Corby Spirit and Wine Limited (CSWA) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to today's Virtual and Audio Roadshow. My name is Danielle Sol, virtual event moderator here at Renmark Financial Communications. And on behalf of our team, we want to thank you for joining us today for the presentation of Corby Spirit and Wine Limited. Corby Spirit and Wine is currently trading on the Toronto Stock Exchange under ticker symbol CSW.A and CSW.B. Presenting today is Vice President and Chief Financial Officer, Edward Mayle. And without further ado, Edward, I'll hand over the floor to you.

Thank you, Danielle, and good afternoon, everyone. Thank you for attending this call. So my name is Edward Mayle. I'm CFO for Corby, which I joined 3 years ago, and I've worked for over 20 years in various finance positions for Pernod Ricard in Europe. I would normally be joined by Nicolas Krantz, Corby's CEO. Nicolas joined Corby a little over 1 year ago. His career also in the group Pernod Ricard spans over 20 years in various roles across Europe and the Pacific region, most recently having been CEO for the group's Spanish Wines business. And previously, Nicolas was CFO for the EMEA-LATAM region. So to kick off, who is Corby? Well, we're the #1 TSX-listed spirits and wine company in Canada. The Canadian market is an important market in the global map of the wine and spirits industry, ranking last year #10 worldwide. And in this market, Corby is the #2 player after Diageo. We're fundamentally brand builders, and we have a portfolio of iconic Canadian and international brands, some of which are owned by Corby and others that we represent. And our business generates steady earnings and cash flow. Now Corby has been around for a while. We have a rich history. It predates the Canadian Confederation and the entrepreneurs who established the Canadian spirits industry in the 19th century. Figures such as William Gooderham, James Ward, J.P. Wiser, Hiram Walker and Henry Corby are major historical figures in our industry. Corby began distilling whiskey in 1859, and as our business grew, he and others helped build the Canada that we know today. We've been listed on the TSX since 1969, and the majority shareholding was acquired by the group Pernod Ricard in 2015 as part of its acquisition of Allied Domecq. Pernod Ricard has itself enjoyed a remarkable growth story and is listed on the Paris Stock Exchange and is now the global #2 in the spirits and wine industry. As a company, Corby's mission is to build connections that celebrate the human spirit. We see our brands playing a key role to create joyful convivial moments between people. And the past 18 months, of course, has shown us the need for human connection more important than ever. Now before speaking about our portfolio and our business, I'd like to give you a sense of the size of the market in which we are operating in Canada. The beverage alcohol industry is a multibillion dollar market, spirits and wines together representing the major part of that market with a retail value of nearly CAD 15 billion. The refreshment or ready-to-drink category is the smallest but fastest growing category, while beer is the largest category, but it faces the lowest growth. Note in Canada, RTDs are usually spirit-based rather than malt-based products that you're probably more familiar with in the U.S. The Canadian spirits and wine market is a heavily regulated market, regulated by provincial government monopolies. They are in charge of the importation, distribution and retailing of alcohol beverage. Our largest customer, the LCBO, the Liquor Control Board of Ontario, is, in fact, the largest alcohol retailer in the world. The situation is evolving, however, and in some provinces like British Columbia and Alberta, we've seen a progressive reopening of their market to private retailers. Now you'll not be surprised to see nearly 2/3 of the market in value comes from Ontario and Quebec. Combined, these 2 provinces hold the largest populations in Canada. There are 2 key channels of spirits and wine distribution: on the one hand, what we call the off-premise, which are the typical liquor stores; and on the other hand, the on-premise, all the restaurants, cafe bars, clubs, where products are consumed on-premise. In Canada, usually, the off-premise would represent around 90% of the market. But given the pandemic, the on-premise has, of course, been heavily disrupted. Sales have declined significantly, while the off-premise sales have accelerated and largely compensate for that loss. The Canadian market is structured a little differently than the U.S. with a 3-tier system that you're more familiar with. We only have the 2 layers here in Canada. The market in Canada is also a bit different to the U.S. in enjoying lower profitability due to a higher share of the value chain being taken by the liquor boards. And finally, the controlled nature of the market also means there's less value differential between the on-premise channel and the off-premise channel. In terms of trends, the Canadian spirits and wine markets are dynamic markets, and 2021, in particular, experienced strong growth. And I think there's 3 features that I'd like to highlight. First, generally, the market is rather mature. And in the past, so pre-COVID times, we see low single-digit growth. And while that overall growth is low, there's significant volatility within underlying categories and often driven by innovation. The market usually sees a positive value realization with value growth ahead of volume as a result of positive pricing and mix effects and also driven by excise tax increases. A feature of the market over time is premiumization, as consumers are willing to pay a little more for more premium products. And the third feature to highlight is