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

Good morning, ladies and gentlemen, and welcome. My name is Lucio Di Clemente, Chair of the Board of Directors of Corby Spirit and Wine Limited, and it's my pleasure to welcome you to our Annual Meeting of Shareholders. Joining me are Nicolas Krantz, our President and Chief Executive Officer; and Juan Alonso, our Vice President and Chief Financial Officer; and Marc Valencia, our General Counsel, Corporate Secretary, and Vice President. Instructions on how to ask questions and the voting procedure will appear on your screen. Should you have any issues, our platform service provider, Lumi, is very experienced at running these types of meetings and will help resolve them. I will now call the meeting to order. As a reminder, our presentation today may contain forward-looking statements. I draw your attention to review this before we begin the official business of today's meeting. The Annual Meeting of Shareholders of Corby Spirit and Wine Limited will now come to order. In accordance with the bylaws of the corporation, I shall preside as Chair of the meeting. With the consent of the meeting, Marc Valencia will act as Secretary of the meeting. Before commencing the formal business of this meeting, in addition to Nicolas, Juan, and myself, I would like to introduce the rest of the Board members, who are in attendance today, Claude Boulay, Pam Laycock, Lani Montoya, Patricia Nielsen, Helga Reidel and Kate Thompson to comment on the voting procedure. We will conduct the votes on the matters before us by poll. On a poll, every shareholder and proxy holder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder [indiscernible] at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of the discussion on each resolution prior to casting your vote. The polls are now open. To make the best use of our time, Jordan and Marc Valencia have been asked to move the resolutions, which we will consider. I will call on them at the appropriate time. With the consent of the meeting, I now appoint Pina Pacifico and Teresa DeLuca of Computershare to act as scrutineers. I would ask the scrutineers to prepare their report showing the number of shareholders present at the meeting, the number of shares held by those present, the number of shares represented by proxy, and the aggregate amount of shares represented and to register any vote given in poll taken on any motion properly brought before the meeting. The notice calling this meeting and the accompanying proxy materials were mailed on October 4 to all shareholders of record on September 18, who requested them together with the consolidated financial statements of the corporation and the independent auditor's report thereon. Accordingly, with the consent of the meeting, we will dispense with the reading of the notice of the meeting. The secretary has received proof of mailing to the shareholders of the notice of the meeting and the proxy materials. I direct that proof of mailing be annexed to the minutes of this meeting. I may advise there is a quorum present. I now declare that the meeting is regularly called and properly constituted for the transaction of business. Unless there is a request to read the minutes of the last Annual Meeting of Shareholders held on November 8, 2023, they will be taken as read. If you would like to submit your request, please select the messaging icon at the top of your screen, type your message within the text box at the bottom of the messaging screen, and then click the send button.

There is no request to read the minutes at this time.

As there is no request to read the minutes, I take the minutes as read. The 2024 annual report with the consolidated financial statements of the corporation for the year ended June 30, 2024, together with the independent auditor's report, were mailed on October 4 to all shareholders who requested to receive these documents. It is not required to ask shareholders to approve the financial statements; however, I would be pleased to deal with any relevant questions concerning the financial statements during the general questions period, which follows the termination of this meeting. The next item on the agenda -- is the Board of the corporation at the -- and -- I'm sorry, I'll start that again. The next item on the agenda is the election of 9 directors to the Board of the corporation, and the meeting is now open for nominations. I would ask Jordan Giurlanda to kindly read the nominees' names.

Mr. Chair, I nominate the following individuals for election to the Board and to hold office during the ensuing year: Lucio Di Clemente, Juan Alonso, Claude Boulay, Nicolas Krantz, Pam Laycock, Lani Montoya, Patricia Nielsen, Helga Reidel, and Kate Thompson.

Are there any further nominations? Not hearing any, I declare the nominations closed. I would ask Jordan Giurlanda to propose a motion for the election of the directors nominated.

Mr. Chair, I move that the directors nominated be elected to the Board of Directors.

May I have the nomination seconded?

Mr. Chair, I second the motion.

You have heard the motion. Are there any discussions? I would like to -- sorry, sorry, Marc, are there any questions on that?

Mr. Chair, there's no discussion at this time.

