TORONTO, May 13, 2020 /CNW/ - Corby Spirit and Wine
Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today
reported its financial results for the third quarter ended
March 31, 2020. The Corby Board of
Directors today also declared a dividend of $0.20 per share payable on June 12, 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 May
27, 2020.
"Notwithstanding the strong results to date, we face into a
period of unprecedented uncertainty and volatility," said
George McCarthy, Chairman of the
Corby Board of Directors, "and in such circumstances the Board
feels it appropriate to exercise prudence and to moderate the
dividend compared to the previous quarters."
Net earnings of $5.2 million (or
$0.18 per share) were reported for
the three-month period ended March 31,
2020, reflecting an increase of 15%, $0.7 million (or $0.02 per share) when compared to the same
quarter in the prior year. Revenue for the third quarter increased
7%, reflecting strong third quarter Corby-owned brands sales
partially resulting from COVID-19 related shifts in consumer
purchasing trends.
On a year to date basis, net earnings of $19.5 million (or $0.68 per share) reflect an increase of 9%, or
$1.6 million for the nine month
period ended March 31, 2020, when
compared to the same period last year. Revenue for the nine-month
period ended March 31, 2020 grew 4%
driven by key Corby-owned brands and premium innovations which
continued to perform well in market, demonstrating the robustness
of our strategies and of our business model.
"The COVID-19 pandemic has had an unprecedented impact on
Canadians and in our communities. Our teams have risen to the
unparalleled challenge of delivering our business priorities while
balancing family obligations and concern for the well being of
loved ones. Our strong results for the fiscal year to date
remains a testament of those focused efforts to ensure that our
brands continue to drive strong top-line growth. In addition to
these results, I am proud of the resilience that our employees have
shown in these extraordinary times and how they have adapted
seamlessly to working in a virtual environment. Beyond the business
results, they have also organized the production and donation of
thousands of litres of hand sanitizer to heroes on the front-line
and rallied support for the hard-hit hospitality industry," noted
Patrick O'Driscoll, President and
Chief Executive Officer of Corby.
For further details, please refer to Corby's management's
discussion and analysis and interim condensed consolidated
financial statements and accompanying notes for the
three-and-nine-months ended March 31,
2020, 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
March 31,
2020
The following Management's Discussion and Analysis ("MD&A")
dated May 13, 2020 should be read in
conjunction with the interim condensed consolidated financial
statements and accompanying notes as at and for the three and
nine-month period ended March 31,
2020, prepared in accordance with International Financial
Reporting Standards ("IFRS"). These interim condensed consolidated
financial statements were not audited or reviewed by the Company's
external auditors in accordance with standards established by the
Canadian Institute of Chartered Accountants for a review of
unaudited interim financial statements by an entity's auditor.
These unaudited interim condensed financial statements do not
contain all disclosures required by IFRS for annual financial
statements and, accordingly, should also be read in conjunction
with the most recently prepared annual consolidated financial
statements for the year ended June 30,
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 the COVID-19 pandemic; the impact of
competition; the impact, and successful integration of,
acquisitions; business interruption; trademark infringement;
consumer confidence and spending preferences; regulatory changes;
general economic conditions; and the Company's ability to attract
and retain qualified employees. There can be no assurance that
forward-looking statements will prove to be accurate, as actual
results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements. These factors
are not intended to represent a complete list of the factors that
could affect the Company and other factors could also affect
Corby's results. For more information, please see the "Risk and
Risk Management" section of this MD&A.
This document has been reviewed by the Audit Committee of
Corby's Board of Directors and contains certain information that is
current as of May 13, 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
third quarter of fiscal 2020 (three months ended March 31, 2020) are against results for the third
quarter of fiscal 2019 (three months ended March 31, 2019). 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, the
parties provide certain services to each other and, until
June 30, 2020, Corby manages some of
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
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.
Outlook
In March 2020, the World Health
Organization declared the outbreak of a novel coronavirus disease
COVID-19 as a pandemic. In Canada,
the pandemic has resulted in country-wide government restrictions
and regional closures of non-essential businesses until further
notice including restaurants, bars and other on-premise
establishments. The liquor boards and retail stores in most
provinces have remained open, albeit with supplier and customer
restrictions.
The business is showing good resilience through the crisis. As a
manufacturer and distributor of alcoholic beverages, Corby is
deemed to be an essential business in Canada. Nonetheless, the health and safety of
our employees and business partners remains the key priority and we
have limited the scope of our operations and where possible,
employees are telecommuting from their homes. As well, in
conjunction with liquor board social distancing measures and
limitations on in-store activities, our commercial team presence
has decreased in retail stores, but has adapted their methodology
to connect virtually.
To help ease the impact of the crisis for our communities and
business partners, Corby, together with HWSL, extended help through
production and coordination of hand sanitizer donations (and
materials for production of hand sanitizer) and is providing
support to our suppliers and to our on-premise partners.
At the end of the current quarter, the financial results have
not been negatively impacted by the COVID-19 pandemic. As the
pandemic continues to evolve, its full duration and impact on the
Company's liquidity and the financial position for the full fiscal
year is yet unknown and cannot be reasonably estimated at this
time. Corby has already taken, and will continue to take, action to
mitigate the effects of the COVID-19 pandemic on its day-to-day
business operations with the best interests of its employees,
customers and business partners at the center. A comprehensive cost
mitigation program is being implemented, together with active
management of our financial position. Ways of working have adapted
for containment measures, so that supply chains remain broadly
operational.
As this is a developing matter, management continues to monitor
the situation closely as the external political, economic, and
social developments evolve, and our business and industry is
impacted.
