TORONTO, May 6, 2015 /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, 2015. The Corby Board of
Directors today also declared a dividend of $0.19 per share payable on June 12, 2015 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
29, 2015.
Net earnings for the quarter ended March
31, 2015 totalled $2.4 million
(or $0.08 per share), representing a
decrease of $0.7 million when
compared with the same quarter last year. The decline is largely
attributable to the non-repeat of one-time, non-cash savings in the
prior year. A re-design of Corby's defined benefit pension
plans in the prior year required a one-time adjustment to the
plans' liabilities. The remainder of the business was effectively
in balance with lower shipments, due to phasing of retail
programming in Western Canada,
being largely offset by the phasing of advertising and promotion
investment.
On a year to date basis, net earnings decreased $5.0 million or 28% when compared to the same
nine month period last year. In addition to the non-repeat of
one-time, non-cash savings from the prior year, the decline is
attributable to lapping the non-repeat of inventory pipe-line
build-up for the US launches of J.P.
Wiser's Rye and J.P. Wiser's
Spiced whiskies and related A&P investment in the comparative
period. Reduced Commission income due to discontinued
representation of certain Agency brands in December 2013 was offset by positive
contributions from the Canadian case goods business growing at
2%.
"Our solid performance in the Canadian spirits and wine market
in the last nine months of this fiscal year is obscured by the
continued investment in our international business. However,
despite the inevitable volatility in our quarterly results, we
believe that the long-term opportunities in international markets,
particularly the US, are strategically vital to pursue", 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-month period ended March 31,
2015, prepared in accordance with International Financial
Reporting Standards.
About Corby
Corby Spirit and Wine Limited is a
leading Canadian marketer 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® Canadian whisky, Lamb's® rum,
Polar Ice® vodka and McGuinness® liqueurs. Through its affiliation
with Pernod Ricard S.A., Corby also represents leading
international brands such as ABSOLUT® vodka, Chivas Regal®, The
Glenlivet® and Ballantine's® Scotch whiskies, Jameson® Irish
whiskey, Beefeater® gin, Malibu® rum, Kahlúa® liqueur, Mumm®
champagne, and Jacob's Creek®, Wyndham Estate®, Stoneleigh®, Campo
Viejo®, Graffigna®, and Kenwood® wines.
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, the Company's results 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.
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CORBY SPIRIT AND WINE LIMITED
Management's Discussion and Analysis
March 31, 2015
The following Management's Discussion and Analysis ("MD&A")
dated May 6, 2015, should be read in
conjunction with the unaudited interim condensed consolidated
financial statements and accompanying notes as at and for the three
and nine month periods ended March 31,
2015, prepared in accordance with International Financial
Reporting Standards ("IFRS"). While the Company's independent
auditor performed a review for the six months ended December 31, 2014, they have not performed a
review of these financial statements in accordance with standards
established by the Canadian Institute of Chartered Accountants for
a review of unaudited interim condensed financial statements by an
entity's auditor. These unaudited interim condensed
consolidated 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, 2014.
This MD&A contains forward-looking statements, including
statements concerning possible or assumed future results of
operations of Corby Spirit and Wine Limited ("Corby" or the
"Company"), including the statements made under the headings
"Strategies and Outlook", "Liquidity and Capital Resources",
"Recent Accounting Pronouncements" and "Risks and Risk Management."
Forward-looking statements typically are preceded by, followed by
or include the words "believes", "expects", "anticipates",
"estimates", "intends", "plans" or similar expressions.
Forward-looking statements are not guarantees of future
performance. They involve risks and uncertainties, including, but
not limited to: the impact of competition; 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 6, 2015. 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 2015 (three months ended March 31, 2015) are against results for the third
quarter of fiscal 2014 (three months ended March 31, 2014). All dollar amounts are in
Canadian dollars unless otherwise stated.
Business Overview
Corby is a leading Canadian marketer of spirits and importer of
wines. Corby's national leadership is sustained by a diverse brand
portfolio that allows the Company to drive profitable organic
growth with strong, consistent cash flows. Corby is a publicly
traded company, with its shares listed on the Toronto Stock
Exchange under the symbols "CSW.A" (Voting Class A Common Shares)
and "CSW.B" (Non-Voting Class B Common Shares). Corby's Voting
Class A Common Shares are majority-owned by Hiram Walker & Sons Limited ("HWSL") (a
private company) located in Windsor,
Ontario. HWSL is a wholly-owned subsidiary of international
spirits and wine company Pernod Ricard S.A. ("PR") (a French public
limited company), which is headquartered in Paris, France. Therefore, throughout the
remainder of this MD&A, Corby refers to HWSL as its parent, and
to PR as its ultimate parent. Affiliated companies are those that
are also subsidiaries of PR.
The Company derives its revenues from the sale of its
owned-brands ("Case Goods"), as well as earning commission income
from the representation of selected non-owned brands in
Canada ("Commissions"). The
Company also supplements these primary sources of revenue with
other ancillary activities incidental to its core business, such as
logistics fees. Revenue from Corby's owned-brands predominantly
consists of sales made to each of the provincial liquor boards
("LBs") in Canada, and also
includes sales to international markets.
Corby's portfolio of owned-brands includes some of the most
renowned brands in Canada,
including J.P. Wiser's® Canadian
whisky, Lamb's® rum, Polar Ice® vodka and McGuinness® liqueurs.
Through its affiliation with PR, Corby also represents leading
international brands such as ABSOLUT® vodka, Chivas Regal®, The
Glenlivet® and Ballantine's® Scotch whiskies, Jameson® Irish
whiskey, Beefeater® gin, Malibu® rum, Kahlúa® liqueur, Mumm®
champagne, and Jacob's Creek®, Wyndham Estate®, Stoneleigh®, Campo
Viejo® and Graffigna® 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.
The Company expanded its agency portfolio, with the exclusive
right to represent The Wine Group LLC ("The Wine Group") brands in
Canada until May 2018 through an agreement (which began
April 2013). The agreement
complements Corby's owned and represented brands and expands Corby
offerings in the premium wine sector. Corby represents all The Wine
Group brands, including Cupcake Vineyards, Big House Wine Co.,
Concannon Vineyard, Grayfox
Vineyards and Mogen David Wine Co.
Pursuant to a production agreement that expires in September 2016, PR produces Corby's owned-brands
at HWSL's production facility in Windsor,
Ontario. Under the production agreement, Corby manages PR's
business interests in Canada,
including HWSL's production facility, also until September 2016.
Corby sources more than 90% of its spirits production
requirements from HWSL at its production facility in Windsor, Ontario. 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 rum products destined for sale in countries located
outside the Americas. During the six months ended
December 31, 2014 the Company
effectively completed the process of moving production to the HWSL
production facility from the bottling facility of a third party in
Montreal, Quebec following the
expiry of the related bottling agreement on October 31, 2014.
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. The
exception to this model is 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.
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
both in volume (measured in nine-litre case equivalents) and in
retail value (measured in Canadian dollars).
Corby's international business is concentrated in the United States ("US") and UK and the
Company has a different route to market for each. For the US
market, Corby manufactures the majority of its products in
Canada and ships to its US
distributor, Pernod Ricard USA,
LLC ("PR USA"), an affiliated company. See the "Related Party
Transactions" section of this MD&A for additional
details. The market in the US operates a three tier
distribution system which often requires a much longer and
larger inventory pipeline than in other markets, resulting in a
disconnect between quarterly shipment performance, as reported in
the financial statements and the true underlying performance of the
brands at retail level.
For the UK market, Corby utilizes a third party contract bottler
and distribution company for the production and distribution of
Lamb's rum. Distributors sell to various local wholesalers and
retailers who in turn sell directly to the consumer.
Corby's operations are subject to seasonal fluctuations: sales
are typically strong in the first and second quarters, while
third-quarter sales usually decline after the end of the retail
holiday season. Fourth-quarter sales typically increase again with
the onset of warmer weather as consumers tend to increase their
purchasing levels during the summer season.
Strategies and Outlook
Corby's business strategies are designed to maximize sustainable
long-term value growth, and thus deliver solid profit while
continuing to produce strong and consistent cash flows from
operating activities. The Company's portfolio of owned and
represented brands provides an excellent platform from which to
achieve its current and long-term objectives.
Management believes that having a focused brand prioritization
strategy will permit Corby to capture market share in the segments
and markets that are expected to deliver the most growth in value
over the long-term. Therefore, the Company's strategy is to focus
its investments on, and leverage the long-term growth potential of,
its key brands. As a result, Corby will continue to invest behind
its brands to promote its premium offerings where it makes the most
sense and drives the most value for shareholders.
Brand prioritization requires an evaluation of each brand's
potential to deliver upon this strategy, and facilitates Corby's
marketing and sales teams' focus and resource allocation. Over the
long-term, management believes that effective execution of its
strategy will result in value creation for shareholders. Past
disposal transactions reflect this strategy by streamlining Corby's
portfolio and eliminating brands with below average performance
trends, thus focusing resources on key brands.
Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our
agreement with PR USA to represent certain of Corby's owned brands
in the US supports our goal of expanding our Canadian whisky
business into this market where we believe there is growth
potential in both volume and margin.
Of primary importance to the successful implementation of our
brand strategies is an effective route to market strategy. Corby is
committed to investing in its trade marketing expertise and
ensuring that its commercial resources are focused around the
differing needs of its customers and the selling channels they
inhabit. In all areas of the business, management believes setting
clear strategies, optimizing organization structure and increasing
efficiencies is key to Corby's overall success.
In addition, management is convinced that innovation is
essential to seizing new profit and growth opportunities.
Successful innovation can be delivered through a structured and
efficient process as well as consistent investment in consumer
insight and research and development ("R&D"). As far as R&D
is concerned, the Company benefits from access to leading-edge
practices at PR's North American hub, which is located in
Windsor, Ontario.
Finally, the Company is a strong advocate of social
responsibility, especially with respect to its sales and
promotional activities. Corby will continue to promote the
responsible consumption of its products in its activities. In 2014,
Corby continued a successful partnership with the Toronto Transit
Commission to provide free transit on New
Year's Eve for a three year period which began in 2013. The
Company stresses its core values throughout its organization,
including those of conviviality, straightforwardness, commitment,
integrity and entrepreneurship.
