TORONTO,
Nov. 7, 2018 /CNW/
- Corby Spirit and Wine Limited ("Corby" or the "Company")
(TSX: CSW.A, CSW.B) today declared a special dividend of
$0.44 per share payable on
January 11, 2019 on the Voting Class
A Common Shares and Non-voting Class B Common Shares of the Company
to shareholders of record as at the close of business on
December 14, 2018. The special
dividend will result in a cash distribution of approximately
$12.5 million to shareholders and
will be sourced from Corby's current surplus cash position. This
payment represents cash the Board of Directors considers to be in
excess of its requirements to fund future growth
opportunities.
The Corby Board of Directors announced an amendment to its
dividend policy whereby the annual amount of the dividend will now
be based on the greater of 90% of net earnings per share in the
preceding fiscal year ended June 30
and $0.60 per share. Prior to this
announcement the annual amount of dividends was based on the
greater of 85% of net earnings per share in the preceding fiscal
year ended June 30 and $0.60 per share. The Corby Board of Directors
also today declared a dividend of $0.22 per share payable on December 7, 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 November 23, 2018.
"With respect to the dividend announcement, the Board has
attempted to strike a practical balance between the investment
necessities of the business to support future long-term growth and
the needs of its shareholders. Today, as when deemed
appropriate in the past, the Corby Board of Directors has decided
to return surplus cash to our shareholders through the special and
regular dividend distributions", commented George McCarthy, Chairman of the Board of
Directors of Corby.
Net earnings of $6.5 million
(or $0.23 per share) were reported
for the three-month period ended September
30, 2018, reflecting an increase of $0.7 million, or 11%, when compared to the same
quarter last year. Revenue growth of 6% was recognized, driven by
robust market performance and was enhanced by the addition of the
premium Foreign Affair wines, export business growth and increased
commission income from Pernod Ricard brands. Partially offsetting
revenue, advertising and promotional investments continued to
support growth in strategic priorities and recent acquisitions of
Ungava Spirits' brands and Foreign Affair Winery, launch of
innovations such as J.P. Wiser's Old Fashioned and the NHL® Alumni
Association Alumni Whisky Series, as well as augment new channel
development.
"I am pleased to see a strong start to the new fiscal year
fueled by solid top-line results from across our strategic
portfolio. This was underpinned by our successful innovation
strategy, enhanced value through our recent acquisitions, and our
expanding international footprint, in addition to continued
positive response from marketing activities behind J.P. Wiser's,
our flagship brand."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-months
ended September 30, 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
September
30, 2018
The following Management's Discussion and Analysis
("MD&A") dated November 7, 2018
should be read in conjunction with the interim condensed
consolidated financial statements and accompanying notes as at and
for the three-month period ended September
30, 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,
2018.
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 November 7, 2018.
Events occurring after that date could render the information
contained herein inaccurate or misleading in a material respect.
Corby will provide updates to material forward-looking statements,
including in subsequent news releases and its interim management's
discussion and analyses filed with regulatory authorities as
required under applicable law. Additional information regarding
Corby, including the Company's Annual Information Form, is
available on SEDAR at www.sedar.com.
Unless otherwise indicated, all comparisons of results for
the first quarter of fiscal 2019 (three months ended September 30, 2018) are against results for the
first quarter of fiscal 2018 (three months ended September 30, 2017). All dollar amounts are in
Canadian dollars unless otherwise stated.
Business Overview
Corby is a leading Canadian manufacturer, marketer and
importer of spirits and 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
Wines").
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. Corby's wholly-owned
subsidiary, Ungava Spirits Co. Ltd. ("Ungava Spirits") produces the
Ungava Spirits Brands and operates the Cowansville, Quebec production facility
acquired on September 30, 2016.
Corby's wholly-owned subsidiary, the Foreign Affair Winery Ltd.,
produces the Foreign Affair Wines 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). 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 its products in
Canada and ships to third party US
distributors. The market in the US operates a three-tier
distribution system which often requires a much longer and larger
inventory pipeline than in other markets, resulting in a disconnect
between quarterly shipment performance, as reported in the
financial statements, and the true underlying performance of the
brands at retail level during the same quarter.
For the UK market, Corby 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 co-packing agreement for the
production of the brand was entered into with Angus Dundee
Distillers PLC, a third-party manufacturer, each of which is
effective as of July 1,
2016.
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 Events
Corby declares special dividend and amends regular
dividend policy
On November 7, 2018, the Corby Board
of Directors declared a special dividend of $0.44 per share payable on January 11, 2019 on the Voting Class A Common
Shares and Non-voting Class B Common Shares of Corby to
shareholders of record as at the close of business on December 14, 2018. The special dividend will
result in a cash distribution of approximately $12.5 million to shareholders and will be sourced
from Corby's current surplus cash position. This payment represents
cash that the Board considers to be in excess of its requirements
to fund future growth opportunities.
Further, the Corby Board of Directors also announced an
amendment to its dividend policy. Subject to business conditions
and opportunities and appropriate adjustment for extraordinary
events, regular dividends will be paid quarterly, on the basis of
an annual amount equal to the greater of 90% of net earnings per
share in the preceding fiscal year ended June 30, and $0.60
per share. Previously, the policy provided for such dividends to be
based on an annual amount equal to the greater of 85% of net
earnings per share in the preceding fiscal year ended June 30, and $0.60
per share. Under the amended policy, the Corby Board of Directors
declared a regular dividend of $0.22
per share payable on December 7, 2018
on the Voting Class A Common Shares and Non-voting Class B Common
Shares of Corby to shareholders of record as at the close of
business on November 23,
2018.
New US Distribution Agreements
Corby entered into an agreement providing 375 Park Avenue Spirits
(a dba of Luctor International, LLC ("375 Park Avenue Spirits"))
the exclusive right to represent J.P. Wiser's Canadian whisky and
Lamb's rum in the US effective as of July 1,
2018 for a five-year period to June
30, 2023, subject to extension as provided for under the
agreement.
In addition, Corby entered into an agreement providing
Hotaling & Co. ("Hotaling") the exclusive right to represent
Corby's Northern Border Collection of Canadian whiskies (the
"Northern Border Collection"), consisting of Lot No. 40®, Pike
Creek®, and Gooderham & Worts®, and Ungava® gin in the US
effective as of July 1, 2018 for a
five-year period to June 30,
2023.
Finally, effective July 1,
2018, Polar Ice vodka will be imported under an agreement
with MHW, Ltd. ("MHW"). This agreement is for a term of one year,
subject to extension as provided for under the agreement. Effective
October 18, 2018, RNDC Texas LLC will
distribute the brand in Texas for
the next five years, subject to extension as provided for under the
agreement entered into with Corby.
Brand Performance Review
Corby's portfolio of owned brands accounts for approximately 80% of
the Company's total annual revenue. Included in this portfolio are
its key brands: J.P. Wiser's Canadian whisky, Lamb's rum, Polar Ice
vodka, Corby's mixable liqueur brands and the Ungava Spirits
Brands. The sales performance of these key brands significantly
impacts Corby's net earnings. Therefore, understanding each key
brand is essential to understanding the Company's overall
performance.