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
|
|
Nine Months
Ended
|
|
|
|
Shipment
Change
|
|
|
|
Shipment
Change
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2020
|
2019
|
%
|
%
|
|
2020
|
2019
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
181
|
176
|
3%
|
4%
|
|
637
|
626
|
2%
|
1%
|
Polar Ice
vodka
|
85
|
81
|
5%
|
10%
|
|
277
|
264
|
5%
|
5%
|
Lamb's rum
|
87
|
74
|
17%
|
19%
|
|
320
|
291
|
10%
|
7%
|
Mixable
liqueurs
|
28
|
25
|
11%
|
16%
|
|
115
|
116
|
(0%)
|
1%
|
Ungava Spirits
Brands
|
32
|
34
|
(5%)
|
(6%)
|
|
112
|
100
|
11%
|
15%
|
Other Corby-owned
brands(1)
|
49
|
49
|
0%
|
5%
|
|
161
|
161
|
0%
|
(2%)
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
462
|
439
|
5%
|
7%
|
|
1,622
|
1,558
|
4%
|
4%
|
(1) For presentation purposes,
Foreign Affair Winery has been grouped with other Corby-owned
brands as full comparable periods have been
attained.
|
In the nine-month period ended March 31,
2020, Corby's owned-brands experienced strong 4% shipment
volume and value growth compared to the same period last year and
5% growth in volume and 7% growth in value compared to the three
months ended March 31, 2019. Revenue
was driven by the performance of Ungava Spirits brands, Polar Ice,
J.P. Wiser's and Lamb's rum in domestic and export markets as well
as strategic price management, partially offset as we lap timing of
prior year Ungava Spirits innovation launches.
Trends in Canada differ from
international markets as highlighted in the following table:
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
|
Shipment
Change
|
|
|
|
Shipment
Change
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2020
|
2019
|
%
|
%
|
|
2020
|
2019
|
%
|
%
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
419
|
398
|
5%
|
9%
|
|
1,464
|
1,415
|
3%
|
4%
|
International
|
43
|
42
|
2%
|
(16%)
|
|
158
|
143
|
11%
|
(2%)
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
462
|
439
|
5%
|
7%
|
|
1,622
|
1,558
|
4%
|
4%
|
Fiscal year to date domestic shipments grew 3% in volume and 4%
in value compared to the same time last year. Third quarter
domestic shipments grew 5% in volume and 9% in value. Late March
shipments related to COVID-19 pandemic-influenced consumer pantry
loading helped boost performance for both the quarter and the
fiscal year to date. Performance on J.P. Wiser's Deluxe and
Wiser's Special Blend delivered strong year over year growth, while
Polar Ice responded well to tactical regional strategies. The
Ungava Spirits Brands quarter results were impacted by the
exploration of the grocery wine opportunity in Quebec in the prior year. See "Retail
Sales Performance/ Summary of Corby's Key Brands" below for
additional information.
On international performance, third quarter shipment volumes
improved 2%, while shipment value declined 16% compared to the same
period last year. Value was highly impacted by changes in product
and market mix while improvement in volume was driven by new Lamb's
rum opportunities in the UK market, a decrease in shipments to the
US resulted as the export business lapped prior year pipeline
shipments to the US market. For the nine months ended March 31, 2020, shipment volumes improved 11% on
a year over year comparable basis, while value declined 2% 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.
The COVID-19 pandemic resulted in a change in consumption
behaviors as on-premise channels (restaurants and bars) closed as a
result of social distancing measures. Consumption shifted to more
at-home occasions, with less frequent in-store purchases. Instead,
consumers have increased their purchases of familiar brands, large
formats and have increased their basket sizes. E-commerce channels,
ability to purchase on-line, and click-and-collect vary across the
different provincial regions. Through our J.P. Wiser's and Foreign
Affair Winery brand homes, Corby is able to provide e-commerce
purchasing to consumers as permitted by applicable legislation.
The Canadian spirits industry exhibited third quarter retail
sales volume growth of 11%, while retail sales value improved 12%.
Quarter retail sales were highly impacted by these changes in
consumer purchase patterns as a spike in sales related to pantry
loading occurred in the early weeks of social distancing measures
amidst uncertainties regarding business closures. For the
nine months ended March 31, 2020,
retail sales volumes grew 5% compared to the prior year, while
retail sales value grew 7%. Industry trends were led by retail
sales volume and value growth in the gin, tequila, Irish whiskey,
and bourbon categories.
In the nine-month period ended March 31,
2020, the vodka category grew 6% in retail volume and 7% in
retail value. Canadian whisky category volumes grew 3% in volume
and 5% in value. The rum category rebounded with 2% volume growth
and 3% value growth. Gin increased volumes by 15% and value by 20%
and is of growing importance to the Corby portfolio.
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
|
|
Nine Months
Ended
|
|
Twelve Months
Ended
|
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
|
|
%
Retail
|
%
Retail
|
|
|
Mar
31,
|
Mar
31,
|
Volume
|
Value
|
|
Mar
31,
|
Mar
31,
|
Volume
|
Value
|
|
Mar
31,
|
Mar
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
|
2020
|
2019
|
Growth
|
Growth
|
|
2020
|
2019
|
Growth
|
Growth
|
|
2020
|
2019
|
Growth
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Wiser's Canadian
whisky
|
|
174
|
156
|
12%
|
14%
|
|
594
|
574
|
4%
|
6%
|
|
768
|
742
|
4%
|
6%
|
Polar Ice
vodka
|
|
81
|
77
|
4%
|
7%
|
|
279
|
270
|
3%
|
5%
|
|
365
|
354
|
3%
|
5%
|
Lamb's rum
|
|
67
|
62
|
7%
|
8%
|
|
233
|
239
|
(3%)
|
(1%)
|
|
306
|
315
|
(3%)
|
(2%)
|
Mixable
liqueurs
|
|
27
|
27
|
(2%)
|
0%
|
|
117
|
120
|
(3%)
|
(0%)
|
|
151
|
156
|
(3%)
|
(1%)
|
Ungava Spirits
Brands
|
|
27
|
21
|
25%
|
25%
|
|
107
|
87
|
22%
|
23%
|
|
130
|
108
|
21%
|
21%
|
Other Corby-owned
brands (2)
|
|
46
|
46
|
0%
|
4%
|
|
150
|
148
|
2%
|
2%
|
|
196
|
193
|
2%
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
421
|
390
|
8%
|
11%
|
|
1,479
|
1,438
|
3%
|
5%
|
|
1,916
|
1,868
|
3%
|
5%
|
(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 5% in the
nine months ended March 31, 2020,
while retail value (excluding Special Blend) grew 7% compared to
the same period last year. Retail sales volumes for the Canadian
whisky category grew 3%, while retail value for the category
improved 5% over the same period, driven in part by COVID-19
pandemic-influenced purchasing behaviour.
The introduction of a new bottle design in Q3 represents the
culmination of the J.P. Wiser's packaging restage evolution that
began in 2017. The modern and more premium bottle shape and label
redesign elevates the brand and creates improved shelf impact.
Within the J. P. Wiser's premium range, organic growth in both
retail volume and value was posted by J.P. Wiser's Deluxe and J.P.