Significant Events
Corby declares special dividend and increases regular
dividend amount
On November 5,
2014, the Corby Board of Directors declared a special
dividend of $0.62 per share payable
on January 9, 2015 on the Voting
Class A Common Shares and Non-voting Class B Common Shares of Corby
to shareholders of record as at the close of business on
December 12, 2014. The special
dividend payment resulted in a cash distribution of approximately
$17.7 million to shareholders and was
sourced from Corby's surplus cash position. The payment represented
cash that the Board considered to be in excess of its requirements
to fund future growth opportunities.
The Corby Board of Directors also announced an amendment to its
dividend policy. Subject to business conditions and opportunities
and appropriate adjustment for extraordinary events, regular
dividends will be paid quarterly, on the basis of an annual amount
equal to the greater of 85% of net earnings per share in the
preceding fiscal year ended June 30,
and $0.60 per share. Such dividend
policy represents a 5.6% increase in the Company's quarterly
dividend, from $0.18 per share to
$0.19 per share. Under the amended
policy, the Corby Board of Directors declared a regular dividend of
$0.19 per share payable on
December 12, 2014 on the Voting Class
A Common Shares and Non-voting Class B Common Shares of Corby to
shareholders of record as at the close of business on November 28, 2014.
Corby Distilleries Limited changes its name to Corby
Spirit and Wine Limited
Effective November 7, 2013, Corby Distilleries Limited
began operating under the name Corby Spirit and Wine Limited. The
new name was approved at the Company's annual and special meeting
held November 7, 2013, and reflecting
the change, Corby now trades on the TSX under the symbols CSW.A and
CSW.B. The new name coincided with completely redesigned corporate
branding and logos. The new name and branding better reflect
Corby's growing activities with a strong focus on product, service
and marketing.
Corby Launches J.P. Wiser's Rye and J.P. Wiser's Spiced Canadian Whisky in the US
Market
In July 2012, the
Company reached a new agreement with PR USA to represent Corby
brands in the US for a five year period, giving Corby access to one
of the strongest spirits distribution networks in the US
market.
Since signing the agreement, Corby and PR USA have readied
Corby's whisky portfolio for a national launch which began in the
first quarter of 2014. Specifically, Corby developed two new
Wiser's brand extensions under the names J.P. Wiser's Rye and J.P. Wiser's Spiced Whisky. Given this is the
early stages of the launch, Corby continued to invest heavily in
the US market during the quarter. The launch has had a significant
impact on our financial results and as such will be discussed
throughout this MD&A.
Corby Continues its Exclusive Canadian Representation of
the Iconic ABSOLUT Vodka Brand
On September 30, 2013, Corby paid $10.3 million to continue its exclusive rights to
represent the ABSOLUT vodka brand in Canada for an eight-year period ending
September 29, 2021. The previous
representation period expired September 29,
2013. The terms of this agreement are further described in
the "Related Party Transactions" section of this MD&A. The
transaction was accounted for as an increase in Intangible Assets
and the purchase price is being amortized, straight-line, over the
eight-year term of the agreement. Amortization expense is recorded
net of commission revenues. The payment was funded from the
Company's deposits in cash management pools.
Brand Performance Review
Corby's portfolio of owned-brands accounts for more than 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 and Corby's mixable
liqueur 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 chart 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 chart includes results for sales in both Canada and international markets.
Specifically, the J.P. Wiser's, Lamb's and Polar Ice brands are
also sold to international markets, particularly in the US and
UK.
BRAND PERFORMANCE
CHART - INCLUDES BOTH CANADIAN AND INTERNATIONAL
SHIPMENTS
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Three Months
Ended
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Nine Months
Ended
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Shipment
Change
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Shipment
Change
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Mar.
31,
|
Mar.
31,
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Volume
|
Value
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
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(Volumes in 000's
of 9L cases)
|
2015
|
2014
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%
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%
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2015
|
2014
|
%
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%
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Brand
|
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J.P. Wiser's Canadian
whisky
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162
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183
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(11%)
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(11%)
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611
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661
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(8%)
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(8%)
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Lamb's rum
|
|
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100
|
92
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9%
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15%
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394
|
391
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1%
|
5%
|
Polar Ice
vodka
|
|
83
|
92
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(10%)
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(1%)
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286
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290
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(1%)
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3%
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Mixable
liqueurs
|
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32
|
35
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(10%)
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(10%)
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132
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142
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(7%)
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(7%)
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Total Key
Brands
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377
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402
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(6%)
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(4%)
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1,423
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1,484
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(4%)
|
(4%)
|
Other Corby-owned
brands
|
44
|
52
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(17%)
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(5%)
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|
167
|
166
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1%
|
4%
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|
|
|
|
|
|
|
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Total Corby
brands
|
|
421
|
454
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(7%)
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(4%)
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1,590
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1,650
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(4%)
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(3%)
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Overall, volume and shipment value for Corby owned-brands is
lower on a year over year comparative basis. However, trends in
Corby's domestic market differ significantly from international
markets as highlighted in the following chart:
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Three Months
Ended
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Nine Months
Ended
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%
Shipment
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%
Shipment
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%
Shipment
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%
Shipment
|
|
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Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
2015
|
2014
|
Growth
|
Growth
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|
2015
|
2014
|
Growth
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Growth
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Domestic
|
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356
|
386
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(8%)
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(3%)
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1,408
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1,421
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(1%)
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1%
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International
|
|
65
|
68
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(3%)
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(13%)
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182
|
229
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(20%)
|
(28%)
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|
|
|
|
|
|
|
|
|
|
|
|
Total Corby
brands
|
421
|
454
|
(7%)
|
(4%)
|
|
1,590
|
1,650
|
(4%)
|
(3%)
|
For the three months ended March 31,
2015, Corby's domestic shipment value declined 3% on a year
over year comparative basis largely attributable to the phasing of
promotional activity in Western Canada This was
further impacted by heavy competitive promotional activity. We
consider the trend for nine months to be more reflective of the
underlying trend of our domestic business.
For the nine months ended March 31,
2015, Corby's domestic shipment volume declined 1% while
shipment value grew 1%. Shipment value performed ahead of
volume as a result of our premiumization strategy, price increases
and effective management of promotional programming. A more
in-depth discussion of Corby's key brands in the Canadian market is
provided in the "Summary of Corby's Key Brands" section of this
MD&A.
In international markets, lower shipments reflect J.P. Wiser's Canadian whisky lapping a one-time
inventory pipe-line build-up for the national launch of
J.P. Wiser's Rye and J.P. Wiser's Spiced whisky in the US last year
that was not repeated in the current year. The three tier
distribution system in the US requires us to fill the inventory
pipeline well before any retail promotions which did not commence
until third quarter of the last fiscal year.
Our entry into the US market has been very successful from the
perspective of the number of distribution points gained.
During Q3 we adjusted our strategy to provide increased focus
on a smaller number of markets where the portfolio has performed
well and the greatest opportunities exist. Our focus shifted
from distribution gains to retail velocity driving activities. As a
result, we have not refilled the initial inventory pipeline to
non-priority markets.
Shipments of Lamb's rum in the UK market for the three months
ended March 31, 2015 were higher than
the same quarter last year due primarily to a shift in production
timing at our third-party bottling facility. This shift
effectively moved volumes which occurred in fourth quarter last
year into third quarter this year.
Retail Volume and Retail Value Performance
It is of critical importance to understand the performance of
Corby's brands at the retail level in Canada. Analysis of performance at the retail
level provides insight with regards to consumers' current purchase
patterns and trends. Retail sales data, as provided by the ACD, is
set out in the following chart and is discussed throughout this
MD&A.
It should be noted that the retail sales information presented
does not include international retail sales of Corby-owned
brands. While Corby's focus on the US business is increasing,
retail sales data in the US is prepared using limited sampling
techniques, which does not provide meaningful trend analysis on a
brand that has not yet reached sufficient scale to make such
disclosure meaningful. Corby will provide such data as and
when it is considered to offer meaningful analysis of brand
performance.
RETAIL SALES FOR
THE CANADIAN MARKET ONLY1
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Three Months
Ended
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Nine Months
Ended
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%
Retail
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%
Retail
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%
Retail
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%
Retail
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Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
|
Mar.
31,
|
Mar.
31,
|
Volume
|
Value
|
(Volumes in 000's
of 9L cases)
|
|
2015
|
2014
|
Growth
|
Growth
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|
2015
|
2014
|
Growth
|
Growth
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Brand
|
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J.P. Wiser's Canadian
whisky
|
153
|
153
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0%
|
1%
|
|
564
|
556
|
1%
|
2%
|
Lamb's rum
|
|
|
80
|
87
|
(8%)
|
(5%)
|
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307
|
324
|
(5%)
|
(4%)
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Polar Ice
vodka
|
|
|
74
|
89
|
(16%)
|
(11%)
|
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275
|
277
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(1%)
|
1%
|
Mixable
liqueurs
|
|
|
31
|
32
|
(4%)
|
(4%)
|
|
134
|
139
|
(3%)
|
(2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Key
Brands
|
|
|
339
|
361
|
(6%)
|
(3%)
|
|
1,280
|
1,295
|
(1%)
|
0%
|
Other Corby-owned
brands
|
40
|
52
|
(24%)
|
(18%)
|
|
153
|
162
|
(6%)
|
(3%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
379
|
413
|
(8%)
|
(5%)
|
|
1,433
|
1,457
|
(2%)
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Refers to sales at the retail store
level in Canada, as provided by the Association of Canadian
Distillers.
|
|
The Canadian spirits industry has maintained modest growth
posting 2% retail sales volume growth and 2% retail sales value
growth for the three months ended March 31,
2015. For the nine months ended March
31, 2015 retail sales volume growth is 1% and retail sales
value growth is 2%. These trends are supported by double
digit retail sales value growth in the Bourbon and Irish Whiskey
categories.
As illustrated in the above chart, Corby's portfolio of owned
brands underperformed the spirits industry for the three months
ending March 31, 2015 largely due to
the phasing of retail programming in Western Canada, and therefore the nine month
trend is more reflective of underlying performance. The following
brand discussion provides a more detailed discussion of how each of
Corby's key brands performed relative to its respective industry
category.
Summary of Corby's Key Brands
J.P. Wiser's Canadian
Whisky
Corby's flagship brand, J.P.
