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Corby Spirit and Wine Announces Full Year Results and Quarterly Dividend

Corby Spirit and Wine Announces Full Year Results and Quarterly Dividend

TORONTO , Aug. 21, 2019 /CNW/ - Corby Spirit and Wine Limited ("Corby" or the "Company") (TSX: CSW.A, CSW.B) today reported its financial results for the fourth quarter and year ended June 30, 2019 . The Corby Board of Directors today also declared a dividend of $0.22 per share payable on September 27, 2019 on the Voting Class A Common Shares and Non-Voting Class B Common Shares of the Company to shareholders of record as at the close of business on September 11, 2019 .

Revenue grew 3% for the year ended June 30, 2019 , as performance of key strategic brands were boosted by premium innovations and strategic price optimization enabling Corby to reinvest behind its core strategies and fast growing segments, notably gin. Net earnings of $25.7 million (or $0.90 per share) were reported for the year ended June 30, 2019 , in line with that of the previous year. Net earnings of $7.8 million (or $0.27 per share) were reported for the three-month period ended June 30, 2019 , or $1.5 million below the same quarter last year, reflecting increased advertising and promotional investment behind our key brands.

 "Our commitment to strategically align our investments and focus on our key priorities and brands is delivering strong top-line growth and is building a strong foundation in domestic and new routes to market. I am pleased with the performance of our brands; in particular, J.P. Wiser's and Ungava Gin which continue to outpace the Canadian whisky and super premium gin categories," 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 consolidated financial statements and accompanying notes for the three-months and year ended June 30, 2019 , prepared in accordance with International Financial Reporting Standards.

About Corby
Corby Spirit and Wine Limited is a leading Canadian manufacturer, marketer and distributor of spirits and imported wines. Corby's portfolio of owned-brands includes some of the most renowned brands in Canada , including J.P. Wiser's®, Lot 40®, and Pike Creek® Canadian whiskies, Lamb's® rum, Polar Ice® vodka and McGuinness® liqueurs, as well as the Ungava® gin, Cabot Trail® maple-based liqueurs and Chic Choc® spiced rum and Foreign Affair® wines. Through its affiliation with Pernod Ricard S.A., a global leader in the spirits and wine industry, Corby also represents leading international brands such as ABSOLUT® vodka, Chivas Regal®, The Glenlivet® and Ballantine's® Scotch whiskies, Jameson® Irish whiskey, Beefeater® gin, Malibu® rum, Kahlúa® liqueur, Mumm® champagne, and Jacob's Creek®, Wyndham Estate®, Stoneleigh®, Campo Viejo®, and Kenwood® wines. Corby is a publicly traded company based in Toronto, Ontario , and listed on the Toronto Stock Exchange under the trading symbols CSW.A and CSW.B.  For further information, please visit our website or follow us on LinkedIn.

This press release contains forward-looking statements, including statements concerning possible or assumed future results of Corby's operations. Forward-looking statements typically are preceded by, followed by or include the words "believes", "expects", "anticipates", "estimates", "intends", "plans" or similar expressions. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions and, as such, actual results or expectations could differ materially from those anticipated in these forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. All financial results are reported in Canadian dollars.

CORBY SPIRIT AND WINE LIMITED
Management's Discussion and Analysis
June 30, 2019

The following Management's Discussion and Analysis ("MD&A") dated August 21, 2019 should be read in conjunction with the audited consolidated financial statements and accompanying notes as at and for the year ended June 30, 2019 , prepared in accordance with International Financial Reporting Standards ("IFRS"). While the annual financial statements were audited, information for the three months ended June 30, 2019 and 2018 were not audited or reviewed by the Company's external auditors in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of unaudited financial statements by an entity's auditor.

This MD&A contains forward-looking statements, including statements concerning possible or assumed future results of operations of Corby Spirit and Wine Limited ("Corby" or the "Company"), including the statements made under the headings "Strategies and Outlook", "Liquidity and Capital Resources", "Recent Accounting Pronouncements" and "Risks and Risk Management." Forward-looking statements typically are preceded by, followed by or include the words "believes", "expects", "anticipates", "estimates", "intends", "plans" or similar expressions. Forward-looking statements are not guarantees of future performance. They involve risks and uncertainties, including, but not limited to: the impact of competition; the impact, and successful integration of, acquisitions; business interruption; trademark infringement; consumer confidence and spending preferences; regulatory changes; general economic conditions; and the Company's ability to attract and retain qualified employees. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. These factors are not intended to represent a complete list of the factors that could affect the Company and other factors could also affect Corby's results. For more information, please see the "Risk and Risk Management" section of this MD&A.

This document has been reviewed by the Audit Committee of Corby's Board of Directors and contains certain information that is current as of August 21, 2019 . 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 fourth quarter of fiscal 2019 (three months ended June 30, 2019 ) are against results for the fourth quarter of fiscal 2018 (three months ended June 30, 2018 ). All dollar amounts are in Canadian dollars unless otherwise stated.

Business Overview

Corby is a leading Canadian manufacturer, marketer and importer of spirits and wines. Corby's national leadership is sustained by a diverse brand portfolio that allows the Company to drive profitable organic growth with strong, consistent cash flows. Corby is a publicly traded company, with its shares listed on the Toronto Stock Exchange under the symbols "CSW.A" (Voting Class A Common Shares) and "CSW.B" (Non-Voting Class B Common Shares). Corby's Voting Class A Common Shares are majority-owned by Hiram Walker & Sons Limited ("HWSL") (a private company) located in Windsor, Ontario . HWSL is a wholly-owned subsidiary of international spirits and wine company Pernod Ricard S.A. ("PR") (a French public limited company), which is headquartered in Paris, France . Therefore, throughout the remainder of this MD&A, Corby refers to HWSL as its parent, and to PR as its ultimate parent. Affiliated companies are those that are also subsidiaries of PR.

The Company derives its revenues from the sale of its owned-brands ("Case Goods"), as well as earning commission income from the representation of selected non-owned brands in Canada ("Commissions"). The Company also supplements these primary sources of revenue with other ancillary activities incidental to its core business, such as logistics fees and from time to time bulk whisky sales to rebalance its maturation inventories. Revenue from Corby's owned-brands predominantly consists of sales made to each of the provincial liquor boards ("LBs") in Canada , and also includes sales to international markets.

Corby's portfolio of owned-brands includes some of the most renowned brands in Canada , including J.P. Wiser's®  Canadian whisky, Lamb's® rum, Polar Ice® vodka, McGuinness®  liqueurs, and Ungava®  gin, Chic Choc®  Spiced rum, and Cabot Trail® maple cream liqueur (Coureur des Bois®, in Quebec ) (collectively, the "Ungava Spirit Brands,") and the Foreign Affair® wine brands (the "Foreign Affair Brands"). Through its affiliation with PR, Corby also represents leading international brands such as ABSOLUT® vodka, Chivas Regal ®, The Glenlivet® and Ballantine's® Scotch whiskies, Jameson® Irish whiskey, Beefeater® gin, Malibu ® rum, Kahlúa® liqueur, Mumm® champagne, and Jacob's Creek®, Wyndham Estate®, Stoneleigh®, Campo Viejo ®, and Kenwood® wines. In addition to representing PR's brands in Canada , Corby also provides representation for certain selected, unrelated third-party brands ("Agency brands") when they fit within the Company's strategic direction and, thus, complement Corby's existing brand portfolio.

PR produces the majority of Corby's owned-brands under a distillate agreement and a co-pack agreement, each expiring September 30, 2026 at HWSL's production facility in Windsor, Ontario . Under an administrative services agreement which also expires September 30, 2026 , Corby manages PR's business interests in Canada , including HWSL's production facility.

Corby sources more than 90% of its spirits production requirements from HWSL at its production facility in Windsor, Ontario . Corby's wholly-owned subsidiary, Ungava Spirits Co. Ltd. ("Ungava Spirits") produces the Ungava Spirits Brands and operates the Cowansville, Quebec production facility. Corby's wholly-owned subsidiary, the Foreign Affair Winery Ltd., produces the Foreign Affair Brands and operates the winery and vineyard, based in Ontario's Niagara region (the "Foreign Affair Winery"). The Company's remaining production requirements have been outsourced to various third-party vendors including a third-party manufacturer in the United Kingdom ("UK"). The UK site blends and bottles Lamb's products destined for sale in countries located outside North America. 

In most provinces, Corby's route to market in Canada entails shipping its products to government-controlled LBs. The LBs then sell directly, or control the sale of, beverage alcohol products to end consumers. Exceptions to this model include Alberta , where the retail sector is privatized. In this province, Corby ships products to a bonded warehouse that is managed by a government-appointed service provider who is responsible for warehousing and distribution into the retail channel. Other provinces have aspects of both government-controlled and private retailing, including British Columbia , Saskatchewan and Quebec .

Corby's shipment patterns to the LBs will not always exactly match short-term consumer purchase patterns. However, given the importance of monitoring consumer consumption trends over the long term, the Company stays abreast of consumer purchase patterns in Canada through its member affiliation with the Association of Canadian Distillers ("ACD"), which tabulates and disseminates consumer purchase information it receives from the LBs to its industry members. Corby refers to this data throughout this MD&A as "retail sales", which are measured in volume (measured in nine-litre case equivalents). Current retail value information as discussed in this MD&A is based on available pricing information as provided by the ACD and the LBs.

In addition to a focus on efforts to open new international markets, Corby's international business is concentrated in the United States ("US") and UK and the Company has a different route-to-market for each. For the US market, Corby manufactures its products in Canada and ships to third party US distributors. The market in the US operates a three-tier distribution system which often requires a much longer and larger inventory pipeline than in other markets, resulting in a disconnect between quarterly shipment performance, as reported in the financial statements, and the true underlying performance of the brands at retail level during the same quarter.

