TORONTO, Feb. 12, 2020 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
reported its financial results for the second quarter ended
December 31, 2019. The Corby Board of
Directors today also declared a dividend of $0.22 per share payable on March 6, 2020 on the Voting Class A Common Shares
and Non-Voting Class B Common Shares of the Company to shareholders
of record as at the close of business on February 26, 2020.
Net earnings of $7.8 million (or
$0.28 per share) were reported for
the three-month period ended December 31,
2019, reflecting an increase of 14%, $0.9 million (or $0.04 per share) when compared to the same
quarter in the prior year. On a year to date basis, net earnings of
$14.3 million (or $0.50 per share) reflect an increase of 7%, or
$0.9 million for the six month period
ended December 31, 2019, when
compared to the same period last year.
"I am delighted to see such strong results for the first half of
our fiscal year; a testament that our focused efforts on key
priorities and brands is driving top-line case-goods growth and
translating into a healthy year over year increase in net sales.
Our key brands continue to outpace the industry, not only in
the Canadian whisky and super premium gin categories, but also
within a super competitive vodka category. We will continue to
build upon this momentum in the second half of the year through our
consumer engagement programs and communication of our products,
brand relevance and enduring commitment to quality," noted
Patrick O'Driscoll, President and
Chief Executive Officer of Corby.
Revenue for the second quarter increased 4%, reflecting a strong
second quarter rebound of commission income from Pernod Ricard
brands and bulk sales revenue related to rebalancing of maturing
inventories. Revenue for the six-month period ended
December 31, 2019 grew 3% as key
Corby-owned brands and premium innovations performed well in both
domestic and export markets. Advertising and promotional
investments for the first half of the year supported growth in
strategic priorities, key markets and fast growing segments, such
as gin.
The Corby Board of Directors also announced that Paul Holub has been appointed as a Corby
director, acting as one of Pernod Ricard's nominees, effective
February 12, 2020. Mr. Holub's
appointment fills the vacancy created by Paul Duffy's retirement on December 15, 2019. A native of Canada and Corby alumnus, Mr. Holub graduated
from McMaster University. He has over 25 years of industry
experience with executive roles at Pernod Ricard North America,
Pernod Ricard USA, Corby and Hiram Walker & Sons Limited.
Mr. Holub brings extensive human resources experience to the Corby
Board of Directors.
"I am confident that Paul's significant industry experience will
enhance the Corby Board's skillset and I look forward to working
with him," said George McCarthy,
Chairman of Corby's Board of Directors.
For further details, please refer to Corby's management's
discussion and analysis and interim condensed consolidated
financial statements and accompanying notes for the
three-and-six-months ended December 31,
2019, 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 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®, and Kenwood® wines. Corby is a
publicly traded company based in Toronto,
Ontario, and is listed on the Toronto Stock Exchange under
the trading symbols CSW.A and CSW.B. For further information,
please visit our website or follow us on LinkedIn.
This press release contains forward-looking statements,
including statements concerning possible or assumed future results
of Corby's operations. Forward-looking statements typically are
preceded by, followed by or include the words "believes",
"expects", "anticipates", "estimates", "intends", "plans" or
similar expressions. Forward-looking statements are not guarantees
of future performance. They involve risks, uncertainties and
assumptions and, as such, actual results or expectations could
differ materially from those anticipated in these forward-looking
statements. Accordingly, readers should not place undue reliance on
forward-looking statements. All financial results are reported in
Canadian dollars.
CORBY SPIRIT AND WINE LIMITED
Management's Discussion and Analysis
December 31, 2019
The following Management's Discussion and Analysis ("MD&A")
dated February 12, 2020 should be
read in conjunction with the interim condensed consolidated
financial statements and accompanying notes as at and for the three
and six-month period ended December 31,
2019, prepared in accordance with International Financial
Reporting Standards ("IFRS"). These unaudited interim condensed
financial statements do not contain all disclosures required by
IFRS for annual financial statements and, accordingly, should also
be read in conjunction with the most recently prepared annual
consolidated financial statements for the year ended June 30, 2019.
This MD&A contains forward-looking statements, including
statements concerning possible or assumed future results of
operations of Corby Spirit and Wine Limited ("Corby" or the
"Company"), including the statements made under the headings
"Strategies and Outlook", "Liquidity and Capital Resources",
"Recent Accounting Pronouncements" and "Risks and Risk Management."
Forward-looking statements typically are preceded by, followed by
or include the words "believes", "expects", "anticipates",
"estimates", "intends", "plans" or similar expressions.
Forward-looking statements are not guarantees of future
performance. They involve risks and uncertainties, including, but
not limited to: the impact of competition; the impact, and
successful integration of, acquisitions; business interruption;
trademark infringement; consumer confidence and spending
preferences; regulatory changes; general economic conditions; and
the Company's ability to attract and retain qualified employees.
There can be no assurance that forward-looking statements will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on
forward-looking statements. These factors are not intended to
represent a complete list of the factors that could affect the
Company and other factors could also affect Corby's results. For
more information, please see the "Risk and Risk Management" section
of this MD&A.
This document has been reviewed by the Audit Committee of
Corby's Board of Directors and contains certain information that is
current as of February 12, 2020.
Events occurring after that date could render the information
contained herein inaccurate or misleading in a material respect.
Corby will provide updates to material forward-looking statements,
including in subsequent news releases and its interim management's
discussion and analyses filed with regulatory authorities as
required under applicable law. Additional information regarding
Corby, including the Company's Annual Information Form, is
available on SEDAR at www.sedar.com.
Unless otherwise indicated, all comparisons of results for the
second quarter of fiscal 2020 (three months ended December 31, 2019) are against results for the
second quarter of fiscal 2019 (three months ended December 31, 2018). 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, McGuinness® liqueurs, and Ungava® gin, Chic
Choc® Spiced rum, and Cabot Trail® maple cream liqueur
(Coureur des Bois®, in Quebec)
(collectively, the "Ungava Spirit Brands,") and the Foreign Affair®
wine brands (the "Foreign Affair Brands"). 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®, 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.
PR produces the majority of Corby's owned-brands under a
distillate agreement and a co-pack agreement, each expiring
September 30, 2026 at HWSL's
production facility in Windsor,
Ontario. Under an administrative services agreement which
also expires September 30, 2026,
Corby manages PR's business interests in Canada, including HWSL's production
facility.
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.
Corby's wholly-owned subsidiary, the Foreign Affair Winery Ltd.,
produces the Foreign Affair Brands and operates the winery and
vineyard, based in Ontario's
Niagara region (the "Foreign Affair Winery"). 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 other international markets, Corby products are
distributed by PR affiliates or third parties (more information is
provided in the "Related Party Transactions" section of this
MD&A).
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 deliver enhanced margin quality and
profit, while continuing to produce strong and consistent cash
flows from operating activities.
Management believes its focused brand prioritization strategy
will permit Corby to capture market share in the segments and
markets that are expected to deliver the most long-term value
growth. Brand prioritization requires a consumer insight and data
driven assessment of each brand's potential. This facilitates
resource allocation of Corby's marketing and sales efforts,
ensuring optimal value creation through revenue management and
investment return maximization.
Therefore, the Company's strategy is to concentrate its
endeavors to deliver relevant consumer offerings and invest to
leverage the growth potential of its key strategic brands, while
continuing to exploit new routes-to-market and channel
opportunities.
Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our
goal is to leverage our Canadian whisky and gin expertise and
expand our business into markets where we believe there is growth
potential in both volume and margin.
Of importance to the implementation of our brand strategies is
an effective route-to-market and an optimized organizational
structure. Corby continues to invest in its trade marketing
expertise, ensuring that commercial resources are specialized to
meet the unique needs of its customers and their selling channels.
In all areas of the business, management believes setting clear
strategies and increasing efficiencies is key to Corby's overall
success and creating value for Corby shareholders.
The Company's portfolio of owned and represented brands provides
an excellent platform from which to achieve its objectives.
Innovation is also essential to capture incremental growth
opportunities. Successful innovation is delivered through a
structured evaluation process powered by consumer insight and
ongoing research and development. Corby benefits from having access
to PR North America's leading-edge
production technologies, through HWSL's Windsor, Ontario facility, where most of its
products are manufactured and developed. In addition, acquisitions
can provide access to further growth opportunities. Potential
acquisitions are assessed against specific criteria including the
Company's core competencies, portfolio of brands and strategic
priorities.