Wiser's ready-to-pour Old Fashioned and Manhattan cocktails. 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.
The brand launched #CheersAcrossCanada across social media
platforms during the COVID-19 pandemic and has partnered with
Hiram Walker in its production and
donation of hand sanitizers to front line health care workers and
the Toronto Transit Commission. As well, the "Drinks Soon?"
campaign continues to reach across a range of media
channels.
The brand continues to receive prestigious accolades that speak
to its quality; J.P. Wiser's 23-Year-Old Cask Strength Blend was
awarded Best Canadian Blended Limited Release Whisky, J.P.
Wiser's 18-Year-Old was awarded Best Canadian Corn Whisky
and Darryl Sittler Alumni Whisky Series was awarded World's Best
Canadian Blended Whisky at the 2020 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.
Corby 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 enhanced
packaging, an award-winning media campaign and premium innovations.
Wiser's Special Blend retail volumes improved 2%, with 4% retail
value growth in the nine-month comparable period ended March 31, 2020.
Polar Ice Vodka
Polar Ice vodka is among the
top-selling vodka brands in Canada. Retail volume grew 3% and value grew
5% in the nine-month period ended March 31,
2020. The overall vodka category in Canada grew 6% in retail volume and 7% in
value on a comparable basis driven by the premium and flavoured
vodka segment. The standard vodka category, where Polar Ice Vodka
competes, improved 3% in retail volume and 4% 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 rebounded as a result of COVID-19
pandemic-influenced purchasing with growth of 2% for the nine
months ended March 31, 2020, while
retail values improved 3% compared to the same period last year
driven by the premium rum segment. The economy rum category,
however, declined 1% in retail volumes and was flat in value.
Lamb's performance improved, but still experienced a 3% decline in
retail volumes and a 1% 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 nine months ended March 31, 2020, while retail value remained flat.
The liqueurs category grew 3% in retail value and 5% in retail
volume for the nine months ended March 31,
2020 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 23% in value, for
the nine months ended March 31, 2020.
The flagship brand, Ungava gin, grew 20% in retail volume and 21%
in retail value, outperforming the Canadian gin category, which
grew 15% in retail volume while retail value grew 20%. 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 22% in
the current fiscal year while retail value grew 23%. Cabot Trail is
benefitting from increased consumer interest in coffee and cream
liqueurs during COVID-19 pandemic social distancing.
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 nine months ended March 31,
2020, declining 6% in retail volume and 5% 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. In
addition, at the 2020 World Whiskies Awards, Lot No. 40 Cask
Strength: Third Edition won World's Best Canadian Rye
Whisky.
Royal Reserve® grew 3% in both retail volume and
value during the nine months ended March 31,
2020 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
nine-month periods ended March 31,
2020 and 2019.
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in millions of
Canadian dollars,
|
Mar.
31,
|
Mar.
31,
|
|
|
|
Mar.
31,
|
Mar.
31,
|
|
|
except per share
amounts)
|
2020
|
2019
|
$
Change
|
%
Change
|
|
2020
|
2019
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
33.1
|
$
|
31.0
|
$
|
2.1
|
7%
|
|
$
|
115.1
|
$
|
110.7
|
$
|
4.4
|
4%
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(13.2)
|
(12.3)
|
(0.9)
|
7%
|
|
(45.4)
|
(43.0)
|
(2.3)
|
5%
|
Marketing, sales and
administration
|
(13.1)
|
(12.7)
|
(0.5)
|
4%
|
|
(43.8)
|
(44.0)
|
0.2
|
(0%)
|
Other income
(expense)
|
0.1
|
-
|
0.1
|
(1,537%)
|
|
0.2
|
-
|
0.2
|
225%
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
6.9
|
5.9
|
0.9
|
19%
|
|
26.1
|
23.7
|
2.4
|
10%
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
0.4
|
0.4
|
-
|
3%
|
|
1.1
|
1.1
|
(0.1)
|
(6%)
|
Financial
expenses
|
(0.2)
|
(0.1)
|
(0.1)
|
48%
|
|
(0.6)
|
(0.4)
|
(0.2)
|
56%
|
Net financial
income
|
0.2
|
0.2
|
(0.1)
|
(29%)
|
|
0.5
|
0.8
|
(0.3)
|
(34%)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
7.1
|
6.2
|
0.9
|
14%
|
|
26.6
|
24.5
|
2.2
|
9%
|
Income
taxes
|
(1.9)
|
(1.7)
|
(0.2)
|
12%
|
|
(7.2)
|
(6.7)
|
(0.5)
|
8%
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
5.2
|
$
|
4.5
|
$
|
0.7
|
15%
|
|
$
|
19.5
|
$
|
17.9
|
$
|
1.6
|
9%
|
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
$
|
0.18
|
$
|
0.16
|
$
|
0.02
|
15%
|
|
$
|
0.68
|
$
|
0.63
|
$
|
0.06
|
9%
|
- Diluted net
earnings
|
$
|
0.18
|
$
|
0.16
|
$
|
0.02
|
15%
|
|
$
|
0.68
|
$
|
0.63
|
$
|
0.06
|
9%
|
Overall Financial Results
Net earnings grew
$0.7 million or 15%, and increased
$1.6 million and 9%, respectively for
the three and nine months ended March 31,
2020. Robust case good performance in the domestic market,
reprioritization of key brand marketing and sales promotional
activities and improved PR commission revenue 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
|
|
Nine Months
Ended
|
|
Mar.
31,
|
Mar.
31,
|
|
|
|
Mar.
31,
|
Mar.
31,
|
|
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
$
Change
|
%
Change
|
|
2020
|
2019
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
Case
goods
|
$
|
26.4
|
$
|
24.7
|
$
|
1.7
|
7%
|
|
$
|
91.3
|
$
|
88.2
|
$
|
3.1
|
4%
|
Commissions
|
5.8
|
5.6
|
0.1
|
2%
|
|
20.5
|
20.2
|
0.4
|
2%
|
Other
services
|
0.9
|
0.7
|
0.2
|
44%
|
|
3.3
|
2.3
|
1.0
|
41%
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
33.1
|
$
|
31.0
|
$
|
2.1
|
7%
|
|
$
|
115.1
|
$
|
110.7
|
$
|
4.4
|
4%
|
Case Goods revenue increased $1.7
million, or 7% and increased $3.1
million, or 4%, respectively, for the three and nine-month
periods ended March 31, 2020, when
compared to the same period last year. Growth during the nine-month
period was attributable to strong shipments resulting from LB
orders, UK market performance, premium innovations, and robust
performance of Ungava Spirits Brands. Late March shipments due to
LB replenishment of COVID-19 pandemic related consumer depletions
boosted Case Goods performance.