the COVID impact, which the market has seen over the last 18 months or so, from 2020 to 2021. Whilst the on-premise channel has been adversely impacted, the off-premise retail channel has been particularly dynamic with increased at-home consumption during the pandemic. Now looking at various categories within the spirits market, you can see vodka, Canadian whiskey and rum are the 3 largest categories, each above $1 billion retail value, closely followed now by liqueurs, and all categories are enjoying solid growth with double-digit increases in some of those categories. And in a number of categories, Corby has a significant market share, in particular, in the whiskey category where Corby is #1 overall. So as a result, Corby has a strong market position, overall, around 17% share of spirits, #2 behind Diageo, with 2 of the top 10 brands in Canada, and as I mentioned, we're a market leader within the Canadian whiskey category. We're also present in the wine category. Wine is a much more fragmented market than spirits. We're focused only around some key countries of origin as we're representing wines from the Pernod Ricard portfolio, Australia, New Zealand and Spain and also from the wine group for wines with Californian origin. Now I'd like to introduce 1 core aspect of our strategy, our consumer-centric approach to brand building. Our job is really to put the right brand in the right hand of the right consumer at the right moment of consumption. So our consumers tend perhaps not to look simply for a product, a whiskey, a vodka, a gin or a wine. They're looking for a brand that fits with an occasion that they want to have, a relaxing moment, sophisticated evening, party time or mealtime. When you have a group of friends coming together with a selection of different drinks, it's often the occasion that is driving the choice of drink. That's what's important to them. So we defined some key occasions to segment our consumer needs and their aspirations. Here, I'm highlighting 4 macro occasions, what we call the bond and connect, the cocktail time around the meal and the prestige and craft. And you can see some of the emotional needs that consumers are looking to fulfill in those moments. Therefore, instead of presenting the portfolio of brands by category, I can show you how we map our diverse portfolio of amazing brands against those important consumer occasions. And this is how we create value for our consumers by focusing on their needs is how we manage our brand activations by targeting different brands at different moments, different occasions. You may recognize some of the brands that we have here, and we've got a great mix in our portfolio from long-time Canadian favorites, like J.P. Wiser's Canadian whiskey or Polar Ice Vodka; the big international aspirational brands like Absolut Vodka, Jameson Irish Whiskey, Beefeater gin, Malibu, Kahlúa or the Glenlivet. We have a number of emerging home-grown brands like Ungava Gin and Cabot Trail Cream Liqueur. And we also have some award-winning craft brands like Lot 40 Canadian rye whiskey or Pike Creek, 2 still and sparkling wines, such as Jacob's Creek. And all of these strong brands play a role in satisfying those different consumer needs in different occasions. This approach allows us to target consumers with the right marketing mix, ensure we tailor our strategy to activate brands most effectively. There's 1 brand I'd like to spend a few minutes on, which is our flagship brand, J.P. Wiser's. The brand was founded in 1857, older than Canada as a country. And as you can imagine, the brand has an amazing history, stands strong today with over 800,000 cases sold annually. It's a key brand in our portfolio. It's a very significant brand in the overall Canadian spirit market, ranking as the #5 spirit brand in Canada overall. So it has a great history. It's got great scale, and it's taken market share during the last fiscal year, growing significantly ahead of the category. And its momentum is a result of recent efforts and focus to transform the brand into a premium powerhouse within the Canadian whiskey category. And it's quite a good illustration of our approach to brand building more generally across the portfolio. And I'd like to call out 3 key initiatives that are illustrative of the type of active brand management that we take to support our brands. First is packaging evolution. You can see here on the slide the evolution from the brand packaging as it was in 2017 to its latest packaging. And you can see the efforts that are made there on bottle shape, on labeling, on caps, all of which bring the product to a more contemporary and distinctive on-shelf presence. Secondly is the overall portfolio architecture. Here, we're very much guided by our consumer needs. We've seen our range extension target convenience and approachable entry point into whiskey to deliver on our recruitment ambition. This is through the launch of ready-to-serve cocktails. Here, we can see the 2 Old-Fashioned and Manhattan, 2 iconic whiskey cocktails. And the Old-Fashioned is, in fact, the #2 innovation in the category. We also have flavor range extensions and age extensions and limited editions. And all of these portfolio extensions help to bring new news to the product, new news to the category. And finally, the third element is our consumer engagement platform, our communication platform. And here, the objective has been to evolve our communication towards social connectivity and friendship and supported by new visual identity, a better representative of our inclusive and approachable premium whiskey. So I highlight these as illustrations of our consumer-centric approach to brand building. So as we see there with J.P. Wiser's, the ability to innovate is a key to long-term success and is true across our