Finally, Corby is a strong advocate of social responsibility,
especially with respect to its sales and promotional activities.
Corby promotes responsible consumption of its products in
collaboration with local partners.
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, 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
|
Six Months
Ended
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2019
|
2018
|
%
|
%
|
2019
|
2018
|
%
|
%
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
235
|
249
|
(6%)
|
(6%)
|
456
|
451
|
1%
|
0%
|
Polar Ice
vodka
|
97
|
88
|
10%
|
8%
|
192
|
183
|
5%
|
3%
|
Lamb's rum
|
123
|
115
|
6%
|
6%
|
232
|
217
|
7%
|
3%
|
Mixable
liqueurs
|
47
|
51
|
(8%)
|
(9%)
|
88
|
91
|
(3%)
|
(2%)
|
Ungava Spirits
Brands
|
42
|
37
|
14%
|
16%
|
80
|
66
|
21%
|
26%
|
Other Corby-owned
brands(1)
|
58
|
56
|
4%
|
14%
|
112
|
111
|
1%
|
(5%)
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
602
|
596
|
1%
|
1%
|
1,160
|
1,119
|
4%
|
2%
|
(1)
For presentation purposes, Foreign Affair Winery has been
grouped with other Corby-owned brands as full comparable periods
have been attained.
|
Corby's owned-brands experienced strong 4% shipment volume
growth, resulting in value growth of 2% when compared to the
six-month period ended December 31,
2018 and 1% growth in both volume and value compared to the
three months ended December 31, 2018.
Revenue was driven by the performance of Ungava Spirits brands,
Polar Ice, Lamb's rum as well as premium innovations and strategic
price management.
Trends in Canada differ from
international markets as highlighted in the following table:
|
Three Months
Ended
|
Six Months
Ended
|
|
|
|
Shipment
Change
|
|
|
Shipment
Change
|
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
Dec.
31,
|
Dec.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2019
|
2018
|
%
|
%
|
2019
|
2018
|
%
|
%
|
|
|
|
|
|
|
|
|
|
Domestic
|
543
|
539
|
1%
|
0%
|
1,044
|
1,018
|
3%
|
2%
|
International
|
59
|
57
|
3%
|
8%
|
116
|
101
|
14%
|
4%
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
602
|
596
|
1%
|
1%
|
1,160
|
1,119
|
4%
|
2%
|
Fiscal year to date domestic shipments grew 3% in volume and 2%
in value compared to the same time last year. Second quarter
domestic shipments grew 1% in volume and were flat in value.
Performance on the more premium Ungava Spirits Brands delivered
strong growth, while Polar Ice responded well to tactical regional
strategies. J.P. Wiser's Deluxe and Wiser's Special
Blend boosted domestic performance for the fiscal year to date but
was impacted by year over year shipment timing in the second
quarter. Innovations, such as J.P. Wiser's Manhattan and J.P. Wiser's Old Fashioned and
the Alumni Whisky Series, a collaboration with the NHL® Alumni
Association, are performing well in market. See "Retail Sales
Performance/ Summary of Corby's Key Brands" below for additional
information.
On international performance, second quarter shipment volumes
improved 3%, while shipment value grew 8% compared to the same
period last year. Improvement in volume was impacted primarily by
new Lamb's rum opportunities in the UK market, which was partially
offset by timing of prior year J.P. Wiser's pipeline shipments to
US distributors. Value was impacted by product and market mix. For
the six months ended December 31,
2019, shipment volumes improved 14% on a year over year
comparable basis, driven by UK market performance and a more direct
and optimized route to market, while value grew 4% compared to the
prior period.
Retail Sales Performance / Spirit Market
Trends
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.
To provide context for the following analysis, the Canadian
spirits industry exhibited second quarter retail sales volume
growth of 2%, while retail sales value improved 4%. Retail
sales volumes grew 3% for the six months ended December 31, 2019 compared to the prior year,
while retail sales value grew 5%. Industry trends were led by
retail sales volume and value growth in the gin, tequila, Irish
whiskey, and bourbon categories.
In the six-month period ended December
31, 2019, the vodka category grew 3% in retail volume and 4%
in retail value. Canadian whisky category volumes were flat but
grew 2% in value. The rum category dipped 1% in volume but grew 1%
in value. Gin, a growing priority within the Corby portfolio,
increased volumes by 12% and value by 17% through growth of premium
and super-premium brands.
Corby's portfolio is heavily weighted in the Canadian whisky,
rum and vodka categories; together they make up about 86% of the
Company's total retail volumes.
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 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.
Retail Sales Performance / Summary of Corby's Key
Brands
RETAIL SALES FOR
THE CANADIAN MARKET ONLY (AS PROVIDED BY THE
ACD(1))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Twelve Months
Ended
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
Dec
31,
|
Dec
31,
|
Volume
|
Value
|
|
Dec
31,
|
Dec
31,
|
Volume
|
Value
|
|
Dec
31,
|
Dec
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2019
|
2018
|
Growth
|
Growth
|
|
2019
|
2018
|
Growth
|
Growth
|
|
2019
|
2018
|
Growth
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
235
|
241
|
(3%)
|
(1%)
|
|
420
|
418
|
0%
|
2%
|
|
750
|
750
|
0%
|
2%
|
Polar Ice
vodka
|
102
|
99
|
3%
|
3%
|
|
198
|
193
|
3%
|
4%
|
|
361
|
353
|
2%
|
3%
|
Lamb's rum
|
86
|
95
|
(9%)
|
(7%)
|
|
166
|
177
|
(6%)
|
(5%)
|
|
302
|
322
|
(6%)
|
(6%)
|
Mixable
liqueurs
|
50
|
53
|
(6%)
|
(3%)
|
|
90
|
93
|
(3%)
|
(1%)
|
|
152
|
159
|
(5%)
|
(3%)
|
Ungava Spirits
Brands
|
52
|
44
|
17%
|
18%
|
|
80
|
66
|
22%
|
22%
|
|
124
|
105
|
18%
|
18%
|
Other Corby-owned
brands (2)
|
55
|
54
|
2%
|
0%
|
|
104
|
102
|
2%
|
1%
|
|
196
|
191
|
2%
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
580
|
586
|
(1%)
|
0%
|
|
1,058
|
1,049
|
1%
|
2%
|
|
1,885
|
1,880
|
0%
|
1%
|
(1) Refers to sales at the retail
store level in Canada, as provided by the Association of Canadian
Distillers.
|
(2) For presentation purposes,
Foreign Affair Brands been grouped with other Corby-owned brands as
full comparable periods have been attained.
|
J.P. Wiser's Canadian Whisky
J.P. Wiser's Canadian
whisky is Corby's flagship brand and one of Canada's best-selling Canadian whiskies. The
brand's retail volumes (excluding Special Blend) grew 2% in the six
months ended December 31, 2019, while
retail value (excluding Special Blend) grew 3% compared to the same
period last year. Retail sales volumes for the Canadian whisky
category were flat, while retail value for the category improved 2%
over the same period.
Coby has strategically separated the premium variants of J.P.
Wiser's from its standard offering of Special Blend,
differentiating the J.P. Wiser's premium range with revised and
enhanced packaging, an award-winning media campaign and premium
innovations. Within the range, organic growth in both retail volume
and value was posted by J.P. Wiser's Deluxe and J.P. Wiser's Apple
Whisky. Value growth was also driven through a series of new J.P.
Wiser's products launched in fiscal 2019 which include a range of
super-premium, limited edition Canadian whiskies created in
partnership with the NHL® Alumni Association, a ready-to serve J.P.
Wiser's Old-Fashioned Whisky Cocktail and the new J.P. Wiser's
Manhattan Whisky Cocktail innovation. J.P. Wiser's Old-Fashioned
has quickly become the #2 performing Canadian whisky innovation
launched in the past twelve months.
The brand is being supported nationally with a new "Drinks
Soon?" campaign in a range of media channels and continues to
receive prestigious accolades that speak to the quality of the
brand. J.P. Wiser's 35-Year-Old was awarded World's Best Canadian
Blended Whisky and J.P. Wiser's Vanilla Whisky was awarded World's
Best Canadian Flavoured Whisky at the 2019 World Whiskies Awards.