Commissions increased $0.1
million, or 2% and $0.4
million, or 2%, respectively, for the three and nine-month
period ended March 31, 2020. PR
Spirits continued to perform well in the third quarter and helped
to mitigate softness in the PR and agency wine portfolios from
earlier industry-wide softness in wine consumption. While
depletions of PR brands increased as a result of COVID-19
pandemic-influenced pantry loading, this was sourced from LB
existing inventory and therefore, did not drive additional
commission income in the third quarter. 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
nine-month periods ended March 31,
2020 and are attributable to bulk whisky sales.
Cost of sales
Cost of sales was $13.2 million, an increase of $0.9 million, or 7% 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 case goods costs have increased
1.6%. Cost increases have been partially offset by price
initiatives and adjustments and the launch of premium innovation
resulting in overall gross margin of 52%; an increase compared to
51% in the same period last year (note: Commissions are not
included in this calculation).
Cost of sales increased by $2.3
million, or 5%, for the nine-month period ended March 31, 2020 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 have increased
0.5%. Overall gross margin was 52%, flat compared to the same
period last year (note: Commissions are not included in this
calculation).
Marketing, sales and administration
Marketing,
sales and administration expenses increased $0.5 million, or 4% for the quarter ended
March 31, 2020. For the nine-month
period ended March 31, 2020,
marketing, sales and administration expenses decreased $0.2 million. 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. Overhead expenses, though
well-controlled, increased as a result of inflation, one-time
employee costs, and pre-COVID-19 pandemic travel and meeting
expenses.
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 nine-month period ended March 31,
2020 is consistent compared to the same period in the prior
year.
The Company adopted IFRS 16, "Leases" ("IFRS 16") on
July 1, 2019. Consequently,
$0.2 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
|
|
Nine Months
Ended
|
|
|
Mar.
31,
|
Mar.
31,
|
|
Mar.
31,
|
Mar.
31,
|
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
27%
|
27%
|
|
27%
|
27%
|
Other
|
|
0%
|
0%
|
|
0%
|
0%
|
|
|
|
|
|
|
|
Effective tax
rate
|
27%
|
27%
|
|
27%
|
27%
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $64.7 million as at
March 31, 2020, 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
$31.8 million as at March 31, 2020 and are all due to be paid within
one year. In addition, the Company has long-term lease liabilities
of $3.9 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
|
|
Nine Months
Ended
|
|
Mar.
31,
|
Mar.
31,
|
|
|
Mar.
31,
|
Mar.
31,
|
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
$
Change
|
|
2020
|
2019
|
$
Change
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net earnings, adjusted
for non-cash items
|
$
|
9.6
|
$
|
7.7
|
$
|
1.9
|
|
$
|
33.8
|
$
|
28.3
|
$
|
5.5
|
Net change in non-cash
working capital
|
(4.7)
|
(2.8)
|
(1.9)
|
|
(3.2)
|
2.8
|
(6.0)
|
Net payments for
interest and income taxes
|
(0.8)
|
(1.2)
|
0.4
|
|
(5.6)
|
(6.0)
|
0.4
|
|
4.1
|
3.7
|
0.4
|
|
25.0
|
25.1
|
(0.1)
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
(0.6)
|
(1.6)
|
1.0
|
|
(1.7)
|
(2.8)
|
1.1
|
Proceeds from
disposition of tangible assets
|
-
|
-
|
-
|
|
0.1
|
-
|
-
|
Proceeds from
disposition of Intangible assets
|
0.2
|
-
|
0.2
|
|
0.2
|
-
|
0.2
|
Deposits in cash
management pools
|
3.0
|
16.7
|
(13.7)
|
|
(3.6)
|
8.9
|
(12.5)
|
|
2.6
|
15.1
|
(12.5)
|
|
(5.0)
|
6.2
|
(11.2)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Payment of lease
liabilities
|
(0.4)
|
-
|
(0.4)
|
|
(1.2)
|
-
|
(1.2)
|
Dividends
paid
|
(6.3)
|
(18.8)
|
12.5
|
|
(18.8)
|
(31.3)
|
12.5
|
|
(6.7)
|
(18.8)
|
12.1
|
|
(20.0)
|
(31.3)
|
11.3
|
|
|
|
|
|
|
|
|
Net change in
cash
|
$
|
-
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
|
Operating activities
Net cash generated from
operating activities was $4.1 million
during the quarter ended March 31,
2020 compared to $3.7 million
last year, representing an increase of $0.4
million; driven by decreased pension plan payments and
deferral of income tax installments as allowed under COVID-19
pandemic-related government relief measures ($0.7 million), partially offset by timing of
customer collections and vendor payments. The Company adopted IFRS
16 without restatement of prior year figures. As a result, in the
current year $0.4 million in cash
payments related to lease obligations are presented 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). Adjusted for
the deferral of income tax installments and the impact of
reclassification of lease payments under IFRS 16, cash flows from
operating activities would have been $3.0
million, or a decrease of $0.7
million compared to the same quarter last year.
For the nine-month period ended March 31,
2020, net cash from operating activities was $25.0 million, reflecting a decrease of
$0.1 million compared to the same
nine-month period last year; impacted by timing of customer
collections and vendor payments, partially offset by decreased
pension plan payments and deferral of income tax installments. With
the adoption of IFRS 16, as mentioned above, $1.2 million in cash payments related to lease
obligations are now included in financing activities in the current
year. These payments were included in operating activities in the
comparative period ending March 31,
2019. Adjusted for the deferral of income tax installments
and the impact of the reclassification of lease payments under IFRS
16, cash flows from operating activities would have been
$23.1 million, or a decrease of
$2.0 million compared to the same
period last year.
Investing activities
Net cash from investing
activities was $2.6 million for the
three-month period ended March 31,
2020 compared to $15.1 million
in the same period last year. Net cash used in investing
activities for the nine months ended March
21, 2020 was $5.0 million,
compared to $6.2 million generated in
the same nine-month period 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 $6.7 million for the
quarter ended March 31, 2020,
compared to $18.8 million last year;
$20.0 million for the nine-month
period ended March 31, 2020, compared
to $31.3 million in the prior year.