Shipment Volume and Shipment Value
Performance
The following table summarizes the performance of Corby's
owned-brands (i.e., Case Goods) in terms of both shipment volume
(as measured by shipments to customers in equivalent nine-litre
cases) and shipment value (as measured by the change in net sales
revenue). The table includes results for sales in both Canada and international markets.
Specifically, the J.P. Wiser's, Lamb's, Polar Ice, Lot No. 40, Pike
Creek, and the Ungava Spirits Brands are also sold to international
markets, particularly in the US and UK.
BRAND PERFORMANCE
CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL
SHIPMENTS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
|
Shipment
Change
|
|
|
|
Sep.
30,
|
Sep.
30,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
|
2018
|
2017
|
%
|
%
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
202
|
190
|
6%
|
7%
|
Lamb's rum
|
|
102
|
104
|
(2%)
|
(2%)
|
Polar Ice
vodka
|
|
95
|
92
|
4%
|
4%
|
Mixable
liqueurs
|
|
40
|
42
|
(6%)
|
(2%)
|
Ungava Spirits
Brands
|
|
29
|
27
|
9%
|
5%
|
Foreign Affair
Brands1
|
|
2
|
-
|
N/A
|
N/A
|
Other Corby-owned
brands
|
|
53
|
51
|
5%
|
14%
|
|
|
|
|
|
|
|
Total Corby
brands
|
|
523
|
506
|
3%
|
6%
|
(1) Comparative
information has not been provided for Foreign Affair Brands, as
these brands were not owned by Corby prior to October 2,
2017.
|
Corby's owned-brands experienced strong first quarter shipments
with a 6% increase in shipment value and 3% growth in shipment
volumes when compared to the same period last year. Revenue
increase was driven by the performance of J.P. Wiser's, Polar Ice,
the Ungava Spirits Brands and integration of Foreign Affair Wines,
as well as value growth delivered through tactical price
adjustments and international markets.
Trends in Canada differ from
international markets as highlighted in the following table:
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
|
Shipment
Change
|
|
|
|
Sep.
30,
|
Sep.
30,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
|
2018
|
2017
|
%
|
%
|
|
|
|
|
|
|
|
Domestic
|
|
|
479
|
457
|
5%
|
6%
|
International
|
|
|
44
|
49
|
(11%)
|
8%
|
|
|
|
|
|
|
|
Total Corby
brands
|
|
523
|
506
|
3%
|
6%
|
|
|
|
|
|
|
|
First quarter domestic shipments grew 5% in volume and 6% in
value when compared to the same time last year. Results for the
previous fiscal year were impacted as the LCBO normalized higher
inventory levels pre-emptively built ahead of an adverted strike.
Current year shipments also benefited from innovations such as the
collaboration with the NHL® Alumni Association on the Alumni Whisky
Series and Lambs Sociable Pineapple and Soda which helped to offset
some of the ongoing challenges with standard variants in regional
strongholds. Corby's domestic shipment value benefited from
favourable mix effects of the premium Ungava Spirits Brands,
Foreign Affair Wines and launch of higher marque innovations.
In international markets, shipment value grew 8% despite volume
performance of -11%. Value growth was driven by product and market
mix through increased focus on premium and higher marque variants.
Volume was impacted by order phasing across several smaller
markets.
Retail Sales Performance / Spirit Market
Trends
To provide context for the following analysis,
the Canadian spirits industry posted retail sales volume growth of
2% and retail sales value growth of 3% for the quarter ended
September 30, 2018, when compared to
the same period last year. Industry trends were led by strong
retail sales growth in the Irish whiskey, cognac, gin and tequila
categories from both volume and value gains.
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. The vodka category led retail sales
growth as both retail sales volume and value increased 3%. The
Canadian whisky category grew nearly 1% in volume and 2% in value
driven by flavoured whiskies and super-premium brands. The
rum category declined 2% in volume and 1% in value. Gin is a
growing priority within the Corby portfolio. The gin category saw
volume increase 8% and value by 11% from growth of super-premium
brands.
It is of critical importance to understand the performance of
Corby's brands at the retail level in Canada. Analysis of performance at the retail
level provides insight with regards to consumers' current purchase
patterns and trends. Retail sales volume and value data, as
provided by the ACD, is set out in the following table and is
discussed throughout this MD&A.
It should be noted that the retail information presented does
not include international retail sales of Corby-owned brands and
on-site winery sales.
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.
Retail Sales Performance / Summary of Corby's Key
Brands
RETAIL SALES FOR
THE CANADIAN MARKET ONLY (AS PROVIDED BY THE
ACD1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Twelve Months
Ended
|
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
|
Sep
30
|
Sep
30
|
Volume
|
Value
|
|
Sep
30
|
Sep
30
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2018
|
2017
|
Growth
|
Growth
|
|
2018
|
2017
|
Growth
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
|
177
|
176
|
1%
|
3%
|
|
746
|
736
|
1%
|
3%
|
Polar Ice
vodka
|
|
93
|
89
|
4%
|
5%
|
|
352
|
349
|
1%
|
2%
|
Lamb's rum
|
|
82
|
83
|
(1%)
|
(4%)
|
|
326
|
343
|
(5%)
|
(4%)
|
Mixable
liqueurs
|
|
40
|
41
|
(1%)
|
0%
|
|
161
|
160
|
1%
|
2%
|
Ungava Spirits
Brands
|
|
22
|
18
|
17%
|
14%
|
|
94
|
74
|
27%
|
25%
|
Foreign Affair
Brands
|
|
1
|
1
|
35%
|
30%
|
|
3
|
3
|
0
|
(4%)
|
Other Corby-owned
brands
|
|
47
|
44
|
7%
|
5%
|
|
190
|
188
|
1%
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
462
|
452
|
2%
|
3%
|
|
1,872
|
1,853
|
1%
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
(1)Refers to sales at the retail store
level in Canada, as provided by the Association of Canadian
Distillers.
|
|
J.P. Wiser's Canadian Whisky
J.P. Wiser's Canadian
whisky, one of Canada's
best-selling Canadian whiskies, is Corby's flagship brand. The
brand's retail volumes for the first quarter grew 1% with retail
value growing 3% compared to the same quarter last year. Retail
sales volumes for the Canadian whisky category grew 1% while retail
value for the category grew 2% in the comparative period.
Within the range, organic growth was posted by J.P. Wiser's
Apple Whisky, J.P. Wiser's Spiced Vanilla Whisky and J.P. Wiser's
Triple Barrel Rye. Wiser's Special Blend declined 2% while
J.P. Wiser's Deluxe dipped slightly as it laps prior year
programming.
This quarter, we partnered with the NHL® Alumni Association to
produce a range of super-premium, limited edition releases of
Canadian whiskies blended to match each featured player's unique
style. As well, we introduced J.P. Wiser's Old-Fashioned Whisky
Cocktail, a ready-to-serve that provides the convenience to make
classic cocktails at home.
These new offerings, along with innovations launched in fiscal
2018 (including J.P. Wiser's 15-Year-Old and a limited release of
J.P. Wiser's 35-Year-Old), continue to enhance J.P. Wiser's unique
heritage and superior quality credentials. The brand is being
supported nationally with a second phase of the successful "Hold it
High" campaign in a range of media channels.