Yvan Cournoyer and Dave Keon Alumni
Whisky Series, and J.P. Wiser's Seven Rebels were awarded Gold at
the 2020 Canadian Whisky Awards.
Wiser's Special Blend retail volume dipped 2%, with flat retail
value in the six-month comparable period ended December 31, 2019. Results were impacted by the
conclusion of a series of reporting period changes in a key
regional market.
Polar Ice Vodka
Polar Ice vodka is among the top-selling vodka brands in
Canada. Retail volume grew 3% and
value grew 4% in the six-month period ended December 31, 2019. The overall vodka category in
Canada grew 3% in retail volume
and 4% in value on a comparable basis driven by the premium vodka
segment. The standard vodka category, where Polar Ice Vodka
competes, improved 1% in retail volume and 2% in value compared to
the same period in the prior year.
The brand is responding to a combination of strategic price
repositioning, a new targeted marketing campaign, and has benefited
from new packaging launched this fiscal year.
Lamb's Rum
Lamb's rum, one of the top-selling rum families in Canada, continued to be impacted by ongoing
changes in consumer trends for standard rum particularly in
regional strongholds. Retail volumes for the overall rum category
decreased 1% for the six months ended December 31, 2019, while retail values improved
1% compared to the same period last year driven by the premium rum
segment. The economy rum category, however, declined 4% in retail
volumes and 3% in value. Lamb's experienced a 6% decline in retail
volumes and a 5% decline in retail value.
The Lamb's rum product line is heavily weighted in the dark and
white segments, which have faced evolving consumer preferences in
recent years and increased competitor pressure in key markets. Our
strategy remains to defend regional strongholds with targeted
campaigns, focus on the most differentiated variants and to launch
new flavour variants and format innovations to help 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 decreased 3% for the
six months ended December 31, 2019,
and a retail value decreased 1%. The liqueurs category grew 4% in
retail value and 2% in retail volume for the six months ended
December 31, 2019 with category
growth driven by traditional coffee and cream liqueurs.
Our strategy has been to expand innovation and focus on strong
programming in the retail environment, ensuring that our flavour
offering is aligned to consumer trends. For example, an expanded
range of flavour offerings in a convenient 375mL format is designed
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 22%
in volume and 22% in value, for the six months ended December 31, 2019. The flagship brand, Ungava
gin, grew 19% in retail volume and 20% in retail value,
outperforming the Canadian gin category, which grew 12% in retail
volume while retail value grew 17%. Ungava gin is the market value
leader in the super-premium gin category.
Cabot Trail maple-based liqueurs (in Quebec, Coureur des Bois) continued to perform
well, benefiting from increased distribution and successful
recruitment through retail tastings. Retail volume increased 21% in
the current fiscal year while retail value grew 22%.
Other Corby-Owned Brands
Premium offerings in Canadian whisky such as Lot No. 40, Pike
Creek, and Gooderham & Worts (collectively known as the
Northern Border Collection) lost momentum in the six months ended
December 31, 2019, declining 9% in
retail volume and 12% in retail value.
Pike Creek 21-Year-Old Oloroso Cask Finish won Whisky of the
Year at the 2020 Canadian Whisky Awards where Lot No. 40, Pike
Creek, and Gooderham & Worts were all awarded medals. 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. In addition, Pike Creek Rum
Barrel Finish was awarded Sipping Whisky of the Year.
Pike Creek 21-Year-Old European Oak Finish won World's Best Corn
Whisky at the 2019 World Whiskies Awards, while Lot No. 40
11-Year-Old Cask Strength won World's Best Canadian Rye
Whisky.
Royal Reserve® grew 4% in both retail volume and
value during the six months ended December
31, 2019 compared to the same period last year.
Foreign Affair Brands 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. Retail performance is typically impacted by customer
ordering patterns and does not capture direct delivery and on-site
sales to consumers. The Foreign Affair Brands won top awards,
including Silver and Gold medals at the Ontario Wine Awards and has
recently launched the inaugural Whisky Barreled Cabernet Sauvignon,
aged in Pike Creek whisky barrels.
Financial and Operating Results
The following table presents a summary of certain selected
consolidated financial information of the Company for the three and
six-month periods ended December 31,
2019 and 2018.
|
Three Months
Ended
|
|
Six Months
Ended
|
(in millions of
Canadian dollars,
|
Dec.
31,
|
Dec.
31,
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
except per share
amounts)
|
2019
|
2018
|
$
Change
|
%
Change
|
|
2019
|
2018
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
43.4
|
$
|
41.9
|
$
|
1.5
|
4%
|
|
$
|
82.1
|
$
|
79.7
|
$
|
2.4
|
3%
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(17.1)
|
(16.7)
|
(0.4)
|
3%
|
|
(32.2)
|
(30.7)
|
(1.5)
|
5%
|
Marketing, sales and
administration
|
(15.8)
|
(16.2)
|
0.4
|
(2%)
|
|
(30.7)
|
(31.3)
|
0.6
|
(2%)
|
Other income
(expense)
|
0.1
|
0.1
|
-
|
(30%)
|
|
-
|
0.1
|
(0.1)
|
(79%)
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
10.6
|
9.1
|
1.5
|
16%
|
|
19.2
|
17.8
|
1.4
|
8%
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
0.3
|
0.4
|
(0.1)
|
(13%)
|
|
0.7
|
0.7
|
-
|
(8%)
|
Financial
expenses
|
(0.2)
|
(0.1)
|
(0.1)
|
75%
|
|
(0.3)
|
(0.2)
|
(0.1)
|
60%
|
Net financial
income
|
0.1
|
0.3
|
(0.2)
|
(43%)
|
|
0.4
|
0.5
|
(0.1)
|
(37%)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
10.7
|
9.4
|
1.3
|
14%
|
|
19.6
|
18.3
|
1.3
|
7%
|
Income
taxes
|
(2.9)
|
(2.5)
|
(0.4)
|
14%
|
|
(5.3)
|
(4.9)
|
(0.4)
|
6%
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
7.8
|
$
|
6.9
|
$
|
0.9
|
14%
|
|
$
|
14.3
|
$
|
13.4
|
$
|
0.9
|
7%
|
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.28
|
$
|
0.24
|
$
|
0.04
|
17%
|
|
$
|
0.50
|
$
|
0.47
|
$
|
0.03
|
6%
|
- Diluted net
earnings
|
$
|
0.28
|
$
|
0.24
|
$
|
0.04
|
17%
|
|
$
|
0.50
|
$
|
0.47
|
$
|
0.03
|
6%
|
Overall Financial Results
Net earnings grew $0.9 million or
14%, and increased $0.9 million and
7%, respectively for the three and six months ended December 31, 2019. Robust case good performance
in both domestic and export markets, strong second quarter PR Brand
commission revenue and timing of key brand marketing and sales
promotional activities drove favourable results. This was
partially offset by increased overhead expenses and a decrease in
net financial income.
Revenue
The following highlights the key components of the Company's
revenue streams:
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Dec.
31,
|
Dec.
31,
|
|
|
|
Dec.
31,
|
Dec.
31,
|
|
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
$
Change
|
%
Change
|
|
2019
|
2018
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
Case
goods
|
$
|
33.8
|
$
|
33.6
|
$
|
0.2
|
1%
|
|
$
|
64.9
|
$
|
63.5
|
$
|
1.4
|
2%
|
Commissions
|
8.4
|
7.5
|
0.9
|
11%
|
|
14.8
|
14.5
|
0.3
|
2%
|
Other
services
|
1.2
|
0.8
|
0.4
|
54%
|
|
2.4
|
1.7
|
0.7
|
40%
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
43.4
|
$
|
41.9
|
$
|
1.5
|
4%
|
|
$
|
82.1
|
$
|
79.7
|
$
|
2.4
|
3%
|
Case Goods revenue increased $0.2
million, or 1% and increased $1.4
million, or 2%, respectively, for the three and six-month
periods ended December 31, 2019, when
compared to the same period last year. Growth during the six-month
period was attributable to strong shipments resulting from LB
orders, UK market performance, premium innovations, and robust
performance of Ungava Spirits Brands.
Commissions increased $0.9
million, or 11% and $0.3
million, or 2%, respectively, for the three and six-month
period ended December 31, 2019.