For the other international markets, Corby products are distributed by PR affiliates or third parties (more information is provided in the "Related Party Transactions" and "Significant Events" sections of this MD&A).

Corby's operations are subject to seasonal fluctuations: sales are typically strong in the first and second quarters, while third-quarter sales usually decline after the end of the retail holiday season. Fourth-quarter sales typically increase again with the onset of warmer weather as consumers tend to increase their purchasing levels during the summer season. In addition, retail sales comparisons can be affected by timing of key holidays and LB reporting calendars.

Strategies and Outlook

Corby's business strategies are designed to maximize sustainable long-term value growth and deliver enhanced margin quality and profit, while continuing to produce strong and consistent cash flows from operating activities.

Management believes its focused brand prioritization strategy will permit Corby to capture market share in the segments and markets that are expected to deliver the most long-term value growth. Brand prioritization requires a consumer insight and data driven assessment of each brand's potential. This facilitates resource allocation of Corby's marketing and sales efforts, ensuring optimal value creation through revenue management and investment return maximization.  

Therefore, the Company's strategy is to concentrate its endeavors to deliver relevant consumer offerings and invest to leverage the growth potential of its key strategic brands, while continuing to exploit new routes-to-market and channel opportunities.

Pursuing new growth opportunities outside of Canada is also a key strategic priority. Our goal is to leverage our Canadian whisky and gin expertise and expand our business into markets where we believe there is growth potential in both volume and margin.

Of importance to the implementation of our brand strategies is an effective route-to-market and an optimized organizational structure. Corby continues to invest in its trade marketing expertise, ensuring that commercial resources are specialized to meet the unique needs of its customers and their selling channels. In all areas of the business, management believes setting clear strategies and increasing efficiencies is key to Corby's overall success and creating value for Corby shareholders.

The Company's portfolio of owned and represented brands provides an excellent platform from which to achieve its objectives.  Innovation is also essential to capture incremental growth opportunities. Successful innovation is delivered through a structured evaluation process powered by consumer insight and ongoing research and development. Corby benefits from having access to PR North America's leading-edge production technologies, through HWSL's Windsor, Ontario facility, where most of its products are manufactured and developed. In addition, acquisitions can provide access to further growth opportunities. Potential acquisitions are assessed against specific criteria including the Company's core competencies, portfolio of brands and strategic priorities.

Finally, Corby is a strong advocate of social responsibility, especially with respect to its sales and promotional activities. Corby promotes responsible consumption of its products in collaboration with local partners.

Significant Event

Corby declared special dividend and amended regular dividend policy

On November 7, 2018 , the Corby Board of Directors declared a special dividend of $0.44 per share payable on January 11, 2019 on the Voting Class A Common Shares and Non-voting Class B Common Shares of Corby to shareholders of record as at the close of business on December 14, 2018 . The special dividend payment resulted in a cash distribution of approximately $12.5 million to shareholders and was sourced from Corby's surplus cash position.

The Corby Board of Directors also announced an amendment to its dividend policy. Subject to business conditions and opportunities and appropriate adjustment for extraordinary events, regular dividends will be paid quarterly, on the basis of an annual amount equal to the greater of 90% of net earnings per share in the preceding fiscal year ended June 30 , and $0.60 per share. Previously, the policy provided for such dividends to be based on an annual amount equal to the greater of 85% of net earnings per share in the preceding fiscal year ended June 30 , and $0.60 per share. Under the amended policy, the Corby Board of Directors declared a regular dividend of $0.22 per share payable on December 7, 2018 on the Voting Class A Common Shares and Non-voting Class B Common Shares of Corby to shareholders of record as at the close of business on November 23, 2018 .

Three-Year Review of Selected Financial Information

The following table provides a summary of certain selected consolidated financial information for the Company. This information has been prepared in accordance with IFRS.






(in millions of Canadian dollars, except per share amounts)


2019

2018 (1)

2017 (1)






Revenue


$

149.9

$

145.7

$

143.2






Earnings from operations


34.2

34.9

35.0

- Earnings from operations per common share


1.20

1.23

1.23






Net earnings


25.7

25.7

25.6

- Basic earnings per share


0.90

0.90

0.90

- Diluted earnings per share


0.90

0.90

0.90






Total assets


218.3

230.0

227.8

Total liabilities


49.2

45.3

50.5






Regular dividends paid per share


0.88

0.87

0.82

Special dividends paid per share


0.44

-

-






(1)In preparing its comparative information, in fiscal years 2018 and 2017, the Company has adjusted amounts reported
previously in the consolidated statement of earnings as a result of the retrospective application of IFRS 15, Revenue from
Contracts with Customers. 

 

In 2019, revenue increased $4.2 million over 2018, representing an increase of 3%, while net earnings remained consistent with the prior year. This year-over-year improvement in revenue was the result of strong domestic performance of Corby-owned brand, J.P. Wiser's Deluxe, commission growth from PR brand performance, increased focus and innovations on premium brands such as the Ungava Spirits Brands and an additional quarter of results from Foreign Affair Brands, partially offset by a small decline in export revenue. 

Inline with industry practice, the Company sold bulk whisky in 2019, although at lower levels than in previous years, enabling the Company to rebalance its maturation inventories and to align them with long-term strategies and forecasts.

The growth in revenues enabled the Company to reinvest in its brand priorities in line with its long-term strategies, resulting in stable earnings year over year.

Net assets (i.e., total assets less total liabilities) were impacted by payment of the special dividend, as well as an increase in pension liabilities (primarily the result of net actuarial losses and unrealized gains and losses on pension plan assets).

Brand Performance Review
Corby's portfolio of owned brands accounts for approximately 80% of the Company's total annual revenue. Included in this portfolio are its key brands: J.P. Wiser's Canadian whisky, Lamb's rum, Polar Ice vodka, Corby's mixable liqueur brands and the Ungava Spirits Brands. The sales performance of these key brands significantly impacts Corby's net earnings. Therefore, understanding each key brand is essential to understanding the Company's overall performance.

Shipment Volume and Shipment Value Performance
The following table summarizes the performance of Corby's owned-brands (i.e., Case Goods) in terms of both shipment volume (as measured by shipments to customers in equivalent nine-litre cases) and shipment value (as measured by the change in net sales revenue). The table includes results for sales in both Canada and international markets. Specifically, the J.P. Wiser's, Lamb's, Polar Ice, Lot No. 40, Pike Creek, and the Ungava Spirits Brands are also sold to international markets, particularly in the US and UK.














Three Months Ended

Year Ended





Shipment Change



Shipment Change



June 30,

June 30,

Volume

Value

June 30,

June 30,

Volume

Value

(Volumes in 000's of 9L cases)


2019

2018

%

%

2019

2018

%

%











Brand










J.P. Wiser's Canadian whisky


200

219

(9%)

1%

826

801

3%

9%

Polar Ice vodka


98

98

0%

7%

362

365

(1%)

(2%)

Lamb's rum


103

107

(4%)

(4%)

394

419

(6%)

(4%)

Mixable liqueurs


37

42

(12%)

(13%)

152

161

(5%)

(4%)

Ungava Spirits Brands 


28

31

(9%)

(8%)

127

106

20%

16%

Foreign Affair Brands(1)


1

2

(34%)

(4%)

8

5

49%

48%

Other Corby-owned brands


50

55

(8%)

(12%)

206

211

(2%)

(9%)











Total Corby brands


517

554

(7%)

(2%)

2,075

2,068

0%

3%











(1) Comparative information has not been provided for Foreign Affair Brands, as these brands were not owned by

Corby prior to October 2, 2017. 

 

On a year-over-year comparison basis, Corby's owned-brands grew value ahead of volume as shipment value increased 3% while shipment volumes remained relatively flat. Revenue was driven by value growth through premium innovations and strategic price management as well as the performance of J.P. Wiser's (in both the domestic and export markets), Ungava Spirits Brands and continued integration of Foreign Affair Brands into the domestic market.

Fourth quarter performance experienced declines compared to a strong prior comparable period where timing of LB orders and export shipments drove results. LB orders were more evenly spaced throughout the year. Shipment volumes declined 7% in the fourth quarter, compared to shipment values which declined 2%.

Trends in Canada differ from international markets as highlighted in the following table:







Three Months Ended

Year Ended





Shipment Change



Shipment Change



June 30,

June 30,

Volume

Value

June 30,

June 30,

Volume

Value

(Volumes in 000's of 9L cases)


2019

2018

%

%

2019

2018

%

%











Domestic


470

496

(5%)

(2%)

1,886

1,849

2%

4%

International


47

58

(20%)

(7%)

189

219

(13%)

(3%)











Total Corby brands


517

554

(7%)

(2%)

2,075

2,068

0%

3%

 

Domestic shipment volumes for the fiscal year increased 2% while shipment value grew 4%. Current fiscal year shipments benefited from innovations such as J.P. Wiser's Old-Fashioned, the collaboration with the NHL® Alumni Association on the Alumni Whisky Series and Lamb's Sociable. Corby's domestic shipment value benefited from favourable mix effects of the launch of high marque innovations such as Alumni Whisky Series and the Rare Range Series of the Northern Border Collection as well as performance of the more premium Ungava Spirits Brands and Foreign Affair Brands. Fourth quarter domestic shipment volumes declined 5% in volume and 2% in value. Last year's results were impacted by LB order phasing, specifically the Liquor Control Board of Ontario ("LCBO") as inventory levels normalized after a threatened strike in the previous year.

During the year, as part of our international strategy, Corby reorganized a significant portion of its international route to market and this has caused some fluctuations in our shipment patterns. Nevertheless, an improvement of value has been realized through a more direct and optimized route to market. Shipment volumes declined 13% on a year over year comparable basis while value decreased 3%. The fourth quarter was similarly impacted.