portfolio. Innovation is an important growth driver across all spirits and wine categories, and we maintain a pipeline of purposeful innovation. While some of our innovations are launched nationally, some are launched first regionally in 1 province as a test and learn before being rolled out. And we do this always with a strong collaboration and planning with our customers and with our liquor boards, sharing relevant consumer insights and trends. And from our distillery, the Hiram Walker distillery in Windsor, we have within our lending department, Dr. Don Livermore, who is leading the overall team driving product innovation, particularly across our whiskeys. Well, in our Ungava spirit company in Quebec, which is one of our more recent acquisitions, the company purchased about 3 years ago, we have a small facility there, which allows us to test and learn product, particularly suited for the Quebec market. And that's where the Ungava Gin and the Cabot Trail Cream Liqueurs are founded. Next, a word around export. So obviously, the Canadian domestic market is our primary battleground, but export is also an opportunity for us. Our export footprint today accounts for only around 12% of our volume footprint, is a great opportunity for growth for the future. Canadian whiskey is, in fact, the #1 imported whiskey category in the U.S. We still only a very small volume base there, so we've got a lot of room for growth. The other market that I would call out is the U.K. Here, we have a legacy footprint with Lamb's Rum, and we have rejuvenated with new packaging and a spiced rum innovation. Today, the brand is #4 in the dynamic spiced rum category in the U.K. and enjoying very fast growth. So primarily, our export strategy is focused on the U.S. with J.P. Wiser's; secondly, on managing our U.K. rum footprint; but we don't forget the rest of the world. Here, we take a more tactical approach, leveraging our portfolio worldwide, but really, the strategic focus for us is in the U.S. and the U.K. And as we look at our footprint across the world, we differentiate our route to market, either with Pernod Ricard affiliates, for example, Lamb's Rum is disputed in the U.K. via Pernod Ricard U.K. Or it can be through third-party distributors, which is our route to market in the U.S. The choice on which is the most appropriate route to market is made on a case-by-case basis. Sometimes, the Pernod Ricard affiliate is the right choice; sometimes a third party. And it's all about getting the right share of mind with the most appropriate distributor. So I think it's also important to call out our sustainability and responsibility strategy. It's very much embedded in our business model today. We summarized this through a simple mission, aiming at bringing good times from a good place to create a more convivial world and a world without excess, and it's encompassed in everything that we do. It's articulated around the 4 pillars that you can see here: value in people, nurturing terroir, circular making and responsible hosting. Of course, as a key player in the wines and spirits industry, we're committed to fighting alcohol misuse and to create better ways to live and work together. It was also important for us to help the hard-hit hospitality sector over the last 18 months, impacted by the closure of restaurants and bars through which we've maintained several donations to the Bartenders Benevolent Fund of Canada. And finally, we pride ourselves to create connections between people with our brands. So with that mindset, we're committed to always create a better workplace with diversity and inclusiveness. So summarizing briefly what is our business model for growth and value creation. We have a portfolio of strong owned and represented brands covering all major categories in consumer occasions with our own dedicated and experienced sales force across the whole of Canada. Our strategy of premiumization is supported by dynamic revenue growth management and innovation pipeline. And we have key export markets, which represent an opportunity for future growth. And we have the capacity and the capability to do some bolt-on acquisitions to strengthen further our business. We have a recent history of small business acquisitions, and it's something which we continue to monitor and look for opportunities there. And finally, I'd also like to add on top of that, as a business, we have great data. It's not the case for every company and every industry. We're leveraging that data through what we would describe as an ambitious digital transformation program to build a competitive advantage. This strategy encompasses multiple pillars, including our route to consumer; e-commerce; value optimization, which includes revenue growth management initiatives, particularly focused on promotions management to drive improved return on investment and trade spend; and also in consumer marketing spend. And we also make some infrastructural business solution investments, including our ERP and our EPM solutions. And collectively, this range of different programs and initiatives enable Corby to connect better with our consumer and to continuously improve efficiencies and effectiveness. So I think to conclude this section, Corby has a clear and robust strategy, and it's a job of our management team to bring that to life. So indeed, it is a team. We have a range of different backgrounds and experiences. We have a strong international experience. For example, our VP of Marketing, Caroline, has worked in the U.S., in China, in Ireland and in the U.K.; Mark, our VP Sales, a Canadian by background, but is also working in the U.K. and in Eastern Europe. We have deep Canadian industry experts with Stephane who leads our new brand venture team; Melissa, our VP of Operations; and Mark, our General