Strong second quarter PR Spirits performance helped to offset
softness in the PR and agency wine portfolios as industry-wide
softness in wine consumption continued. The PR brand portfolio
benefitted from its positioning within 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, on-premise
spirit, wine and merchandise sales, and occasional bulk whisky
sales. Revenue from other services grew in the three- and six-month
periods ended December 31, 2019
attributable to bulk whisky sales.
Cost of sales
Cost of sales was $17.1 million, an
increase of $0.4 million, or 3% when
compared to the same quarter last year. The overall increase
in cost of sales is the result of product and market mix as well as
increased bulk sales. On a case rate basis our costs have increased
0.6%. Cost increases have been partially offset by price
initiatives and adjustments and the launch of premium innovation
resulting in overall gross margin of 51%; a decrease from 52%
realized in the same period last year (note: Commissions are not
included in this calculation).
Cost of sales increased by $1.5
million, or 5%, for the six-month period ended December 31, 2019 when compared to the same
period last year. The increase is attributable to bulk and other
ancillary costs. On a case rate basis, our case goods costs
remained flat year over year. Overall gross margin was 52% compared
to 53% in the same period last year (note: Commissions are not
included in this calculation).
Marketing, sales and administration
Marketing, sales and administration expenses decreased $0.4 million, or 2% for the quarter ended
December 31, 2019. For the six-month
period ended December 31, 2019,
marketing, sales and administration expenses decreased $0.6 million, or 2%. Marketing and
promotional investment for the year to date was concentrated on our
strategic priorities, led by J.P. Wiser's Deluxe and Ungava Spirits
Brands, and export market support with favourability from timing of
promotional activity on other key strategic priorities. Overhead
expenses, though well-controlled, increased inline with
inflation.
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. Interest
income for both the three and six-month period ended December 31, 2019 is consistent compared to the
same period in the prior year. The Company adopted IFRS 16,
"Leases" ("IFRS 16") on July 1,
2019. Consequently, $0.1
million in financial expenses related to lease liabilities
was recognized. Under previous accounting standards these payments
were included in marketing, sales and administration expenses
(please refer to the "Recent Accounting Pronouncements" section of
this MD&A).
Income taxes
A reconciliation of the effective
tax rate to the statutory rates for each period is presented
below.
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Dec.
31
|
Dec.
31
|
|
Dec.
31
|
Dec.
31
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
27%
|
27%
|
|
27%
|
27%
|
Other
|
0%
|
0%
|
|
0%
|
0%
|
|
|
|
|
|
|
Effective tax
rate
|
27%
|
27%
|
|
27%
|
27%
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $67.7 million as at
December 31, 2019, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities and the short-term lease liabilities which totalled
$33.9 million as at December 31, 2019 and are all due to be paid
within one year. In addition, the Company has long-term lease
liabilities of $4.1 million which
will be paid over the next 5 years and thereafter. Other than
obligations under lease liabilities, the Company does not have any
liabilities under short-term or long-term debt facilities.
The Company believes that its deposits in cash management pools,
combined with its historically strong operational cash flows,
provide for sufficient liquidity to fund its operations, investing
activities and commitments for the foreseeable future. The
Company's cash flows from operations are subject to fluctuation due
to commodity, foreign exchange and interest rate risks. Please
refer to the "Risks and Risk Management" section of this MD&A
for further information.
Cash Flows
|
Three Months
Ended
|
|
Six Months
Ended
|
|
Dec.
31,
|
Dec.
31,
|
|
|
Dec.
31,
|
Dec.
31,
|
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
$
Change
|
|
2019
|
2018
|
$
Change
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net earnings, adjusted
for non-cash items
|
$
|
13.0
|
$
|
10.9
|
$
|
2.1
|
|
$
|
24.2
|
$
|
20.6
|
$
|
3.6
|
Net change in non-cash
working capital
|
4.2
|
7.8
|
(3.6)
|
|
1.5
|
5.6
|
(4.1)
|
Net payments for
interest and income taxes
|
(2.0)
|
(2.6)
|
0.6
|
|
(4.8)
|
(4.8)
|
-
|
|
15.2
|
16.1
|
(0.9)
|
|
20.9
|
21.4
|
(0.5)
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
(0.9)
|
(1.0)
|
0.1
|
|
(1.1)
|
(1.1)
|
-
|
Proceeds from
disposition of property and equipment
|
0.1
|
-
|
0.1
|
|
0.1
|
-
|
0.1
|
Deposits in cash
management pools
|
(7.8)
|
(8.8)
|
1.0
|
|
(6.6)
|
(7.8)
|
1.2
|
|
(8.6)
|
(9.8)
|
1.2
|
|
(7.6)
|
(8.9)
|
1.3
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Payment of lease
liabilities
|
(0.3)
|
-
|
(0.3)
|
|
(0.8)
|
-
|
(0.8)
|
Dividends
paid
|
(6.3)
|
(6.3)
|
-
|
|
(12.5)
|
(12.5)
|
-
|
|
(6.6)
|
(6.3)
|
(0.3)
|
|
(13.3)
|
(12.5)
|
(0.8)
|
|
|
|
|
|
|
|
|
Net change in
cash
|
$
|
-
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
$
|
-
|
Operating activities
Net cash generated from operating activities was $15.2 million during the quarter ended
December 31, 2019 compared to
$16.1 million last year, representing
a decrease of $0.9 million. Under
IFRS 16, $0.3 million in cash
payments related to lease obligations are now included in financing
activities. Under previous accounting standards these payments were
included in operating activities (please refer to the "Recent
Accounting Pronouncements" section of this MD&A). Cash flows
from operating activities were unfavourably impacted by the timing
of both collections from customers and payments to vendors.
For the six-month period ended December
31, 2019, net cash from operating activities was
$20.9 million, reflecting a decrease
of $0.5 million compared to the same
six-month period last year; impacted by timing of customer
collections and vendor payments, partially offset by a decrease in
pension plan payments. With the adoption of IFRS 16, $0.8 million in cash payments related to lease
obligations are now included in financing activities. These
payments were included in operating activities in the comparative
period ending December 31,
2018.
Investing activities
Net cash used in
investing activities was $8.6 million
for the three-month period ended December
31, 2019, and $7.6 million for
the six-month period ended December 31,
2019, compared to $9.8 million
and $8.9 million respectively for the
same three and six-month periods last year. Investing
activities include additions to capital assets in both the current
and the prior comparable period.
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 $6.6
million for the quarter ended December 31, 2019, compared to $6.3 million last year; $13.3 million for the six-month period ended
December 31, 2019, compared to
$12.5 million in the prior year.
Financing activity reflects dividend payments paid to shareholders
and payment of lease liabilities resulting from the adoption of new
IFRS 16 accounting standard (please refer to the "Recent Accounting
Pronouncements" section of this MD&A).
On February 12, 2020, subsequent
to the quarter ended December 31,
2019, Corby's Board of Directors declared its regular
quarterly dividend of $0.22 per
common share, to be paid March 6,
2020, to shareholders of record as at the close of business
on February 26, 2020. The Board of
Directors decided to exercise their discretion to declare and pay a
higher quarterly dividend than otherwise required under the
dividend policy. The policy provides that, 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 .
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
|
2020 - Q2
|
|
February 12,
2020
|
|
February 26,
2020
|
|
March 6,
2020
|
|
$
0.22
|
2020 - Q1
|
|
November 6,
2019
|
|
November 22,
2019
|
|
December 6,
2019
|
|
0.22
|
2019 - Q4
|
|
August 21,
2019
|
|
September 11,
2019
|
|
September 27,
2019
|
|
0.22
|
2019 - Q3
|
|
May 8,
2019
|
|
May 24,
2019
|
|
June 14,
2019
|
|
0.22
|
2019 - Q2
|
|
February 13,
2019
|
|
February 27,
2019
|
|
March 8,
2019
|
|
0.22
|
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
|
Outstanding Share Data
As at February 12, 2020, 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
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.
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 $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. On March 28, 2019 the agreement was amended to
include Ungava Gin. The agreement is effective for a five-year
period ending June 30, 2021.