Wiser's Canadian whisky, continued to outperform the
Canadian whisky category and gained market share for the nine
months ended March 31, 2015. For the
nine months ended March 31, 2015,
J.P. Wiser's grew retail volume 1%
and retail value 2% on a year over year comparison basis. The
Canadian whisky category was flat on retail volume and grew retail
value 1% when compared to the same nine month period last year.
For the three months ended March 31,
2015, J.P. Wiser's Canadian
whisky retail value grew 1% on a year-over-year comparison basis.
The Canadian whisky category grew 2% in retail value, when compared
to the same three month period last year.
Corby continued its strong investment behind the brand, with the
new Wiserfund campaign launched in October 2014. A new J.P. Wiser's Spiced extension, Torched Toffee
delivered more than 2,000 incremental 9L cases in Retail Volume as
a limited time offering in the three months ended December 31, 2014. As well, new packaging
highlighting more premium and quality cues were rolled out to the
Canadian market during the six months ended December 31, 2014.
Lamb's Rum
Lamb's rum, one of the top-selling rum families in Canada, is significantly impacted by consumer
trends, particularly in respect of the dark and white rum segments
which both declined 4% and 3% respectively in retail volumes when
compared to the same three month period last year. In the quarter,
performance was impacted by the phasing of retail value in
Western Canada, but is indicative
of how sensitive these segments are to promotional activity. Key
competitors are experiencing similar issues, and are being
aggressive on both pricing and promotional activity to maintain
their volume bases. Our strategy is to defend our regional
strongholds and to strongly promote the entire range.
For the nine months ending March 31,
2015, Lamb's declined 5% in retail volume and 4% decline in
retail value when compared to same nine month period last year,
reflective of category retail volume declines of 3% and 4% in the
dark and white rum categories. Corby's Lamb's rum product line is
heavily weighted in the dark and white segments.
Polar Ice Vodka
Polar Ice vodka is among the top three largest vodka brands in
Canada. Retail volume declined 1%
and retail value increased 1% when compared to the same nine month
period last year. Positive market share gains in Ontario and Quebec have been impacted by aggressive
competitor activity in Western
Canada. Overall these trends slightly underperform a vodka
category in Canada which grew
retail volumes 1% and grew retail value 2% when compared to the
same nine month period last year. Advertising and promotion
investment included a digital / social media platform to drive
support for the regional successful introduction of a Polar Ice 90°
North premium innovation which has delivered 4,000 9L cases of
retail volume in the nine months ending March 31, 2015.
Polar Ice vodka retail volume declined 16% for the three month
period ended March 31, 2015 largely
due to the phasing of promotional programing in Western
Canada.
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 and retail value for Corby's
mixable liqueurs portfolio lagged category trends with retail
volume and value declining -4% for the three month period ended
March 31, 2015. The Liqueurs
category, which is growing at 2% in retail value, is being driven
by new innovations and cream based offerings with which McGuinness
does not directly compete. Our current strategy is to use
alternative branded offerings such as Criollo® rather than
McGuinness to benefit from these trends.
Retail volume and retail value for Corby's mixable liqueurs
portfolio lagged a category growing at 1% in volume. (retail volume
was -3% and retail value was -2% Corby mixable liqueur brands) for
the nine month period ended March 31,
2015. Our focus is on strong programing in the retail
environment and ensuring that our flavour offering is aligned to
consumer trends.
During the six months ended December 31,
2014 the Company effectively completed the process of moving
mixable liqueur production to the Corby managed HWSL production
facility from the bottling facility of a third party in
Montreal, Quebec.
Other Corby-Owned Brands
Innovation remains an important pillar for delivering new profit
and growth opportunities to the Corby domestic business. Recent
premium offerings in Canadian whisky such as Pike Creek® and Lot
40® collectively grew retail volume 23% and retail value 22%
compared to the same nine month period last year.
Criollo® Chocolate Sea Salted Caramel and Criollo® Chocolate
Raspberry Truffle marked their one year anniversary in the Canadian
market in September 2014 and
continued to be well received by key customers and consumers with
retail volume growth of 27% and retail value growth of 40% for the
nine month period ended March 31,
2015.
Royal Reserve® Canadian whisky was impacted by the phasing of
retail programing in Western
Canada for the three months ended March 31, 2015. For the nine months ended
March 31, 2015 retail volume declined
7% and retail value declined 5% when compared to the same nine
month period last year. Our response to the declines has been to
improve the retail support of the brand in its regional
strongholds.
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,
2015 and 2014.
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in millions of
Canadian dollars,
|
Mar.
31
|
Mar.
31
|
|
|
|
Mar.
31
|
Mar.
31
|
|
|
except per share
amounts)
|
2015
|
2014
|
$
Change
|
%
Change
|
|
2015
|
2014
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$ 26.8
|
$ 28.6
|
$ (1.8)
|
(6%)
|
|
$ 99.6
|
$ 103.9
|
$ (4.3)
|
(4%)
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
(10.4)
|
(11.0)
|
0.6
|
(5%)
|
|
(37.4)
|
(38.2)
|
0.8
|
(2%)
|
Marketing, sales and
administration
|
(13.3)
|
(13.6)
|
0.3
|
(2%)
|
|
(44.9)
|
(41.9)
|
(3.0)
|
7%
|
Other income
(expense)
|
0.0
|
0.1
|
(0.1)
|
(91%)
|
|
0.1
|
0.4
|
(0.3)
|
(75%)
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
3.1
|
4.1
|
(1.0)
|
(24%)
|
|
17.4
|
24.2
|
(6.8)
|
(28%)
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
0.4
|
0.4
|
0.0
|
12%
|
|
1.3
|
1.3
|
-
|
0%
|
Financial
expenses
|
(0.3)
|
(0.3)
|
0.0
|
(2%)
|
|
(0.8)
|
(0.9)
|
0.1
|
(11%)
|
Net financial
income
|
0.2
|
0.1
|
0.1
|
53%
|
|
0.5
|
0.4
|
0.1
|
25%
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
3.3
|
4.2
|
(0.9)
|
(22%)
|
|
17.9
|
24.6
|
(6.7)
|
(27%)
|
Income
taxes
|
(0.9)
|
(1.1)
|
0.2
|
(18%)
|
|
(4.8)
|
(6.5)
|
1.7
|
(26%)
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$ 2.4
|
$ 3.1
|
$ (0.7)
|
(24%)
|
|
$ 13.1
|
$ 18.1
|
$ (5.0)
|
(28%)
|
|
|
|
|
|
|
|
|
|
|
Per common
share
|
|
|
|
|
|
|
|
|
|
|
- Basic net
earnings
|
$ 0.08
|
$ 0.11
|
$ (0.03)
|
(27%)
|
|
$ 0.46
|
$ 0.64
|
$ (0.18)
|
(28%)
|
|
- Diluted net
earnings
|
$ 0.08
|
$ 0.11
|
$ (0.03)
|
(27%)
|
|
$ 0.46
|
$ 0.64
|
$ (0.18)
|
(28%)
|
Overall Financial Results
For the three month period ended March
31, 2015, net earnings decreased $0.7
million or 24% when compared to the prior year. The
earnings decrease is largely attributable the non-repeat of
one-time, non-cash savings of $0.7
million in the prior year. This saving related to
amendments to certain of the Company's employee defined benefit
pension plans including reductions in some early retirement
provisions and an increase in employee contributions effective from
January 1, 2014.
Lower shipments for the three month period ended March 31, 2015 were essentially offset by the
phasing of our advertising and promotion investment in the US
market and the phasing of retail programming in Western
Canada. With regard to the US, investment to drive awareness
and trial has been consistent throughout the current fiscal year
compared to last fiscal year where the third quarter introduced the
first significant seeding of the J.P. Wiser's brand in the market
place.
On a year to date basis, net earnings decreased $5.0 million or 28% when compared to the same
nine month period last year. The decline is largely
attributable to lapping the J.P. Wiser's Rye and J.P. Wiser's Spiced whisky launch in the US in
the comparative period. In addition to the non-repeat of
inventory pipe-line build-up for the US launch, advertising and
promotional investment for these brands has now ramped up to drive
awareness and trial.
Reduced Commission income due to discontinued representation of
certain Agency brands in December
2013 and the non-repeat of one-time, non-cash savings
related to amendments to the Company's employee defined benefit
pension plans in the prior year was offset by improved revenues per
case from the Canadian case goods business.
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)
|
2015
|
2014
|
$
Change
|
%
Change
|
|
2015
|
2014
|
$
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenue
streams:
|
|
|
|
|
|
|
|
|
|
Case
goods
|
$ 22.7
|
$ 24.6
|
$ (1.9)
|
(8%)
|
|
$ 84.5
|
$ 88.0
|
$ (3.5)
|
(4%)
|
Commissions
|
3.4
|
3.1
|
0.3
|
6%
|
|
12.1
|
12.7
|
(0.6)
|
(5%)
|
Other
services
|
0.8
|
0.9
|
(0.1)
|
(8%)
|
|
3.0
|
3.2
|
(0.3)
|
(8%)
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$ 26.8
|
$ 28.6
|
$ (1.7)
|
(6%)
|
|
$ 99.6
|
$ 103.9
|
$ (4.3)
|
(4%)
|
Case goods revenue declined $1.9
million and $3.5 million
respectively for the three and nine months ended March 31, 2015 when compared to the same periods
last year. For the nine month period, satisfactory domestic
case goods revenue increases of 1% were more than offset by the
impact of the J.P. Wiser's inventory pipe-line build-up in the US
in the prior period. For the three month period, domestic case
goods revenue decreased 3% largely due to the phasing of retail
programming in Western Canada.
Commissions increased $0.3 million
or 6% on a quarter over quarter comparative basis due to improved
commission income on Pernod Ricard brands. On a year to date
basis, Commissions decreased $0.6
million or 5% when compared with the same nine month period
last year. The reduction was primarily due to the impact of the
discontinuation of certain agency brands ($0.6 million) as of December 2013.
Referenced earlier in the Significant Events section of this
MD&A, Corby entered into an agreement on September 30, 2013 for continued exclusive
Canadian representation of the iconic ABSOLUT vodka brand. The
growth in Pernod Ricard brands, and particularly ABSOLUT vodka, has
already offset the increase in amortization for both the three and
nine months ended March 31, 2015.