Retail Sales Performance / Spirit Market Trends

It is of critical importance to understand the performance of Corby's brands at the retail level in Canada . Analysis of performance at the retail level provides insight with regards to consumers' current purchase patterns and trends.

To provide context for the following analysis, the Canadian spirits industry fourth quarter retail sales volume grew 3% while retail sales value improved 5%. Results for the fourth quarter were impacted by the timing of Easter holiday (Q4 this year compared to Q3 in the previous year) and liquor board reporting periods. Retail sales volume grew 1% for the year ended June 30, 2019 compared to the prior year, while retail sales value grew 3%. Industry trends were led by retail sales volume and value growth in the Irish whiskey, gin and tequila categories. 

In the year ended June 30, 2019 , the vodka category grew 1% in retail volume and 2% in retail value. Canadian whisky category volumes remained flat but grew 2% in value. The rum category declined 2% in volume and 1% in value. Gin, a growing priority within the Corby portfolio, increased volumes by 8% and value by 12% through growth of premium and super-premium brands.

Corby's portfolio is heavily weighted in the Canadian whisky, rum and vodka categories; together they make up over 87% of the Company's total retail volumes.

The following brand discussion provides a more detailed analysis of the performance of each of Corby's key brands relative to its respective industry category. Retail sales volume and value data, as provided by the ACD, is set out in the following table and is discussed throughout this MD&A.

It should be noted that the retail information presented does not include international retail sales of Corby-owned brands and on-site winery sales.

Retail Sales Performance / Summary of Corby's Key Brands


RETAIL SALES FOR THE CANADIAN MARKET ONLY (AS PROVIDED BY THE ACD1)





Three Months Ended


Year Ended





% Retail

% Retail




% Retail

% Retail



 June 30, 

 June 30, 

Volume

Value


 June 30, 

 June 30, 

Volume

Value

(Volumes in 000's of 9L cases)


2019

2018

Growth

Growth


2019

2018

Growth

Growth












Brand











J.P. Wiser's Canadian whisky


174

168

3%

6%


748

745

0%

3%

Polar Ice vodka


86

84

3%

3%


356

348

2%

3%

Lamb's rum


73

76

(4%)

(5%)


313

327

(4%)

(6%)

Mixable liqueurs


34

36

(5%)

(3%)


154

162

(5%)

(3%)

Ungava Spirits Brands


22

20

9%

13%


110

91

21%

18%

Foreign Affair Brands


1

1

7%

17%


3

3

23%

24%

Other Corby-owned brands 


46

45

1%

2%


190

187

2%

2%












Total


436

430

1%

3%


1,874

1,863

1%

2%












(1)Refers to sales at the retail store level in Canada, as provided by the Association of Canadian Distillers.

 

J.P. Wiser's Canadian Whisky
J.P. Wiser's Canadian whisky is Corby's flagship brand and one of Canada's best-selling Canadian whiskies. The brand experienced flat retail volumes for the year ended June 30, 2019 while retail value outpaced the category with growth of 3% compared to the same period last year. Retail sales volumes for the Canadian whisky category were flat while retail value for the category improved 2% over the same period.

Value growth was amplified through a series of new J.P. Wiser's products launched in fiscal 2019 which include a range of super-premium, limited edition Canadian whiskies created in partnership with the NHL® Alumni Association, a ready-to serve J.P. Wiser's Old-Fashioned Whisky Cocktail, and a new limited release of J.P. Wiser's 35-Year-Old. Within the range, organic growth in both retail volume and value was posted by J.P. Wiser's Deluxe, J.P. Wiser's Apple Whisky, J.P. Wiser's Spiced Vanilla Whisky, and J.P. Wiser's Triple Barrel Rye.  Performance of premium variants helped to offset a Wiser's Special Blend volume decline of 5% amidst a strained economy Canadian whisky segment.

Corby has strategically separated the premium variants of J.P. Wiser's from its standard offering of Special Blend. J.P. Wiser's premium range has benefitted from a revised and enhanced packaging, an award-winning media campaign and premium innovations, enabling it to significantly outperform the Canadian whisky market and delivering volume growth of 4% and value growth 6%.

The brand is being supported nationally with the award-winning "The Public Toast" campaign in a range of media channels and continues to receive prestigious accolades that speak to the quality of the brand. J.P. Wiser's 35-Year-Old was awarded World's Best Canadian Blended Whisky and J.P. Wiser's Vanilla Whisky was awarded World's Best Canadian Flavoured Whisky at the 2019 World Whiskies Awards. Wendel Clark Alumni Whisky Series, J.P. Wiser's 35-Year-Old, and J.P. Wiser's Canada Commemorative 2018 were awarded Gold at the 2019 Canadian Whisky Awards. J.P. Wiser's 35-Year-Old also won Connoisseur Whisky of the Year after winning the prior year's coveted Canadian Whisky of the Year award.

Polar Ice Vodka
Polar Ice vodka is among the top-selling vodka brands in Canada . Retail volume grew 2% and value grew 3% in the year ended June 30, 2019 following strategic price repositioning in key regions. The overall vodka category in Canada grew 1% in retail volume and 2% in value on a comparable basis driven by the premium vodka segment. The standard vodka category, where Polar Ice Vodka competes, improved 1% in retail volume and remained flat in value compared to the prior comparable period.

Advertising and promotion investment continued to focus on brand awareness and consumer trial, while range extensions, including Polar Ice Arctic Extreme and Polar Ice Ontario Peach, deliver premiumization.

Polar Ice won Silver at the 2018 International Wine and Spirits Competition and Polar Ice Arctic Extreme won Double Gold at the 2018 San Francisco World Spirits Competition.

Lamb's Rum
Lamb's rum, one of the top-selling rum families in Canada , continued to be impacted by ongoing changes in consumer trends for standard rum particularly in regional strongholds. Retail volumes for the overall rum category declined 2% for the year ended June 30, 2019 , while retail values declined 1% compared to the same period last year, however, the economy rum category declined 3% in retail volumes and 2% in value. Lamb's experienced a 4% decline in retail volumes and a 6% decline in retail value.

The Lamb's rum product line is heavily weighted in the dark and white segments, which have faced evolving consumer preferences in recent years and increased competitor pressure in key markets. Our strategy remains to defend regional strongholds with targeted campaigns, focus on the most differentiated variants and to launch new flavour variants and format innovations to help recruit new drinkers.

Mixable Liqueurs
Corby's portfolio of mixable liqueur brands consists of McGuinness liqueurs (which is Canada's largest mixable liqueur brand family) and Meaghers liqueurs. Retail volume for Corby's mixable liqueurs portfolio lagged category trends with a decline in retail volume of 5% for the year ended June 30, 2019 , and a retail value decline of 3%. The liqueurs category grew 2% in retail value and was flat in retail volume for the year ended June 30, 2019 . Category growth was driven by traditional coffee and cream liqueurs.

Our strategy is to expand innovation and focus on strong programming in the retail environment, ensuring that our flavour offering is aligned to consumer trends. McGuinness Ruby Red Grapefruit, a recently launched flavour innovation, as well as an expanded range of flavour offerings in a convenient 375mL format helps to encourage consumer trial. McGuinness also benefited from co-branded programs activated in retail and on-premise and through social media.

Ungava Spirits Brands
Retail volume and value for the Ungava Spirits Brands increased 21% and 18%, respectively, for the year ended June 30, 2019 . The flagship brand, Ungava gin, grew 19% in both retail volume and value, outperforming the Canadian gin category, which grew 8% in retail volume while retail value grew 12%. Ungava gin is the market  value leader in the super-premium gin category. 

Cabot Trail maple-based liqueurs (in Quebec , Coureur des Bois) continued to perform well, benefiting from increased distribution and successful recruitment through retail tastings. Retail volume increased 15% in the current fiscal year while retail value grew 16%.

New-to-world wine innovations were launched in the Quebec grocery channel by Ungava Spirits. Distribution in this channel is restricted to wines bottled in Quebec which Corby is now able to access by utilizing the Cowansville production facility. Divine Sunshine, a contemporary blend made with California grapes, and Coureurs des Vignes, a premium French wine brand are our first entries into this unique channel.

Foreign Affair Brands
The Foreign Affair Brands represent Corby's first foray into the VQA Canadian wine category. In addition to the LBs, Foreign Affair Brands are available through several channels including direct delivery (on-premise and wine club) and the on-site winery visitor centre, where the majority of sales are conducted.

Only retail sales conducted through the LBs are reported by the ACD. LB retail sales volume increased 23% for the year ended June 30, 2019 when compared to the same period last year while retail value grew 24%. The Canadian table wine category was flat to the prior year for both retail volume and value.

The Foreign Affair Brands won top awards, including Silver and Gold medals at the Ontario Wine Awards and Wine Align National Wine Awards, the Lieutenant Governor's Award of Excellence in Ontario Wines and Silver at the Decanter International Wine Awards.

Other Corby-Owned Brands
Premium offerings in Canadian whisky such as Lot No. 40, Pike Creek, and Gooderham & Worts (collectively known as the Northern Border Collection) grew retail volume 15% and value 13% for the year ended June 30, 2019 and continued to outperform the Canadian whisky category in Canada .

Innovation remains an important pillar for delivering new profit and growth opportunities to both the Corby domestic and export business and highlights the quality of our products. A second Rare Range series was launched in the second quarter (including Lot No. 40 11-Year-Old Cask Strength, Pike Creek 21-Year-Old European Oak Finish, and Gooderham & Worts Eleven Souls) and has received high praise, winning Gold medals at the 2019 Canadian Whisky Awards.