Deposits in cash management pools
Corby participates in a cash pooling arrangement under a Mirror
Netting Service Agreement, together with PR's other Canadian
affiliates, the terms of which are administered by Citibank N.A.
effective July 17, 2014. The Mirror
Netting Service Agreement acts to aggregate each participant's net
cash balance for purposes of having a centralized cash management
function for all of PR's Canadian affiliates, including Corby. As a
result of Corby's participation in this agreement, Corby's credit
risk associated with its deposits in cash management pools is
contingent upon PR's credit rating. PR's credit rating as at
February 12, 2020, as published by
Standard & Poor's and Moody's, was BBB+ and Baa1, 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 plus 0.40%. Corby accesses these funds on a daily
basis and has the contractual right to withdraw these funds or
terminate these cash management arrangements upon providing five
days' written notice.
Selected Quarterly Information
Summary of Quarterly Financial Results
|
|
|
|
|
|
|
|
|
(in millions of
Canadian dollars,
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
except per share
amounts)
|
2020
|
2020
|
2019
|
2019
|
2019
|
2019
|
2018
(1)
|
2018
(1)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
43.4
|
$
|
38.6
|
$
|
39.2
|
$
|
31.0
|
$
|
41.9
|
$
|
37.9
|
$
|
40.2
|
$
|
29.3
|
Earnings from
operations
|
10.6
|
8.7
|
10.5
|
5.9
|
9.1
|
8.7
|
12.6
|
6.5
|
Net
earnings
|
7.8
|
6.5
|
7.8
|
4.5
|
6.9
|
6.5
|
9.3
|
4.8
|
Basic EPS
|
0.28
|
0.23
|
0.27
|
0.16
|
0.24
|
0.23
|
0.33
|
0.17
|
Diluted
EPS
|
0.28
|
0.23
|
0.27
|
0.16
|
0.24
|
0.23
|
0.33
|
0.17
|
|
(1) In
preparing its comparative information, in fiscal years 2018, the
Company has adjusted amounts reported previously in the
consolidated statement of earnings as a result of the 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.
Recent Accounting Pronouncements
A number of new standards, amendments to standards and
interpretations are effective for the financial period ended
December 31, 2019, and accordingly,
have been applied in preparing the interim condensed consolidated
financial statements for the period ended December 31, 2019:
(i) Leases
In January 2016, the IASB issued a
new standard IFRS 16, "Leases" ("IFRS 16"), which replaced 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 became effective
July 1, 2019.
The guidance permits two methods of adoption: retrospectively to
each prior reporting period restated (full retrospective method),
or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application
(modified retrospective method). The Company adopted this standard
using the modified retrospective method. The Company has elected to
set the right-of-use asset equal to the lease liability on the date
of adoption. The Company has also elected not to restate prior year
comparative information under the modified retrospective approach.
Comparative information continues to be reported under IAS 17 and
related interpretations.
In applying IFRS 16 for the first time, the Company used the
following practical expedients as permitted by the standard:
- Elected to not apply the requirements of IFRS 16 to short-term
leases and leases for which the underlying asset is of low
value;
- Elected to set the right-of-use asset equal to the lease
liability on the date of adoption;
- Excluded initial direct costs for the measurement of the
right-of-use asset at the date of initial application;
Upon adoption of the standard, the Company recognized a
right-of-use asset and a lease liability for the present value of
the remaining future lease payments, discounted using the
incremental borrowing rate at the date of initial application. The
adoption of this standard resulted in the recognition of
right-of-use assets and lease liabilities of $6,333 as at July 1,
2019.
The weighted average lessee's incremental borrowing rate applied
to the lease liabilities on the date of initial application was 3%.
The Company will recognize the lease payments associated with these
leases on a straight-line basis, over the lease term.
Under IFRS 16, depreciation expense on the right-of-use asset
and interest expense on the lease liability replaced operating
lease expenses.
The reconciliation between lease liabilities recognized on
July 1, 2019 and operating lease
commitments disclosed using the weighted average incremental
borrowing rate as at the date of initial application is as
follows:
|
As
at
|
|
July 1,
2019
|
Operating lease
commitment as at June 30, 2019 as disclosed
|
|
in the Company's notes
to the consolidated financial statements
|
$
|
6,671
|
Discounted using the
incremental borrowing rate at July 1, 2019
|
6,349
|
Short-term and low
value leases excluded
|
(16)
|
Lease liabilities
recognized as at July 1, 2019
|
$
|
6,333
|
Lease liabilities due
within one year
|
$
|
1,536
|
Lease
liabilities
|
4,797
|
Total lease
liabilities
|
$
|
6,333
|
Right-of-use assets are measured at the initial amount of the
lease liabilities plus any indirect costs, lease payments made at
or before the commencement date net of lease incentives received,
and decommissioning costs. Subsequent to initial measurement, the
right-of-use assets will be measured at cost and depreciated over
the shorter of the asset's useful life and the lease term on a
straight-line basis.
Right-of-use assets are included as follows in the condensed
interim consolidated balance sheet as at December 31, 2019:
|
|
|
As
at
|
|
|
|
Dec. 31,
2019
|
|
Building
|
Other
|
Total
|
Cost
|
|
|
|
|
|
|
|
Balance, beginning of
the period
|
$
|
4,473
|
$
|
1,860
|
$
|
6,333
|
Lease
additions
|
-
|
-
|
-
|
Balance, end of the
period
|
$
|
4,473
|
$
|
1,860
|
$
|
6,333
|
|
|
|
|
Accumulated
Depreciation
|
|
|
|
Balance, beginning of
the period
|
$
|
-
|
$
|
-
|
$
|
-
|
Depreciation
|
449
|
351
|
800
|
Balance, end of the
period
|
$
|
449
|
$
|
351
|
$
|
800
|
|
|
|
|
Carrying amount as
at Dec. 31, 2019
|
$
|
4,024
|
$
|
1,509
|
$
|
5,533
|
Transactions involving lease liabilities as at and for the
period ended December 31, 2019 were
as follows:
|
As
at
|
|
Dec. 31,
2019
|
Balance, beginning
of the period
|
$
|
6,333
|
|
|
Lease
additions
|
-
|
Lease
payments
|
(863)
|
Interest expense on
lease liabilities
|
82
|
Less: Accrued
Interest on lease liabilities
|
(9)
|
Balance, end of
the period
|
$
|
5,543
|
|
|
Lease liabilities due
within one year
|
$
|
1,461
|
Lease
liabilities
|
4,082
|
Total lease
liabilities
|
$
|
5,543
|
The expenses related to leases with variable consideration,
short term leases and low value leases amounted to $140 and $59 for
the three-and six-month periods ended December 31, 2019.
(ii) 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 became
effective July 1, 2019. The new
interpretation did not have a significant impact on the Company's
interim condensed consolidated financial statements.
(iii) Financial
Instruments
The IASB issued amendments to IFRS 9 "Financial Instruments"
("IFRS 9"). The amendment addresses concerns about how IFRS 9
classified prepayable financial assets and clarifies an aspect of
accounting for financial liabilities following a modification. The
amendments are to be applied retrospectively for fiscal years
beginning on or after January 1,
2019. For Corby, this standard became effective July 1, 2019. The new amendment did not have a
significant impact on the Company's interim condensed consolidated
financial statements.
(iv) Employee Benefits
The IASB published amendments to IAS 19 "Employee Benefits"
("IAS 19"). The amendment harmonizes accounting practices to
provide more relevant information for decision-making. The
amendments are to be applied retrospectively to plan amendments,
curtailments or settlements occurring on or after January 1, 2019. For Corby, this standard became
effective July 1, 2019. The new
amendment did not have a significant impact on the Company's
interim condensed consolidated financial statements.
(v) Income Taxes
The IASB published amendments to IAS 12 "Income Taxes" ("IAS
12"). The amendment clarifies that the income tax consequences of
dividends, where transactions or events that generate distributable
profits are recognized, apply to all income tax consequences of
dividends. The amendments are to be applied retrospectively for
fiscal years beginning on or after January
1, 2019. For Corby, this standard became effective
July 1, 2019. The new amendment did
not have a significant impact on the Company's interim condensed
consolidated financial statements.
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.
Management, with the participation of the CEO and CFO, has
evaluated the effectiveness of the Company's internal controls over
financial reporting as at December 31,
2019, and has concluded that internal control over financial
reporting is designed and operating effectively to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with IFRS. Management's assessment was based
on the framework established in Internal Control – Integrated
Framework (2013), published by the Committee of Sponsoring
Organizations of the Treadway Commission.