J.P. Wiser's variants continue to receive prestigious accolades.
J.P. Wiser's 35-Year-Old was awarded the Whisky of the Year
at the 2018 Canadian Whisky Awards. J.P. Wiser's Dissertation was
awarded Best Canadian Blended Whisky, J.P. Wiser's
Toffee Whisky was awarded Best Canadian Flavoured Whisky at
the World Whiskies Awards for 2018 and J.P. Wiser's 18-Year-Old and
J.P. Wiser's Triple Barrel Rye won Gold and Silver respectively at
the 2018 San Francisco World Spirits Competition.
Polar Ice Vodka
Polar Ice vodka is among the
top-selling vodka brands in Canada. Retail volume grew 4% in the first
quarter while retail value grew 5%. This growth stemmed from a
rebound in Alberta following a
strategic price repositioning and increased share of consumer
demand in Ontario.
The overall vodka category in Canada grew 3% in retail volume and value on a
comparable basis. Dynamics within the category shifted in the first
quarter as the standard vodka category grew at a faster pace than
premium vodka. The standard vodka category grew 4% in retail volume
and 3% in retail value for the quarter ended September 30, 2018. The premium vodka segment
grew 2% in retail volume and 3% in retail value.
Our advertising and promotion investment continued to focus on
brand awareness and consumer trial, while range extensions,
including Polar Ice Arctic Extreme and Polar Ice Ontario Peach,
continued to deliver premiumization.
Polar Ice won Silver at the 2018 International Wine and Spirits
Competition and Polar Ice Arctic Extreme won Double Gold at the
2018 San Francisco World Spirits Competition.
Lamb's Rum
Lamb's rum, one of the top-selling rum
families in Canada, has been
impacted by ongoing changes in consumer trends for standard rum, as
well as difficult economic conditions in regional strongholds.
Retail volumes for the overall rum category declined 2% for the
quarter while retail values decreased 1% when compared to the same
period last year. The economy rum category was flat in retail
volumes and edged up 1% in retail value on a quarterly comparable
period.
Lamb's experienced a 1% decline in retail volumes and a 4%
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, categories which have faced evolving consumer
preferences in recent years and increased competitor pressure in
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 and format innovations. The recently
launched Lamb's Sociable Pineapple and Soda, has already become
Newfoundland's #2 ready-to-drink
and is helping to stabilize family performance and recruit new
drinkers.
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 declined 1% for
the first quarter, while retail value remained flat to the same
comparable period.
The liqueurs category grew 3% in retail volume and 4% in retail
value for the quarter ended September 30,
2018. Category growth was primarily led by new innovations
and cream-based offerings.
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. Recently launched
innovation, McGuinness Ruby Red Grapefruit as well as the launch of
an expanded range of flavour offerings in a convenient 375mL
format, to encourage consumer trial. McGuinness also benefited from
co-branded programs activated in retail and on-premise and through
social media.
Ungava Spirits Brands
Retail volume and value for the
Ungava Spirits Brands increased 17% and 14%, respectively, for the
quarter ended September 30, 2018. The
flagship brand, Ungava gin, grew 17% in both retail volume and
value, outperforming the Canadian gin category, which grew 8% in
retail volume while retail value grew 11%. Ungava gin continued to
be the market leader in the super-premium gin category and expand
its global footprint.
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 12% in
the first quarter while retail values grew 15%.
Two new-to-world wine innovations were recently launched in the
Quebec grocery channel by Ungava
Spirits. Distribution in this channel is restricted to wines
bottled in Quebec which Corby is
now able to access by utilizing the acquired Cowansville production facility. Divine
Sunshine, a contemporary rose blend made with California grapes, and Coureurs des Vignes, a
premium French wine brand are our first entries into this unique
channel.
Foreign Affair Wines
The Foreign Affair Wines (which
Corby acquired on October 2, 2017)
represent Corby's first foray into the VQA Canadian wine category.
In addition to the LBs, Foreign Affair Wines are available through
several channels including direct delivery (on-premise and wine
club) and the on-site winery visitor centre, where the majority of
sales are conducted.
Only retail sales conducted through the LBs are reported by the
ACD. LB retail sales volume increased 35% for the quarter ended
September 30, 2018 when compared to
the same period last year while retail value grew 30%. The Canadian
table wine category retail volumes decreased 1% for the first
quarter while retail value increased 1%.
Foreign Affair Wines have been winning top awards in recent
months, including Gold medals at the Ontario Wine Awards, the
Lieutenant Governor's Award of Excellence in Ontario Wines, Silver
at the Decanter International Wine Awards and Gold at the National
Wine Awards of Canada.
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 and value 6% for the quarter
ended September 30, 2018,
outperforming the Canadian whisky category in Canada. 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 in the prior
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 including Silver at the 2018 San
Francisco World Spirits Competition. 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 increased 7% and value 5% for the
first quarter when compared to the same period last year overcoming
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-month period ended September 30,
2018 and 2017.
|
Three Months
Ended
|
|
(in millions of
Canadian dollars,
|
Sept.
30,
|
Sept.
30,
|
|
|
|
except per share
amounts)
|
2018
|
2017 (1)
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
Revenue
|
$
37.9
|
$
35.6
|
$
2.3
|
6%
|
|
|
|
|
|
|
|
Cost of
sales
|
(14.1)
|
(13.2)
|
(0.9)
|
6%
|
|
Marketing, sales and
administration
|
(15.1)
|
(14.5)
|
(0.6)
|
4%
|
|
Other income
(expense)
|
0.0
|
0.0
|
-
|
N/A
|
|
|
|
|
|
|
|
Earnings from
operations
|
8.7
|
7.9
|
0.8
|
10%
|
|
|
|
|
|
|
|
Financial
income
|
0.3
|
0.3
|
0.0
|
35%
|
|
Financial
expenses
|
(0.1)
|
(0.2)
|
0.1
|
(34%)
|
|
Net financial
income
|
0.2
|
0.1
|
0.1
|
198%
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
8.9
|
8.0
|
0.9
|
11%
|
|
Income
taxes
|
(2.4)
|
(2.2)
|
(0.2)
|
11%
|
|
|
|
|
|
|
|
Net
earnings
|
$
6.5
|
$
5.9
|
$
0.7
|
11%
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
-
Basic net earnings
|
$
0.23
|
$
0.21
|
$
0.02
|
10%
|
|
-
Diluted net earnings
|
$
0.23
|
$
0.21
|
$
0.02
|
10%
|
|
|
|
|
|
|
|
(1) The Company has
adjusted amounts reported previously in the interim condensed
consolidated statement of earnings as a result of the
|
retrospective
application IFRS 15, Revenue from Contracts with
Customers.
|
|
|
|
|
|
|
|
|
|
|
Overall Financial Results
Net earnings
increased $0.7 million or 11% when
compared to the same quarter last year. Results were driven by
robust market performance, increased commissions from PR brands and
the addition of the Foreign Affair Wines (acquired October 2, 2017), partially offset by strategic
investment behind priority and recently acquired brands.
Revenue
The following highlights the key
components of the Company's revenue streams:
|
Three Months
Ended
|
|
|
|
Sept.