Other services represents ancillary revenue incidental to
Corby's core business activities such as logistical fees.
Cost of sales
Cost of sales was $10.4 million
for the three months ended March 31,
2015, representing a decrease of 5%, or $0.6 million when compared to the same period
last year and moving directionally in line with topline revenues
generated on our Case Goods business. Gross margin for the quarter
was 58%, reduced from 59% for the same three month period last
year, and reflects the lower mix of (superior margin) case good
sales to the US market due to the inventory pipe-line build-up in
the prior year quarter that was not repeated in the current quarter
(note: commissions are not included in this calculation).
Cost of sales was $37.4 million
for the nine months ended March 31,
2015, representing a decrease of 2%, or $0.8 million when compared to the same period
last year and moving directionally in line with topline revenues
generated on our Case Goods business. Gross margin for the year to
date was a creditable 59%, reduced from 60% for the same nine month
period last year, and reflects the lower mix of (superior margin)
case good sales to the US market due to the inventory pipe-line
build-up in the prior year that was not repeated in the current
year (note: commissions are not included in this calculation).
Marketing, sales and administration
Marketing, sales and administration expenses decreased 2% for
the three month period ending March 31,
2015. The phasing of both advertising and promotion
investment in US market and retail programming in Western Canada was partially offset by the
non-repeat of a one-time non-cash saving related to amendments to
the Company's employee defined benefit pension plans in the prior
year.
Marketing, sales and administration expenses increased 7% for
the nine month period ending March 31,
2015. Corby has now ramped up investment behind the J.P.
Wiser's brands in the US market through increased advertising and
promotional spend. Examples of A&P investment include
sponsorship of ESPN fantasy football and trips to the Super Bowl to
support in-store programs. Excluding the non-repeat of the one-time
non-cash saving noted in the above paragraph, recurring
administrative costs remain relatively consistent with the prior
year quarter and year-to-date periods reflecting the impacts of the
Company's cost reduction programme offsetting inflationary
increases.
Other income and expenses
Other income and expenses include such items as realized foreign
exchange gains and losses, and gains on sale of property and
equipment. The balances comprising this account are relatively
consistent year over year.
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. This
balance is relatively consistent with the prior year.
Income taxes
A reconciliation of the effective tax rate to the statutory
rates for each period is presented below. The effective tax rate
for the nine month period ending March 31,
2014 was impacted by permanent differences between financial
income and income reported for taxation purposes as well as the
impacts of the adjustments that arise upon the completion of annual
tax filings.
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
Mar.
31
|
Mar.
31
|
|
Mar.
31
|
Mar.
31
|
|
2015
|
2014
|
|
2015
|
2014
|
|
|
|
|
|
|
|
Combined basic
Federal and Provincial tax rates
|
27%
|
27%
|
|
27%
|
27%
|
Other
|
|
0%
|
0%
|
|
0%
|
-1%
|
|
|
|
|
|
|
|
Effective tax
rate
|
27%
|
27%
|
|
27%
|
26%
|
Liquidity and Capital Resources
Corby's sources of liquidity are its deposits in cash management
pools of $88.1 million as at
March 31, 2015, and its cash
generated from operating activities. Corby's total contractual
maturities are represented by its accounts payable and accrued
liabilities, which totalled $25.5
million as at March 31, 2015,
and are all due to be paid within one year. The Company does not
have any liabilities under short- or long-term debt facilities.
The Company believes that its deposits in cash management pools,
combined with its historically strong operational cash flows,
provide for sufficient liquidity to fund its operations, investing
activities and commitments for the foreseeable future. The
Company's cash flows from operations are subject to fluctuation due
to commodity, foreign exchange and interest rate risks. Please
refer to the "Risks and Risk Management" section of this MD&A
for further information.
Cash Flows
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Mar.
31
|
Mar.
31
|
|
|
Mar.
31
|
Mar.
31
|
|
(in millions of
Canadian dollars)
|
2015
|
2014
|
$
Change
|
|
2015
|
2014
|
$
Change
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net earnings,
adjusted for non-cash items
|
$ 4.7
|
$ 4.9
|
$ (0.2)
|
|
$ 22.6
|
$ 28.2
|
$ (5.6)
|
|
Net change in
non-cash working capital
|
(5.5)
|
4.0
|
(9.5)
|
|
(3.6)
|
(0.3)
|
(3.3)
|
|
Net payments for
interest and income taxes
|
(0.6)
|
(0.7)
|
0.1
|
|
(4.4)
|
(5.2)
|
0.8
|
|
(1.4)
|
8.2
|
(9.6)
|
|
14.6
|
22.7
|
(8.1)
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property
and equipment
|
(0.4)
|
(0.4)
|
-
|
|
(1.7)
|
(0.6)
|
(1.1)
|
|
Additions to
intangible assets
|
-
|
-
|
-
|
|
-
|
(10.3)
|
10.3
|
|
Proceeds from
disposition of property and equipment
|
-
|
0.1
|
(0.1)
|
|
0.2
|
0.3
|
(0.1)
|
|
Deposits in cash
management pools
|
24.3
|
(3.4)
|
27.7
|
|
19.9
|
2.4
|
17.5
|
|
23.9
|
(3.7)
|
27.6
|
|
18.4
|
(8.2)
|
26.6
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds from note
receivable
|
0.6
|
0.6
|
-
|
|
0.6
|
0.6
|
-
|
|
Dividends
paid
|
(23.1)
|
(5.1)
|
(18.0)
|
|
(33.6)
|
(15.1)
|
(18.5)
|
|
(22.5)
|
(4.5)
|
(18.0)
|
|
(33.0)
|
(14.5)
|
(18.5)
|
|
|
|
|
|
|
|
|
Net change in
cash
|
$
-
|
$
-
|
$
-
|
|
$
-
|
$
-
|
$
-
|
Operating activities
Net cash from operating activities was an outflow of
$1.4 million during the quarter ended
March 31, 2015 compared to an inflow
of $8.2 million in the same quarter
of the prior year, representing a decrease of $9.6 million. The quarter-over quarter change is
attributable to a net change in working capital due to delays in
customer receipts and higher cash payments settling heavier
advertising and promotional spend through the first half of the
fiscal year.
For the year to date period, net cash from operating activities
was $14.6 million, a reduction of
$8.1 million compared to the same
nine month period last year. This includes lower earnings,
adjusted for non-cash items of $5.6
million and reduced working capital due to delays in
customer receipts and timing of vendor payments of $3.3 million.
Investing activities
Cash used in investing activities was $23.9 million for the quarter and $18.4 million for the nine month period ending
March 31, 2015, compared to a use of
cash of $3.7 million and $8.2 million for the same three and nine month
periods last year, respectively.
The prior year period includes a payment of $10.3 million to PR for the exclusive right to
represent the ABSOLUT vodka brand in Canada for an additional eight year term, as
discussed in the "Related Party Transaction" section of this
MD&A. The payment was made on September
30, 2013 and was funded through withdrawals from cash
management pools.
Investing activities also reflect funds deposited in cash
management pools. 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 of time being reported on. 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 $22.5 million this quarter, an increase of
$18.0 million over the same quarter
last year, and reflects dividend payments paid to shareholders
including a special dividend of $17.7
million. Similarly, year to date cash used for financing
activities was $33.0 million, an
increase of $18.5 million reflecting
an increase in regular quarterly dividends being paid to
shareholders and the special dividend of $17.7 million. There was no special
dividend in the prior year periods.
On November 5, 2014 the Company
announced that it had amended its dividend policy, whereby the
annual amount of dividend will now be based on the greater of 85%
of net earnings per share in the preceding fiscal year ended
June 30 and $0.60 per share, subject to business conditions
and opportunities and appropriate adjustment for extraordinary
events. Prior to this announcement the annual amount of dividends
was based on the greater of 75% 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
|
2015 - Q3
|
|
May 6,
2015
|
|
May 29,
2015
|
|
June 12,
2015
|
|
$ 0.19
|
2015 - Q2
|
|
February 4,
2015
|
|
February 27,
2015
|
|
March 13,
2015
|
|
0.19
|
2015 -
special
|
|
November 5, 2014
(special dividend)
|
|
December 12,
2014
|
|
January 9,
2015
|
|
0.62
|
2015 - Q1
|
|
November 5,
2014
|
|
November 28,
2014
|
|
December 12,
2014
|
|
0.19
|
2014 - Q4
|
|
August 27,
2014
|
|
September 15,
2014
|
|
September 30,
2014
|
|
0.18
|
2014 - Q3
|
|
May 7,
2014
|
|
May 30,
2014
|
|
June 13,
2014
|
|
0.18
|
2014 - Q2
|
|
February 5,
2014
|
|
February 28,
2014
|
|
March 14,
2014
|
|
0.18
|
2014 - Q1
|
|
November 6,
2013
|
|
November 29,
2013
|
|
December 13,
2013
|
|
0.18
|
2013 - Q4
|
|
August 28,
2013
|
|
September 13,
2013
|
|
September 30,
2013
|
|
0.17
|
2013 - Q3
|
|
May 9,
2013
|
|
May 31,
2013
|
|
June 14,
2013
|
|
0.17
|
Outstanding Share Data
As at May 6, 2015, 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 receive approval from an
Independent Committee of the Board of Directors.
The companies operate under the terms of agreements that became
effective on September 29, 2006.
These agreements provide the Company with the exclusive right to
represent PR's brands in the Canadian market for fifteen years, as
well as providing for the continuing production of certain Corby
brands by PR at its production facility in Windsor, Ontario, for ten years. Corby also
manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
Canadian entities, as approved by Corby's Board of Directors.
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. Corby also agreed to continue
with the mirror netting arrangement with PR and its affiliates,
under which Corby's excess cash will continue to be deposited to
cash management pools. The mirror netting arrangement with PR and
its affiliates is further described below.
Further, on November 9, 2011,
Corby entered into an agreement with a PR affiliate for a new term
for Corby's exclusive right to represent ABSOLUT vodka in
Canada from September 30, 2013 to September 29, 2021, which is consistent with the
term of Corby's Canadian representation of the other PR brands in
Corby's portfolio. On September 30,
2013, Corby paid the present value of $10 million, or $10.3
million, for the additional eight years of the new term
pursuant to an agreement entered into between Corby and The Absolut
Company Aktiebolag, an affiliate of PR and owner of the Absolut
brand, to satisfy the parties' obligations under the 2011
agreement. Since the agreement is a related party transaction, the
agreement was approved by the Independent Committee of the Corby
Board of Directors, in accordance with Corby's related party
transaction policy, following an extensive review and with external
financial and legal advice.