Okay. As there is no discussion, I now call for a vote on the motion before the meeting. Would all those eligible to vote, please enter your votes on Lumi now? [Voting]

I would like to inform you that Corby's independent auditors, KPMG LLP, are eligible for reelection. I would ask Jordan Giurlanda to propose a motion for the appointment of the auditors for the ensuing year and for the Board of Directors to be authorized to fix the auditor's remuneration.

Mr. Chair, I move that KPMG LLP be appointed auditors for the ensuing year and that their remuneration be as determined by the Board of Directors.

May I have the motion seconded?

Mr. Chair, I second the motion.

You have heard the motion. Is there any discussion? To submit a question, please select the messaging icon at the top of your screen, type your message within the text box, and then click the send button.

There is no discussion at this time.

As there is no discussion, I now call for a vote on the motion before the meeting. Would all those eligible to vote, please enter your votes on Lumi now? [Voting]

The polls are now closed. Based on preliminary voting results, I can confirm that all resolutions have been approved. Final results will be posted online at SEDAR+. I would now like to call upon Corby's President and CEO, Nicolas Krantz, to present a report on the corporation's activities. As part of this presentation, Juan Alonso, the Vice President and Chief Financial Officer, will report on the corporation's financial performance. Nicolas?

Thank you, Lucio. It's fantastic having you lead this year's AGM, and good morning, everyone. Like always, it's a pleasure to be here today, and I'm delighted to have the opportunity to connect with our shareholders. It's been another dynamic year, and I would like to thank you all for your continued trust and support. Before we start, I would like to thank all our Board of Directors, who are joining us virtually today for their ongoing guidance and collaboration. And finally, I would like to take a moment to thank our employees, customers and consumers for their commitment, their trust and their passion for our brands, bringing us into their convivial moments with friends and family. Thank you. By now, you should have seen our annual report, entitled Raising the Bar, Leading Change and the Market. This theme is seen as a testament to our ability to not only adapt in this [indiscernible]. Guided by our vision to be the most innovative and consumer-centric company in the industry, we made significant stride as we reshaped our company profile, enhance our product portfolio, expanded our market reach in our digital transformation and strengthened our operational capabilities. But before I get into all that, a quick overview of the market dynamics, in which we operated in the last fiscal year. So effectively, over the last 12 months, the Canadian beverage market remained broadly flat. This spirit good growth in the on-premise channel, like bar and restaurants, but a slight decline in the retail environment. So overall, the market remained value with a slight positive correction in the last quarter of FY '24. While the minus 1% decline, the ready-to-drink segment grew by a remarkable plus 6.4%, reflecting consumer preferences towards innovation. So our strategic focus on the RTD segment has positioned us very well to capitalize on this trend. Our investment in innovation and marketing have allowed us to scale effectively in this category, and we are optimistic about the continued growth potential in offers. So overall, in a market that remained broadly flat, Corby once again outperformed. Let's take a closer look. Yes, I am indeed proud to share that for the second consecutive year, Corby outperformed the market. In the Spirits segment, our overall portfolio grew by plus 1.9%, so nearly 2 points above the market, and this is a test of portfolio and our commitment to innovation. In fact, innovation is a cornerstone of our growth strategy, driving almost value growth. It's incredibly important to our success. We are the second largest player in Canada with a market share of nearly 17%. We have the top 10 spirits brand in Canada, part of our portfolio, along with our dynamic ready-to-drink business. In that ready-to-drink, plus 13% retail value growth, and this success is driven by our broad portfolio, including ABG, Corby, and Pernod Ricard offerings. Combining our performance in spirits, RTD, and wine, we outperformed the market with a plus 2.1% in retail value. This really highlights our strategic focus and execution excellence. With this strategy, we've been able to maintain or gain share in every single category in the spirits segment, and this is quite remarkable. We are playing effectively in all important categories in the marketplace. Now our success of a comprehensive and broad-based strategy that leverage really 6 key pillars. By focusing on value growth, leveraging the strength of our portfolio, the evolution and expansion of [indiscernible] market commitment to excellence in commercial execution, our promotional effectiveness and our [indiscernible] road map. So let's dive in a little bit. To begin, innovation was at the heart of our success, as I mentioned, driving approximately 1/3 of the value growth across our portfolio. Really by understanding our consumer better, we developed offering that met their