30,
|
Sept.
30,
|
|
|
|
|
(in millions of
Canadian dollars)
|
2018
|
2017 (1)
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
Case
Goods
|
$
30.0
|
$
28.2
|
$
1.8
|
6%
|
|
|
Commissions
|
7.0
|
6.6
|
0.4
|
6%
|
|
|
Other
services
|
0.9
|
0.8
|
0.1
|
9%
|
|
|
Revenue
|
$
37.9
|
$
35.6
|
$
2.3
|
6%
|
|
|
|
|
|
|
|
|
|
(1) The Company has
adjusted amounts reported previously in the interim condensed
consolidated statement of earnings as a result of the
|
retrospective
application IFRS 15, Revenue from Contracts with
Customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Goods revenue increased $1.8
million, or 6%, for the three-month period ended
September 30, 2018, when compared to
the same period last year. Growth is attributable to strong
domestic shipments lapping prior year LCBO normalization of
inventory levels, Ungava Spirits Brands, the addition of the
Foreign Affair Wines, and international market performance.
Commissions increased $0.4
million, or 6%, attributable to strong PR spirits portfolio
performance which lapped prior year LCBO strike distortion. 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.
Cost of sales
Cost of sales was $14.1 million, an increase of $0.9 million, or 6% when compared to the same
quarter last year. The increase is in line with Case Goods growth
and is also attributable to the addition of Foreign Affair Wines.
Combined with tactical pricing in regional strongholds, overall
gross margin on Case Goods was flat at 55% compared to the same
period last year (note: commissions are not included in this
calculation).
Marketing, sales and administration
Marketing,
sales and administration expenses increased $0.6 million, or 4% compared to the same period
last year. This was driven by timing of promotional investment
behind J.P. Wiser's, the Northern Border Collection, Ungava Spirits
Brands and the Foreign Affair Wines, and to support entry into the
Quebec grocery wine channel.
Overheads also increased as we integrated the structure that
supports Foreign Affair Wines and reflected general increases in
headcount expenditures.
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 the quarter ended September 30,
2018 is due to increases in the Canadian Dealer Offered Rate
("CDOR") compared to the same time last year.
Income taxes
A reconciliation of the effective
tax rate to the statutory rates for each period is presented
below.
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
|
Sept.
30,
|
Sept.
30,
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
|
|
26.9%
|
26.8%
|
Other
|
|
|
|
|
0.3%
|
0.3%
|
|
|
|
|
|
|
|
Effective tax
rate
|
|
|
|
27.2%
|
27.1%
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $68.9 million as at
September 30, 2018, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities, which totalled $28.1
million as at September 30,
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
|
|
|
Sept.
30,
|
Sept.
30,
|
$
|
(in millions of
Canadian dollars)
|
|
2018
|
2017
|
Change
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
Net earnings,
adjusted for non-cash items
|
|
$
9.7
|
$
9.7
|
$
-
|
Net change in
non-cash working capital
|
|
(2.2)
|
(1.1)
|
(1.1)
|
Net payments
for interest and income taxes
|
|
(2.2)
|
(2.3)
|
0.1
|
|
|
5.3
|
6.4
|
(1.1)
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
Additions to
capital assets
|
|
(0.1)
|
(0.3)
|
0.2
|
Business
acquisition
|
|
-
|
(6.0)
|
6.0
|
Deposits in
cash management pools
|
|
1.1
|
5.9
|
(4.8)
|
|
|
1.0
|
(0.4)
|
1.4
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
Dividends
paid
|
|
(6.3)
|
(6.0)
|
(0.3)
|
|
|
|
|
|
Net change in
cash
|
|
$
-
|
$
-
|
$
-
|
Operating activities
Net cash from operating
activities was $5.3 million during
the quarter ended September 30, 2018,
compared to $6.4 million last year,
representing a decrease of $1.1
million. Cash flows from operating activities were impacted
by the timing of collections from customers and payments to vendors
in addition to payments related to interest and income taxes.
Investing activities
Net cash generated from
investing activities was $1.0 million
for the year ended September 30,
2018, compared to $0.4 million
used in the prior year. Investing activities include additions to
capital assets in both the current and prior year periods. The
prior year also includes payments related to Corby's acquisition of
the Foreign Affair Wines which was completed on October 2, 2017.
Cash management pools represent cash on deposit with Citibank NA
via Corby's Mirror Netting Service Agreement with PR. Corby has
daily access to these funds and earns a market rate of interest
from PR on its deposits. Changes in cash management pools reflect
amounts either deposited in or withdrawn from these bank accounts
and are simply a function of Corby's cash requirements during the
period. 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
quarter ended September 30, 2018,
compared to $6.0 million last year,
and represents payment of the Company's regular dividend to
shareholders. Regular quarterly dividends increased to $0.22 per share in the current fiscal, compared
to $0.21 per share 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
|
2019 -
special
|
|
November 7,
2018
|
|
December 14,
2018
|
|
January 11,
2019
|
|
$
0.44
|
2019 - Q1
|
|
November 7,
2018
|
|
November 23,
2018
|
|
December 7,
2018
|
|
0.22
|
2018 - Q4
|
|
August 22,
2018
|
|
September 12,
2018
|
|
September 28,
2018
|
|
0.22
|
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 November 7, 2018, Corby had
24,274,320 Voting Class A Common Shares and 4,194,536 Non-Voting
Class B Common Shares outstanding. The Company does not have a
stock option plan, and therefore, there are no options
outstanding.
Related Party Transactions
Transactions with parent, ultimate parent, and
affiliates
Corby engages in a significant number of
transactions with its parent company, its ultimate parent and
various affiliates. Specifically, Corby renders services to its
parent company, its ultimate parent, and affiliates for the
marketing and sale of beverage alcohol products in Canada. Furthermore, Corby outsources the
large majority of its distilling, maturing, storing, blending,
bottling and related production activities to its parent company. A
significant portion of Corby's bookkeeping, recordkeeping services,
data processing and other administrative services are also
outsourced to its parent company. Transactions with the parent
company, ultimate parent and affiliates are subject to Corby's
related party transaction policy, which requires such transactions
to undergo an extensive review and require approval from an
Independent Committee of the Board of Directors.
The companies operate under the terms of agreements that became
effective on September 29, 2006 (the
"2006 Agreements"). These agreements provide the Company with the
exclusive right to represent PR's brands in the Canadian market for
fifteen years, as well as providing for the continuing production
of certain Corby brands by PR at its production facility in
Windsor, Ontario, for ten years.
Corby also manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
North American entities, as approved by Corby's Board of Directors.
On August 26, 2015, Corby entered
into an agreement with PR and certain affiliates amending the
September 29, 2006 Canadian
representation agreements, pursuant to which Corby agreed to
provide more specialized marketing, advertising and promotion
services for the PR and affiliate brands under the applicable
representation agreements in consideration of an increase to the
rate of commission payable to Corby by such entities. On
November 11, 2015, Corby and PR
entered into agreements for the continued production and
bottling of Corby`s owned-brands by Pernod Ricard at the HWSL
production facility in Windsor,
Ontario, for a 10-year term commencing September 30, 2016. On the same date, Corby
and PR also entered into an administrative services agreement,
under which Corby agreed to continue to manage PR's business
interests in Canada, including the
HWSL production facility, with a similar term and commencement
date.