Lot No. 40, Pike Creek, and Gooderham & Worts were all awarded Gold medals at the 2019 Canadian Whisky Awards. Lot No. 40 has consistently won top awards in the most prestigious Canadian and International competitions including Silver at the 2018 San Francisco World Spirits Competition. In addition, Pike Creek Rum barrel Finish was awarded Sipping Whisky of the Year. Pike Creek 21-Year-Old European Oak Finish won World's Best Corn Whisky at the 2019 World Whiskies Awards while Lot No. 40 11-Year-Old Cask Strength won World's Best Canadian Rye Whisky. Gooderham & Worts Little Trinity (17-Year-Old) was awarded Best Canadian Blended Limited Release at the World Whiskies Award for 2018.

Royal Reserve® retail volume grew 1% in the year ended June 30, 2019 while retail value was flat compared to the same period last year. Competitive retail activity and industry-wide softness within the economy segment of Canadian whisky impacted performance. 

Financial and Operating Results

The following table presents a summary of certain selected consolidated financial information of the Company for the year ended June 30, 2019 and 2018.



(in millions of Canadian dollars, except per share amounts)


2019

2018 (1)

 $ Change 

 % Change 







Revenue


$

149.9

$

145.7

$

4.2

3%







Cost of sales


(57.0)

(54.9)

(2.1)

4%

Marketing, sales and administration


(58.8)

(56.6)

(2.2)

4%

Other income 


0.1

0.7

(0.6)

(86%)







Earnings from operations


34.2

34.9

(0.7)

(2%)







Financial income


1.5

1.1

0.4

26%

Financial expenses


(0.5)

(0.7)

0.2

(37%)



1.0

0.4

0.6

140%







Earnings before income taxes


35.2

35.3

(0.1)

0%

Income taxes


(9.5)

(9.6)

0.1

(2%)







Net earnings


$

25.7

$

25.7

$

-

0%







Per common share






- Basic net earnings


$

0.90

$

0.90

$

-

0%

- Diluted net earnings


$

0.90

$

0.90

$

-

0%







(1)In preparing its comparative information, in fiscal year 2018, the Company has adjusted amounts reported previously in the
consolidated statement of earnings as a result of the retrospective application of IFRS 15, Revenue from Contracts with
Customers. 

 

Overall Financial Results
Net earnings were stable when compared to the same period last year. Strong domestic market performance, increased PR Brand commission revenue, and well controlled overhead expenses funded increased marketing and sales investment behind key priorities and brands, including boosting support behind recently acquired brands, launch of new innovations and new channel development.

Revenue
The following highlights the key components of the Company's revenue streams:







June 30,

June 30,



(in millions of Canadian dollars)

2019

2018 (1)

$ Change

 % Change 






Revenue streams:





Case goods 

$

119.4

$

115.9

$

3.5

3%

Commissions

26.8

25.7

1.1

4%

Other services

3.7

4.1

(0.4)

(11%)






Revenue

$

149.9

$

145.7

$

4.2

3%









(1)In preparing its comparative information, in fiscal year 2018, the Company has adjusted amounts
reported previously in the consolidated statement of earnings as a result of the retrospective
application of IFRS 15, Revenue from Contracts with
Customers.

 

Case Goods revenue increased $3.5 million , or 3% for the year ended June 30, 2019 , when compared to the same period last year. Growth during the year was attributable to strategic price management, premiumization of innovations, strong domestic shipments following prior year LCBO normalization of inventory levels, performance of Ungava Spirits Brands, and the addition of the Foreign Affair Brands.

Commissions increased $1.1 million , or 4% largely attributable to strong PR spirits portfolio performance, which lapped prior year LCBO distortion. The PR brand portfolio benefitted from its positioning within premium categories along with PR's investment to build these brands in Canada .

Other services represent ancillary revenue incidental to Corby's core business activities, such as logistical fees and from time to time bulk whisky sales. Revenue from other services declined in the year ended June 30, 2019 attributable to decreased bulk whisky sales.

Cost of sales
Cost of sales was $57.0 million , an increase of $2.1 million , or 4% year over year. The increase is relatively in line with Case Goods growth and is partially attributable to the addition of the Foreign Affair Brands, higher distribution costs to Western Canada and increased warehousing fees related to recently acquired brands. Combined with tactical price adjustments in regional strongholds and the launch of new lower margin size and innovation formats, overall gross margin on Case Goods was 54%; comparable to the same period last year (note:Commissions are not included in this calculation).

Marketing, sales and administration
Marketing, sales and administration expenses increased $2.2 million , or 4% for the year ended June 30, 2019 . The incremental increase in marketing and promotional investment was concentrated on Ungava Spirits Brands, the Foreign Affair Brands, entry into the Quebec grocery wine channel, launch of new innovations and export market support. Overhead expenses were well controlled and decreased as we also lapped prior year acquisition-related professional fees, partially offset by integration of the Foreign Affair Winery.

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. An increase in interest income for the year ended June 30, 2019 is due to increases in market interest rates compared to the same time last year.

Income taxes
A reconciliation of the effective tax rate to the statutory rates for each period is presented below.









2019

2018







Combined basic Federal and Provincial tax rates



26.8%

26.8%

Other




0.3%

0.6%







Effective tax rate



27.1%

27.4%

 

Liquidity and Capital Resources

Corby's sources of liquidity are its deposits in cash management pools of $61.1 million as at June 30, 2019 , and its cash generated from operating activities. Corby's total contractual maturities are represented by its accounts payable and accrued liabilities which totalled $33 million as at June 30, 2019 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





(in millions of Canadian dollars)

2019

2018

$ Change





Operating activities




Net earnings, adjusted for non-cash items

$

41.1

$

40.9

$

0.2

Net change in non-cash working capital

0.9

(1.8)

2.7

Net payments for interest and income taxes

(8.0)

(7.8)

(0.2)


34.0

31.3

2.7





Investing activities




Additions to capital assets

(5.2)

(4.9)

(0.3)

Proceeds from disposition of capital assets

-

0.5

(0.5)

Business Acquisition

-

(6.4)

6.4

Deposits in cash management pools

8.8

4.3

4.5


3.6

(6.5)

10.1





Financing activity




Dividends paid

(37.6)

(24.8)

(12.8)


$

(37.6)

$

(24.8)

(12.8)





Net change in cash

$

-

$

-

$

-

 

Operating activities
Net cash generated from operating activities was $34.0 million during the year ended June 30, 2019 reflecting an increase of $2.7 million compared to the same time last year. Prior year cash flows from operating activities were negatively impacted by the timing of advertising and promotional expenses incurred as spend in the prior year was more heavily weighted earlier in the year in preparation for summer promotion.

Investing activities
Net cash generated from investing activities was $3.6 million for the year ended June 30, 2019 compared to a use of cash of $6.5 million for the prior year. The prior year's use of cash from investing activities was largely driven by Corby's acquisition of the Foreign Affair Brands which was completed on October 2, 2017 .

Cash management pools represent cash on deposit with Citibank NA via Corby's Mirror Netting Service Agreement with PR. Corby has daily access to these funds and earns a market rate of interest from PR on its deposits. Changes in cash management pools reflect amounts either deposited in or withdrawn from these bank accounts and are simply a function of Corby's cash requirements during the period. For more information related to these deposits please refer to the "Related Party Transactions" section of this MD&A.

Financing activities
Cash used for financing activities was $37.6 million for the year ended June 30, 2019 . Financing activity reflects dividend payments paid to shareholders including a special dividend of $12.5 million paid January 11, 2019 . As well, regular quarterly dividends increased to $0.22 per share starting with the quarterly dividend payment on December 8 , 2017.  

The following table summarizes dividends paid and payable by the Company over the last two fiscal years:

for


Declaration date


Record Date


Payment date


$ / Share

2019 - Q4


August 21, 2019


September 11, 2019


September 27, 2019


$  0.22

2019 - Q3


May 8, 2019


May 24, 2019


June 14, 2019


0.22

2019 - Q2


February 13, 2019


February 27, 2019


March 8, 2019


0.22

2019 - special


November 7, 2018


December 14, 2018


January 11, 2019


0.44

2019 - Q1


November 7, 2018


November 23, 2018


December 7, 2018


0.22

2018 - Q4


August 22, 2018


September 12, 2018


September 28, 2018


0.22

2018 - Q3


May 9, 2018


May 25, 2018


June 13, 2018


0.22

2018 - Q2


February 7, 2018


February 23, 2018


March 9, 2018


0.22

2018 - Q1


November 8, 2017


November 24, 2017


December 8, 2017


0.22

2017 - Q4


August 23, 2017


September 15, 2017


September 29, 2017


0.21

2017 - Q3


May 10, 2017


May 26, 2017


June 14, 2017


0.21

2017 - Q2


February 8, 2017


February 24, 2017


March 10, 2017


0.21

2017 - Q1


November 9, 2016


November 25, 2016


December 9, 2017


0.21

 

Outstanding Share Data

As at August 21, 2019 , 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.

Contractual Obligations

The following table presents a summary of the maturity periods of the Company's contractual obligations as at June 30, 2019 :









Payments

During

2020

Payments

due in 2021

and 2022

Payments

due in 2023

and 2024

Payments

due after

2024

Obligations

with no fixed

maturity

 

Total










Operating lease obligations

$

1.7

$

2.6

$

1.5

$

0.9

$

-

$

6.7

Employee future benefits

-

-

-

-

13.4

13.4









$

1.7

$

2.6

$

1.5

$

0.9

$

13.4

$

20.1

 

Related Party Transactions

Transactions with parent, ultimate parent, and affiliates
Corby engages in a significant number of transactions with its parent company, its ultimate parent and various affiliates. Specifically, Corby renders services to its parent company, its ultimate parent, and affiliates for the marketing and sale of beverage alcohol products in Canada . Furthermore, Corby outsources the large majority of its distilling, maturing, storing, blending, bottling and related production activities to its parent company. A significant portion of Corby's bookkeeping, recordkeeping services, data processing and other administrative services are also outsourced to its parent company. Transactions with the parent company, ultimate parent and affiliates are subject to Corby's related party transaction policy, which requires such transactions to undergo an extensive review and require approval from an Independent Committee of the Board of Directors.