Financing activity reflects dividend payments paid to shareholders
and in the current year, 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 May 13, 2020, subsequent to the
quarter ended March 31, 2020, Corby's
Board of Directors declared its regular quarterly dividend of
$0.20 per common share, to be paid
June 12, 2020, to shareholders of
record as at the close of business on May
27, 2020. Despite the COVID-19 pandemic and an uncertain
economic outlook, the Board of Directors decided to exercise their
discretion to declare a quarterly dividend moderately lower than
previous quarters. 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 - Q3
|
|
May 13,
2020
|
|
May 27,
2020
|
|
June 12,
2020
|
|
$
0.20
|
2020 - Q2
|
|
February 12,
2020
|
|
February 26,
2020
|
|
March 6,
2020
|
|
0.22
|
2020 - Q1
(1)
|
|
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
|
(1) Corby's Board of Directors
decided to exercise their discretion to declare and pay a higher
quarterly dividend amount in 2020-Q1 than otherwise required under
the dividend policy to maintain it at the amount of the previous
quarter and help offset the current poor performance of the Corby
share price.
|
Outstanding Share Data
As at May 13, 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 certain of PR's
business interests in Canada,
including the HWSL production facility, with a similar term and
commencement date. Following PR's recent decision to reorganize its
global operations, Corby will no longer manage the HWSL production
facility as of July 1, 2020.
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
May 13, 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,
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
except per share
amounts)
|
2020
|
2020
|
2020
|
2019
|
2019
|
2019
|
2019
|
2018 (1)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
33.1
|
$
|
43.4
|
$
|
38.6
|
$
|
39.2
|
$
|
31.0
|
$
|
41.9
|
$
|
37.9
|
$
|
40.2
|
Earnings from
operations
|
6.9
|
10.6
|
8.7
|
10.5
|
5.9
|
9.1
|
8.7
|
12.6
|
Net
earnings
|
5.2
|
7.8
|
6.5
|
7.8
|
4.5
|
6.9
|
6.5
|
9.3
|
Basic EPS
|
0.18
|
0.28
|
0.23
|
0.27
|
0.16
|
0.24
|
0.23
|
0.33
|
Diluted
EPS
|
0.18
|
0.28
|
0.23
|
0.27
|
0.16
|
0.24
|
0.23
|
0.33
|
(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
March 31, 2020, and accordingly, have
been applied in preparing the interim condensed consolidated
financial statements for the period ended March 31, 2020:
(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 March 31, 2020:
|
|
|
As
at
|
|
|
|
Mar. 31,
2020
|
|
Building
|
Other
|
Total
|
Cost
|
|
|
|
|
|
|
|
Balance, beginning of
the period
|
$
|
4,473
|
$
|
1,860
|
$
|
6,333
|
Lease
additions
|
-
|
160
|
160
|
Balance, end of the
period
|
$
|
4,473
|
$
|
2,020
|
$
|
6,493
|
|
|
|
|
Accumulated
Depreciation
|
|
|
|
|
|
|
|
Balance, beginning of
the period
|
$
|
-
|
$
|
-
|
$
|
-
|
Depreciation
|
671
|
525
|
1,196
|
Balance, end of the
period
|
$
|
671
|
$
|
525
|
$
|
1,196
|
|
|
|
|
Carrying amount as
at Mar. 31, 2020
|
$
|
3,802
|
$
|
1,495
|
$
|
5,297
|
Transactions involving lease liabilities as at and for the
period ended March 31, 2020 were as
follows:
|
As
at
|
|
Mar. 31,
2020
|
Balance, beginning
of the period
|
$
|
6,333
|
|
|
Lease
additions
|
160
|
Lease
payments
|
(1,295)
|
Interest expense on
lease liabilities
|
119
|
Less: Accrued
Interest on lease liabilities
|
(9)
|
Balance, end of
the period
|
$
|
5,308
|
|
|
Lease liabilities due
within one year
|
$
|
1,429
|
Lease
liabilities
|
3,879
|
Total lease
liabilities
|
$
|
5,308
|
(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 March 31,
2020, 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.
COVID-19 Pandemic
The COVID-19 pandemic has resulted in economic volatility in
global markets. While governments and central banks have responded
with monetary and fiscal interventions to stabilize economies and
ease financial disruption, it is not currently known how these
interventions will impact debt and equity markets or the economy
generally. The ultimate impact of the COVID-19 pandemic on the
global economy and its duration remain uncertain, disruptions
caused by the COVID-19 pandemic may adversely affect Corby's
performance.
As a manufacturer and distributor of alcoholic beverages, Corby
is deemed to be an essential business in Canada and remains open for business.
Nonetheless, the health and safety of our employees and business
partners remains the key priority. We have limited the scope of our
operations and where possible, employees are telecommuting from
their homes. As well, in conjunction with liquor board social
distancing measures and limitations on in-store activities, our
commercial team presence has decreased in retail stores, but has
adapted their methodology to connect virtually.
As the COVID-19 pandemic continues to evolve, its full duration
and impact of on the Company's liquidity and the financial position
is yet unknown and cannot be reasonably estimated at this time and
will depend on future developments which involve a high degree of
uncertainty and cannot be predicted. This includes but is not
limited to the spread of the disease, duration of the outbreak,
changes to global government regulations, the impact on consumers
(including LBs) and possible disruptions in the supply chain. Corby
has already taken and will continue to take action to mitigate the
effects of the COVID-19 pandemic on its day-to-day business
operations with the best interests of its employees, customers and
business partners at the center. A comprehensive cost mitigation
program is being implemented, together with active management of
our financial position. Ways of working have adapted for
containment measures, so that supply chains remain broadly
operational.
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, 2019 to
March 29, 2021, which they are
currently doing. In accordance with its related party transaction
policy, Corby's independent committee is involved in the
negotiations.