In addition to the 2006 Agreements, Corby signed an agreement on
September 26, 2008, with its ultimate
parent to be the exclusive Canadian representative for the ABSOLUT
vodka and Plymouth gin brands, for
a five-year term, which expired October 1,
2013 and was extended as noted below. These brands were
acquired by PR subsequent to the original representation rights
agreement dated September 29, 2006.
Corby also agreed to continue with the mirror netting arrangement
with PR and its affiliates, under which Corby's excess cash
continues 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 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
November 7, 2018, as published by
Standard & Poor's and Moody's, was BBB and Baa2, respectively.
PR compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Service Agreement by
paying interest to Corby based upon the 30-day Canadian Dealer
Offered Rate ("CDOR") plus 0.40%. Corby accesses these funds on a
daily basis and has the contractual right to withdraw these funds
or terminate these cash management arrangements upon providing five
days' written notice.
Selected Quarterly Information
Summary of
Quarterly Financial Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of
Canadian dollars,
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
except per share
amounts)
|
2019
|
2018
|
2018
|
2018
|
2018
|
2017
|
2017
|
2017
|
|
|
|
|
|
|
|
|
|
Revenue
(1)
|
$
37.9
|
$
39.5
|
$
28.8
|
$
40.2
|
$
35.6
|
$
39.5
|
$
28.2
|
$
39.9
|
Earnings from
operations
|
8.7
|
12.6
|
6.5
|
7.9
|
7.9
|
11.7
|
4.6
|
9.8
|
Net
earnings
|
6.5
|
9.3
|
4.8
|
5.8
|
5.9
|
8.7
|
3.3
|
7.2
|
Basic EPS
|
0.23
|
0.33
|
0.17
|
0.20
|
0.21
|
0.30
|
0.12
|
0.25
|
Diluted
EPS
|
0.23
|
0.33
|
0.17
|
0.20
|
0.21
|
0.30
|
0.12
|
0.25
|
|
|
|
|
|
|
|
|
|
(1) Revenue for the
comparative periods, fiscal 2018 and 2017, has been adjusted to
reflect the Company's retrospective application of
|
IFRS 15, Revenue from
Contracts with Customers.
|
|
|
|
|
|
|
|
|
The above table demonstrates the seasonality of Corby's
business, as sales are typically strong in the first and second
quarters, while third-quarter sales (January, February and March)
usually decline after the end of the retail holiday season.
Fourth-quarter sales typically increase again with the onset of
warmer weather, as consumers tend to increase their purchasing
levels during the summer season.
The Ungava Spirits Brands were acquired on September 30, 2016 and are reflected in results
beginning with the second quarter of 2017. In fiscal 2018 the
Ungava Spirits Brands have contributed $8.9
million to revenues.
Revenues for the second, third and fourth quarters of 2018
include Case Good sales for the Foreign Affair Wines, which were
acquired on October 2, 2017 and since
the completion of the acquisition have contributed $1.6 million to revenues and is net earnings
accretive.
Recent Accounting Pronouncements
A number of new standards, amendments to standards and
interpretations are effective for the financial period ended
September 30, 2018, and accordingly,
have been applied in preparing these consolidated financial
statements:
(i) Revenue
In May 2014, the International
Accounting Standards Board ("IASB") issued IFRS 15, "Revenue from
Contracts with Customers" ("IFRS 15"), which provides a
comprehensive framework for the recognition, measurement and
disclosure of revenue from contracts with customers. IFRS 15 is
effective for annual periods beginning on or after January 1, 2018 and was therefore applied for the
first time by the Company for the interim period beginning
July 1, 2018.
The Company adopted IFRS 15 using the full retrospective
approach with restatement. After completing the analysis of
significant customer contracts, the Company determined that the
implementation of IFRS 15 did not result in a significant impact to
the Company's financial position and performance. The application
of IFRS 15 has required that certain advertising and promotional
expenditures, when paid directly to customers, be classified as a
reduction to revenue. The following chart summarizes the impact of
IFRS 15 on the Company's interim condensed consolidated statement
of earnings for the three-month period ending September 30, 2017 and on the Company's
consolidated statement of earnings for the year ending June 30, 2018:
|
|
|
Sept. 30,
|
June 30,
|
Statement of
earnings impacts
|
|
2017
|
2018
|
|
|
|
|
|
Revenue
|
|
|
$
(0.3)
|
$
(0.9)
|
Marketing, sales
& administration
|
|
0.3
|
0.9
|
|
|
|
|
|
Earnings from
operations
|
|
-
|
-
|
|
|
|
|
|
Net
Earnings
|
|
|
$
-
|
$
-
|
The Company's accounting policies for revenues have been updated
to reflect the more extensive requirements under IFRS 15 and are
outlined
below.
The Company derives its revenue from Case Goods sales,
Commissions and revenues from ancillary activities. The Company
recognizes revenue when control of the goods or services sold has
been transferred to the customer. Revenue is measured at the amount
of consideration to which the Company expects to be entitled after
deducting trade discounts, volume rebates and sales-related taxes
and duties.
(i) Case Good Sales
Corby's Case Goods are primarily sold to provincial liquor
boards and international customers. Transfer of control over Case
Goods is achieved when products are shipped from the Company's
various distribution sites and accepted by the customer. For sales
to consumers through the Company's winery retail store, the
transfer of control is deemed to occur when the product is
purchased by the consumer.
Case Goods sales are recorded net of costs of services provided
by customers which include: distribution, listing costs for new
products, promotional activities at point of sale and other
advertising and promotional services provided directly by
customers.
(ii) Commissions
When the Company acts in the capacity of an agent rather than as
the principal in a transaction, revenue is recognized in the amount
of the commission to which the Company is contractually entitled in
exchange for representation services performed. Commissions are
reported net of amortization of long-term representation rights.
The long-term representation rights represent the cost of the
Company's exclusive right to represent PR's brands in Canada and are amortized on a straight-line
basis over the term of their respective agreements.
(iii) Revenue from ancillary
activities
Revenue from ancillary activities include logistics fees and
bulk whisky sales. Logistics fees are recognized as services are
rendered. Bulk whisky sales are recognized when control of the
goods has been transferred to the customer.
(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 own 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 became effective
July 1, 2018. The adoption of IFRS 9
did not have a significant impact on the Company's interim
condensed consolidated financial statements.
Changes to the classification of Corby's financial assets and
liabilities under IFRS 9 are as follows:
|
|
|
|
Financial
Asset/Liability
|
Category
Under IAS 39
|
|
Category
Under IFRS 9
|
|
|
|
|
Deposits in cash
management pools
|
Loans and
receivables
|
|
Amortized
cost
|
Accounts
receivable
|
Loans and
receivables
|
|
Amortized
cost
|
Accounts payable and
accrued liabilities
|
Loans and
receivables
|
|
Amortized
cost
|
Recent accounting pronouncements not in effect
The below standards have been issued but are not yet effective
for the financial period ended September 30,
2018, and accordingly, have not been applied in preparing
these consolidated financial statements:
(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 liabilities 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.