The companies operate under the terms of agreements that became effective on September 29, 2006 (the "2006 Agreements"). These agreements provide the Company with the exclusive right to represent PR's brands in the Canadian market for fifteen years, as well as providing for the continuing production of certain Corby brands by PR at its production facility in Windsor, Ontario , for ten years. Corby also manages PR's business interests in Canada , including the Windsor production facility. Certain officers of Corby have been appointed as directors and officers of PR's North American entities, as approved by Corby's Board of Directors. On August 26, 2015 , Corby entered into an agreement with PR and certain affiliates amending the September 29, 2006 Canadian representation agreements, pursuant to which Corby agreed to provide more specialized marketing, advertising and promotion services for the PR and affiliate brands under the applicable representation agreements in consideration of an increase to the rate of commission payable to Corby by such entities. On November 11, 2015 , Corby and PR entered into agreements for the continued production and bottling of Corby`s owned-brands by Pernod Ricard at the HWSL production facility in Windsor, Ontario , for a 10-year term commencing September 30 , 2016.  On the same date, Corby and PR also entered into an administrative services agreement, under which Corby agreed to continue to manage PR's business interests in Canada , including the HWSL production facility, with a similar term and commencement date.

In addition to the 2006 Agreements, Corby signed an agreement on September 26, 2008 , with its ultimate parent to be the exclusive Canadian representative for the ABSOLUT vodka and Plymouth gin brands, for a five-year term, which expired October 1, 2013 and was extended as noted below. These brands were acquired by PR subsequent to the original representation rights agreement dated September 29, 2006 . Corby also agreed to continue with the mirror netting arrangement with PR and its affiliates, under which Corby's excess cash continues to be deposited to cash management pools. The mirror netting arrangement with PR and its affiliates is further described below. On November 9, 2011 , Corby entered into an agreement with a PR affiliate for a new term for Corby's exclusive right to represent ABSOLUT vodka in Canada from September 30, 2013 to September 29, 2021 , which is consistent with the term of Corby's Canadian representation of the other PR brands in Corby's portfolio (the "2011 Agreement"). On September 30, 2013 , Corby paid $10.3 million for the additional eight years of the new term pursuant to an agreement entered into between Corby and The Absolut Company Aktiebolag, an affiliate of PR and owner of the ABSOLUT brand, to satisfy the parties' obligations under the 2011 Agreement. Since the 2011 Agreement is a related party transaction, the agreement was approved by the Independent Committee of the Corby Board of Directors, in accordance with Corby's related party transaction policy, following an extensive review and with external financial and legal advice.

On March 21, 2016 , the Company entered into an agreement with Pernod Ricard UK Ltd. ("PRUK"), an affiliated company, which provides PRUK the exclusive right to represent Lamb's rum in Great Britain effective July 1, 2016 . Previously, Lamb's rum was represented by an unrelated third party in this market. The agreement provides Lamb's with access to PRUK's extensive national distribution network throughout Great Britain . On March 28, 2019 the agreement was amended to include Ungava Gin. The agreement is effective for a five-year period ending June 30, 2021 .

Deposits in cash management pools
Corby participates in a cash pooling arrangement under a Mirror Netting Service Agreement, together with PR's other Canadian affiliates, the terms of which are administered by Citibank N.A. effective July 17, 2014 . The Mirror Netting Service Agreement acts to aggregate each participant's net cash balance for purposes of having a centralized cash management function for all of PR's Canadian affiliates, including Corby. As a result of Corby's participation in this agreement, Corby's credit risk associated with its deposits in cash management pools is contingent upon PR's credit rating. PR's credit rating as at August 21, 2019 , as published by Standard & Poor's and Moody's, was BBB and Baa2, respectively. PR compensates Corby for the benefit it receives from having the Company participate in the Mirror Netting Service Agreement by paying interest to Corby based upon the 30-day Canadian Dealer Offered Rate 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.

Results of Operations – Fourth Quarter of Fiscal 2019

The following table presents a summary of certain selected consolidated financial information for the Company for the three-month periods ended June 30, 2019 and 2018:








Three Months Ended





June 30,

June 30,



(in millions of Canadian dollars, except per share amounts)


2019

2018 (1)

 $ Change 

 % Change 







Revenue


$

39.2

$

40.2

$

(1.0)

(3%)







Cost of sales


(14.0)

(14.6)

0.6

(5%)

Marketing, sales and administration


(14.8)

(13.3)

(1.5)

12%

Other income


0.1

0.3

(0.2)

(85%)







Earnings from operations


10.5

12.6

(2.1)

(17%)







Financial income


0.3

0.3

0.0

12%

Financial expenses


(0.1)

(0.1)

0.0

(35%)



0.2

0.2

0.0

85%







Earnings before income taxes


10.7

12.8

(2.1)

(16%)

Income taxes


(2.9)

(3.5)

0.6

(18%)







Net earnings


$

7.8

$

9.3

$

(1.5)

(16%)







Per common share






- Basic net earnings


$

0.27

$

0.33

$

(0.06)

(18%)

- Diluted net earnings


$

0.27

$

0.33

$

(0.06)

(18%)







(1)In preparing its comparative information, in fiscal years 2018, the Company has adjusted amounts reported previously in the
consolidated statement of earnings as a result of the retrospective application of IFRS 15, Revenue from Contracts with Customers. 

 

Revenue
The following table highlights the various components of the Company's revenue streams for the quarter:






Three Months Ended




June 30,

June 30,



(in millions of Canadian dollars)

2019

2018 (1)

$ Change

 % Change 






Revenue streams:





Case goods 

$

31.2

$

31.9

$

(0.7)

(2%)

Commissions

6.7

6.8

(0.1)

(2%)

Other services

1.3

1.5

(0.2)

(10%)






Revenue

$

39.2

$

40.2

$

(1.0)

(3%)






(1)In preparing its comparative information, in fiscal years 2018, the Company has adjusted amounts reported previously in the
consolidated statement of earnings as a result of the retrospective application of IFRS 15, Revenue from Contracts with Customers. 

 

Total revenue decreased 3% on a quarter-over-quarter comparison basis, or $1.0 million . This is primarily related to LBs return to regular order patterns and impacted by changes in route to market in international markets. The impact to Case Goods revenue was mitigated by improved pricing and portfolio mix.

Commissions, compared to the same period last year, decreased $0.1 million as we experienced industry-wide softness in wine consumption that unfavourably impacted PR and agency wine performance. This was partially offset by strong PR spirit brands performance and strategic price management on represented brands.

Other services represent ancillary revenue incidental to Corby's core business activities, such as logistical fees and from time to time bulk whisky sales. The reduced revenue for the quarter was mostly attributable to decreased bulk whisky sales as the Company continued to rebalance its maturation inventories.

Cost of sales
Cost of goods sold was $14.0 million , representing a $0.6 million , or 5% decrease this period when compared with the same three-month period last year. Gross margin was 57% for the current year quarter compared to 56% the same quarter last year benefiting from changes in product mix and cost savings from production synergies.

Marketing, sales and administration
Marketing, sales and administration expenses increased $1.5 million , or 12%, over the same quarter last year. This increase was driven by current year phasing of domestic and international advertising and promotional activities, offset by decreased overheads expenses. 

Net earnings and earnings per share
Net earnings for the fourth quarter were $7.8 million , or $0.27 per share, which is a decrease of $1.5 million over the same quarter last year due to the aforementioned reasons.

Selected Quarterly Information

Summary of Quarterly Financial Results










(in millions of Canadian dollars,

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

except per share amounts)

2019

2019

2019

2019

2018 (1)

2018 (1)

2018 (1)

2018 (1)










Revenue

$

39.2

$

31.0

$

41.9

$

37.9

$

40.2

$

29.3

$

40.6

$

35.7

Earnings from operations

10.5

5.9

9.1

8.7

12.6

6.5

7.9

7.9

Net earnings

7.8

4.5

6.9

6.5

9.3

4.8

5.8

5.9

Basic EPS

0.27

0.16

0.24

0.23

0.33

0.17

0.20

0.21

Diluted EPS

0.27

0.16

0.24

0.23

0.33

0.17

0.20

0.21










(1)In preparing its comparative information, in fiscal years 2018, the Company has adjusted amounts reported previously in the
consolidated statement of earnings as a result of the retrospective application of IFRS 15, Revenue from Contracts with Customers. 

 

The above table demonstrates the seasonality of Corby's business, as sales are typically strong in the first and second quarters, while third-quarter sales (January, February and March) usually decline after the end of the retail holiday season. Fourth-quarter sales typically increase again with the onset of warmer weather, as consumers tend to increase their purchasing levels during the summer season.

Revenues for the second, third and fourth quarters of 2018 include Case Goods sales for the Foreign Affair Brands, which were acquired on October 2, 2017 .

Recent Accounting Pronouncements

New Accounting Standards

A number of new standards, amendments to standards and interpretations were effective for Corby on July 1, 2018 , and accordingly, have been applied in preparing the audited consolidated financial statements for the year ended June 30, 2019 :

(i)            Revenue

In May 2014 , the International Accounting Standards Board ("IASB") issued IFRS 15, "Revenue from Contracts with Customers" ("IFRS 15"), which provides a comprehensive framework for the recognition, measurement and disclosure of revenue from contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1, 2018 and was therefore applied for the first time by the Company for the interim period beginning July 1, 2018 .