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 March 31,
2020:
|
|
|
|
Carrying Values as at
March 31, 2020
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
|
-
|
$
|
8.6
|
$
|
8.6
|
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
|
$
|
26.1
|
$
|
34.8
|
(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 NINE MONTHS ENDED MARCH
31, 2020 AND 2019
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Jun. 30,
|
As
at
|
Notes
|
2020
|
2019
|
2019
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Deposits in cash
management pools
|
|
$
|
64,691
|
$
|
61,018
|
$
|
61,136
|
Accounts
receivable
|
4
|
31,009
|
28,459
|
32,260
|
Inventories
|
5
|
62,677
|
62,843
|
61,912
|
Prepaid
expenses
|
|
317
|
661
|
554
|
|
|
|
|
|
Total current
assets
|
|
158,694
|
152,981
|
155,862
|
Other
assets
|
|
1,622
|
3,420
|
1,498
|
Right-of-use
assets
|
2
|
5,297
|
-
|
-
|
Property, plant and
equipment
|
|
20,889
|
19,944
|
21,683
|
Goodwill
|
|
8,757
|
8,757
|
8,757
|
Intangible
assets
|
|
26,089
|
31,976
|
30,531
|
|
|
|
|
|
Total
assets
|
|
$
|
221,348
|
$
|
217,078
|
$
|
218,331
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable and
accrued liabilities
|
6
|
$
|
29,047
|
$
|
32,145
|
$
|
32,998
|
Income and other
taxes payable
|
|
1,319
|
176
|
989
|
Current lease
liabilities
|
2
|
1,429
|
-
|
-
|
Total current
liabilities
|
|
31,795
|
32,321
|
33,987
|
Provision for
employee benefits
|
|
12,699
|
9,186
|
13,427
|
Deferred income
taxes
|
|
2,425
|
3,672
|
1,820
|
Long-term lease
liabilities
|
2
|
3,879
|
-
|
-
|
|
|
|
|
|
Total
liabilities
|
|
50,798
|
45,179
|
49,234
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
Share
capital
|
|
14,304
|
14,304
|
14,304
|
Accumulated other
comprehensive (loss) income
|
|
(2,444)
|
1,128
|
(3,226)
|
Retained
earnings
|
|
158,690
|
156,467
|
158,019
|
|
|
|
|
|
Total
shareholders' equity
|
|
170,550
|
171,899
|
169,097
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
|
221,348
|
$
|
217,078
|
$
|
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
|
|
(not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
Notes
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
Revenue
|
7
|
$
|
33,070
|
$
|
30,955
|
$
|
115,125
|
$
|
110,703
|
|
|
|
|
|
|
Cost of
sales
|
|
(13,205)
|
(12,336)
|
(45,359)
|
(43,046)
|
Marketing, sales and
administration
|
|
(13,125)
|
(12,673)
|
(43,806)
|
(43,963)
|
Other income
(expense)
|
8
|
144
|
(10)
|
156
|
48
|
|
|
|
|
|
|
Earnings from
operations
|
|
6,884
|
5,936
|
26,116
|
23,742
|
|
|
|
|
|
|
Financial
income
|
9
|
358
|
371
|
1,069
|
1,142
|
Financial
expense
|
9
|
(182)
|
(123)
|
(552)
|
(354)
|
|
|
176
|
248
|
517
|
788
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
7,060
|
6,184
|
26,633
|
24,530
|
|
|
|
|
|
|
Current income
taxes
|
|
(2,183)
|
(1,533)
|
(6,851)
|
(6,083)
|
Deferred income
taxes
|
|
275
|
(170)
|
(322)
|
(568)
|
Income
taxes
|
|
(1,908)
|
(1,703)
|
(7,173)
|
(6,651)
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
5,152
|
$
|
4,481
|
$
|
19,460
|
$
|
17,879
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
0.18
|
$
|
0.16
|
$
|
0.68
|
$
|
0.63
|
Diluted earnings
per share
|
|
$
|
0.18
|
$
|
0.16
|
$
|
0.68
|
$
|
0.63
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
|
|
|
|
Basic
|
|
28,468,856
|
28,468,856
|
28,468,856
|
28,468,856
|
Diluted
|
|
28,468,856
|
28,468,856
|
28,468,856
|
28,468,856
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
(not audited or
reviewed by the Company's external auditor)
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
Net
earnings
|
$
|
5,152
|
$
|
4,481
|
$
|
19,460
|
$
|
17,879
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
|
|
Net actuarial
gains
|
356
|
293
|
1,066
|
879
|
Income
taxes
|
(96)
|
(79)
|
(284)
|
(237)
|
|
260
|
214
|
782
|
642
|
|
|
|
|
|
Total
comprehensive income
|
$
|
5,412
|
$
|
4,695
|
$
|
20,242
|
$
|
18,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
|
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Retained
Earnings
|
Total
|
|
|
|
|
|
Balance as at June
30, 2019
|
$
|
14,304
|
$
|
(3,226)
|
$
|
158,019
|
$
|
169,097
|
Total comprehensive
income
|
-
|
782
|
19,460
|
20,242
|
Dividends
|
-
|
-
|
(18,789)
|
(18,789)
|
|
|
|
|
|
Balance as at
March 31, 2020
|
$
|
14,304
|
$
|
(2,444)
|
$
|
158,690
|
$
|
170,550
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2018
|
$
|
14,304
|
$
|
486
|
$
|
169,904
|
$
|
184,694
|
Total comprehensive
income
|
-
|
642
|
17,879
|
18,521
|
Dividends
|
-
|
-
|
(31,316)
|
(31,316)
|
|
|
|
|
|
Balance as at March
31, 2019
|
$
|
14,304
|
$
|
1,128
|
$
|
156,467
|
$
|
171,899
|
|
|
|
|
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
CORBY SPIRIT AND
WINE LIMITED
|
|
|
|
|
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
|
|
|
|
|
|
|
|
|
(not audited or
reviewed by the Company's external auditor)
|
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
For the Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
Notes
|
2020
|
2019
|
2,020
|
2019
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
5,152
|
$
|
4,481
|
$
|
19,460
|
$
|
17,879
|
Adjustments
for:
|
|
|
|
|
|
Amortization and
depreciation
|
10
|
2,593
|
2,167
|
7,878
|
6,460
|
Net financial
income
|
9
|
(176)
|
(248)
|
(517)
|
(788)
|
Income tax
expense
|
|
1,908
|
1,703
|
7,173
|
6,651
|
Provision for
employee benefits
|
|
78
|
(399)
|
(220)
|
(1,870)
|
|
|
|
9,555
|
7,704
|
33,774
|
28,332
|
Net change in
non-cash working capital balances
|
11
|
(4,715)
|
(2,786)
|
(3,237)
|
2,803
|
Interest
received
|
|
336
|
372
|
958
|
1,142
|
Income taxes
paid
|
|
(1,091)
|
(1,562)
|
(6,520)
|
(7,147)
|
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
4,085
|
3,728
|
24,975
|
25,130
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Additions to property
and equipment
|
|
(544)
|
(1,613)
|
(1,660)
|
(2,751)
|
Proceeds from
disposition of property and equipment
|
-
|
-
|
55
|
-
|
Proceeds from
disposition of intangible assets
|
|
159
|
-
|
159
|
-
|
Deposits in cash
management pools
|
|
2,967
|
16,674
|
(3,555)
|
8,937
|
|
|
|
|
|
|
|
Net cash from
(used in) investing activities
|
|
2,582
|
15,061
|
(5,001)
|
6,186
|
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
Payment of lease
liabilities
|
|
|
(404)
|
-
|
(1,185)
|
-
|
Dividends
paid
|
|
(6,263)
|
(18,789)
|
(18,789)
|
(31,316)
|
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
(6,667)
|
(18,789)
|
(19,974)
|
(31,316)
|
|
|
|
|
|
|
|
Net increase in
cash
|
|
-
|
-
|
-
|
-
|
Cash, beginning of
year
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Cash, end of
year
|
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these interim condensed consolidated
financial statements.