(iv) Uncertainty over Income Tax
Treatments
In June 2017, the IASB issued a
new interpretation IFRIC 23, "Uncertainty over Income Tax
Treatments" ("IFRIC 23). IFRIC 23 specifies the accounting
treatment for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over the tax
treatments. The standard is effective for annual periods beginning
on or after January 1, 2019, with
earlier application permitted. For Corby, this standard will become
effective July 1, 2019. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
Internal Controls Over Financial Reporting
The Company maintains a system of disclosure controls and
procedures to provide reasonable assurance that all material
information relating to the Company is gathered and reported to
senior management on a timely basis so that appropriate decisions
can be made regarding public disclosure.
In addition, the CEO and CFO have designed, or caused to be
designed under their supervision, internal controls over financial
reporting to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. Internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be designed effectively
can provide only reasonable assurance with respect to financial
reporting and financial statement preparation.
In accordance with the provisions of National Instrument 52-109
– Certification of disclosure in Issuers' Annual and Interim
Filings, the Company has limited the design of its disclosure
controls and procedures and internal control over financial
reporting to exclude controls, policies and procedures of Foreign
Affair Winery Limited ("Foreign Affair Winery"). Corby acquired the
Foreign Affair Wines 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
Wines is include in Note 6 in the Notes to the Company's annual
audited consolidated financial statements for the year ended
June 30, 2018.
Since the completion of the acquisition of Foreign Affair Wines
on October 2, 2017, the acquired
brands and assets have contributed $1.6
million to revenues and is net earnings accretive. The
purchase price has been allocated as described in Note 6 to the
annual audited consolidated financial statements for the year ended
June 30, 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. Subsequent to the acquisition on
October 2, 2017, the Company began
and is now well underway on the integration of Foreign Affair Winey
into our systems and control structures. The assessment on the
design effectiveness of disclosure controls and procedures and
internal controls over financial reporting is on track for
completion within the required time frame enabling the assessment
of operating effectiveness thereafter.
Except for the preceding changes, there were no changes in
internal control over financial reporting during the Company's most
recent 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 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, or a change in
business model 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
(including the recent acquisitions of the Ungava Spirits Brands and
Foreign Affair Winery) 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 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 September
30, 2018:
|
|
|
|
Carrying Values as at
September 30, 2018
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
-
|
$
17.4
|
$
17.4
|
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
|
|
0.4
|
2.5
|
2.9
|
Other domestic
brands
|
|
Canada
|
|
1.9
|
-
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
$
8.8
|
$
34.9
|
$
43.6
|
|
|
|
|
|
|
|
(1)The
international business for Lamb's rum is primarily focused in the
UK, however, the trademarks and licences purchased
|
relate to all international markets outside of Canada, as Corby
previously owned the Canadian rights.
|
|
(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 10 of the annual
audited consolidated financial statements for the year ended
June 30, 2018.
CORBY SPIRIT AND WINE LIMITED
INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
Notes
|
2018
|
2017
|
2018
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Deposits in cash
management pools
|
|
$
68,902
|
$
68,353
|
$
69,955
|
Deposit on business
acquisition
|
|
-
|
5,957
|
-
|
Accounts
receivable
|
|
4
|
30,533
|
31,329
|
33,469
|
Inventories
|
|
5
|
61,752
|
57,734
|
59,789
|
Prepaid
expenses
|
|
|
645
|
846
|
593
|
|
|
|
|
|
|
Total current
assets
|
|
161,832
|
164,219
|
163,806
|
Other
assets
|
|
|
2,284
|
-
|
1,830
|
Property, plant and
equipment
|
|
18,748
|
14,570
|
19,331
|
Goodwill
|
|
|
8,757
|
8,403
|
8,757
|
Intangible
assets
|
|
|
34,866
|
38,204
|
36,311
|
|
|
|
|
|
|
Total
assets
|
|
|
$
226,487
|
$
225,396
|
$ 230,035
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
6
|
$
28,112
|
$
29,449
|
$
31,242
|
Income and other
taxes payable
|
|
810
|
325
|
1,240
|
Total current
liabilities
|
|
28,922
|
29,774
|
32,482
|
Provision for
employee benefits
|
|
9,161
|
17,922
|
9,991
|
Deferred income
taxes
|
|
3,257
|
333
|
2,868
|
|
|
|
|
|
|
Total
liabilities
|
|
|
41,340
|
48,029
|
45,341
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
Share
capital
|
|
|
14,304
|
14,304
|
14,304
|
Accumulated other
comprehensive income (loss)
|
|
700
|
(5,800)
|
486
|
Retained
earnings
|
|
|
170,143
|
168,863
|
169,904
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
185,147
|
177,367
|
184,694
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
226,487
|
$
225,396
|
$ 230,035
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
|
|
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
Notes
|
2018
|
2017 (1)
|
|
|
|
|
|
Revenue
|
7
|
$
37,883
|
$
35,634
|
|
|
|
|
|
Cost of
sales
|
|
(14,050)
|
(13,205)
|
Marketing, sales and
administration
|
|
(15,118)
|
(14,524)
|
Other (expenses)
income
|
8
|
(23)
|
35
|
|
|
|
|
|
Earnings from
operations
|
|
8,692
|
7,940
|
|
|
|
|
|
Financial
income
|
9
|
365
|
271
|
Financial
expenses
|
9
|
(126)
|
(191)
|
|
|
|
239
|
80
|
|
|
|
|
|
Earnings before
income taxes
|
|
8,931
|
8,020
|
|
|
|
|
|
Current income
taxes
|
|
(2,119)
|
(1,983)
|
Deferred income
taxes
|
|
(310)
|
(187)
|
Income
taxes
|
|
(2,429)
|
(2,170)
|
|
|
|
|
|
Net
earnings
|
|
$
6,502
|
$
5,850
|
|
|
|
|
|
Basic earnings per
share
|
|
$
0.23
|
$
0.21
|
Diluted earnings
per share
|
|
$
0.23
|
$
0.21
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
|
|
Basic
|
|
28,468,856
|
28,468,856
|
Diluted
|
|
28,468,856
|
28,468,856
|
|
|
|
|
|
(1) In preparing its
comparative information, the Company has adjusted amounts reported
previously in the interim condensed consolidated statement of
earnings as a result of the retrospective application of IFRS 15,
Revenue from Contracts with Customers. Refer to Note 2 for details
regarding adjusted amounts.
