
|
8,403
|
$
|
3,278
|
$
|
3,278
|
Impact of
acquisitions during the period (Note 5)
|
|
|
3,588
|
|
8,069
|
|
5,125
|
|
|
|
|
|
|
|
|
Goodwill, end of
period
|
|
$
|
11,991
|
$
|
11,347
|
$
|
8,403
|
There have been no impairment losses recognized with respect to
goodwill during the period (2017 - $nil).
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
Mar.
31
|
|
Mar. 31
|
|
Jun. 30
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
|
|
$
|
18,506
|
$
|
16,739
|
$
|
22,937
|
Due from related
parties
|
|
|
|
|
|
8,207
|
|
8,023
|
|
6,747
|
Other
|
|
|
|
|
|
1,936
|
|
1,120
|
|
1,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,649
|
$
|
25,882
|
$
|
31,317
|
10. REVENUE
The Company's revenue consists of the following streams:
|
|
Three
months ended
|
Nine months
ended
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
Case goods
sales
|
|
$
|
23,660
|
$
|
23,073
|
$
|
84,636
|
$
|
83,134
|
Commissions (net of
amortization of representation rights)
|
|
5,139
|
5,145
|
18,932
|
18,332
|
Other
services
|
|
673
|
565
|
2,622
|
2,215
|
|
|
|
|
|
|
|
|
$
|
29,472
|
$
|
28,783
|
$
|
106,190
|
$
|
103,681
|
Commissions for the three and nine month periods are shown net
of amortization of long-term representation rights and
non-refundable upfront fees of $1,471
and $4,413 (2017 - $1,471 and $4,412).
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
|
Nine months
ended
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Foreign exchange gain
(loss)
|
|
|
|
$
|
118
|
$
|
(1)
|
$
|
192
|
$
|
(28)
|
Gain on disposal of
property and equipment
|
|
|
|
88
|
6
|
187
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206
|
$
|
5
|
$
|
379
|
$
|
(22)
|
12. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
$
|
319
|
$
|
230
|
$
|
875
|
$
|
723
|
Net financial impact
of pensions
|
|
|
|
(193)
|
(265)
|
(574)
|
(784)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
126
|
$
|
(35)
|
$
|
301
|
$
|
(61)
|
13. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses, as follows:
|
|
Three months
ended
|
Nine months
ended
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
$
|
595
|
$
|
556
|
$
|
1,677
|
$
|
1,579
|
Amortization of
intangible assets
|
|
1,471
|
1,471
|
4,413
|
4,412
|
Salary and payroll
costs
|
|
6,063
|
6,556
|
19,179
|
18,623
|
Expenses related to
pensions and benefits
|
|
355
|
375
|
1,065
|
1,124
|
|
|
|
|
|
|
|
|
$
|
8,484
|
$
|
8,958
|
$
|
26,334
|
$
|
25,738
|
14. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
Three months
ended
|
Nine months
ended
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
2,528
|
$
|
5,439
|
$
|
5,772
|
$
|
3,075
|
Inventories
|
|
(2,472)
|
(1,222)
|
(4,349)
|
(1,401)
|
Prepaid
expenses
|
|
(301)
|
(239)
|
(361)
|
(315)
|
Accounts payable and
accrued liabilities
|
|
(11,168)
|
(4,989)
|
(2,936)
|
(5,227)
|
|
|
|
|
|
|
|
|
$
|
(11,413)
|
$
|
(1,011)
|
$
|
(1,874)
|
$
|
(3,868)
|
15. DIVIDENDS
On May 9, 2018 subsequent to the
quarter ended March 31, 2018, the
Board of Directors declared its regular quarterly dividend of
$0.22 per common share, to be paid on
June 13, 2018, to shareholders of
record as at the close of business on May
25, 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
|
Nine months
ended
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
|
$
|
6,261
|
$
|
6,186
|
$
|
21,989
|
$
|
21,382
|
Products for resale
at an export level - affiliated companies
|
|
1,840
|
1,222
|
6,105
|
4,639
|
|
|
|
|
|
|
|
|
$
|
8,101
|
$
|
7,408
|
$
|
28,094
|
$
|
26,021
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
$
|
5,827
|
$
|
5,034
|
$
|
17,718
|
$
|
16,050
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
|
Marketing, selling
and administration services - parent
|
|
$
|
449
|
$
|
658
|
$
|
1,578
|
$
|
1,954
|
Marketing, selling
and administration services - affiliate
|
|
246
|
261
|
714
|
860
|
|
|
|
|
|
|
|
|
$
|
695
|
$
|
919
|
$
|
2,292
|
$
|
2,814
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the three and nine month periods ended March 31, 2018, Corby sold casks to its parent
company for net proceeds of $187 and
$447 (2017 - $0 and $60).
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
May 9, 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 nine months ended March 31, 2018, Corby earned interest income of
$319 and $875 from PR (2017 – $230 and $723).
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