Counsel, each having 20 years or more of experience in the spirits industry in Canada. And we're supported by strong talent within our human resources and our PR and S&R teams with Vanita and with Valerie. Let me turn now to some financial highlights. For those of you not familiar with Corby, I'd like to explain first a little bit about Corby's capital structure, and then I'll go on to explore a little bit about some of the key features of our financials before turning to a description of our fiscal year performance for the 12 months to June. And just as a reminder, our fiscal year runs from July through to June. So there's 3 elements of our capital structure I'd like to highlight. First is Pernod Ricard's majority stake in Corby. Pernod Ricard pursued a series of ambitions during the 2000s, beginning with the acquisition of Seagrams at the start of the decade, ending with the acquisition of The Absolute Company in 2008. And in 2005, Pernod Ricard, along with Beam Suntory, acquired Allied Domecq and split the assets between them. And it was through this transaction that Pernod Ricard acquired Hiram Walker, which was the historical owner of the majority share in Corby. Now at that time, Pernod Ricard had only a small distribution business in Canada. Through the acquisition of Corby, it's able to take a much stronger market position. The relationship between the 2 companies is governed through a series of agreements. The first of these is a representation agreement through which Corby is designated as a distributor of Pernod Ricard's portfolio in Canada. The original agreement ended at the end of last fiscal year, and we've just entered into a new 5-year 3-month agreement since first of July 2021. And Corby will pay Pernod Ricard an upfront fee in this month, September, of $54.4 million. The second series of agreements, which are complementary to the representation agreement, are service agreements. So Pernod Ricard, through the Hiram Walker company, is the producer of much of Corby's portfolio, particularly, of course, whiskeys. They also provide Corby a range of back-office services delivered through shared-service structure. And these production and administrative services are managed through service agreements, which, along with the representation agreement, will run through until 2026. And thirdly, looking at the share structure, Corby has 2 classes of shares, A shares and B shares. The A shares have voting rights attached of which Pernod Ricard owns 51.6% and, therefore, its majority rights; and B shares, which have no voting rights. Both classes of shares are treated equally for dividend entitlement. Aside from Pernod Ricard, there's no other major shareholder above 10%. And those remaining shares are owned by a mix of institutional investors, retail investors and employees. Corby's financial performance is understood in the first instance through the measurement of our volume sales, which we record in units of 9-liter cases. We report on our MDA our depletion volumes, which are sellout volumes in Canada of the Corby-owned brands, so excluding the represented brands, gives a clear view of our brand performance in the market. The second view of our shipments -- I beg your pardon, the second view of our volume is our shipment volumes, which are the sales of products invoiced to customers, and this directly drives our P&L revenue. And then naturally occurs variations between the shipment and the depletion volumes. Note that depletion volumes, as I said, cover performance within Canada, while, of course, shipment includes our export volumes. Revenue is generated from 3 sources. So the first major revenue source are those shipment volumes. Case goods revenue in 2021 out of that $159.8 million was $125.3 million, and we have a gross margin against $125 million of around 53%. Second revenue source then is from our commission income. We have 2 portfolios that we represent. The major one, as I've explained, being the Pernod Ricard portfolio, but we also have a secondary represented portfolio from the wine group. Commission income is reported net of amortization of the upfront fee. And commission income in 2021 was $28 million, reported net of just over $7 million of amortization. And I'd like to highlight, amortization will accelerate during this fiscal year as a new representation agreement that I mentioned comes into force. And amortization will then remain flat for the duration of the new agreement. Third revenue source is from other services. This cover sales, for example, of bulk whiskeys and incidental services. In 2020, this generated revenue of around $6 million. Marketing and sales expenses have been deducted to bring us to our earnings. The marketing expenses on represented brands are recharged to brand owners. So they don't -- they're not retained within our P&L., while we do, of course, record here those investments related to the Corby-owned brands. Sales and administration expenses for servicing all parts of the portfolio are retained within Corby. Full year net earnings in 2021 were $30.6 million, which was $1.07 per share. On the balance sheet, we reported shareholders' equity of $188 million. I draw attention to 2 features. First is our cash generation, which usually runs ahead of net earnings as the P&L bears the amortization of the representation fee. Fiscal '21 from net earnings of $30.6 million, we had a cash generation of $40.9 million, negatively impacted, though, by recycling working capital effects driven by COVID. And we held cash deposits of $94 million. Second feature to highlight is our property, plant and equipment. Corby is relatively asset-light as its production is outsourced to Hiram Walker. Our annual capital investments relate primarily to barrel purchases to store new whiskeys, plus we have IT