|
|
|
|
|
|
The accompanying
notes are an integral part of these 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
$
6,502
|
$
5,850
|
|
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
Net actuarial
gains
|
|
|
|
293
|
297
|
Income
taxes
|
|
|
|
(79)
|
(80)
|
|
|
|
|
|
214
|
217
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
$
6,716
|
$
6,067
|
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
Income (Loss)
|
Retained
Earnings
|
Total
|
|
|
|
|
|
|
|
Balance as at June
30, 2018
|
|
$
14,304
|
$
486
|
$
169,904
|
$
184,694
|
Total comprehensive
income
|
|
-
|
214
|
6,502
|
6,716
|
Dividends
|
|
|
-
|
-
|
(6,263)
|
(6,263)
|
|
|
|
|
|
|
|
Balance as at
September 30, 2018
|
|
$
14,304
|
$
700
|
$
170,143
|
$
185,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2017
|
|
$
14,304
|
$
(6,017)
|
$
168,991
|
$
177,278
|
Total comprehensive
income
|
|
-
|
217
|
5,850
|
6,067
|
Dividends
|
|
|
-
|
-
|
(5,978)
|
(5,978)
|
|
|
|
|
|
|
|
Balance as at
September 30, 2017
|
|
$
14,304
|
$
(5,800)
|
$
168,863
|
$
177,367
|
|
|
|
|
|
|
|
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
|
|
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
Notes
|
2018
|
2017
|
|
|
|
|
|
Operating
activities
|
|
|
|
Net
earnings
|
|
$
6,502
|
$
5,850
|
Adjustments
for:
|
|
|
|
Amortization and
depreciation
|
10
|
2,140
|
2,009
|
Net financial
income
|
9
|
(239)
|
(80)
|
Gain on disposal of
property and equipment
|
|
(14)
|
(2)
|
Income tax
expense
|
|
2,429
|
2,170
|
Provision for
employee benefits
|
|
(1,115)
|
(221)
|
|
|
|
9,703
|
9,726
|
Net change in
non-cash working capital balances
|
11
|
(2,209)
|
(1,062)
|
Interest
received
|
|
363
|
271
|
Income taxes
paid
|
|
(2,551)
|
(2,570)
|
|
|
|
|
|
Net cash from
operating activities
|
|
5,306
|
6,365
|
|
|
|
|
|
Investing
activities
|
|
|
|
Additions to property
and equipment
|
|
(110)
|
(347)
|
Proceeds from
disposition of property and equipment
|
|
14
|
17
|
Business
acquisition
|
|
-
|
(5,957)
|
Deposits in cash
management pools
|
|
1,053
|
5,900
|
|
|
|
|
|
Net cash from
(used in) investing activities
|
|
957
|
(387)
|
|
|
|
|
|
Financing
activity
|
|
|
|
Dividends
paid
|
|
(6,263)
|
(5,978)
|
|
|
|
|
|
Net cash used in
financing activity
|
|
(6,263)
|
(5,978)
|
|
|
|
|
|
Net increase in
cash
|
|
-
|
-
|
Cash, beginning of
year
|
|
-
|
-
|
|
|
|
|
|
Cash, end of
year
|
|
$
-
|
$
-
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
|
|
|
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 manufacturer, marketer and importer of spirits and
wines. The Company derives its revenues from the sale of its
owned-brands in Canada and other
international markets, as well as earning commissions from the
representation of selected non-owned brands in the Canadian
marketplace. Revenues predominantly consist of sales made to each
of the provincial liquor boards in Canada. The Company also supplements these
primary sources of revenue with other ancillary activities
incidental to its core business, such as logistics fees.
Corby is controlled by Hiram
Walker & Sons Limited ("HWSL"), which is a wholly-owned
subsidiary of Pernod Ricard, S.A. ("PR"), a French public limited
company that controls 51.6% of the outstanding Voting Class A
Common Shares of Corby as at September 30,
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. SIGNIFICANT ACCOUNTING POLICIES
(i)
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 below. These
interim condensed consolidated financial statements should be read
in conjunction with the Company's 2018 annual financial
statements.
These consolidated financial statements were
approved by the Company's Board of Directors on November 7, 2018.
Functional and presentation
currency
The Company's interim condensed consolidated
financial statements are presented in Canadian dollars, which is
the Company's, and its subsidiaries, 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 described in
the most recent annual consolidated financial statements, except
for recently adopted policies and methods described below.
Historical cost is generally based on the fair value of the
consideration given in exchange for assets.
Use of Estimates and
Judgements
The preparation of 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 changes 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 changes 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.
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.
(ii)
Adoption of New and Revised Standards and
Interpretations
Recent accounting pronouncements
A number of
new standards, amendments to standards and interpretations are
effective for the financial period ended September 30, 2018, and accordingly, have been
applied in preparing these consolidated financial statements:
(a)
Revenue
In May 2014, the
International Accounting Standards Board ("IASB") issued IFRS 15,
"Revenue from Contracts with Customers" ("IFRS 15"), which provides
a comprehensive framework for the recognition, measurement and
disclosure of revenue from contracts with customers. IFRS 15 is
effective for annual periods beginning on or after January 1, 2018 and was therefore applied for the
first time by the Company for the interim period beginning
July 1, 2018.
The Company adopted IFRS 15 using the full
retrospective approach with restatement. After completing the
analysis of significant customer contracts, the Company determined
that the implementation of IFRS 15 did not result in a significant
impact to the Company's financial position and performance. The
application of IFRS 15 has required that certain advertising and
promotional expenditures, when paid directly to customers, be
classified as a reduction to revenue. The following chart
summarizes the impact of IFRS 15 on the Company's interim condensed
consolidated statement of earnings for the three-month period
ending September 30, 2017 and on the
Company's consolidated statement of earnings for the year ending
June 30, 2018:
|
|
|
Sept. 30,
|
June 30,
|
Statement of
earnings impacts
|
|
2017
|
2018
|
|
|
|
|
|
Revenue
|
|
|
$
(336)
|
$
(871)
|
Marketing, sales
& administration
|
|
336
|
871
|
|
|
|
|
|
Earnings from
operations
|
|
-
|
-
|
|
|
|
|
|
Net
Earnings
|
|
|
$
-
|
$
-
|
The Company's accounting policies for revenues
have been updated to reflect the more extensive requirements under
IFRS 15 and are outlined
below.
The Company derives its revenue from Case Goods
sales, Commissions and revenues from ancillary activities. The
Company recognizes revenue when control of the goods or services
sold has been transferred to the customer. Revenue is measured at
the amount of consideration to which the Company expects to be
entitled after deducting trade discounts, volume rebates and
sales-related taxes and duties.
(i) Case Good Sales
Corby's Case Goods are primarily sold to
provincial liquor boards and international customers. Transfer of
control over Case Goods is achieved when products are shipped from
the Company's various distribution sites and accepted by the
customer. For sales to consumers through the Company's winery
retail store, the transfer of control is deemed to occur when the
product is purchased by the consumer.
Case Goods sales are recorded net of costs of
services provided by customers which include: distribution, listing
costs for new products, promotional activities at point of sale and
other advertising and promotional services provided directly by
customers.
(ii) Commissions
When the Company acts in the capacity of an agent
rather than as the principal in a transaction, revenue is
recognized in the amount of the commission to which the Company is
contractually entitled in exchange for representation services
performed. Commissions are reported net of amortization of
long-term representation rights. The long-term representation
rights represent the cost of the Company's exclusive right to
represent PR's brands in Canada
and are amortized on a straight-line basis over the term of their
respective agreements.
(iii) Revenue from ancillary
activities
Revenue from ancillary activities include
logistics fees and bulk whisky sales. Logistics fees are recognized
as services are rendered. Bulk whisky sales are recognized when
control of the goods has been transferred to the customer.