The Company adopted IFRS 15 using the full retrospective approach with restatement of prior year comparative figures. After completing the analysis of significant customer contracts, the Company determined that the implementation of IFRS 15 did not result in a significant impact to the Company's financial position and performance. The application of IFRS 15 has required that certain advertising and promotional expenditures (previously reported in Marketing, sales and administration), when paid directly to customers, be classified as a reduction to revenue.

For the year ended June 30, 2018 , the implementation of IFRS 15 resulted in a reduction to revenue from Case Goods sales of $871 with a corresponding reduction to Marketing, sales and administration. There was no impact to net earnings, the Company's balance sheet or statement of cash flows.

The Company's accounting policies for revenues have been updated to reflect the more extensive requirements under IFRS 15 and are outlined in Note 4 – Significant Accounting Policies, "Revenue Recognition" to the audited consolidated financial statements for the year-ended June 30, 2019 .

(ii)           Financial Instruments

The IASB has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments, and the issuance of IFRS 9 is part of the first phase of this project. IFRS 9 uses a single approach to determine whether a financial asset or liability is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. For financial assets, the approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. IFRS 9 requires a single impairment method to be used, replacing multiple impairment methods in IAS 39. For financial liabilities measured at fair value, fair value changes due to changes in an entity's own credit risk are presented in other comprehensive income.

This standard is effective for annual periods beginning on or after January 1, 2018 and must be applied retrospectively. For Corby, this standard became effective July 1, 2018 and has been applied retrospectively to all periods presented.

The adoption of IFRS 9 did not have a significant impact on the Company's consolidated financial statements. Financial assets and liabilities have been classified and measured in accordance with IFRS 9. As a result of the application of IFRS 9 and classifications, there has been no change to the carrying value of financial assets and liabilities. 

Changes to the classification of Corby's financial assets and liabilities under IFRS 9 are as follows:

Financial Asset/Liability



 Category Under IAS 39 



 Category Under IFRS 9










Deposits in cash management pools



 Loans and receivables 



 Amortized cost 

Accounts receivable 




 Loans and receivables 



 Amortized cost 

Accounts payable and accrued liabilities



 Loans and receivables 



 Amortized cost 

 

(iii)          Foreign Currency Transactions and Advance Consideration

The IASB issued a new interpretation IFRIC 22, "Foreign Currency Transactions and Advance Consideration" ("IFRIC 22"). IFRIC 22 clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. Specifically, IFRIC 22 addresses how an entity recognizes a non-monetary asset or liability arising from a prepayment or receipt before the entity recognizes the related asset, expense or income. The IASB determined that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The Company adopted IFRIC 22, effective July 1, 2018 , with no significant impact on the Company's consolidated financial statements.

(iv)          Share Based Payments

The IASB issued an amendment to IFRS 2 "Share-based Payment" ("IFRS 2"). This amendment clarifies the accounting for cash-settled share-based payment transactions that include a performance condition. For Corby, this amendment to IFRS 2 became effective July 1, 2018 and did not have a significant impact on the Company's consolidated financial statements.

Recent accounting pronouncements not in effect

The below standards have been issued but are not yet effective for the financial period ended June 30, 2019 , and accordingly, have not been applied in preparing the audited consolidated financial statements:

(i)            Leases

In January 2016 , the IASB issued a new standard IFRS 16, "Leases" ("IFRS 16"), which will ultimately replace IAS 17, "Leases" ("IAS 17"). IFRS 16 specifies how an entity will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The standard is effective for annual periods beginning on or after January 1, 2019 and must be applied retrospectively. For Corby, this standard will become effective July 1, 2019 .

The guidance permits two methods of adoption: retrospectively to each prior reporting period restated (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company will adopt the standard using the modified retrospective method. The Company has elected to set the right-of-use asset equal to the lease liability.

In preparation for adoption of the standard, the Company has completed the review of relevant contracts and has concluded there will be a right-of-use asset and a corresponding lease liability of approximately $5,900 , recognized on the Company's statements of financial position upon the adoption of the standard. The Company has elected to not apply the requirements of IFRS 16 to short-term leases and leases for which the underlying asset is of low value. The Company will recognize the lease payments associated with these leases on a straight-line basis, over the lease term.

(ii)           Uncertainty over Income Tax Treatments

In June 2017 , the IASB issued a new interpretation IFRIC 23, "Uncertainty over Income Tax Treatments" ("IFRIC 23). IFRIC 23 specifies the accounting treatment for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over the tax treatments. The standard is effective for annual periods beginning on or after January 1, 2019 , with earlier application permitted. For Corby, this standard will become effective July 1, 2019 . The new interpretation is not expected to have a significant impact on the Company's consolidated financial statements.

(iii)          Financial Instruments

The IASB issued amendments to IFRS 9 "Financial Instruments" ("IFRS 9"). The amendment addresses concerns about how IFRS 9 classified prepayable financial assets and clarifies an aspect of accounting for financial liabilities following a modification. The amendments are to be applied retrospectively for fiscal years beginning on or after January 1, 2019 . The amendment and additions to IFRS 9 will not have an impact on the Company's audited consolidated financial statements.

(iv)          Employee Benefits

The IASB published amendments to IAS 19 "Employee Benefits" ("IAS 19"). The amendment harmonizes accounting practices to provide more relevant information for decision-making. The amendments are to be applied retrospectively to plan amendments, curtailments or settlements occurring on or after January 1, 2019 . The amendment and additions to IAS 19 will not have an impact on the Company's consolidated financial statements.

(v)           Income Taxes

The IASB published amendments to IAS 12 "Income Taxes" ("IAS 12"). The amendment clarifies that the income tax consequences of dividends, where transactions or events that generate distributable profits are recognized, apply to all income tax consequences of dividends. The amendments are to be applied retrospectively for fiscal years beginning on or after January 1, 2019 . The amendments and additions to IAS 12 will not have an impact on the Company's consolidated financial statements.  

Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures that has been designed to provide reasonable assurance that information required to be disclosed by the Company in its public filings is recorded, processed, summarized and reported within required time periods and includes controls and procedures designed to ensure that all relevant information is accumulated and communicated to senior management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), to allow timely decisions regarding required disclosure.

Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in National Instrument 52-109) as at June 30, 2019 , and has concluded that such disclosure controls and procedures are effective based upon such evaluation.

Internal Controls Over Financial Reporting

The Company maintains a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.

In addition, the CEO and CFO have designed, or caused to be designed under their supervision, internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be designed effectively can provide only reasonable assurance with respect to financial reporting and financial statement preparation.

Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's internal controls over financial reporting as at June 30, 2019 , and has concluded that internal control over financial reporting is designed and operating effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management's assessment was based on the framework established in Internal Control – Integrated Framework (2013), published by the Committee of Sponsoring Organizations of the Treadway Commission.

There were no changes in internal control over financial reporting during the Company's most recent interim period that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. 

Risks & Risk Management

The Company is exposed to a number of risks in the normal course of its business that have the potential to affect its operating and financial performance.

Industry and Regulatory
The beverage alcohol industry in Canada is subject to government policy, extensive regulatory requirements and significant rates of taxation at both the federal and provincial levels. As a result, changes in the government policy, regulatory and/or taxation environments within the beverage alcohol industry may affect Corby's business operations, causing changes in market dynamics or changes in consumer consumption patterns. In addition, the Company's provincial LB customers have the ability to mandate changes that can lead to increased costs, as well as other factors that may impact financial results.

Additionally, as the Company becomes more reliant on international product sales in the US, UK and other countries, exposure to changes in the laws and regulations (including on matters such as regulatory requirements, import duties and taxation) in those countries could also adversely affect the operations, financial performance or reputation of the Company.

The Company continuously monitors the potential risk associated with any proposed changes to its government policy, regulatory and taxation environments and, as an industry leader, actively participates in trade association discussions relating to new developments.

Consumer Consumption Patterns
Beverage alcohol companies are susceptible to risks relating to changes in consumer consumption patterns. Consumer consumption patterns are affected by many external influences, not the least of which is economic outlook and overall consumer confidence in the stability of the economy as a whole. Additionally, the legalization of recreational cannabis in Canada could have the potential to impact consumer consumption patterns with respect to beverage alcohol products. Corby offers a diverse portfolio of products across all major spirits categories and at various price points.  Corby continues to identify and offer new innovations in order to address consumer desires.

Distribution/Supply Chain Interruption
The Company is susceptible to risks relating to distributor and supply chain interruptions. Distribution in Canada is largely accomplished through the government-owned provincial LBs and, therefore, an interruption (e.g., a labour strike) for any length of time, or a change in business model may have a significant impact on the Company's ability to sell its products in a particular province and/or market. International sales are subject to the variations in distribution systems within each country where the products are sold.   

Supply chain interruptions, including a manufacturing or inventory disruption, could impact product quality and availability. The Company adheres to a comprehensive suite of quality programmes and proactively manages production and supply chains to mitigate any potential risk to consumer safety or Corby's reputation and profitability.

Inherent to producing maturing products, there is a potential for shortages or surpluses in future years if demand and supply are materially different from long-term forecasts. Additionally, the loss through contamination, fire or other natural disaster of the stock of maturing products may result in significant reduction in supply and, as a result, Corby may not be able to meet customer demands. The Company monitors category trends and regularly reviews maturing inventory levels.

Environmental Compliance
Environmental liabilities may potentially arise when companies are in the business of manufacturing products and, thus, required to handle potentially hazardous materials. As Corby largely outsources its production, including all of its storage and handling of maturing alcohol, the risk of environmental liabilities is considered minimal. Corby currently has no significant recorded or unrecorded environmental liabilities.

Industry Consolidation
In recent years, the global beverage alcohol industry has continued to experience consolidation. Industry consolidation can have varying degrees of impact and, in some cases, may even create exceptional opportunities. Either way, management believes that the Company is well positioned to deal with this or other changes to the competitive landscape in Canada and other markets in which it carries on business.