There were no changes in internal controls 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,
including by way of acquisitions. While we believe that an
acquisition may create the opportunity to realize certain benefits,
achieving these benefits will depend in part on successfully
consolidating functions and integrating operations, procedures and
personnel in an efficient manner, as well as our ability to realize
any anticipated growth opportunities or costs savings from
combining the target's assets and operations with our existing
brands and operations. Integration efforts following any
acquisition may require the dedication of substantial management
effort, time and resources, which may divert management's focus and
resources from other strategic opportunities and from operational
matters during this process. In addition, Corby may be required to
assume greater-than-expected liabilities due to liabilities that
are undisclosed at the time of completion of an acquisition. A
failure to realize, in whole or in part, the anticipated benefits
of an acquisition may have a negative impact on the results or
financial position of Corby.
Competition
The Canadian and international beverage alcohol industry is
extremely competitive. Competitors may take actions to establish
and sustain a competitive advantage through advertising and
promotion and pricing strategies in an effort to maintain market
share, which may negatively affect our sales, revenues and
profitability. Corby constantly monitors the market and adjusts its
own advertising, promotion and pricing strategies as
appropriate.
Competitors may also affect Corby's ability to attract and
retain high-quality employees. The Company's long heritage attests
to Corby's strong foundation and successful execution of its
strategies. Its role as a leading Canadian beverage alcohol company
helps facilitate recruitment efforts.
Credit Risk
Credit risk arises from deposits in cash management pools held with
PR via Corby's participation in the Mirror Netting Service
Agreement (as previously described in the "Related Party
Transactions" section of this MD&A), as well as credit exposure
to customers, including outstanding accounts receivable. The
maximum exposure to credit risk is equal to the carrying value of
the Company's financial assets. The objective of managing
counterparty credit risk is to prevent losses in financial assets.
The Company assesses the credit quality of its counterparties,
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.
Renewal of Distribution Agreements
The 2006
Agreements and the agreement regarding Absolut vodka, both
described in the "Related Party Transactions" section of this
MD&A, expire on September 29,
2021. Commissions from the distribution agreements represent
approximately 18% of Corby's revenue. The parties continue to
operate under these agreements, as well as under the production and
administrative services agreements, which run until 2026, and are
required to negotiate in good faith regarding renewal during the
period September 29, 2020 to
March 29, 2021.
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. Certain of the aforementioned factors affecting the
determination of fair value may be impacted and, as a result, the
Company's financial results may be adversely affected.
The following table summarizes Corby's goodwill and intangible
assets and details the amounts associated with each brand (or
basket of brands) and market as at December
31, 2019:
|
|
|
|
Carrying Values as at
December 31, 2019
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
-
|
$
10.1
|
$
10.1
|
Lamb's rum
|
|
United
Kingdom(1)
|
|
1.3
|
11.8
|
13.1
|
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
|
|
|
|
|
|
|
|
|
|
|
|
$
8.7
|
$
27.6
|
$
36.3
|
(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, 2019.
CORBY SPIRIT AND WINE LIMITED
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER
31, 2019 AND 2018
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
June 30,
|
As
at
|
Notes
|
2019
|
2018
|
2019
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Deposits in cash
management pools
|
|
$
|
67,658
|
$
|
77,692
|
$
|
61,136
|
Accounts
receivable
|
4
|
31,467
|
30,738
|
32,260
|
Inventories
|
5
|
60,612
|
60,181
|
61,912
|
Prepaid
expenses
|
|
614
|
849
|
554
|
|
|
|
|
|
Total current
assets
|
|
160,351
|
169,460
|
155,862
|
Other
assets
|
|
1,654
|
2,875
|
1,498
|
Right-of-use
assets
|
2
|
5,533
|
-
|
-
|
Property, plant and
equipment
|
|
21,149
|
19,066
|
21,683
|
Goodwill
|
6
|
8,757
|
8,757
|
8,757
|
Intangible
assets
|
|
27,640
|
33,421
|
30,531
|
|
|
|
|
|
Total
assets
|
|
$
|
225,084
|
$
|
233,579
|
$
|
218,331
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable and
accrued liabilities
|
7
|
$
|
32,443
|
$
|
34,748
|
$
|
32,998
|
Income and other
taxes payable
|
|
229
|
206
|
989
|
Dividends
payable
|
|
-
|
12,526
|
-
|
Current lease
liabilities
|
2
|
1,461
|
-
|
-
|
Total current
liabilities
|
|
34,133
|
47,480
|
33,987
|
Provision for
employee benefits
|
|
12,864
|
9,209
|
13,427
|
Deferred income
taxes
|
|
2,604
|
3,423
|
1,820
|
Long-term lease
liabilities
|
2
|
4,082
|
-
|
-
|
|
|
|
|
|
Total
liabilities
|
|
53,683
|
60,112
|
49,234
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
Share
capital
|
|
14,304
|
14,304
|
14,304
|
Accumulated other
comprehensive (loss) income
|
|
(2,704)
|
914
|
(3,226)
|
Retained
earnings
|
|
159,801
|
158,249
|
158,019
|
|
|
|
|
|
Total
shareholders' equity
|
|
171,401
|
173,467
|
169,097
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
|
225,084
|
$
|
233,579
|
$
|
218,331
|
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
|
(Unaudited)
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
Notes
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
Revenue
|
8
|
$
|
43,418
|
$
|
41,865
|
$
|
82,055
|
$
|
79,748
|
|
|
|
|
|
|
Cost of
sales
|
|
(17,136)
|
(16,660)
|
(32,154)
|
(30,710)
|
Marketing, sales and
administration
|
|
(15,792)
|
(16,172)
|
(30,681)
|
(31,290)
|
Other
income
|
9
|
57
|
81
|
12
|
58
|
|
|
|
|
|
|
Earnings from
operations
|
|
10,547
|
9,114
|
19,232
|
17,806
|
|
|
|
|
|
|
Financial
income
|
10
|
355
|
406
|
711
|
771
|
Financial
expense
|
10
|
(184)
|
(105)
|
(370)
|
(231)
|
|
|
171
|
301
|
341
|
540
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
10,718
|
9,415
|
19,573
|
18,346
|
|
|
|
|
|
|
Current income
taxes
|
|
(2,663)
|
(2,431)
|
(4,668)
|
(4,550)
|
Deferred income
taxes
|
|
(207)
|
(88)
|
(597)
|
(398)
|
Income
taxes
|
|
(2,870)
|
(2,519)
|
(5,265)
|
(4,948)
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
7,848
|
$
|
6,896
|
$
|
14,308
|
$
|
13,398
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
0.28
|
$
|
0.24
|
$
|
0.50
|
$
|
0.47
|
Diluted earnings
per share
|
|
$
|
0.28
|
$
|
0.24
|
$
|
0.50
|
$
|
0.47
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
|
|
|
|
Basic
|
|
28,468,856
|
28,468,856
|
28,468,856
|
28,468,856
|
Diluted
|
|
28,468,856
|
28,468,856
|
28,468,856
|
28,468,856
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
(Unaudited)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
Net
earnings
|
$
|
7,848
|
$
|
6,896
|
$
|
14,308
|
$
|
13,398
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
Net actuarial
gains
|
355
|
293
|
710
|
586
|
Income
taxes
|
(93)
|
(79)
|
(188)
|
(158)
|
|
262
|
214
|
522
|
428
|
Total
comprehensive income
|
$
|
8,110
|
$
|
7,110
|
$
|
14,830
|
$
|
13,826
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN
|
SHAREHOLDERS'
EQUITY
|
(Unaudited)
|
(in thousands of
Canadian dollars)
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Retained
Earnings
|
Total
|
|
|
|
|
|
Balance as at June
30, 2019
|
$
|
14,304
|
$
|
(3,226)
|
$
|
158,019
|
$
|
169,097
|
Total comprehensive
income
|
-
|
522
|
14,308
|
14,830
|
Dividends
|
-
|
-
|
(12,526)
|
(12,526)
|
|
|
|
|
|
Balance as at
December 31, 2019
|
$
|
14,304
|
$
|
(2,704)
|
$
|
159,801
|
$
|
171,401
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2018
|
$
|
14,304
|
$
|
486
|
$
|
169,904
|
$
|
184,694
|
Total comprehensive
income
|
-
|
428
|
13,398
|
13,826
|
Dividends
|
-
|
-
|
(25,053)
|
(25,053)
|
|
|
|
|
|
Balance as at
December 31, 2018
|
$
|
14,304
|
$
|
914
|
$
|
158,249
|
$
|
173,467
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Six Months
Ended
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
Notes
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
7,848
|
$
|
6,896
|
$
|
14,308
|
$
|
13,398
|
Adjustments
for:
|
|
|
|
|
|
Amortization and
depreciation
|
11
|
2,650
|
2,154
|
5,285
|
4,293
|
Net financial
income
|
10
|
(171)
|
(301)
|
(341)
|
(540)
|
Loss on disposal of
property and equipment
|
|
-
|
14
|
-
|
-
|
Income tax
expense
|
|
2,870
|
2,519
|
5,265
|
4,948
|
Provision for
employee benefits
|
|
(166)
|
(356)
|
(298)
|
(1,471)
|
|
|
13,031
|
10,926
|
24,219
|
20,628
|
Net change in
non-cash working capital balances
|
12
|
4,238
|
7,784
|
1,478
|
5,589
|
Interest
received
|
|
277
|
407
|
622
|
770
|
Income taxes
paid
|
|
(2,340)
|
(3,035)
|
(5,429)
|
(5,585)
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
15,206
|
16,082
|
20,890
|
21,402
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Additions to property
and equipment
|
|
(890)
|
(1,028)
|
(1,116)
|
(1,138)
|
Proceeds from
disposition of property and equipment
|
|
55
|
-
|
55
|
-
|
Deposits in cash
management pools
|
|
(7,758)
|
(8,790)
|
(6,522)
|
(7,737)
|
|
|
|
|
|
|
Net cash used in
investing activities
|
|
(8,593)
|
(9,818)
|
(7,583)
|
(8,875)
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
Payment of lease
liabilities
|
|
(350)
|
-
|
(781)
|
-
|
Dividends
paid
|
|
(6,263)
|
(6,264)
|
(12,526)
|
(12,527)
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
(6,613)
|
(6,264)
|
(13,307)
|
(12,527)
|
|
|
|
|
|
|
Net increase in
cash
|
|
-
|
-
|
-
|
-
|
Cash, beginning of
year
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Cash, end of
year
|
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(in thousands of Canadian dollars, except per share
amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian 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 December 31,
2019.
