Corby Spirit and Wine Limited (TSX: CSW.A) showcased robust growth in its fiscal 2024 third-quarter earnings, outperforming the market and marking its sixth consecutive quarter of growth.
The company's strategic focus on portfolio expansion and catering to diverse consumer occasions and price points has paid off, with significant increases in adjusted earnings from operations.
Additionally, Corby Spirit and Wine has strengthened its position in the ready-to-drink (RTD) segment with the acquisition of Nude, a leading brand in Western Canada.
Despite inflationary pressures and higher costs, the company reported a healthy increase in revenue and confirmed a consistent dividend payout.
Key Takeaways
- Corby Spirit and Wine reported a 33% increase in adjusted earnings from operations year-to-date.
- The acquisition of Nude aims to bolster the company's RTD segment in Western Canada.
- Key brands, including J.P. Wiser's and polarized vodka, along with Pernod Ricard (EPA:PERP) brands, gained market share.
- Total cost of sales, marketing, and administration rose by 42%, impacted by the new portfolio and inflation.
- The company declared a quarterly dividend of $0.21 per share, with a dividend yield of 6.3% and a payout ratio of 95%.
- Net debt stood at $103.3 million after significant acquisition payments, yet cash conversion remained strong.
Company Outlook
- Corby Spirit and Wine remains confident in its commercial performance and strategy execution.
- The company expects the acquisition of Nude to generate synergies and drive innovation in the RTD category.
Bearish Highlights
- Reported net earnings declined by 6% due to accounting impacts.
- Higher interest expenses and tax payments led to a slight decrease in cash from operating activities to $14.7 million.
- Free cash flow also saw a slight decrease from the previous year.
Bullish Highlights
- Strong revenue growth and financial results with a 33% increase in adjusted earnings from operations.
- Cash generation was 1.6 times higher than net profit, indicating strong cash conversion.
Misses
- The company experienced a 42% increase in total costs, influenced by inflation and the integration of the newly acquired portfolio.
Q&A Highlights
- The earnings call concluded without questions from analysts.
Corby Spirit and Wine's fiscal 2024 third-quarter performance signifies a strong trajectory in the spirits and RTD market segments, even as it navigates through the challenges of inflation and increased costs.
The strategic acquisition of Nude positions the company to capitalize on the growing demand for RTD products in Western Canada. Despite some financial headwinds, Corby Spirit and Wine maintains a solid dividend payout and demonstrates confidence in its long-term commercial strategy.
Full transcript - None (CBYDF) Q3 2024:
Operator: Good afternoon. Welcome to Corby Spirit and Wine for Fiscal 2024 Third Quarter Results Conference Call for the period ended March 31, 2024. Joining me on the call this afternoon are Nicolas Krantz, President and Chief Executive Officer, and Juan Alonso, Vice President and Chief Financial Officer. Hopefully, everyone has had the opportunity to review the press release, which was issued on May 9. The press release, the fiscal 2024 third quarter results financial statements, and MD&A have been filed onto SEDAR+. Before we begin, I would like to inform listeners that information provided on today's call may contain forward-looking statements which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks and uncertainties about the company's business are more fully discussed in Corby's materials, including annual and interim MD&A, filed with the securities regulatory authorities in Canada as required. At this time, all participants are in a listen-only mode. Following management's commentary, we will conduct a question-and-answer session. Instructions will be provided at the time for you to queue up for questions. [Operator Instructions]. Now, I would like to turn the call over to Mr. Krantz. Please go ahead.
Nicolas Krantz: Thank you very much, and good evening, everyone. I hope you can hear me properly, and let's get started. I hope, as well, you can see the slide moving. So, we have a short presentation. As the host said, we will go through that at pace to be able to give the floor for some Q&A. So, as we released our quarterly earnings, I just wanted to start with some key highlights for the quarter and, in fact, the year-to-date of our financial year. Mentioning that we've been very pleased to generate some solid retail value growth with a whole portfolio. And what is quite important for us, we've been able to, in fact, grow ahead of the market, outpacing, therefore, the spirits and the ready-to-drink market. So, there are six consecutive quarters, which means that we are really creating momentum in terms of commercial performance and unlocking growth. We attribute, of course, this performance to, of course, the execution of our strategy, very much focused on amplifying the growth across the whole portfolio. And, of course, targeting different, I mentioned a lot, consumer occasions, but, of course, this year, many price points. So, we've been able to play a different part of the category in the market, which has been a big feature for us this year. As a result, we've been able to deliver some dynamic revenue growth. One we'll present to you in a minute, our financial results. And doing so, we continue, of course, to manage very purposefully and tightly the resources, which means our investment behind our brands and our organization. We continue, as well, at pace to continue our digital transformation, which was essential for us to build this competitive advantage, using data to better inform our action plan and our decision-making. And last but not least, we have announced very recently a further expansion in the highly attractive, ready-to-bring segment with the acquisition of a new brand in order to strengthen our foothold in the West of Canada. And I will come back specifically on that in a few slides. So, if we look at the state of the market, I wanted to share with you the context. On what we call the rolling 12 months, the market, the spirit market, is in slight decline in value. It is more in decline in volume, but there is still a positive value conversion, which means price and mix are generating some value. But nonetheless, a slight decline on the spirit side. A further decline