investments or some production capacity investments in our wholly owned production site. And we have a small facility in Quebec and in Niagara. Capital additions in 2021 was $2.8 million. Major use, of course, of our cash and that strong cash generation is to support our dividend policy. We recognize many investors are attracted to Corby due to its stable and resilient cash flows and a high dividend payout. And our policy aims to pay at 90% of prior year earnings paid through 4 quarterly payments. Each actual payment is, of course, subject to approval from the Board of Directors. So as an executive summary for our fiscal year '21 performance, we saw we delivered solid growth in revenue and strong net earnings, which positions us very well for the future. Shipment volumes grew 1% to 2.2 million cases with a decline of 2% on Corby-owned domestic brands with a growth of 35% on export sales. Our top line growth converts at 1% of volume to plus 4% of revenue. And we had growth across all our revenue streams: domestic case goods grew 1%; gross domestic commission income grew 7% before amortization; exports grew 31%; and other services, up 40%. We have an improved product and market mix, which complements revenue growth management and promotions optimization initiatives. And together with ongoing cost optimization efforts, this has driven improved gross margin, plus 85 basis points to 53%. Cash generated from operating activities has decreased by $8.6 million to $40.9 million as favorable growth in adjusted net earnings was offset by working capital effects, largely caused by changing flows from COVID-driven phasing on sales and expenses. Earnings per share delivered 15% growth as marketing sales and administration expenses reported only a slight -- or reported a slight decrease of 1%, primarily a result of COVID-impacted reduction in business travel. And Corby has maintained its generous dividend policy. Dividends declared at 90% of prior year earnings. And the final quarter dividend payment was $0.21 per share, an increase of 5% on the same quarter last year. Obviously, we expect to see the translation of that higher overall net earnings growth of plus 15% to translate into higher dividend payment next year. So revenue performance -- just to dive into this a little bit. So total revenue growth, plus 4%, $159.8 million. Domestic case goods revenue increased 1% to $112 million. Gross commission income for represented and agency brands increased by 7% to $35.6 million, while the commission net of amortization increased by 3% to $28.4 million. Export revenue on case goods grew 31% to $30 million, thanks to strong performance of Lamb's Spice in the U.K. and to J.P. Wiser's in the U.S. Turning into some of the specific brand performance. We've got a mixed result during the year, in particular, on our owned portfolio. Our flagship, J.P. Wiser's, grew 4% in shipment volume and 7% in value, outperforming the Canadian whiskey category. The Ungava spirits brands grew 6% in volume and 7% in value. Cabot Trail Cream Liqueur enjoyed a particularly strong performance, thanks to changing consumer trends during COVID, and we brought out a vibrant new packaging, considerably improving on-shelf standout. Ungava Gin has also supported new packaging. Its performance was much more subdued in a very highly competitive gin market. Mixable liqueurs enjoyed growth, 6% in volume, 8% in value, and again, really driven by changing COVID trends, more consumers experimenting at home with home cocktail making. Lamb's Rum grew 8% in volume, 14% in value, enjoying very strong performance in the U.K. Within Canada, Lamb's Rum, which has a very large footprint in the Atlantic provinces and in Alberta, but generally within Canada, Lamb's as a brand is performing much more softly. Polar Ice Vodka also struggled, declined 5% in volume, 4% in value. It was particularly negatively impacted by closure of the on-premise, while also facing very fierce competition within the off-premise channel. Cash flows. Corby has strong cash flows, generated $41 million in fiscal '21. Cash deposits increased to $94 million, while dividends were paid out at nearly $24 million. CapEx, as I mentioned, relatively low, $2.7 million, being primarily storage for new whiskey inventory. The maturing whiskey is included in inventories is work in progress, and maturing inventory was valued at $45.7 million. Closing cash balances in cash management pools $94 million. And I remind, September, we'll see a payout of $54.4 million for the upfront fee for the new representation rights. So returning then to the P&L. As I say, fiscal '21, we enjoyed strong earnings growth and solid revenue growth, amplifying with a low cost base, really reflecting the exceptional circumstances of the COVID environment. Low costs are a factor of 3 events, and we've got a phasing of marketing activities. We were particularly low with marketing in H1 and increased our spend in H2, but we did reduce on-premise activation throughout the year due to the closure of the on-premise. But a feature that has subdued expenses throughout the year was that reduced business travel, which was a feature of heavy restrictions during the last fiscal year. So to conclude then, before I hand over for any questions, let me articulate some reasons that we would seek to invest in Corby. First is we have strong financials that provide consistency and visibility. We have a robust business model with a successful track record. And we've got a talented and passionate team. And we've got a strong and diverse management team. So I think together, 3 good reasons why Corby is a solid investment. So with that, let me thank you for your attention for this introduction, and I'm at your disposal for any questions that you may have. So back to you, Danielle.