On July 1, 2012, the Company
entered into a five year agreement with PR USA, an affiliated
company, which provides PR USA the exclusive right to represent
J.P. Wiser's Canadian whisky and
Polar Ice vodka in the US. The agreement provides these key brands
with access to PR USA's extensive national distribution network
throughout the US and complements PR USA's premium brand portfolio.
The agreement is effective for a five year period ending
June 30, 2017. The agreement with PR
USA is a related party transaction between Corby and PR USA, as
such; the agreement was approved by the Independent Committee of
the Board of Directors of Corby following an extensive review, in
accordance with Corby's related party transaction policy.
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. 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 6, 2015, as published by Standard
& Poor's and Moody's, was BBB- and Baa3, respectively. PR
compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Service Agreement by
paying interest to Corby based upon the 30-day Canadian Dealer
Offered Rate ("CDOR") plus 0.40%. Corby accesses these funds on a
daily basis and has the contractual right to withdraw these funds
or terminate these cash management arrangements upon providing five
days' written notice.
Selected Quarterly Information
Summary of Quarterly Financial Results
|
|
|
|
|
|
|
|
|
(in millions of
Canadian dollars,
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
except per share
amounts)
|
2015
|
2015
|
2015
|
2014
|
2014
|
2014
|
2014
|
2013
|
|
|
|
|
|
|
|
|
|
Revenue
|
$ 26.8
|
$ 38.0
|
$ 34.8
|
$ 33.4
|
$ 28.6
|
$ 38.5
|
$ 36.7
|
$ 33.5
|
Earnings from
operations
|
3.1
|
7.7
|
6.6
|
9.2
|
4.1
|
10.2
|
9.9
|
10.0
|
Net
earnings
|
2.4
|
5.8
|
4.9
|
6.9
|
3.1
|
7.5
|
7.5
|
7.3
|
Basic EPS
|
0.08
|
0.20
|
0.17
|
0.24
|
0.11
|
0.26
|
0.26
|
0.26
|
Diluted
EPS
|
0.08
|
0.20
|
0.17
|
0.24
|
0.11
|
0.26
|
0.26
|
0.26
|
|
|
|
|
|
|
|
|
|
The above chart demonstrates the seasonality of Corby's
business, as sales are typically strong in the first and second
quarters, while third-quarter sales (January, February and March)
usually decline after the end of the retail holiday season. Fourth
quarter sales typically increase again with the onset of warmer
weather, as consumers tend to increase their purchasing levels
during the summer season. The launch of J.P. Wiser's Canadian whisky brand in the US is
reflected in the 2014 results above, and impacted revenues in the
first and second quarters as distribution channels were being
filled.
New Accounting Pronouncements
New accounting standards
The following new and revised standards and interpretations were
effective for Corby on July 1,
2014:
(i) Financial Instruments – Asset and Liability
Offsetting
The IASB has issued amendments to IAS 32, "Financial
Instruments: Presentation" ("IAS 32"), which provides further
guidance on the requirements for offsetting of financial
instruments. The amendments to IAS 32 are effective for annual
periods beginning on or after January 1,
2014 and must be applied retrospectively. For Corby, this
amendment was effective July 1, 2014.
The implementation of IAS 32 amendments resulted in a
reclassification of assets and liabilities related to other taxes
to accounts receivable and accounts payable balances. The
implementation of these amendments had the following impacts as at
March 31, 2014, June 30, 2014 and June 30,
2013:
|
|
|
|
|
increase
(decrease)
|
|
|
|
|
|
Mar. 31
|
June 30,
|
June 30,
|
Balance sheet
impacts
|
|
|
2014
|
2014
|
2013
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
|
$ 1,270
|
$ 1,569
|
$ 1,483
|
Income taxes and
other taxes recoverable
|
|
(273)
|
(634)
|
(562)
|
Accounts payable and
accrued liabilities
|
|
(997)
|
(935)
|
(921)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
-
|
$
-
|
$
-
|
The implementation of these amendments did not impact equity,
net earnings or cash flows in the current and comparative
periods.
(ii) Levies
The IFRS Interpretations Committee ("IFRIC") of the IASB has
issued a new interpretation, "Levies" ("IFRIC 21"), which addresses
the accounting for a liability to pay a levy to a government. IFRIC
21 applies to levy liabilities within the scope of IAS 37,
"Provisions, Contingent Liabilities and Contingent Assets", and to
levy liabilities when the timing and amount is certain. IFRIC 21 is
effective for annual periods beginning on or after January 1, 2014 and must be applied
retrospectively. For Corby, this interpretation was effective
July 1, 2014. The implementation of
IFRIC 21 did not have an impact on the Company's consolidated
results of operations and financial position.
Recent accounting pronouncements
A number of new standards, amendments to standards and
interpretations have been issued but are not yet effective for the
financial year ending June 30, 2015,
and accordingly, have not been applied in preparing these interim
condensed consolidated financial statements:
(i) Revenue
In May 2014, the IASB released
IFRS 15, "Revenue from contracts with customers" ("IFRS 15"), which
supersedes IAS 11, "Construction Contracts", IAS 18, "Revenues",
IFRIC 13, "Customer Loyalty Programmes", IFRIC 15, "Agreement for
the Construction of Real Estate", IFRIC 18, "Transfers of Assets
from Customers" and SIC-31, "Revenue – Barter Transactions
Involving Advertising Services". The core principle of IFRS 15 is
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. IFRS 15 will also result in
enhanced disclosures about revenue, provide guidance for
transactions that were not previously addressed comprehensively
(for example, service revenue and contract modifications) and
improve guidance for multiple-element arrangements. IFRS 15 will be
effective for Corby's fiscal year beginning on July 1, 2017, with earlier application permitted.
The Company has not yet assessed the impact of the adoption of this
standard on its financial statements and disclosures.
(ii) Financial Instruments
The IASB has issued a new standard, IFRS 9, "Financial
Instruments" ("IFRS 9"), which will ultimately replace IAS 39,
"Financial Instruments: Recognition and Measurement" ("IAS 39").
The replacement of IAS 39 is a multi-phase project with the
objective of improving and simplifying the reporting for financial
instruments and the issuance of IFRS 9 is part of the first phase
of this project. IFRS 9 uses a single approach to determine whether
a financial asset or liability is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. For financial
assets, the approach in IFRS 9 is based on how an entity manages
its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets.
IFRS 9 requires a single impairment method to be used, replacing
multiple impairment methods in IAS 39. For financial liabilities
measured at fair value, fair value changes due to changes in an
entity's credit risk are presented in other comprehensive income.
This standard is effective for annual periods beginning on or after
January 1, 2018 and must be applied
retrospectively. For Corby, this standard will become effective
July 1, 2018. The Company is
currently assessing the impact of the new standard on its financial
statements and disclosures.
(iii) Disclosure initiative
In December 2014, the IASB issued
Disclosure Initiative Amendments to IAS 1 as part of the IASB's
Disclosure Initiative. These amendments encourage entities to apply
professional judgement regarding disclosure and presentation in
their financial statements. These amendments are effective for
annual periods beginning on or after January
1, 2016. Earlier application is permitted. For Corby, these
amendments will become effective July 1,
2016. The Company is assessing the potential impact of these
amendments.
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.
There were no changes in internal control over financial
reporting during the Company's most recent interim period that have
materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.
Management currently has a project in place to update the internal
control framework the Company uses, the Internal Control –
Integrated Framework (COSO Framework), to the 2013 version from
the original 1992 version as published by The Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
The plan allows for the transition to the new framework for the
fiscal year ending June 30, 2015.
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. 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 in those countries
could also adversely affect the operations, financial performance
or reputation of the Company.
The Company continuously monitors the potential risk associated
with any proposed changes to its government policy, regulatory and
taxation environments and, as an industry leader, actively
participates in trade association discussions relating to new
developments.
Consumer Consumption Patterns
Beverage alcohol companies are susceptible to risks relating to
changes in consumer consumption patterns. Consumer consumption
patterns are affected by many external influences, not the least of
which is economic outlook and overall consumer confidence in the
stability of the economy as a whole. Corby offers a diverse
portfolio of products across all major spirits categories and at
various price points, which complements consumer desires and offers
exciting innovation.
Distribution/Supply Chain Interruption
The Company is susceptible to risks relating to distributor and
supply chain interruptions. Distribution in Canada is largely accomplished through the
government-owned provincial LBs and, therefore, an interruption
(e.g., a labour strike) for any length of time may have a
significant impact on the Company's ability to sell its products in
a particular province and/or market. International sales are
subject to the variations in distribution systems within each
country where the products are sold.
Supply chain interruptions, including a manufacturing or
inventory disruption, could impact product quality and
availability. The Company adheres to a comprehensive suite of
quality programmes and proactively manages production and supply
chains to mitigate any potential risk to consumer safety or Corby's
reputation and profitability.
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 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.
Competition
The Canadian 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. Corby constantly monitors
the market and adjusts its own 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 and note receivable.
The maximum exposure to credit risk is equal to the carrying value
of the Company's financial assets. The objective of managing
counter-party credit risk is to prevent losses in financial assets.
The Company assesses the credit quality of its counter-parties,
taking into account their financial position, past experience and
other factors. As the large majority of Corby's accounts receivable
balances are collectable from government-controlled LBs, management
believes the Company's credit risk relating to accounts receivable
is at an acceptably low level. The Company's note receivable is
secured.
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 and also has a
note receivable that earns a fixed rate of interest. 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 exceeding that of
the Company's USD sales. Therefore, decreases in the value of the
Canadian dollar ("CAD") relative to the USD will have an
unfavourable impact on the Company's earnings.
GBP Exposure
The Company's exposure to fluctuations in the value of the GBP
relative to the CAD was reduced as both sales and cost of
production are denominated in GBP. While Corby's exposure has been
minimized, increases in the value of the CAD relative to the GBP
will have an unfavourable impact on the Company's earnings.