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 2019 annual financial statements.
These interim condensed consolidated financial statements were
approved by the Company's Board of Directors on February 12, 2020.
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.
Judgement is commonly used in determining whether a balance or
transaction should be recognized in the interim condensed
consolidated financial statements, and estimates and assumptions
are more commonly used in determining the measurement of recognized
transactions and balances. However, judgement and estimates are
often interrelated.
Estimates and 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,
except for the impact of the adoption of the new and revised
standards and interpretations described below.
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
December 31, 2019, and accordingly,
have been applied in preparing these interim condensed consolidated
financial statements:
(a) Leases
In January 2016, the IASB issued a
new standard IFRS 16, "Leases" ("IFRS 16"), which replaced 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 became effective
July 1, 2019.
The guidance permits two methods of adoption: retrospectively to
each prior reporting period restated (full retrospective method),
or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application
(modified retrospective method). The Company adopted this standard
using the modified retrospective method. The Company has elected to
set the right-of-use asset equal to the lease liability on the date
of adoption. The Company has also elected to not restate prior year
comparative information under the modified retrospective approach.
Comparative information continues to be reported under IAS 17 and
related interpretations.
In applying IFRS 16 for the first time, the Company used the
following practical expedients as permitted by the standard:
- Elected to not apply the requirements of IFRS 16 to short-term
leases and leases for which the underlying asset is of low
value;
- Elected to set the right-of-use asset equal to the lease
liability on the date of adoption;
- Excluded initial direct costs for the measurement of the
right-of-use asset at the date of initial application;
Upon adoption of the standard, the Company recognized a
right-of-use asset and a lease liability for the present value of
the remaining future lease payments, discounted using the
incremental borrowing rate at the date of initial application. The
adoption of this standard resulted in the recognition of
right-of-use assets and lease liabilities of $6,333 as at July 1,
2019.
The weighted average lessee's incremental borrowing rate applied
to the lease liabilities on the date of initial application was 3%.
The Company will recognize the lease payments associated with these
leases on a straight-line basis, over the lease term.
Under IFRS 16, depreciation expense on the right-of-use asset
and interest expense on the lease liability replaced operating
lease expenses.
The reconciliation between lease liabilities recognized on
July 1, 2019 and operating lease
commitments disclosed using the weighted average incremental
borrowing rate as at the date of initial application is as
follows:
|
As
at
|
|
July 1,
2019
|
Operating lease
commitment as at June 30, 2019 as disclosed
|
|
in the Company's notes
to the consolidated financial statements
|
$
|
6,671
|
|
|
Discounted using the
incremental borrowing rate at July 1, 2019
|
6,349
|
Short-term and low
value leases excluded
|
(16)
|
|
|
Lease liabilities
recognized as at July 1, 2019
|
$
|
6,333
|
|
|
Lease liabilities due
within one year
|
$
|
1,536
|
Lease
liabilities
|
4,797
|
Total lease
liabilities
|
$
|
6,333
|
Right-of-use assets are measured at the initial amount of the
lease liabilities plus any indirect costs, lease payments made at
or before the commencement date net of lease incentives received,
and decommissioning costs. Subsequent to initial measurement, the
right-of-use assets will be measured at cost and depreciated over
the shorter of the asset's useful life and the lease term on a
straight-line basis.
Right-of-use assets are included as follows in the interim
condensed consolidated balance sheet as at December 31, 2019:
|
|
|
As
at
|
|
|
|
Dec. 31,
2019
|
|
Building
|
Other
|
Total
|
Cost
|
|
|
|
|
|
|
|
Balance, beginning of
the period
|
$
|
4,473
|
$
|
1,860
|
$
|
6,333
|
Lease
additions
|
-
|
-
|
-
|
Balance, end of the
period
|
$
|
4,473
|
$
|
1,860
|
$
|
6,333
|
|
|
|
|
Accumulated
Depreciation
|
|
|
|
|
|
|
|
Balance, beginning of
the period
|
$
|
-
|
$
|
-
|
$
|
-
|
Depreciation
|
449
|
351
|
800
|
Balance, end of the
period
|
$
|
449
|
$
|
351
|
$
|
800
|
|
|
|
|
Carrying amount as
at Dec. 31, 2019
|
$
|
4,024
|
$
|
1,509
|
$
|
5,533
|
Transactions involving lease liabilities as at and for the
period ended December 31, 2019 were
as follows:
|
As
at
|
|
Dec. 31,
2019
|
Balance, beginning
of the period
|
$
|
6,333
|
|
|
|
Lease
additions
|
|
-
|
Lease
payments
|
|
(863)
|
Interest expense on
lease liabilities
|
|
82
|
Less: Accrued
Interest on lease liabilities
|
|
(9)
|
Balance, end of
the period
|
$
|
5,543
|
|
|
|
Lease liabilities due
within one year
|
$
|
1,461
|
Lease
liabilities
|
|
4,082
|
Total lease
liabilities
|
$
|
5,543
|
The expenses related to leases with variable consideration,
short term leases and low value leases amounted to $140 and $59 for
the three and six month periods ended December 31, 2019.
(b) 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 became
effective July 1, 2019. The new
interpretation did not have a significant impact on the Company's
interim condensed consolidated financial statements.
(c) Financial Instruments
The IASB issued amendments to IFRS 9 "Financial Instruments"
("IFRS 9"). The amendment addresses concerns about how IFRS 9
classified prepayable financial assets and clarifies an aspect of
accounting for financial liabilities following a modification. The
amendments are to be applied retrospectively for fiscal years
beginning on or after January 1,
2019. For Corby, this standard became effective July 1, 2019. The new amendment did not have a
significant impact on the Company's interim condensed consolidated
financial statements.
(d) Employee Benefits
The IASB published amendments to IAS 19 "Employee Benefits"
("IAS 19"). The amendment harmonizes accounting practices to
provide more relevant information for decision-making. The
amendments are to be applied retrospectively to plan amendments,
curtailments or settlements occurring on or after January 1, 2019. For Corby, this standard became
effective July 1, 2019. The new
amendment did not have a significant impact on the Company's
interim condensed consolidated financial statements.