Corby's ability to properly complete acquisitions and subsequently integrate them may affect its results
Corby monitors growth opportunities that may present themselves to Corby, including by way of acquisitions. While we believe that an acquisition may create the opportunity to realize certain benefits, achieving these benefits will depend in part on successfully consolidating functions and integrating operations, procedures and personnel in an efficient manner, as well as our ability to realize any anticipated growth opportunities or costs savings from combining the target's assets and operations with our existing brands and operations. Integration efforts following any acquisition (including the recent acquisitions of the Ungava Spirits Brands and Foreign Affair Winery) may require the dedication of substantial management effort, time and resources, which may divert management's focus and resources from other strategic opportunities and from operational matters during this process. In addition, Corby may be required to assume greater-than-expected liabilities due to liabilities that are undisclosed at the time of completion of an acquisition. A failure to realize, in whole or in part, the anticipated benefits of an acquisition may have a negative impact on the results or financial position of Corby.

Competition
The Canadian and international beverage alcohol industry is extremely competitive. Competitors may take actions to establish and sustain a competitive advantage through advertising and promotion and pricing strategies in an effort to maintain market share, which may negatively affect our sales, revenues and profitability. Corby constantly monitors the market and adjusts its own advertising, promotion and pricing strategies as appropriate.

Competitors may also affect Corby's ability to attract and retain high-quality employees. The Company's long heritage attests to Corby's strong foundation and successful execution of its strategies. Its role as a leading Canadian beverage alcohol company helps facilitate recruitment efforts.

Credit Risk
Credit risk arises from deposits in cash management pools held with PR via Corby's participation in the Mirror Netting Service Agreement (as previously described in the "Related Party Transactions" section of this MD&A), as well as credit exposure to customers, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the Company's financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of its counterparties, taking into account their financial position, past experience and other factors. As the large majority of Corby's accounts receivable balances are collectible from government-controlled LBs, management believes the Company's credit risk relating to accounts receivable is at an acceptably low level.

Exposure to Interest Rate Fluctuations
The Company does not have any short- or long-term debt facilities. Interest rate risk exists, as Corby earns market rates of interest on its deposits in cash management pools. An active risk management programme does not exist, as management believes that changes in interest rates would not have a material impact on Corby's financial position over the long term.

Exposure to Commodity Price Fluctuations
Commodity risk exists, as the manufacture of Corby's products requires the procurement of several known commodities, such as grains, sugar and natural gas. The Company strives to partially mitigate this risk through the use of longer-term procurement contracts where possible. In addition, subject to competitive conditions, the Company may pass on commodity price changes to consumers through pricing over the long term.

Foreign Currency Exchange Risk
The Company has exposure to foreign currency risk, as it conducts business in multiple foreign currencies; however, its exposure is primarily limited to the US dollar ("USD") and UK pound sterling ("GBP"). Corby does not utilize derivative instruments to manage this risk. Subject to competitive conditions, changes in foreign currency rates may be passed on to consumers through pricing over the long term.

USD Exposure
The Company's demand for USD has traditionally outpaced its supply, due to USD sourcing of production inputs and Advertising & Promotion expenses exceeding that of the Company's USD sales. Therefore, decreases in the value of the Canadian dollar ("CAD") relative to the USD will have an unfavourable impact on the Company's earnings.

GBP Exposure
The Company's exposure to fluctuations in the value of the GBP relative to the CAD was reduced as both sales and cost of production are denominated in GBP. While Corby's exposure has been minimized, increases in the value of the CAD relative to the GBP will have an unfavourable impact on the Company's earnings.

Third-Party Service Providers
HWSL, which Corby manages on behalf of PR, provides more than 90% of the Company's production requirements, among other services including administration and information technology. However, the Company is reliant upon certain third-party service providers in respect of certain of its operations. It is possible that negative events affecting these third-party service providers could, in turn, negatively impact the Company. While the Company has no direct control over how such third parties are managed, it has entered into contractual arrangements to formalize these relationships. In order to minimize operating risks, the Company actively monitors and manages its relationships with its third-party service providers.

Brand Reputation and Trademark Protection
The Company promotes nationally branded, non-proprietary products as well as proprietary products. Damage to the reputation of any of these brands, or to the reputation of any supplier or manufacturer of these brands, could negatively impact consumer opinion of the Company or the related products, which could have an adverse impact on the financial performance of the Company. The Company strives to mitigate such risks by selecting only those products from suppliers that strategically complement Corby's existing brand portfolio and by actively monitoring brand advertising and promotion activities.

Additionally, although the Company registers trademarks, as applicable, it cannot be certain that trademark registrations will be issued with respect to all the Company's applications. Also, while Corby constantly watches for and responds to competitive threats, as necessary, the Company cannot predict challenges to, or prevent a competitor from challenging, the validity of any existing or future trademark issued or licensed to Corby.

Information Technology and Cyber Security
The Company uses technology supplied by third parties, both related and non-related, to support operations and invests in information technology to improve route to market, reporting, analysis, and marketing initiatives.  Issues with availability, reliability and security of systems and technology could adversely impact the Company's ability to compete resulting in corruption or loss of data, regulatory-related issues, litigation or brand reputation damage.  With the fast-paced changing nature of the technology environment including digital marketing, the Company works with these third parties to maintain policies, processes and procedures to help secure and protect these information systems as well as consumer, corporate and employee data. 

Valuation of Goodwill and Intangible Assets
Goodwill and intangible assets account for a significant amount of the Company's total assets. Goodwill and intangible assets are subject to impairment tests that involve the determination of fair value. Inherent in such fair value determinations are certain judgments and estimates including, but not limited to, projected future sales, earnings and capital investment, discount rates, and terminal growth rates. These judgments and estimates may change in the future due to uncertain competitive market and general economic conditions, or as the Company makes changes in its business strategies. Certain of the aforementioned factors affecting the determination of fair value may be impacted and, as a result, the Company's financial results may be adversely affected.

The following table summarizes Corby's goodwill and intangible assets and details the amounts associated with each brand (or basket of brands) and market as at June 30, 2019 :










Carrying Values as at June 30, 2019








Associated Brand


Associated Market


Goodwill

Intangibles

Total








Various PR brands


Canada


$

-

$

13.0

$

13.0

Lamb's rum


United Kingdom(1)


1.3

11.8

13.1

Ungava brands (2)


Canada


5.1

3.2

8.3

Foreign Affair Winery brands


Canada


0.4

2.5

2.9

Other domestic brands


Canada 


1.9

-

1.9












$

8.7

$

30.5

$

39.2








(1)The international business for Lamb's rum is primarily focused in the UK, however, the trademarks and licences purchased
relate to all international markets outside of Canada, as Corby previously owned the Canadian rights.

(2)The Ungava brands include trademarks related to Ungava Premium Canadian Gin, Chic Choc Spiced Rum and Cabot Trail

    maple-based liqueurs. 

 

Therefore, economic factors (such as consumer consumption patterns) specific to these brands and markets are primary drivers of the risk associated with their respective goodwill and intangible assets valuations.

Employee Future Benefits
The Company has certain obligations under its registered and non-registered defined benefit pension plans and other post-retirement benefit plan. There is no assurance that the Company's benefit plans will be able to earn the assumed rate of return. New regulations and market-driven changes may result in changes in the discount rates and other variables, which would result in the Company being required to make contributions in the future that differ significantly from estimates. An extended period of depressed capital markets and low interest rates could require the Company to make contributions to these plans in excess of those currently contemplated, which, in turn, could have an adverse impact on the financial performance of the Company. Somewhat mitigating the impact of a potential market decline is the fact that the Company monitors its pension plan assets closely and follows strict guidelines to ensure that pension fund investment portfolios are diversified in-line with industry best practices. For further details related to Corby's defined benefit pension plans, please refer to Note 10 of the annual audited consolidated financial statements for the year ended June 30, 2019 .

CORBY SPIRIT AND WINE LIMITED

CONSOLIDATED FINANCIAL STATEMENTS
FOR the Years ENDED June 30, 2019 and 2018

CORBY SPIRIT AND WINE LIMITED

CONSOLIDATED BALANCE SHEETS






as at June 30, 2019 and 2018





(in thousands of Canadian dollars)













June 30,

June 30,



Notes

2019

2018






ASSETS





Deposits in cash management pools



$

61,136

$

69,955

Accounts receivable


8

32,260

33,469

Inventories


9

61,912

59,789

Prepaid expenses



554

593






Total current assets



155,862

163,806

Other assets


10

1,498

1,830

Property, plant and equipment


11

21,683

19,331

Goodwill


12

8,757

8,757

Intangible assets


13

30,531

36,311








Total assets



$

218,331

$

230,035











LIABILITIES





Accounts payable and accrued liabilities


15

$

32,998

$

31,242

Income and other taxes payable



989

1,240






Total current liabilities



33,987

32,482

Provision for employee benefits


10

13,427

9,991

Deferred income taxes


16

1,820

2,868






Total liabilities



49,234

45,341






Shareholders' equity





Share capital


17

14,304

14,304

Accumulated other comprehensive (loss) income


18

(3,226)

486

Retained earnings



158,019

169,904

Total shareholders' equity



169,097

184,694

Total liabilities and shareholders' equity



$

218,331

$

230,035






The accompanying notes are an integral part of these consolidated financial statements.