Third-Party Service Providers
HWSL, which Corby manages on behalf of PR, provides more than
90% of the Company's production requirements, among other services
including administration and information technology. However, the
Company is reliant upon certain third-party service providers in
respect of certain of its operations. It is possible that negative
events affecting these third-party service providers could, in
turn, negatively impact the Company. While the Company has no
direct control over how such third parties are managed, it has
entered into contractual arrangements to formalize these
relationships. In order to minimize operating risks, the Company
actively monitors and manages its relationships with its
third-party service providers.
Brand Reputation and Trademark Protection
The Company promotes nationally branded, non-proprietary
products as well as proprietary products. Damage to the reputation
of any of these brands, or to the reputation of any supplier or
manufacturer of these brands, could negatively impact consumer
opinion of the Company or the related products, which could have an
adverse impact on the financial performance of the Company. The
Company strives to mitigate such risks by selecting only those
products from suppliers that strategically complement Corby's
existing brand portfolio and by actively monitoring brand
advertising and promotion activities. The Company registers
trademarks, as applicable, while constantly watching for and
responding to competitive threats, as necessary.
Valuation of Goodwill and Intangible Assets
Goodwill and intangible assets account for a significant amount
of the Company's total assets. Goodwill and intangible assets are
subject to impairment tests that involve the determination of fair
value. Inherent in such fair value determinations are certain
judgments and estimates including, but not limited to, projected
future sales, earnings and capital investment; discount rates; and
terminal growth rates. These judgments and estimates may change in
the future due to uncertain competitive market and general economic
conditions, or as the Company makes changes in its business
strategies. Given the current state of the economy, certain of the
aforementioned factors affecting the determination of fair value
may be impacted and, as a result, the Company's financial results
may be adversely affected.
The following chart summarizes Corby's goodwill and intangible
assets and details the amounts associated with each brand (or
basket of brands) and market:
|
|
|
|
Carrying Values as at
March 31, 2015
|
|
|
|
|
|
|
|
Associated
Brand
|
|
Associated
Market
|
|
Goodwill
|
Intangibles
|
Total
|
|
|
|
|
|
|
|
Various PR
brands
|
|
Canada
|
|
$
-
|
$
38.0
|
$
38.0
|
Lamb's rum
|
|
United
Kingdom(1)
|
|
1.4
|
11.8
|
13.2
|
Corby domestic
brands
|
|
Canada
|
|
1.9
|
-
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
$
3.3
|
$
49.8
|
$
53.1
|
|
|
|
|
|
|
|
(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.
|
|
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 consolidated financial
statements for the year ended June 30,
2014.
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
|
June 30,
|
June 30,
|
|
|
Notes
|
2015
|
2014
(1)
|
2014
(1)
|
2013
(1)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Deposits in cash
management pools
|
|
$
88,145
|
$ 105,620
|
$ 108,029
|
$ 108,043
|
Accounts
receivable
|
|
5
|
25,658
|
24,260
|
24,818
|
25,125
|
Income taxes
recoverable
|
|
1,354
|
649
|
346
|
493
|
Inventories
|
|
6
|
52,987
|
51,976
|
52,561
|
49,083
|
Prepaid
expenses
|
|
|
314
|
379
|
256
|
533
|
Current portion of
note receivable
|
|
-
|
600
|
600
|
600
|
|
|
|
|
|
|
|
Total current
assets
|
|
168,458
|
183,484
|
186,610
|
183,877
|
Note
receivable
|
|
|
-
|
-
|
-
|
600
|
Deferred income
taxes
|
|
592
|
669
|
658
|
1,699
|
Property and
equipment
|
|
9,090
|
7,533
|
8,632
|
8,092
|
Goodwill
|
|
|
3,278
|
3,278
|
3,278
|
3,278
|
Intangible
assets
|
|
|
49,751
|
55,908
|
54,163
|
49,665
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$
231,169
|
$ 250,872
|
$ 253,341
|
$ 247,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
7
|
$
25,483
|
$
26,753
|
$
27,709
|
$
25,106
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
25,483
|
26,753
|
27,709
|
25,106
|
Provision for
employee benefits
|
|
17,093
|
17,348
|
16,491
|
20,794
|
Total
liabilities
|
|
|
42,576
|
44,101
|
44,200
|
45,900
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
Share
capital
|
|
|
14,304
|
14,304
|
14,304
|
14,304
|
Accumulated other
comprehensive loss
|
|
(4,331)
|
(4,933)
|
(4,303)
|
(7,363)
|
Retained
earnings
|
|
|
178,620
|
197,400
|
199,140
|
194,370
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
188,593
|
206,771
|
209,141
|
201,311
|
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
231,169
|
$ 250,872
|
$ 253,341
|
$ 247,211
|
|
|
|
|
|
|
|
1In
preparing its comparative information, the Company has adjusted
amounts reported previously in the condensed
consolidated
|
balance sheets as a
result of the retrospective application of the amendments to IAS
32, Financial Instruments - Presentation.
|
Refer to Note 3 for
details regarding adjusted amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these 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
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
Revenue
|
|
8
|
$
26,838
|
$
28,642
|
$
99,593
|
$
103,913
|
|
|
|
|
|
|
|
Cost of
sales
|
|
(10,372)
|
(11,020)
|
(37,357)
|
(38,212)
|
Marketing, sales and
administration
|
|
(13,363)
|
(13,624)
|
(44,859)
|
(41,895)
|
Other
income
|
9
|
15
|
73
|
48
|
412
|
|
|
|
|
|
|
|
Earnings from
operations
|
3,118
|
4,071
|
17,425
|
24,218
|
|
|
|
|
|
|
|
Financial
income
|
10
|
395
|
429
|
1,303
|
1,310
|
Financial
expenses
|
10
|
(266)
|
(305)
|
(848)
|
(943)
|
|
|
|
129
|
124
|
455
|
367
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
3,247
|
4,195
|
17,880
|
24,585
|
|
|
|
|
|
|
|
Current income
taxes
|
(874)
|
(1,000)
|
(4,727)
|
(6,319)
|
Deferred income
taxes
|
(6)
|
(140)
|
(80)
|
(148)
|
Income
taxes
|
|
(880)
|
(1,140)
|
(4,807)
|
(6,467)
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
2,367
|
$
3,055
|
$
13,073
|
$
18,118
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.08
|
$
0.11
|
$
0.46
|
$
0.64
|
Diluted earnings
per share
|
$
0.08
|
$
0.11
|
$
0.46
|
$
0.64
|
|
|
|
|
|
|
|
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 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
|
|
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
$
2,367
|
$
3,055
|
$
13,073
|
$
18,118
|
|
|
|
|
|
|
|
Amounts that will not
be subsequently reclassified to earnings:
|
|
|
|
Net actuarial
(losses) gains
|
|
(507)
|
3,184
|
(42)
|
3,312
|
Income
taxes
|
|
|
139
|
(848)
|
14
|
(882)
|
|
|
|
(368)
|
2,336
|
(28)
|
2,430
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
1,999
|
$
5,391
|
$
13,045
|
$
20,548
|
INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
(Not audited or
reviewed by the Company's external auditor)
|
|
|
|
(in thousands of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|
|
|
|
|
|
|
Balance as at June
30, 2014
|
|
$
14,304
|
$
(4,303)
|
$ 199,140
|
$ 209,141
|
Total comprehensive
income
|
|
-
|
(28)
|
13,073
|
13,045
|
Dividends
|
|
|
-
|
-
|
(33,593)
|
(33,593)
|
|
|
|
|
|
|
|
Balance as at
March 31, 2015
|
|
$
14,304
|
$
(4,331)
|
$
178,620
|
$
188,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June
30, 2013
|
|
$
14,304
|
$
(7,363)
|
$ 194,370
|
$ 201,311
|
Total comprehensive
income
|
|
-
|
2,430
|
18,118
|
20,548
|
Dividends
|
|
|
-
|
-
|
(15,088)
|
(15,088)
|
|
|
|
|
|
|
|
Balance as at March
31, 2014
|
|
$
14,304
|
$
(4,933)
|
$ 197,400
|
$ 206,771
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these 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
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
2,367
|
$
3,055
|
$
13,073
|
$
18,118
|
Adjustments
for:
|
|
|
|
|
|
Amortization and
depreciation
|
11
|
1,855
|
1,945
|
5,584
|
5,181
|
Net financial
income
|
10
|
(129)
|
(124)
|
(455)
|
(367)
|
Gain on disposal of
property and equipment
|
|
(17)
|
(36)
|
(100)
|
(143)
|
Income tax
expense
|
|
880
|
1,140
|
4,807
|
6,467
|
Provision for
employee benefits
|
|
(256)
|
(1,059)
|
(281)
|
(1,076)
|
|
|
|
4,700
|
4,921
|
22,628
|
28,180
|
Net change in
non-cash working capital balances
|
12
|
(5,456)
|
4,050
|
(3,550)
|
(325)
|
Interest
received
|
|
411
|
480
|
1,296
|
1,330
|
Income taxes
paid
|
|
(1,064)
|
(1,152)
|
(5,735)
|
(6,474)
|
|
|
|
|
|
|
|
Net cash from
operating activities
|
|
(1,409)
|
8,299
|
14,639
|
22,711
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Additions to property
and equipment
|
|
(456)
|
(396)
|
(1,701)
|
(655)
|
Additions to
intangible assets
|
|
-
|
-
|
-
|
(10,293)
|
Proceeds from
disposition of property and equipment
|
32
|
56
|
171
|
302
|
Deposits in cash
management pools
|
|
24,294
|
(3,435)
|
19,884
|
2,423
|
|
|
|
|
|
|
|
Net cash used in
investing activities
|
|
23,870
|
(3,775)
|
18,354
|
(8,223)
|
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
Proceeds from note
receivable
|
|
600
|
600
|
600
|
600
|
Dividends
paid
|
|
(23,061)
|
(5,124)
|
(33,593)
|
(15,088)
|
|
|
|
|
|
|
|
Net cash used in
financing activity
|
|
(22,461)
|
(4,524)
|
(32,993)
|
(14,488)
|
|
|
|
|
|
|
|
Net increase in
cash
|
|
-
|
-
|
-
|
-
|
Cash, beginning of
period
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Cash, end of
period
|
|
$
-
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
|
|
CORBY SPIRIT AND WINE LIMITED
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Not audited or reviewed by the Company's external
auditor)
(in thousands of Canadian dollars, except per
share amounts)
1. GENERAL
INFORMATION
Corby Spirit and Wine Limited ("Corby" or the "Company") is a
leading Canadian marketer of spirits and importer of wines. The
Company derives its revenues from the sale of its owned-brands in
Canada and other international
markets, as well as commissions earned 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 ("LBs") 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,
2015.