on the wine side, that is 1.6%. And you will see here that the ready-to-drink segment is showing some solid growth around 8%. If we look at the last quarter in terms of the market data, these are the market sell-out data, which are public information from the leaderboard. The spirit market is back to a slight growth. The wine market has recovered compared to also the comparative basis, which was in favor for this quarter. And the ready-to-drink continues to show some solid growth. So, that's really the theme. You have a flattish, I would say, market on the spirit side. The wine has been a bit more challenging until now. And the ready-to-drink continues to perform quite strongly. Now, if you look at the category in which Corby operates, you know we present regularly the various spirit categories. We are showing in this graph the growth of the respective categories in the market. And then we are showing our value retail growth in those categories and our value share as a result. And here, I'm pleased to see that we are, in fact, taking share in almost all categories. And that's something that is, of course, the condition to unlock growth, to unlock, to take market share across a portfolio. And this is what we've been very much focusing over the last, of course, 12 months. As a result, again, pleased to see that we have been creating this momentum, beating the market for six consecutive quarters. And whether we look at just the spirit market, the RTD or the combined spirit, RTD and wine market in Canada, we've been able to outpace the market, growing overall between 1.4 for spirits, steadily in the ready-to-drink, and therefore in total 1.7%. So that's, in a nutshell, the context in which we are operating. I wanted, before going to the financial with Juan, to give you a little flavor of the brand highlights, which are very much behind our performance. This year, we've been doing a lot of transformation, including the portfolio. We've been revamping, I would say, the communication platform behind our main brand, which is J.P. Wiser, with a new pack, a new communication platform. And, of course, the launch of the J.P. Wiser 10-year-old, which is the number one Canadian whisky innovation in the market. We've been able, as well, to revamp, I would say, the platform for polarized vodka, with new campaign and launching, as well, some innovation with the Berry Blizzard, which are number one innovation right now in the LCBO. So a lot of activities there. We've been also launching some premium offerings. We're going to launch soon the J.P. Wiser 42-year-old, which is a combo for the Halo Effect, of course, launching in the Toronto trade show a few weeks ago. And again, I attribute our success through what we call the last three feet and point-of-sales activation. This is where the Corby team is really excelling, which is bringing to life the portfolio we are having at point-of-sales with different activations. So this has been very much the focus of the year, going from strategy to execution and making sure that we are winning at point-of-sales every week. With that, I pass on to Juan to give you a highlight of our financial results year-to-date. Juan, over to you.
Juan Alonso: Thank you, Nicolas. Hello, everyone. So let's talk about the financial highlights of March year-to-date fiscal year 2024. But before I start talking about our financial performance, I want to explain our adjusted earnings definition, which are non-IFRS financial measures to better understand our underlying core business performance. So whenever I mention adjusted figures, we are excluding the impact of ABG inventory market fair value adjustments worth of $3 million before taxes and $2.2 million after taxes, as well as costs and termination fees related to distributors' transition, restructuring provisions, and interest charges related to non-controlling interest obligations. So I will start by our top-line drivers. You see that our shipment volume increased by 83% to 2.9 million cases in year-to-date March, out of which 1.3 million cases came from the inclusion of Ace beverage portfolio, leading to a very strong operating revenue growth of plus 13.7%. Those results were complemented by a dynamic export sale and also a robust domestic case goods sale, despite overall spirit market deceleration and also despite stock-level normalization at liquor board. I will go into further details on our revenue drivers in the next slide. So in addition to the marketing activities and overheads related to ABG, we continued our strategy to invest behind our key brands while closely managing our overheads. So we basically invested a lot on J.P. Wiser's package redesign, polarized media campaign, and also to sustain the growth of our RTD brands portfolio. So as a result, you see that our adjusted earnings from operations increased by 33% in year-to-date March, fiscal year '24 versus last year, while our adjusted net earnings increased by 13%. Cash from operating activities was positive at $14.7 million, which is minus $1.8 million lower than last year. And the Board of Directors declared a dividend of $0.21 per share for the third quarter of fiscal year '24, leading to a robust total dividend declared over the nine months at $0.63 per share, consistent with previous year. Now, moving into our next slide, when we deep dive into our sales performance, we see that fiscal year-to-date March revenue growth of plus $44.4 million was primarily boosted by the inclusion of Ace beverage group performance, but also supported by some other drivers. Our domestic case goods revenue, excluding ABG, saw a solid 2% growth despite stock levels normalization at liquor board and also despite market deceleration. It was primarily led by J.P. Wiser's family revenue up 5% versus last year due to pricing favorability and also polarized vodka increase of 8% versus last year through promotion and spend optimization and price increases as well. We recorded dynamic export sales at plus 44% through opportunities in new markets, also the recovery of Lamb's rum performance in the U.K. market, and also broad-based price increase. Our commission income represented and agency brands remained resilient through Pernod Ricard brands cycling high comparison basis last year and offset by declining on other agency sales. From a commercial perspective, most of our key Pernod Ricard brands have gained market share over the first three quarters of fiscal