(e) Income Taxes
The IASB published amendments to IAS 12 "Income Taxes" ("IAS
12"). The amendment clarifies that the income tax consequences of
dividends, where transactions or events that generate distributable
profits are recognized, apply to all income tax consequences of
dividends. The amendments are to be applied retrospectively for
fiscal years beginning on or after January
1, 2019. For Corby, this standard became effective
July 1, 2019. The new amendment did
not have a significant impact on the Company's interim condensed
consolidated financial statements.
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, accounts receivable, accounts
payable and accrued liabilities, and dividends payable), 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
|
Dec.
31
|
Dec. 31
|
June 30,
|
|
2019
|
2018
|
2019
|
|
|
|
|
Trade
receivables
|
$
|
16,617
|
$
|
16,041
|
$
|
18,359
|
Due from related
parties
|
13,134
|
13,101
|
10,993
|
Other
|
1,716
|
1,596
|
2,908
|
|
|
|
|
|
$
|
31,467
|
$
|
30,738
|
$
|
32,260
|
5. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
June 30,
|
|
|
|
|
|
|
2019
|
2018
|
2019
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
|
|
$
3,554
|
$
3,434
|
$
3,223
|
Work-in-progress
|
|
|
|
|
48,332
|
46,921
|
49,180
|
Finished
goods
|
|
|
|
|
8,726
|
9,826
|
9,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
60,612
|
$
60,181
|
$
61,912
|
The cost of inventory recognized as an expense and included in
cost of goods sold during the three and six month periods ended
December 31, 2019 were $14,923 and $28,917
(2018 – $14,018 and $26,652). During the three and six month periods
ended December 31, 2019 there were
write-downs of $75 (2018 - $nil) on
inventory as a result of net realizable value being lower than
cost. No inventory write-downs recognized in previous years were
reversed.
6. GOODWILL
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
June 30,
|
|
|
|
|
|
|
2019
|
2018
|
2019
|
|
|
|
|
|
|
|
|
|
Goodwill,
beginning of period
|
|
|
|
$
8,757
|
$
8,757
|
$
8,757
|
Impact of
acquisitions during the period
|
|
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Goodwill, end of
period
|
|
|
|
|
$
8,757
|
$
8,757
|
$
8,757
|
There have been no impairment losses recognized with respect to
goodwill during the three and six month periods ended December 31, 2019 (2018 - $nil).
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
June 30,
|
|
|
|
|
|
|
2019
|
2018
|
2019
|
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
|
|
$
22,545
|
$
23,881
|
$
23,199
|
Due from related
parties
|
|
|
|
|
8,909
|
9,919
|
7,214
|
Other
|
|
|
|
|
989
|
948
|
2,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
32,443
|
$
34,748
|
$
32,998
|
8. REVENUE
The Company's revenue consists of the following streams:
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Case goods
sales
|
|
|
|
$
33,839
|
$
33,546
|
$
64,933
|
$
63,542
|
Commissions (net of
amortization of representation rights)
|
8,352
|
7,522
|
14,767
|
14,522
|
Other
services
|
|
|
|
1,227
|
797
|
2,355
|
1,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
43,418
|
$
41,865
|
$
82,055
|
$
79,748
|
Commissions for the three and six month periods are shown net of
amortization of long-term representation rights of $1,445 and $2,890
(2018 - $1,445 and $2,890). Other services include revenues
incidental to the manufacture of Case Goods, such as logistics
fees, miscellaneous bulk spirit sales, and on-premise spirit and
merchandise sales.
9. OTHER INCOME
The Company's other income (expense) consists of the following
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
(loss)
|
|
|
$
6
|
$
59
|
$
(31)
|
$
34
|
Loss on disposal of
property and equipment
|
|
-
|
(14)
|
-
|
-
|
Other
income
|
|
|
|
51
|
36
|
43
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
57
|
$
81
|
$
12
|
$
58
|
10. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
$
355
|
$
406
|
$
711
|
$
771
|
Interest expense on
lease liabilities
|
|
|
|
|
(40)
|
-
|
(82)
|
-
|
Net financial impact
of pensions
|
|
|
(144)
|
(105)
|
(288)
|
(231)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
171
|
$
301
|
$
341
|
$
540
|
11. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses, as follows:
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
$
805
|
$
709
|
$
1,595
|
$
1,403
|
Depreciation of
right-of-use assets
|
|
|
400
|
-
|
800
|
-
|
Amortization of
intangible assets
|
|
|
1,445
|
1,445
|
2,890
|
2,890
|
Salary and payroll
costs
|
|
|
|
6,235
|
6,364
|
12,837
|
12,637
|
Expenses related to
pensions and benefits
|
|
330
|
378
|
660
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
9,215
|
$
8,896
|
$
18,782
|
$
17,637
|
12. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
|
Three
months ended
|
Six months
ended
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
$
(1,553)
|
$
(205)
|
$
793
|
$
2,731
|
Inventories
|
|
|
|
3,139
|
1,571
|
1,300
|
(392)
|
Prepaid
expenses
|
|
|
|
197
|
(204)
|
(60)
|
(256)
|
Accounts payable and
accrued liabilities
|
|
2,455
|
6,622
|
(555)
|
3,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
4,238
|
$
7,784
|
$
1,478
|
$
5,589
|
13. DIVIDENDS
On February 12, 2020 subsequent to
the quarter ended December 31, 2019,
the Board of Directors declared its regular quarterly dividend of
$0.22 per common share, to be paid on
March 6, 2020, to shareholders of
record as at the close of business on February 26, 2020. This dividend is in accordance
with the Company's dividend policy.
14. RELATED PARTY TRANSACTIONS
Transactions with parent, ultimate parent, and
affiliates
The majority of Corby's issued and outstanding voting Class A
shares are owned by HWSL. HWSL is a wholly-owned subsidiary of PR.
Therefore, HWSL is Corby's parent and PR is Corby's ultimate
parent. Affiliated companies are subsidiaries, which are controlled
by Corby's parent and/or ultimate parent.
The companies operate under the terms of agreements that became
effective on September 29, 2006.
These agreements provide the Company with the exclusive right to
represent PR's brands in the Canadian market for 15 years, as well
as providing for the continuing production of certain Corby brands
by PR at its production facility in Windsor, Ontario, for 10 years. Corby also
manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
North American entities, as approved by Corby's Board of Directors.
In 2015, the production and administrative agreements were each
renewed for a further ten year term, commencing October 2016.
In addition to the aforementioned agreements, Corby signed an
agreement on September 26, 2008, with
its ultimate parent to be the exclusive Canadian representative for
the ABSOLUT vodka and Plymouth gin
brands, for a five-year term, which expired October 1, 2013 and was extended as noted below.
These brands were acquired by PR subsequent to the original
representation rights agreement dated September 29, 2006.
On November 9, 2011, Corby entered
into an agreement with a PR affiliate for a new term for Corby's
exclusive right to represent ABSOLUT vodka in Canada from September
30, 2013 to September 29,
2021, which is consistent with the term of Corby's Canadian
representation of the other PR brands in Corby's portfolio. On
September 30, 2013, Corby paid
$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
|
Six months
ended
|
|
|
|
|
|
Dec.
31
|
Dec. 31
|
Dec.
31
|
Dec. 31
|
|
|
|
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
$
9,341
|
$
8,410
|
$
16,729
|
$
16,285
|
Products for resale
at an export level - affiliated companies
|
1,498
|
1,381
|
3,120
|
2,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
10,839
|
$
9,791
|
$
19,849
|
$
18,730
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
Distilling, blending,
and production services - parent
|
|
$
4,634
|
$
5,899
|
$
10,375
|
$
11,935
|
|
|
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
Marketing, selling
and administration services - parent
|
$
707
|
$
523
|
$
1,415
|
$
1,046
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
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
February 12, 2020, as published by
Standard & Poor's and Moody's, was BBB+ and Baa1, 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 and six months ended December 31, 2019, Corby earned interest income
of $375 and $752 from PR (2018 – $427 and $811).
Corby has the right to terminate its participation in the Mirror
Netting Service Agreement at any time, subject to five days'
written notice.
15. 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 8 of the interim condensed consolidated
financial statements. Therefore, a table detailing operational
results by segment has not been provided as no additional
meaningful information would result.
SOURCE Corby Spirit and Wine Limited