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.
Effective November 7, 2013, Corby
changed its name and began operating as Corby Spirit and Wine
Limited. Prior to this date, Corby operated as Corby Distilleries
Limited. Reflecting the change, Corby began trading on the TSX
under the symbols CSW.A and CSW.B.
2. BASIS OF PREPARATION
Statement of compliance
These interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting" ("IAS 34"), as issued by the
International Accounting Standards Board ("IASB"). These interim
condensed consolidated financial statements follow the same
accounting policies as the most recent annual consolidated
financial statements, except for changes in accounting policies and
methods described in Note 3 to these condensed consolidated
financial statements. These interim condensed consolidated
financial statements should be read in conjunction with the
Company's 2014 annual financial statements.
These interim condensed consolidated financial statements were
approved by the Company's Board of Directors on May 6, 2015.
Functional and presentation currency
The Company's interim condensed consolidated financial
statements are presented in Canadian dollars, which is the
Company's functional and presentation currency.
Foreign currency translation
Transactions denominated in foreign currencies are translated
into the functional currency using the exchange rate applying at
the transaction date. Non-monetary assets and liabilities
denominated in foreign currencies are recognized at the historical
exchange rate applicable at the transaction date. Monetary assets
and liabilities denominated in foreign currencies are translated at
the exchange rate applying at the balance sheet date. Foreign
currency differences related to operating activities are recognized
in earnings from operations for the period; foreign currency
differences related to financing activities are recognized within
net financial income.
Basis of Measurement
These interim condensed consolidated financial statements are
prepared in accordance with the historical cost model, except for
certain categories of assets and liabilities, which are measured in
accordance with other methods provided for by IFRS as explained in
the accounting policies below. Historical cost is generally based
on the fair value of the consideration given in exchange for
assets.
Seasonality
These interim condensed consolidated financial statements should
not be taken as indicative of the performance to be expected for
the full year due to the seasonal nature of the spirits business.
Corby's operations are subject to seasonal fluctuations as 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.
Use of Estimates and
Judgements
The preparation of the interim condensed consolidated financial
statements in conformity with IFRS requires management to make
certain judgements, estimates and assumptions that affect the
application of accounting policies, the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at
the date of the interim condensed consolidated financial
statements, and the reported amounts of revenues and expenses
during the reporting period. These estimates are made on the
assumption the Company will continue as a going concern and are
based on information available at the time of preparation.
Estimates may be revised where the circumstance on which they were
based change or where new information becomes available. Future
outcomes can differ from these estimates.
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.
The Company has applied judgement in determining the tax rates
used for measuring deferred taxes and identifying the indicators of
impairment for property and equipment, goodwill and intangible
assets. In the absence of standards or interpretations applicable
to a specific transaction, management uses its judgement to define
and apply accounting policies that provide relevant and reliable
information in the context of the preparation of the financial
statements.
Estimates are used when estimating the useful lives of property
and equipment and intangible assets for the purpose of depreciation
and amortization, when accounting for or measuring items such as
allowances for uncollectible accounts receivable and inventory
obsolescence, assumptions underlying the actuarial determination of
provision for pensions, income and other taxes, provisions, certain
fair value measures including those related to the valuation of
share-based payments and financial instruments, and when testing
goodwill, intangible assets and other assets for impairment. Actual
results may 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.
3. ADOPTION OF NEW AND REVISED STANDARDS AND
INTERPRETATIONS
The following new and revised standards and interpretations were
effective for Corby on July 1,
2014:
(i) Financial Instruments – Asset and
Liability Offsetting
The IASB has issued amendments to IAS 32, "Financial
Instruments: Presentation" ("IAS 32"), which provides further
guidance on the requirements for offsetting of financial
instruments. The amendments to IAS 32 are effective for annual
periods beginning on or after January 1,
2014 and must be applied retrospectively. For Corby, this
amendment was effective July 1, 2014.
The implementation of IAS 32 amendments resulted in a
reclassification of assets and liabilities related to other taxes
to accounts receivable and accounts payable balances. The
implementation of these amendments had the following impacts as at
March 31, 2014, June 30, 2014 and June 30,
2013:
|
|
|
|
|
increase
(decrease)
|
|
|
|
|
|
Mar. 31,
|
June 30,
|
June 30,
|
Balance sheet
impacts
|
|
|
2014
|
2014
|
2013
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
$
1,270
|
$
1,569
|
$
1,483
|
Income and other
taxes recoverable
|
|
(273)
|
(634)
|
(562)
|
Accounts payable and
accrued liabilities
|
|
(997)
|
(935)
|
(921)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
-
|
$
-
|
$
-
|
The implementation of these amendments did not impact equity,
net earnings or cash flows in the current and comparative
periods.
(ii) Levies
The IFRS Interpretations Committee ("IFRIC") of the IASB has
issued a new interpretation, "Levies" ("IFRIC 21"), which addresses
the accounting for a liability to pay a levy to a government.
IFRIC 21 applies to levy liabilities within the scope of IAS 37,
"Provisions, Contingent Liabilities and Contingent Assets", and to
levy liabilities when the timing and amount is certain. IFRIC 21 is
effective for annual periods beginning on or after January 1, 2014 and must be applied
retrospectively. For Corby, this interpretation was effective
July 1, 2014. The implementation of
IFRIC 21 did not have an impact on the Company's consolidated
results of operations and financial position.
Recent accounting pronouncements
A number of new standards, amendments to standards and
interpretations have been issued but are not yet effective for the
financial year ending June 30, 2015,
and accordingly, have not been applied in preparing these interim
condensed consolidated financial statements:
(i) Revenue
In May 2014, the IASB released
IFRS 15, "Revenue from contracts with customers" ("IFRS 15"), which
supersedes IAS 11, "Construction Contracts", IAS 18, "Revenues",
IFRIC 13, "Customer Loyalty Programmes", IFRIC 15, "Agreement for
the Construction of Real Estate", IFRIC 18, "Transfers of Assets
from Customers" and SIC-31, "Revenue – Barter Transactions
Involving Advertising Services". The core principle of IFRS 15 is
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. IFRS 15 will also result in
enhanced disclosures about revenue, provide guidance for
transactions that were not previously addressed comprehensively
(for example, service revenue and contract modifications) and
improve guidance for multiple-element arrangements. IFRS 15 will be
effective for Corby's fiscal year beginning on July 1, 2017, with earlier application permitted.
The Company has not yet assessed the impact of the adoption of this
standard on its financial statements and disclosures.
(ii) Financial Instruments
The IASB has issued a new standard, IFRS 9, "Financial
Instruments" ("IFRS 9"), which will ultimately replace IAS 39,
"Financial Instruments: Recognition and Measurement" ("IAS 39").
The replacement of IAS 39 is a multi-phase project with the
objective of improving and simplifying the reporting for financial
instruments and the issuance of IFRS 9 is part of the first phase
of this project. IFRS 9 uses a single approach to determine whether
a financial asset or liability is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. For financial
assets, the approach in IFRS 9 is based on how an entity manages
its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets.
IFRS 9 requires a single impairment method to be used, replacing
multiple impairment methods in IAS 39. For financial liabilities
measured at fair value, fair value changes due to changes in an
entity's credit risk are presented in other comprehensive
income.
This standard is effective for annual periods beginning on or
after January 1, 2018 and must be
applied retrospectively. For Corby, this standard will become
effective July 1, 2018. The Company
is currently assessing the impact of the new standard on its
financial statements and disclosures.
(iii) Disclosure initiative
In December 2014, the IASB issued
Disclosure Initiative Amendments to IAS 1 as part of the IASB's
Disclosure Initiative. These amendments encourage entities to apply
professional judgement regarding disclosure and presentation in
their financial statements. These amendments are effective for
annual periods beginning on or after January
1, 2016. Earlier application is permitted. For Corby, these
amendments will become effective July 1,
2016. The Company is assessing the potential impact of these
amendments.
4. FAIR VALUE
The Company uses a fair value hierarchy in order to classify the
fair value measurements and disclosures related to the Company's
financial assets and financial liabilities. The fair value
hierarchy has the following levels:
- Level 1 – Quoted market prices in active markets for identical
assets or liabilities;
- Level 2 – Inputs other than quoted market prices included in
Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices); and
- Level 3 – Unobservable inputs such as inputs for the asset or
liability that are not based on observable market data.
The level in the fair value hierarchy within which the fair
value measurement is categorized in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety.
The Company has no financial instruments carried at fair value
on its balance sheet. For financial assets and liabilities that are
valued at other than fair value on its balance sheets (i.e.,
deposits in cash management pools, accounts receivable, accounts
payable and accrued liabilities), fair value approximates their
carrying value at each balance sheet date due to their short-term
maturities. Fair value is determined using Level 2 inputs.
5. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31,
|
Mar. 31,
|
June 30,
|
June 30,
|
|
|
|
|
2015
|
2014
|
2014
|
2013
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
$
15,410
|
$ 13,782
|
$ 16,343
|
$ 16,491
|
Due from related
parties
|
|
8,835
|
9,208
|
6,906
|
7,151
|
Other
|
|
|
1,413
|
1,270
|
1,569
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
$
25,658
|
$ 24,260
|
$ 24,818
|
$ 25,125
|
6. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31,
|
Mar. 31,
|
June 30,
|
June 30,
|
|
|
|
|
2015
|
2014
|
2014
|
2013
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
$
1,893
|
$
2,309
|
$
2,058
|
$
2,132
|
Work-in-progress
|
|
|
41,775
|
40,577
|
41,081
|
39,669
|
Finished
goods
|
|
|
9,319
|
9,090
|
9,422
|
7,282
|
|
|
|
|
|
|
|
|
|
|
|
|
$
52,987
|
$ 51,976
|
$ 52,561
|
$ 49,083
|
The cost of inventory recognized as an expense and included in
cost of goods sold for the three and nine months ended March 31, 2015 was $7,951 and $29,860
(2014 – $8,933 and $31,074), respectively. During the three and nine
month periods ended March 31, 2015
and 2014, there were no significant write-downs of inventory as a
result of net realizable value being lower than cost, and no
inventory write-downs recognized in previous years were
reversed.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar.
