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

Good afternoon. Welcome to Corby Spirit and Wine's 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. [Operator Instructions] Now I would like to turn the call over to Mr. Krantz. Please go ahead.

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 the overall 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 ready-to-drinks market for the sixth 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 occasion, 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 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 we now invest behind our brands and our organization. We continue as well at pace 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-drink segment with the acquisition of the Nude 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 the -- what we call the rolling 12 months, the market, the spirits market, is in slight decline in value. It is more declined 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 spirits 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 liquor board, the spirit market is back to a slight growth. The wine market has recovered compared to also -- we had a comparative basis, which was in favor for this quarter, and the ready-to-drink continued 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 continued to perform quite strongly. Now if you look at the category in which Corby operates, you know we present regularly, I would say, the various spirits categories. We are showing in this graph the growth of the respective category in the market. And then we are showing our value retail growth in those categories and our value share as a result. And here are 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 take market share across our portfolio. And this is what we've been very much focusing over the last, of course, 12 months. As a result, again, pleased to [ consist ] that we have been creating this momentum, beating the market for 6 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 results, giving 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 our portfolio. We've been revamping, I would say, the communication platform behind our main brands, which is J.P. Wiser's, with a new pack, new communication platform, and of course, the launch of the J.P. Wiser 10 Year Old, which is the #1 Canadian whiskey innovation in the market. We've been able as well to revamp, I would say, the platform for Polar Ice Vodka, with new campaign and launching as well some innovation with the Berry Blizzard, which are #1 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 [indiscernible] 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-sale activation. This is where the Corby team is really excelling, which is putting -- bringing to life the portfolio we're having at point of sales in different activation. So this has been very much the focus of the year, going from strategy to execution and making sure that we are winning a 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.

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 adjustment worth of $3 million before taxes and $2.2 million after tax as well as costs and termination fees related to some distributors' transition, restructuring provisions and interest charge related to noncontrolling interest obligation. So I will start by our top line drivers. You see that our shipment volumes 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 37%. Those results were complemented by a dynamic export sales and also a robust domestic case goods sales despite overall spirit market deceleration and also despite stock levels normalization at liquor boards. I will go into further details on our revenue drivers in the next slide. So in addition to the marketing activities and the overheads related to ABG, we continued our strategy to invest behind our key brands while closely managing our overhead. So we basically invested a lot on J.P. Wiser's package redesign, Polar Ice 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 9 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's 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 Polar Ice Vodka increase of 8% versus last year through promotion 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 for represented and the 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 3 quarters of fiscal year '24. Notably, our flagship whiskeys 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 a reported earnings per share at $0.67. So now moving to our cash flow performance. You are going to see that through the first 3 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 end of March, seeing a minus $1 million slight decrease from last year. Our investing activities included $136.3 million payment 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 over back to Nicolas.

Yes. Thank you very much. Thank you, Juan. Thank you very much for this overview. 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, we did close the acquisition of ABG and are really taking clearly 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 to you 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 Colombia and Alberta are much more open market, because you have a private channel, then those private retailers enable 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 will 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 Nude beverage. Again, it's a major brand in the West of Canada, the #4, in fact, in British Columbia, doing close to 1 million cases already, generating a retail value close to $50 million. Approximately the last trailing months in terms of 12 months of revenue of around $20 million, with 25 active SKU 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 in ABG. Ace Beverage with Cottage Springs is a leader in Ontario, which is a large, of course, province, but with a very small footprint in the West, and equally, Nude has a small footprint in the East. So you can see here very clearly visually the fact that we will step up on the 2 main province 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 in sales and marketing synergy across the country. So a very complementary, I would say, footprint across the 3 business units. And Nude brands is going to be now fully integrated into the ABG, with the same structure that we had originally on [indiscernible] 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 up, 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 enabled us, therefore, to confirm the dividend payout that we had initially on [indiscernible]. 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 Instructions] There are no questions at this time. That concludes our conference for today. Thank you for participating. You may all disconnect.