|
|
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(not audited
or reviewed by the Company's external auditor)
(in
thousands of Canadian dollars, except per share amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian 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 March 31,
2020.
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 May 13, 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.
In addition, in March 2020, the
World Health Organization declared the outbreak of a novel
coronavirus disease ("COVID-19") as a pandemic. In Canada the pandemic has resulted in
country-wide government restrictions and regional closures of
non-essential businesses until further notice including
restaurants, bars and other on-premise establishments. The liquor
boards and retail stores in most provinces have remained open,
albeit with supplier and customer restrictions. As a manufacturer
and distributor of alcoholic beverages, Corby is deemed to be an
essential business.
As a result of COVID-19 management has reviewed its judgments
and estimates as part of the preparation of its interim condensed
consolidated financial statements and concluded that there was no
significant change as of March 31,
2020. Intangible assets and property, plant and equipment
are subject to impairment tests whenever there is an indication
that the value of the asset has been impaired. As of March 31, 2020 there have been no indicators of
impairment and Corby's financial results have not been negatively
impacted by COVID-19. Given that the impact of COVID-19 continues
to evolve and given the uncertainty surrounding its duration,
extent and economic impact, the assumptions used may be different
in future periods. The mid- to long-term impact of COVID-19 cannot
be quantified as of March 31,
2020.
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 March 31, 2020, 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
|
|
Jul. 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 initial direct 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 March 31, 2020:
|
|
|
As
at
|
|
|
|
Mar. 31,
2020
|
|
Building
|
Other
|
Total
|
Cost
|
|
|
|
|
|
|
|
Balance, beginning of
the period
|
$
|
4,473
|
$
|
1,860
|
$
|
6,333
|
Lease
additions
|
-
|
160
|
160
|
Balance, end of the
period
|
$
|
4,473
|
$
|
2,020
|
$
|
6,493
|
|
|
|
|
Accumulated
Depreciation
|
|
|
|
|
|
|
|
Balance, beginning of
the period
|
$
|
-
|
$
|
-
|
$
|
-
|
Depreciation
|
671
|
525
|
1,196
|
Balance, end of the
period
|
$
|
671
|
$
|
525
|
$
|
1,196
|
|
|
|
|
Carrying amount as
at Mar. 31, 2020
|
$
|
3,802
|
$
|
1,495
|
$
|
5,297
|
Transactions involving lease liabilities as at and for the
period ended March 31, 2020 were as
follows:
|
As
at
|
|
Mar. 31,
2020
|
Balance, beginning
of the period
|
$
|
6,333
|
|
|
Lease
additions
|
160
|
Lease
payments
|
(1,295)
|
Interest expense on
lease liabilities
|
119
|
Less: Accrued
Interest on lease liabilities
|
(9)
|
|
0
|
Balance, end of
the period
|
$
|
5,308
|
|
|
Lease liabilities due
within one year
|
$
|
1,429
|
Lease
liabilities
|
3,879
|
Total lease
liabilities
|
$
|
5,308
|
The expenses related to leases with variable consideration,
short term leases and low value leases amounted to $90 and $230 for
the three and nine month periods ended March
31, 2020.
(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 and accounts
payable and accrued liabilities), fair value approximates their
carrying value at each balance sheet date due to their short-term
maturities. Fair value is determined using Level 2 inputs. Level 3
inputs are used to determine the fair value of pension plan assets
contained within the infrastructure and real estate funds.
4. ACCOUNTS RECEIVABLE
|
Mar.
31
|
Mar. 31
|
Jun. 30
|
|
2020
|
2019
|
2019
|
|
|
|
|
Trade
receivables
|
$
|
15,360
|
$
|
14,325
|
$
|
18,359
|
Due from related
parties
|
13,761
|
13,008
|
10,993
|
Other
|
1,888
|
1,126
|
2,908
|
|
|
|
|
|
$
|
31,009
|
$
|
28,459
|
$
|
32,260
|
5. INVENTORIES
|
|
Mar.
31
|
Mar. 31
|
Jun. 30
|
|
|
2020
|
2019
|
2019
|
|
|
|
|
|
Raw
materials
|
$
|
4,193
|
$
|
3,243
|
$
|
3,223
|
Work-in-progress
|
48,011
|
48,226
|
49,180
|
Finished
goods
|
10,473
|
11,374
|
9,509
|
|
|
|
|
|
|
|
$
|
62,677
|
$
|
62,843
|
$
|
61,912
|
The cost of inventory recognized as an expense and included in
cost of goods sold during the three and nine month periods ended
March 31, 2020 were $12,027 and $40,944
(2019 – $10,550 and $37,202). During the three and nine month periods
ended March 31, 2020 there were
write-downs of $247 and $322 (2019 - $nil) on inventory as a result of
net realizable value being lower than cost. No inventory
write-downs recognized in previous years were reversed. Inventory
write-downs are included in cost of goods sold.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
Mar.