Thank you very much for this great presentation, Edward. We'll move on to the Q&A here. We have your first question. Does Corby have an ESG strategy document that they can access?

We do, indeed, have a document. I will need to check whether the document is published on our website. So let me take that as an action, and we can share to be available through Renmark or as shared on our website. So let me take that as an action point, and I'll come back on that.

What is your acquisition strategy for 2022?

When it comes to acquisitions, it's -- I take an ongoing monitoring. A successful M&A is -- requires an alignment of the stars as it were. We maintain a constant monitoring of the market. We're active to try to find suitable acquisition targets that we believe are value-accretive for the company. So other than to say it's an ongoing activity, I have no specificities that I can share today.

How much of your 2022 budget might be allocated to R&D?

The R&D isn't something which is disclosed as a specific percentage of our activations. We maintained within the Hiram Walker distillery, there is a standing team of experts over managing not only quality control but also product development. Our approach to R&D is anchored very much in consumer insights. We have a consumer insight team within our marketing team. We work closely with our customers, so the various liquor boards. We work very closely with our sister companies and the brand companies through the Pernod Ricard network. And it's really a process of identifying what are the consumer trends, the evolving consumer trends, how do we evolve our products and our portfolio to match those consumer trends, both within our Hiram Walker distillery, within the Ungava company and then within the brand companies for -- The Absolute Company for Irish distillers and so on. Some of the wonderful products now that we've just more recently brought to market within the Quebec market under the Ungava umbrella, we've launched 2 new products, Ungava Ginger. So we have the core Ungava Gin. We've now extended the family with Ungava Ginger. We've brought a ready-to-drink Ungava Gin and Tonic. Again, within the Ungava family -- or Ungava spirit company family, Chic Choc, which is a Quebec provincial rum. We have also launched a ready-to-drink version there. So it's really embedded in what we do with a standing insights team and I'd say, permanent ongoing interactions. Quite interestingly, Pernod Ricard itself is revitalizing the way it approaches innovation and is creating regional innovation hubs. So for us across North America, we have now the ability to plug into, I'd say, even deeper expertise with a North American footprint exploring to really deepen our understanding of what these innovation opportunities are and to target innovation in the most impactful way. It's always a challenge to get the right balance when it comes to innovation of finding a product that satisfies the emerging consumer need but also being able to support it with the appropriate resources to make sure that we can scale it adequately. But it's very much part of our day-to-day efforts from production through marketing on an ongoing basis, I'd say.

Can you talk about what plans you may have for infusing cannabis in your brands?

When we step back from we're a wine and spirit company, we're operating in the beverage alcohol company. So along with RTDs, along with BA, and then we step out again, that beverage market is absolutely evolving today with cannabis-infused products. Obviously, within Canada, it's a very, very heavily regulated activity. And I come back to the fact that we are very much brand builders. Our entry point isn't that we bring intoxicating products; it's that we bring brands to satisfy consumer needs. As such, at the moment, we don't believe that the opportunity exists for us to develop cannabis-based products that are branded products. They're very much functional products. So today, that isn't a space that we are operating in.

How has the Corby dessert brand wine segment performed over the summer?

We don't have a dessert wine segment. So our wines are a range of, I'd say, classic table wines of Australia, New Zealand and Spanish origin within the Pernod Ricard portfolio. And within the Corby-owned brands, we have a small Niagara-based VQA winery foreign affair. And then we represent California origin wines from the wine group. But dessert wine isn't a category that we are acting in.

Everything here is pretty much opened up, and I have read that Canada is getting there as well. How does that change your marketing strategy for 2022?