31,
|
Mar. 31,
|
June 30,
|
June 30,
|
|
|
|
|
2015
|
2014
|
2014
|
2013
|
|
|
|
|
|
|
|
|
Trade payables and
accruals
|
|
$
16,577
|
$ 20,574
|
$ 17,724
|
$ 17,715
|
Due to related
parties
|
|
|
8,038
|
5,182
|
9,050
|
6,470
|
Other
|
|
|
868
|
997
|
935
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
$
25,483
|
$ 26,753
|
$ 27,709
|
$ 25,106
|
8. REVENUE
The Company's revenue consists of the following streams:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
Mar.
31,
|
Mar. 31,
|
Mar.
31,
|
Mar. 31,
|
|
|
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Case goods
sales
|
|
|
$
22,669
|
$ 24,596
|
$
84,489
|
$ 87,951
|
Commissions (net of
amortization of representation rights)
|
3,362
|
3,170
|
12,133
|
12,733
|
Other
services
|
|
|
807
|
876
|
2,971
|
3,229
|
|
|
|
|
|
|
|
|
|
|
|
|
$
26,838
|
$ 28,642
|
$
99,593
|
$ 103,913
|
Commissions for the three and nine month periods are shown net
of amortization of long-term representation rights and
non-refundable upfront fees of $1,471
and $4,412, (2014 - $1,482 and $4,126),
respectively. Other services include revenues incidental to the
manufacture of case goods, such as logistics fees.
9. OTHER INCOME AND EXPENSE
The Company's other income consists of the following
amounts:
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
Mar.
31,
|
Mar. 31,
|
Mar.
31,
|
Mar. 31,
|
|
|
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Foreign exchange
(loss) gain
|
|
$
(16)
|
$
36
|
$
(81)
|
$
269
|
Gain on disposal of
property and equipment
|
31
|
37
|
114
|
143
|
Other
|
|
|
-
|
-
|
15
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
15
|
$
73
|
$
48
|
$
412
|
10. 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,
|
|
|
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
$
395
|
$
429
|
$
1,296
|
$
1,310
|
Net financial impact
of pensions
|
(266)
|
(305)
|
(841)
|
(943)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
129
|
$
124
|
$
455
|
$
367
|
11. 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,
|
|
|
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
$
384
|
$
463
|
$
1,172
|
$
1,055
|
Amortization of
intangible assets
|
1,471
|
1,482
|
4,412
|
4,126
|
Salary and payroll
costs
|
|
5,556
|
5,300
|
16,771
|
15,610
|
Expenses related to
pensions and benefits
|
244
|
(631)
|
957
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
$
7,655
|
$
6,614
|
$
23,312
|
$ 21,050
|
12. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
|
|
|
|
Three
months ended
|
Nine months
ended
|
|
|
|
|
Mar.
31,
|
Mar. 31,
|
Mar.
31,
|
Mar. 31,
|
|
|
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
$
5,228
|
$
6,356
|
$
(840)
|
$
845
|
Inventories
|
|
|
(1,572)
|
(1,967)
|
(426)
|
(2,893)
|
Prepaid
expenses
|
|
|
132
|
(78)
|
(58)
|
154
|
Accounts payable and
accrued liabilities
|
(9,244)
|
(261)
|
(2,226)
|
1,569
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(5,456)
|
$
4,050
|
$
(3,550)
|
$
(325)
|
13. DIVIDENDS
On May 6, 2015, subsequent to the
quarter ended March 31, 2015, the
Board of Directors declared a regular quarterly dividend of
$0.19 per common share, to be paid on
June 12, 2015, to shareholders of
record as at the close of business on May
29, 2015. This dividend is in accordance with the Company's
dividend policy.
14. RELATED PARTY TRANSACTIONS
Transactions with parent, ultimate parent, and
affiliates
The majority of Corby's issued and outstanding Voting Class A
shares are owned by HWSL. HWSL is a wholly-owned subsidiary of PR.
Therefore, HWSL is Corby's parent and PR is Corby's ultimate
parent. Affiliated companies are subsidiaries which are controlled
by Corby's parent and/or ultimate parent.
Corby engages in a significant number of transactions with its
parent company, its ultimate parent and various affiliates.
Specifically, Corby renders services to its parent company, its
ultimate parent, and affiliates for the marketing and sale of
beverage alcohol products in Canada. Furthermore, Corby outsources the
large majority of its distilling, maturing, storing, blending,
bottling and related production activities to its parent company. A
significant portion of Corby's bookkeeping, recordkeeping services,
data processing and other administrative services are also
outsourced to its parent company. Transactions with the parent
company, ultimate parent and affiliates are subject to Corby's
related party transaction policy, which requires such transactions
to undergo an extensive review and receive approval from an
Independent Committee of the Board of Directors.
The companies operate under the terms of agreements that became
effective on September 29, 2006.
These agreements provide the Company with the exclusive right to
represent PR's brands in the Canadian market for fifteen years, as
well as providing for the continuing production of certain Corby
brands by PR at its production facility in Windsor, Ontario, for ten years. Corby also
manages PR's business interests in Canada, including the Windsor production facility. Certain officers
of Corby have been appointed as directors and officers of PR's
Canadian entities, as approved by Corby's Board of Directors.
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. Corby also agreed to continue
with the mirror netting arrangement with PR and its affiliates,
under which Corby's excess cash will continue to be deposited to
cash management pools. The mirror netting arrangement with PR and
its affiliates is further described below.
Further, on November 9, 2011,
Corby entered into an agreement with a PR affiliate for a new term
for Corby's exclusive right to represent ABSOLUT vodka in
Canada from September 30, 2013 to September 29, 2021, which is consistent with the
term of Corby's Canadian representation of the other PR brands in
Corby's portfolio. On September 30,
2013, Corby paid the present value of $10 million, or $10.3
million, for the additional eight years of the new term
pursuant to an agreement entered into between Corby and The Absolut
Company Aktiebolag, an affiliate of PR and owner of the Absolut
brand, to satisfy the parties' obligations under the 2011
agreement. Since the agreement is a related party transaction, the
agreement was approved by the Independent Committee of the Corby
Board of Directors, in accordance with Corby's related party
transaction policy, following an extensive review and with external
financial and legal advice.
On July 1, 2012, the Company
entered into a five year agreement with PR USA, an affiliated
company, which provides PR USA the exclusive right to represent
Wiser's Canadian whisky and Polar Ice vodka in the US. The
agreement provides these key brands with access to PR USA's
extensive national distribution network throughout the US and
complements PR USA's premium brand portfolio. The agreement is
effective for a five year period ending June
30, 2017. The agreement with PR USA is a related party
transaction between Corby and PR USA, as such; the agreement was
approved by the Independent Committee of the Board of Directors of
Corby following an extensive review, in accordance with Corby's
related party transaction policy.
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,
|
|
|
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Sales to related
parties
|
|
|
|
|
|
|
Commissions - parent,
ultimate parent and affiliated companies
|
$
4,163
|
$
3,926
|
$
14,402
|
$ 14,039
|
Products for resale
at an export level - affiliated companies
|
1,033
|
3,052
|
4,173
|
9,668
|
|
|
|
|
|
|
|
|
|
|
|
|
$
5,196
|
$
6,978
|
$
18,575
|
$ 23,707
|
|
|
|
|
|
|
|
|
Cost of goods
sold, purchased from related parties
|
|
|
|
|
Distilling, blending,
and production services - parent
|
$
5,767
|
$
5,461
|
$
16,244
|
$ 16,944
|
|
|
|
|
|
|
|
|
Administrative
services purchased from related parties
|
|
|
|
|
Marketing, selling
and administration services - parent
|
$
625
|
$
600
|
$
1,875
|
$
1,800
|
Marketing, selling
and administration services - affiliate
|
881
|
3,741
|
5,325
|
6,149
|
|
|
|
|
|
|
|
|
|
|
|
|
$
1,506
|
$
4,341
|
$
7,200
|
$
7,949
|
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 ending March 31, 2015, Corby sold casks to its parent
company for net proceeds of $32 and
$171 (2014 - $56 and $302),
respectively.
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.
effective July 17, 2014. The Mirror
Netting Services Agreement acts to aggregate each participant's net
cash balance for the purposes of having a centralized cash
management function for all of PR's Canadian affiliates, including
Corby. As a result of Corby's participation in this agreement,
Corby's credit risk associated with its deposits in cash management
pools is contingent upon PR's credit rating. PR's credit rating as
at May 6, 2015, as published by
Standard & Poor's and Moody's, was BBB- and Baa3, respectively.
PR compensates Corby for the benefit it receives from having the
Company participate in the Mirror Netting Services Agreement by
paying interest to Corby based upon the 30-day CDOR rate plus
0.40%. During the three and nine month periods ending March 31, 2015, Corby earned interest income of
$390 and $1,294 from PR (2014 – $417 and $1,272),
respectively. Corby has the right to terminate its participation in
the Mirror Netting Services Agreement at any time, subject to five
days' written notice.
15. SEGMENT INFORMATION
Corby has two reportable segments: Case Goods and Commissions.
Corby's Case Goods segment derives its revenue from the production
and distribution of its owned beverage alcohol brands. Corby's
portfolio of owned-brands includes some of the most renowned and
respected brands in Canada, such
as J.P. Wiser's® Canadian whisky,
Lamb's® rum, Polar Ice® vodka and McGuinness® liqueurs.
Corby's Commissions segment earns commission income from the
representation of non-owned beverage alcohol brands in Canada. Corby represents leading international
brands such as ABSOLUT® vodka, Chivas Regal®, The Glenlivet® and
Ballantine's® Scotch whiskies, Jameson® Irish whiskey, Beefeater®
gin, Malibu® rum, Kahlúa® liqueur, Mumm® champagne, and Jacob's
Creek®, Wyndham Estate®, Stoneleigh® and Graffigna® wines.
The Commissions segment's financial results are fully reported
as "Commissions" in Note 8 of these interim condensed consolidated
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