31
|
Mar. 31
|
Jun. 30
|
|
2020
|
2019
|
2019
|
|
|
|
|
Trade payables and
accruals
|
$
|
20,184
|
$
|
21,746
|
$
|
23,199
|
Due from related
parties
|
8,049
|
9,227
|
7,214
|
Other
|
814
|
1,172
|
2,585
|
|
|
|
|
|
$
|
29,047
|
$
|
32,145
|
$
|
32,998
|
7. REVENUE
The Company's revenue consists of the following streams:
|
Three
months ended
|
Nine months
ended
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
Case goods
sales
|
$
|
26,380
|
$
|
24,675
|
$
|
91,313
|
$
|
88,217
|
Commissions (net of
amortization of representation rights)
|
5,758
|
5,631
|
20,525
|
20,153
|
Other
services
|
932
|
649
|
3,287
|
2,333
|
|
|
|
|
|
|
$
|
33,070
|
$
|
30,955
|
$
|
115,125
|
$
|
110,703
|
Commissions for the three and nine month periods are shown net
of amortization of long-term representation rights of $1,392 and $4,282
(2019 - $1,446 and $4,336). 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.
8. OTHER INCOME (EXPENSE)
The Company's other income (expense) consists of the following
amounts:
|
Three
months ended
|
Nine months
ended
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
Foreign exchange gain
(loss)
|
$
|
93
|
$
|
(31)
|
$
|
61
|
$
|
3
|
Other
income
|
51
|
21
|
95
|
45
|
|
|
|
|
|
|
$
|
144
|
$
|
(10)
|
$
|
156
|
$
|
48
|
9. NET FINANCIAL INCOME AND EXPENSE
The Company's financial income (expense) consists of the
following amounts:
|
Three
months ended
|
Nine months
ended
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
Interest
income
|
$
|
358
|
$
|
371
|
$
|
1,069
|
$
|
1,142
|
Interest expense on
lease liabilities
|
(37)
|
-
|
(119)
|
-
|
Net financial impact
of pensions
|
(145)
|
(123)
|
(433)
|
(354)
|
|
|
|
|
|
|
$
|
176
|
$
|
248
|
$
|
517
|
$
|
788
|
10. EXPENSES BY NATURE
Earnings from operations include depreciation and amortization,
as well as personnel expenses, as follows:
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
$
805
|
$
721
|
$
2,400
|
$
2,124
|
Depreciation of
right-of-use assets
|
|
|
396
|
-
|
1,196
|
-
|
Amortization of
intangible assets
|
|
|
1,392
|
1,446
|
4,282
|
4,336
|
Salary and payroll
costs
|
|
|
|
6,686
|
6,493
|
19,524
|
19,130
|
Expenses related to
pensions and benefits
|
|
312
|
285
|
972
|
992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
9,591
|
$
8,945
|
$
28,374
|
$
26,582
|
11. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
|
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
$
458
|
$
2,279
|
$
1,251
|
$
5,010
|
Inventories
|
|
|
|
(2,065)
|
(2,662)
|
(765)
|
(3,054)
|
Prepaid
expenses
|
|
|
|
297
|
188
|
237
|
(68)
|
Accounts payable and
accrued liabilities
|
|
(3,405)
|
(2,591)
|
(3,960)
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(4,715)
|
$
(2,786)
|
$
(3,237)
|
$
2,803
|
12. DIVIDENDS
On May 13, 2020 subsequent to the
quarter ended March 31, 2020, the
Board of Directors declared its regular quarterly dividend of
$0.20 per common share, to be paid on
June 12, 2020, to shareholders of
record as at the close of business on May
27, 2020. This dividend is in accordance with the Company's
dividend policy.
13. RELATED PARTY TRANSACTIONS
Transactions with parent, ultimate parent, and
affiliates
The majority of Corby's issued and
outstanding voting Class A shares are owned by HWSL. HWSL is a
wholly-owned subsidiary of PR. Therefore, HWSL is Corby's parent
and PR is Corby's ultimate parent. Affiliated companies are
subsidiaries, which are controlled by Corby's parent and/or
ultimate parent.
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
|
Nine months
ended
|
|
|
Mar.
31
|
Mar. 31
|
Mar.
31
|
Mar. 31
|
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
$
|
6,601
|
$
|
6,711
|
$
|
23,330
|
$
|
22,996
|
Products for resale
at an export level - affiliated companies
|
1,269
|
840
|
4,389
|
3,285
|
|
|
|
|
|
|
|
|
$
|
7,870
|
$
|
7,551
|
$
|
27,719
|
$
|
26,281
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
Distilling, blending,
and production services - parent
|
$
|
5,534
|
$
|
5,427
|
$
|
15,909
|
$
|
17,362
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
Marketing, selling
and administration services - parent
|
$
|
641
|
$
|
523
|
$
|
2,056
|
$
|
1,569
|
Balances outstanding with related parties are due within 60
days, are to be settled in cash and are unsecured.
During the three and nine month periods ended March 31, 2020, Corby entered into a transaction
with its parent whereby Corby exchanged casks with a fair value of
$431 (2019 - $nil) with an equivalent
fair value. The exchange was not a culmination of the earnings
process and as such did not impact Corby's net earnings nor its
financial position.
Deposits in cash management pools
Corby
participates in a cash pooling arrangement under the Mirror Netting
Service Agreement together with PR's other Canadian affiliates, the
terms of which are administered by Citibank N.A. The Mirror Netting
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
May 13, 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 nine months ended March 31, 2020, Corby earned interest income of
$400 and $1,152 from PR (2019 – $371 and $1,142).
Corby has the right to terminate its participation in the Mirror
Netting Service Agreement at any time, subject to five days'
written notice.
14. SEGMENT INFORMATION
Corby has two reportable segments: Case Goods and Commissions.
Corby's Case Goods segment derives its revenue from the production
and distribution of its owned beverage alcohol brands. Corby's
portfolio of owned-brands includes some of the most renowned and
respected brands in Canada, such
as J. P. Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka, and
McGuinness liqueurs.
Corby's Commissions segment earns commission income from the
representation of non-owned beverage alcohol brands in Canada. Corby represents leading international
brands such as ABSOLUT vodka, Chivas
Regal, The Glenlivet and Ballantine's scotches, Jameson Irish whiskey, Beefeater gin, Malibu
rum, Kahlúa liqueur, Mumm champagne, and Jacob's Creek and Wyndham
Estate wines.
The Commissions segment's financial results are fully reported
as "Commissions" in Note 7 of the interim condensed consolidated
financial statements. Therefore, a table detailing operational
results by segment has not been provided as no additional
meaningful information would result.
SOURCE Corby Spirit and Wine Limited