(b) 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 own 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
became effective July 1, 2018. The
adoption of IFRS 9 did not have a significant impact on the
Company's interim condensed consolidated financial statements.
Changes to the classification of Corby's
financial assets and liabilities under IFRS 9 are as follows:
|
|
|
|
|
|
Financial
Asset/Liability
|
|
|
Category
Under IAS 39
|
|
Category
Under IFRS 9
|
|
|
|
|
|
|
|
Deposits in cash
management pools
|
|
Loans and
receivables
|
|
Amortized
cost
|
Accounts
receivable
|
|
|
|
Loans and
receivables
|
|
Amortized
cost
|
Accounts payable and
accrued liabilities
|
|
Loans and
receivables
|
|
Amortized
cost
|
Recent accounting pronouncements not in
effect
The below standards have been issued but are not
yet effective for the financial period ended September 30, 2018, and accordingly, have not
been applied in preparing these consolidated financial
statements:
(c)
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 liabilities 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.
(d)
Uncertainty over Income Tax Treatments
In June 2017, the
IASB issued a new interpretation IFRIC 23, "Uncertainty over Income
Tax Treatments" ("IFRIC 23). IFRIC 23 specifies the accounting
treatment for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over the tax
treatments. The standard is effective for annual periods beginning
on or after January 1, 2019, with
earlier application permitted. 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.
3. 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. Level 3 inputs are used
to determine the fair value of pension plan assets contained within
the infrastructure and real estate funds.
4. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
|
|
|
2018
|
2017
|
2018
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
|
$
17,288
|
$
17,677
|
$
19,503
|
Due from related
parties
|
|
|
10,613
|
11,847
|
12,137
|
Other
|
|
|
|
2,632
|
1,805
|
1,829
|
|
|
|
|
|
$
30,533
|
$
31,329
|
$
33,469
|
5. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
|
|
|
2018
|
2017
|
2018
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
|
$
3,581
|
$
3,522
|
$
3,424
|
Work-in-progress
|
|
|
|
46,425
|
44,038
|
46,875
|
Finished
goods
|
|
|
|
11,746
|
10,174
|
9,490
|
|
|
|
|
|
$
61,752
|
$
57,734
|
$
59,789
|
The cost of inventory recognized as an expense
and included in cost of goods sold during the three month period
ended September 30, 2018 was
$12,634 (2017 – $11,721). During the three-month period ended
September 30, 2018 there were no
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.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
June 30,
|
|
|
|
|
|
2018
|
2017
|
2018
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
$
16,513
|
$
17,171
|
$
23,706
|
Due to related
parties
|
|
|
|
8,468
|
8,739
|
6,071
|
Other
|
|
|
|
3,131
|
3,539
|
1,465
|
|
|
|
|
|
$
28,112
|
$
29,449
|
$
31,242
|
7. REVENUE
The Company's revenue consists of the following streams:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Case Goods
sales
|
|
|
|
|
$
29,996
|
$
28,190
|
Commissions (net of
amortization of representation rights)
|
|
|
7,000
|
6,633
|
Other
services
|
|
|
|
|
887
|
811
|
|
|
|
|
|
|
$
37,883
|
$
35,634
|
Commissions for the quarter are shown net of
amortization of long-term representation rights and non-refundable
upfront fees of $1,445 (2017 -
$1,471). Other services include
revenues incidental to the manufacture of Case Goods, such as
logistics fees and miscellaneous bulk spirit sales.
8. OTHER (EXPENSES) INCOME
The Company's other (expenses) income consist of the following
amounts:
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Foreign exchange
(loss) gain
|
|
|
|
$
(25)
|
$
33
|
Gain on disposal of
property and equipment
|
|
|
14
|
2
|
Other
expenses
|
|
|
|
|
(12)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(23)
|
$
35
|
9. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
$
365
|
$
271
|
Net financial impact
of pensions
|
|
|
(126)
|
(191)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
239
|
$
80
|
10. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
|
$
695
|
$
538
|
Amortization of
intangible assets
|
|
|
1,445
|
1,471
|
Salary and payroll
costs
|
|
|
|
6,273
|
6,148
|
Expenses related to
pensions and benefits
|
|
|
329
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
8,742
|
$
8,512
|
11. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
|
$
2,936
|
$
3,499
|
Inventories
|
|
|
|
|
(1,963)
|
(2,374)
|
Prepaid
expenses
|
|
|
|
|
(52)
|
(319)
|
Accounts payable and
accrued liabilities
|
|
|
(3,130)
|
(1,868)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(2,209)
|
$
(1,062)
|
12. DIVIDENDS
On November 7, 2018
subsequent to the quarter ended September
30, 2018, the Board of Directors declared its regular
quarterly dividend of $0.22 per
common share, to be paid on December 7,
2018, to shareholders of record as at the close of business
on November 23, 2018. The Board of
Directors also declared a special dividend of $0.44 per common share, payable January 11, 2019, to shareholders of record as at
the close of business on December 14,
2018. The dividends are in accordance with the Company's
dividend policy.
13. 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, 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 $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 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 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
|
|
|
|
|
|
|
Sept.
30,
|
Sept. 30,
|
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
|
|
$
7,874
|
$
7,602
|
Products for resale
at an export level - affiliated companies
|
|
|
982
|
1,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
8,856
|
$
9,359
|
|
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
|
$
6,036
|
$
6,154
|
|
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
Marketing, selling
and administration services - parent
|
|
|
$
523
|
$
658
|
Marketing, selling
and administration services - affiliate
|
|
|
-
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
523
|
$
848
|
Balances outstanding with related parties are due
within 60 days, are to be settled in cash and are unsecured.
During the three months ended September 30, 2018, Corby sold casks to its
parent company for net proceeds of $14 (2017 - $17).
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 Service Agreement acts to
aggregate each participant's net cash balance for the purposes of
having a centralized cash management function for all of PR's
Canadian affiliates, including Corby.
As a result of Corby's participation in this
agreement, Corby's credit risk associated with its deposits in cash
management pools is contingent upon PR's credit rating. PR's credit
rating as at November 7, 2018, as
published by Standard & Poor's and Moody's, was BBB and Baa2,
respectively. PR compensates Corby for the benefit it receives from
having the Company participate in the Mirror Netting Service
Agreement by paying interest to Corby based upon the 30-day CDOR
rate plus 0.40%. During the three months ended September 30, 2018, Corby earned interest income
of $384 from PR (2017 – $281). Corby has the right to terminate its
participation in the Mirror Netting Service Agreement at any time,
subject to five days' written notice.
14. 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 7 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.
15. SUBSEQUENT EVENTS
On November 7, 2018, subsequent to
the first quarter ended September 30,
2018, the Board of Directors of Corby declared a special
dividend in the amount of $0.44 per
common share. This dividend will be paid on January 11, 2019, on Voting Class A Common Shares
and Non-voting Class B Common Shares of the Company to shareholders
of record as at the close of business on December 14, 2018. This dividend will be in
addition to Corby's regular dividend of $0.22 per share, which was also declared by
Corby's Board of Directors on the same day. The special dividend
will result in a cash distribution of approximately $12.5 million to shareholders and will be sourced
from the Company's current surplus cash deposits.
SOURCE Corby Spirit and Wine Limited