I mean it's been such a disruption in the last 18 months. And as I said, in particular, with some sadness to see the impact on many privately owned businesses that have really struggled with their doors closed and limited access to consumers. So it really is wonderful to see that opening. I think Canada has lagged perhaps a little bit behind the U.S. in the pace of reopening. But conversely, Canada is maybe a little bit more advanced than we see in the U.S. in terms of widespread vaccination program, and that is supporting now a more general reopening of the on-premise. There are still restrictions. Canada is introducing a vaccine passport program, which is, in fact, effective from today, 22nd of September, where patrons will be required to show their vaccination status to be allowed into an on-premise account. But with that as it may, we do seem to be moving toward that space of a relaxation of restrictions opening up with the on-premise. So what does that mean? Some of our brands are absolutely on-premise-focused brands. We could talk about Polar Ice Vodka, Jameson Irish Whiskey, Beefeater Gin. So the opening up of the on-premise is something which we are absolutely going to be focusing on reestablishing our footprint there. It also means that we can activate our brands again in the on-premise. Obviously, media is a great tool for activating our brands, but there's absolutely nothing that beats the impact of tasting the product. And some of our products, hands down the best way to get consumers to appreciate our product is to taste it. So the relaxing of restrictions and the opening up of the on-premise will absolutely affect our marketing mix on how we bring our brands to the attention of consumers.

Do you have any celebrities or social media campaigns? And are there regulatory hurdles for marketing?

There most certainly are regulatory hurdles. So there is a prohibition for celebrity endorsements on spare products in Canada. There are some limited exceptions to that rule where, for example, if the celebrity is the owner of a spirit product. So there are some gray areas. But generally, within Canada, it is quite restricted on celebrity endorsement products for spirit products.

Now what are the plans for expansion to the U.S.?

Yes. So within the U.S., our primary focus is J.P. Wiser's and the family of J.P. Wiser's. So J.P. Wiser's has a historical footprint within the U.S., but it's relatively small. It's around 50,000 cases or so. As I mentioned, Canadian whiskey is, in fact, the largest imported whiskey category within the U.S., led very much by Crown Royal. So we really see J.P. Wiser's as our focus for the U.S. We work through a third-party distributor. It's Park Avenue 375, subsidiary of Sazerac, and we have a relationship established with them over the last 3 to 4 years or so. It's -- prior to that, we were distributing route to market through Pernod Ricard. But we felt that it was better to work with a more specialized route to market to support us in the U.S. Alongside J.P. Wiser's, we also have a small portfolio of craft/premium Canadian whiskey. We've got a couple of them, actually, on the slide on the screen here. So Lot 40, which is a heavily rye whiskey, and Pike Creek and also our Ungava Gin. So we have a small premium and craft portfolio, which is small in scale and also, I'd say, smaller in ambition. Our major ambition is with J.P. Wiser's. But our approach to development within U.S. is on, what I would say, a prudent basis, so that we will not overinvest for success in the U.S. So it's really an incremental state-by-state and city-by-city approach that we have in the U.S. But as I say, very much focused on J.P. Wiser's family.

How many states are you selling in right now? And is there a room for growth in new space?

I don't know if I have to my fingertips the number of states. We are pretty much -- I'd say, pretty much available nationwide, but our efforts are more targeted. So particularly, we target to Texas and 1 or 2 of the northern states. We have pretty good distribution in California, in fact, so we have quite, I'd say, wide retail distribution within California. We're present in Total Wine & More, BevMo!, Ernie's Liquor, Black Rose wine and spirits. But yes, it's really -- it's targeted state-by-state. So we have national footprint, but efforts are more targeted. And that's really for the matching of the resources that we've got. I mean classically to try and go nationwide with effort, we just absorb all of our resources to such an extent that we can't make an impact in any particular state.

Is there a demographic that the ready-to-drink category appeals to more?

It's funny. In the past, we would maybe have seen the ready-to-drink as being particularly for younger consumers. One of the features that we have seen is that it's much more moving into a space of what we would call convenience. So it's less an age demographic. But back to this moment of consumption, it's more something which fits to a particular occasion. And of course, Canada -- Canadians love, in the summer, going to the cottage, going to the wilderness, and ready-to-drink is very much a feature of what we could call the cottage life. So it's more an occasion-based rather than a specific demographic around age, let's say.

How much do you expect off-premise channel to keep growing in the short to medium term?

As the on-premise is opening up, what we're seeing is, in fact, a slight decline. So the last data that was available for the month of July, we saw a slight decline in volume in the off-premise channel. The effect of premiumization, in fact, still leads to a very slight growth in value in off-premise. So slight volume decline in value growth but really offsetting with then strong growth back into the on-premise channel. So we're confident that we're going to see off-premise growing in this fiscal year. But it is likely to be more muted than we have seen in the recent past, of course.