year '24. Notably, our flagship whiskey Jameson and the Glenlivet. If we take a quick look at our quarterly revenue split, you can notice that we have delivered solid top-line performance quarter-after-quarter, boosted with the inclusion of Ace beverage group results. So to summarize our P&L results, we enjoy a dynamic 30% growth of our revenue, enhanced by ABG brand portfolio performance inclusion, landing us at $163.1 million. Because of the inclusion of our newly acquired portfolio as well as some inflationary pressure on cost of raw materials and finished goods, our total cost of sales, marketing, and administration increased plus 42%. As a result, our adjusted earnings from operations grew plus 33%, and when impacted by the one-off impact related to ABG's inventory market fair value adjustment of $3 million, our reported operating earnings grew plus 21%. Our adjusted net earnings grew plus 13% in year-to-date March versus last year, affected by an increase in our interest expense, of which $4.4 million were from the loan to acquire ABG. Our reported net earnings were in decline of minus 6%, further affected by the one-off accounting impact related to ABG inventory market fair value. So finally, given our net earnings, we are looking at adjusted earnings per share at $0.81 and our reported earnings per share at $0.67. So now moving to our cash flow performance, you're going to see that through the first three quarters of the fiscal year, cash from operating activities was positive at $14.7 million, which is minus 1.8 lower than last year. This is due to a slight improvement in working capital that was offset by higher interest expenses and also higher tax payments. We have generated $12.7 million of free cash flow at the end of March, seeing a minus $1 million slight decrease from last year. Our investing activities included $136.3 million payments for the acquisition of ABG on July 4, 2023, while our financing activities were mostly comprised of the $17.9 million in dividend paid over the period. So as a result, our net debt position was $103.3 million at the end of March, made up with cash held in cash management pools of $24 million and offset by the Pernod Ricard loan agreement of $120 million and ABG bank indebtedness of $7.3 million. So on a full year basis, our cash conversion remained strong with a cash generation 1.6x higher than our net profit at the end of fiscal year '23. Our dividend yield continued to grow with a 6.3% yield and our payout ratio reaching 95%. Now I hand it over back to Nicolas.
Operator: Mr. Krantz, can you please check if your mic is on mute?
Nicolas Krantz: Yes, thank you very much. Thank you, Juan. Thank you very much for financial review. Let's take a few minutes to zoom in on the recently announced of the acquisition of Nude. You will remember that, of course, last July that we did close the acquisition of ABG and really taking a step towards the fast-growing category in the RTD. Well, we had a great opportunity to double down and to really expand in Western Canada, which is a strategic market for ready-to-drink. I will show that in a minute. And I think for us, there was a perfect complement, I would say, opportunity to accelerate our ambition in that space. This transaction will enable us to really roll out the playbook that we have in ABG out of west and also to have a large footprint. It's interesting to mention that, RTD is all about innovation and pace of innovation. And the Western market of British Columbia and Alberta are much more open market because you have a private channel. And those private retailers are able to innovate much faster and to really test and learn, I would say, the concept. And this is what we intend to do. In terms of, of course, opportunities, that would also enable us to generate some synergies, both in terms of organization and operation. And this is something that we intend, of course, to capitalize. So briefly, to present you what is New Beverage. Again, it's a major brand in the West of Canada, the number four, in fact, in British Columbia, doing close to 1 million cases already and generating a retail value close to $50 million. Approximately the last 12 months of revenue of around $20 million with 25 active SKUs across the country. And regarding the adjusted EBITDA, around $4 million. So again, a very attractive complement of our business. I will simply summarize maybe the footprint by showing this slide, which I think we have also used that with ABG. Ace Beverage with Scottish Spring is a leader in Ontario, which is a large, of course, province. But with a very small footprint in the West. And equally new, there's a small footprint in the East. So you can see here very clearly, visually, the fact that we will step up on the two main provinces in terms of RTD. Using, of course, the Corby machine as well in terms of customer relationship. And trying to play as much as we can sell the marketing synergy across the country. So a very complementary, I would say, footprint across the three business units. And Nude Brand is going to be now fully integrated into the ABG with the same structure that we had originally on with ABG. Now, just to finish on the portfolio, it's really simply to illustrate the fact that we are continuing here to evolve our consumer offering. And that's something that has proven to be useful this year in terms of unlocking the growth across the portfolio. Now, just to finish off, just to, again, to conclude by saying that we are pleased to report a solid commercial performance year-to-date and a robust quarter in terms of financial quarter. That gives us, of course, confidence for the future. And this enables us, therefore, to confirm the dividend payout that we had initially on this edge. For the business model, for those who know Corby, this is where we are today. We want to make sure that we are continuing here to focus on our execution. And really, the next step now for us is to unlock more dynamic growth going forward. Now, this is quickly for our presentation. And I propose now that we pause and we open, of course, if there is any question on the line. Juan and myself will be very pleased to be able to answer a few questions.
Operator: Q - Unidentified Analyst A - Nicolas Krantz There are no questions at this time. That concludes our conference for today. Thank you for participating. You may all disconnect.
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