 

CORBY SPIRIT AND WINE LIMITED

CONSOLIDATED STATEMENTS OF EARNINGS








(The three months ended June 30, 2019 and 2018 have not been 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 Year Ended











June 30,

June 30,

June 30,

June 30,



Notes

2019

2018 (1)

2019

2018 (1)








Revenue


19

$

39,235

$

40,241

$

149,938

$

145,724








Cost of sales



(13,982)

(14,642)

(57,028)

(54,855)

Marketing, sales and administration



(14,835)

(13,281)

(58,798)

(56,631)

Other income


20

48

326

96

705








Earnings from operations



10,466

12,644

34,208

34,943








Financial income


21

350

312

1,492

1,187

Financial expenses


21

(124)

(190)

(478)

(764)




226

122

1,014

423








Earnings before income taxes



10,692

12,766

35,222

35,366








Current income taxes


16

(3,132)

(3,439)

(9,215)

(9,263)

Deferred income taxes


16

255

(73)

(313)

(422)

Income taxes



(2,877)

(3,512)

(9,528)

(9,685)








Net earnings



$

7,815

$

9,254

$

25,694

$

25,681








Basic earnings per share


22

$

0.27

$

0.33

$

0.90

$

0.90

Diluted earnings per share


22

$

0.27

$

0.33

$

0.90

$

0.90








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








(1)In preparing its comparative information, the Company has adjusted amounts reported previously in the interim condensed consolidated statement of earnings as a result of the retrospective application of IFRS 15, Revenue from Contracts with Customers. Refer to Note 3 for details regarding adjusted amounts.








The accompanying notes are an integral part of these consolidated financial statements.

 

CORBY SPIRIT AND WINE LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME








for the years ended June 30, 2019 and 2018






(in thousands of Canadian dollars)

























June 30,

June 30,





Notes

2019

2018








Net earnings




$

25,694

$

25,681








Other Comprehensive Income:













Amounts that will not be subsequently reclassified to earnings:        






Net actuarial (losses) gains



10

(5,073)

8,883

Income taxes



16

1,361

(2,380)






(3,712)

6,503








Total comprehensive income




$

21,982

$

32,184

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY








for the years ended June 30, 2019 and 2018






(in thousands of Canadian dollars)
















Share Capital

Accumulated
Other
Comprehensive
(Loss) Income

Retained
Earnings

Total








Balance as at June 30, 2018


$

14,304

$

486

$      169,904

$

184,694

Total comprehensive income


-

(3,712)

25,694

21,982

Dividends



-

-

(37,579)

(37,579)









Balance as at June 30, 2019


$

14,304

$

(3,226)

$      158,019

$

169,097















Balance as at June 30, 2017


$

14,304

$

(6,017)

$      168,991

$

177,278

Total comprehensive income


-

6,503

25,681

32,184

Dividends



-

-

(24,768)

(24,768)








Balance as at June 30, 2018


$

14,304

$

486

$      169,904

$

184,694








The accompanying notes are an integral part of these consolidated financial statements.

 

CORBY SPIRIT AND WINE LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOW







(The three months ended June 30, 2019 and 2018 have not been audited or reviewed by the Company's external auditor)

(in thousands of Canadian dollars)



For the Three Months Ended

For the Year Ended









June 30,

June 30,

June 30,

June 30,


Notes

2019

2018

2019

2018







Operating activities






Net earnings


$

7,815

$

9,254

$

25,694

$

25,681

Adjustments for:






Amortization and depreciation

23

2,208

2,124

8,668

8,214

Net financial income

21

(226)

(122)

(1,014)

(423)

Gain on disposal of property and equipment


-

(144)

-

(324)

Income tax expense


2,877

3,512

9,528

9,685

Provision for employee benefits


87

(85)

(1,783)

(1,969)



12,761

14,539

41,093

40,864

Net change in non-cash working capital balances

25

(1,922)

65

881

(1,809)

Interest received


350

311

1,492

1,187

Income taxes paid


(2,319)

(1,589)

(9,466)

(8,935)







Net cash from operating activities


8,870

13,326

34,000

31,307







Investing activities






Additions to property and equipment

11

(2,503)

(2,100)

(5,254)

(4,958)

Proceeds from disposition of property and equipment


14

71

14

518

Business acquisition

6

-

-

-

(6,397)

Deposits in cash management pools


(118)

(5,034)

8,819

4,298







Net cash used in (from) investing activities


(2,607)

(7,063)

3,579

(6,539)







Financing activity






Dividends paid 


(6,263)

(6,263)

(37,579)

(24,768)







Net cash used in financing activity


(6,263)

(6,263)

(37,579)

(24,768)







Net increase in cash


-

-

-

-

Cash, beginning of year


-

-

-

-







Cash, end of year


$

-

$

-

$

-

$

-







The accompanying notes are an integral part of these consolidated financial statements.


 


CORBY SPIRIT AND WINE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2019 and 2018
(in thousands of Canadian dollars, except per share amounts)

1.  GENERAL INFORMATION                                 

Corby Spirit and Wine Limited ("Corby" or the "Company") is a leading Canadian manufacturer, marketer and importer of spirits and wines. The Company derives its revenues from the sale of its owned-brands in Canada and other international markets, as well as earning commissions from the representation of selected non-owned brands in the Canadian marketplace. Revenues predominantly consist of sales made to each of the provincial liquor boards in Canada . The Company also supplements these primary sources of revenue with other ancillary activities incidental to its core business, such as logistics fees.

Corby is controlled by Hiram Walker & Sons Limited ("HWSL"), which is a wholly-owned subsidiary of Pernod Ricard, S.A. ("PR"), a French public limited company that controls 51.6% of the outstanding Voting Class A Common Shares of Corby as at June 30, 2019 .

Corby is a public company incorporated and domiciled in Canada , whose shares are traded on the Toronto Stock Exchange. The Company's registered address is 225 King Street West, Suite 1100, Toronto, ON M5V 3M2. 

2. BASIS OF PREPARATION

Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and using the accounting policies described herein.

These consolidated financial statements were approved by the Company's Board of Directors on August 21, 2019 .

Functional and Presentation Currency
The Company's 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 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.

Use of Estimates and Judgements           
The preparation of the consolidated financial statements in conformity with IFRS requires management to make certain judgments, 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

Judgment is commonly used in determining whether a balance or transaction should be recognized in the consolidated financial statements and estimates and assumptions are more commonly used in determining the measurement of recognized transactions and balances. However, judgment and estimates are often interrelated.

Estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Estimates are made on the assumption the Company will continue as a going concern and are based on information available at the time of preparation. Estimates may be revised where the circumstance on which they were based change or where new information becomes available. Future outcomes can differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Critical judgments, estimates and assumptions are used in applying accounting policies and have the most significant effect on the following:

(i)            Impairment

The Company uses judgment in determining the grouping of assets to identify its Cash-Generating Units ("CGUs") for purposes of testing for impairment of goodwill, intangible assets and property, plant and equipment. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes.

Intangible assets and property, plant and equipment are subject to impairment tests whenever there is an indication that the value of the asset has been impaired and at least once a year for non-current assets with indefinite useful lives (goodwill and trademarks and licences). Judgment has been used in determining whether there has been an indication of impairment.

The Company uses estimates to determine a CGU's or group of CGUs' recoverable amount based on the higher of fair value less costs to sell and value in use ("VIU"), which involves estimating future cash flows before taxes. The process of determining the recoverable amount requires the Company to make estimates and assumptions of a long-term nature regarding discount rates, projected revenues, royalty rates and margins, as applicable, derived from past experience, actual operating results and budgets. These estimates and assumptions may change in the future due to uncertain competitive and economic market conditions or changes in business strategies.

(ii)           Purchase Price Allocation

The purchase price related to a business combination is allocated to the underlying acquired assets and liabilities based on their estimated fair values at the time of acquisition. The determination of fair value requires the Company to make assumptions, estimates and judgments regarding future events. The allocation process is inherently subjective and impacts the amounts assigned to individually identifiable assets and liabilities. As a result, the purchase price allocation impacts the Company's reported assets and liabilities and future net earnings due to the impact on future depreciation and amortization expense and impairment tests. In addition, due to the timing and complexities related to business combinations, adjustments to provisional amounts recorded are expected subsequent to the reporting period until the allocation is finalized.

(iii)          Income and other taxes

In calculating current and deferred income and other taxes, the Company uses judgment when interpreting the tax rules in jurisdictions where the Company operates. The Company also uses judgment in classifying transactions and assessing probable outcomes of claimed deductions, which considers expectations of future operating results, the timing and reversal of temporary differences, and possible audits of income tax and other tax filings by tax authorities.

Deferred income tax assets require management judgment in order to determine the amounts to be recognized. This includes assessing the timing of the reversal of temporary differences to which deferred income tax rates are applied.

(iv)          Post-employment benefits

The accounting for the Company's post-employment benefit plan requires the use of estimates and assumptions. The accrued benefit liability is calculated using actuarial determined data and the Company's best estimates of future salary escalations, retirement ages of employees, employee turnover, mortality rates, market discount rates, and expected health and dental care costs.

(v)           Fair value of grapes at point of harvest

Where possible, the fair value of grapes at the point of harvest is determined by reference to local market prices for grapes of a similar quality and varietal. For grapes for which local market prices are not readily available, the average price of similar grapes is used.

(vi)          Other

Other estimates include determining the useful lives of property, plant and equipment and intangible assets for the purpose of depreciation and amortization, as well as measuring items such as allowances for uncollectible accounts receivable and inventory obsolescence and certain fair value measures including those related to the valuation of share-based payments and financial instruments.

3. ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS

Recent accounting pronouncements

A number of new standards, amendments to standards and interpretations were effective for Corby on July 1, 2018 , and accordingly, have been applied in preparing these consolidated financial statements:

(i)            Revenue

In May 2014 , the International Accounting Standards Board ("IASB") issued IFRS 15, "Revenue from Contracts with Customers" ("IFRS 15"), which provides a comprehensive framework for the recognition, measurement and disclosure of revenue from contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1, 2018 and was therefore applied for the first time by the Company for the interim period beginning July 1, 2018 .

The Company adopted IFRS 15 using the full retrospective anull