Do you have a percentage target for exports over the next few years?

Well, we certainly do have targets for export over the next few years. It's absolutely one of our focus areas for growth for the business. It isn't something though which we are sharing, but it is absolutely something that we are pursuing with focus and with rigor to achieve.

How do your margins for owned and represented brands compare?

I wouldn't say margin is appropriate for the measurement against the represented brands. So the representative brands don't classically have that P&L construction of sales, cost of sales through to margin. For the represented brands, we own a commission, which is simply a percentage of the gross sales of the product into the marketplace. So it's a percentage of income that we earn, and there's no cost of sales against that income. While for our owned brands, obviously, then we have the construction from sales less our cost of sales to get through a margin. When we look at the margin within the portfolio of brands that we have, whiskeys are going to be the higher-margin products and, obviously, the more premium side of our portfolio. It's not really a comparison we can make between represented brands and owned brands.

Do you transport inventory via containership? And if yes, have you seen any delays and/or price increases?

So for the Corby-owned products, those are primarily produced within Canada, so the Hiram Walker distillery in Windsor, Ontario or in our Ungava facility. Raw materials are, however, imported, and those are going to be imported by deep sea shipping. Represented brands are, indeed, shipped from the producing entities. So for example, Absolut Vodka produced in Sweden, shipped by a deep sea freight to Canada. Jameson Irish Whiskey shipped from Ireland. Jacob's Creek shipped from Australia. And you're absolutely right, it's a feature for many businesses. The delayed impact of COVID on deep sea shipping, which is becoming more and more a feature, so impacting on raw materials and impacting on finished goods. To date, we haven't faced material disruption in our supply chain. One of the features that we saw in Q4 for fiscal '21 was concern from our customers over the impact of that disruption, which did lead to some stock building in Q4. But to date, it isn't something which is materially impacting our performance, but it's definitely something which we are keeping a close eye on. I guess, like all of you guys, it's in the news, and it's something that we are watchful and carefully managing.

Does Corby expect to get their dividend payouts back to the 2019 level? And how is that there was less dividends paid out in 2021 but more revenue in comparison to previous years?

Over the years, Corby has made effort to deliver increasing dividend year-on-year. As we entered the COVID pandemic, the Board of Directors made a decision to pull back more strictly to the declared dividend policy to pay out at 90% of prior year earnings. And this is what led to the slight softening of the dividend payout to the extent that dividends were strictly accelerating ahead of the 90% of prior earning policy. So the Board, I would say, through caution, at the start of the pandemic where we were facing, as you guys well all know, extraordinary uncertainty. The Board took the step to most quickly apply the 90% policy. Our performance this year, delivering 15% growth of earnings, translating now into earning per share of $1.07 versus last year's $0.94, one could expect to see the application of 90% of $1.07, leading to an increase in dividends to be paid out over the coming quarters. So the first dividend to be declared based on the 2021 earnings of $1.07 will be at the moment of our next AGM and Board meeting, which is the 10th of November.

Have production costs increased due to input materials raising in prices?

Yes. When it comes to production costs, obviously, we're conscious again, as I guess, you all are, of the spike in inflation, which we are all witnessing. We do, of course, have future contracts that are taken out. So we lock in prices. We can't lock in indefinitely, of course. But that is definitely something which we have to closely manage as this inflation -- inflationary spike works its way through. I'm certainly encouraged by the central banks of most major economies, which are flagging this as being a temporary feature and not a structural feature. So it's obviously something which we have to closely monitor and closely manage.

Thank you very much, Edward, for taking the time to answer these questions. Now this concludes our question-and-answer session. Before we go, Edward, I'll hand over the floor to you one more time for final remarks.

Well, really just thank you all very much, indeed, for joining me today. I hope that it's been an interesting presentation to introduce to you Corby Spirit and Wine. And as I say, it's got a great portfolio of products. We have strong cash flows, and we have a very clear, generous dividend policy. And I hope it's something that interests you as investors. So thank you very much, indeed, for your time and attention today.

Thank you again, Edward. Now this was Corby Spirit and Wine Limited, currently trading on the Toronto Stock Exchange under ticker symbol CSW.A as well as CSW.B. On behalf of Renmark, I want to thank everyone in San Francisco and surrounding areas for joining us for today's presentation. We do hope that you stay tuned for future presentation in your area. Until we meet next time, stay safe and be well.