emerging needs. So I'm going to mention here just a few examples to highlight. For example, the J.P. Wiser's 10-year-old Canadian whiskey, which was the #2 innovation in Canadian whiskey, very proud, Polar Ice Berry Blizzard vodka, which was a #2 vodka innovation nationally, but also some success on Malibu, Pineapple Bay Breeze ready-to-serve, which was also a very strong innovation in Ontario. And on the ready-to-drink side, we have many innovations that I will mention [indiscernible], which was the #1 [indiscernible] market. These are just a few examples among the dynamic pipeline to reaffirm our belief in the importance of innovation. Now the second factor in our FY '24 success was really our ability to leverage the strength of our portfolio. We strategically reshaped our portfolio to unlock incremental growth, especially in the fast. So we really have an incredible diverse portfolio today with brand in every price point and every category, whether it's spirits, wine and [indiscernible]. And this has really enabled us to play the portfolio in a smart way. We entered premium brands like Skrewball peanut butter whiskey, Bumbu Super Premium rum, Jefferson's bourbon [indiscernible] tequila Codigo. This has enabled us to diversify our offering and capitalize on the demand for premium series. So you see by leveraging our portfolio in the right way, we were able to achieve unprecedented performance by Corby, growing across all key categories over the last 8 quarters. The third pillar of our success is on our ready-to-drink business. So clearly, the integration of Ace Beverage Group was a game changer for Corby. The RTD segment is key in our growth strategy and our specialized route to market is a clear competitive advantage. Over the last year, we have realized synergies that also help us to drive significant margin improvement in that category. The successful integration of ABG and our strategy has really propelled growth across portfolio. So we ended the fiscal year with ABG exciting acquisition of the new brands. So that shows that we really doubled on that category, further strengthening our position, in particular in Western Canada. So a lot to celebrate here. Now the fourth factor of our success can be attributed to our commercial execution excellence. In FY '24, we redefined what we call the route-to-market approach to better navigate the complexities in this marketplace. This included transforming our commercial team organization into 3 key divisions, enabling us to really truly be customer-centric and increase the productivity impact our sales team. Also, through the launch of our proprietary AI prioritization system in the retail channel, our sales team were able to leverage data and identify high-impact opportunities that align with our portfolio strategy. Proud to mention as well that we accelerated our share in the on-premise growing 6x faster in that channel and also boosted our online direct-to-consumer sales at our J.P. Wiser's website [indiscernible]. Now our key success factor lies in our marketing and promotional effectiveness. FY '24 was a year where we really raised the bar in our marketing efforts, gaining some incredible momentum through our dynamic and innovative campaign. We created an engaging experience that made our brands stand out and connect with consumers like never before. Some key example here, the unforgettable Jameson Distillery on tour pop-up initiative, which was a real success. The Malibu trailer takeover at Union Station here in Ontario and also our strategic partnership with Ocean Music Festival [indiscernible] Quebec, which was a fantastic playground for the brand. Also same thing at the Badlands Music Festival. We also launched new brand campaigns for our key strategic brands. So the new Polar Ice No Fuss Vodka platform resonated strongly with consumers, while the J.P. Wiser's [indiscernible]. This journey would not have been possible without our digital transformation, as I mentioned, which we reached full maturity during last year. By using digital tools and platform, Corby now is able to convert consumer end markets that help us to build a competitive advantage while delivering efficiencies and enhancing impact and collaboration. And the final pillar, but not less important, very important for us is our success, of course, coming from our sustainability and responsibility. We like to say that our people are our greatest assets, and this year, our teams have driven momentum is remarkable and support, of course, gender diversity within our internal team and our Board of Directors. We inaugurated our first legacy space in partnership with [indiscernible] platforms here in Ontario. The Foreign Affair Winery is now in its second year of a sustainable Winegrowing Ontario Certification. They have, in fact, converted 3 acres of the land to support biodiversity and [indiscernible]. And we sell the byproduct of brand distillation to local farmers instead of sending it to the landfill. In fact, last year, we sold over 80,000 tons of wet cake to almost 70 local farmers in Ontario, reducing, therefore, our carbon emission and minimize waste, very, very impactful initiatives. And finally, our annual short-term incentive program in partnership with [ LTTC ] is entering in 10 year, and we will expand this type of initiative in Western Canada this year. So as you can see here. Now to finish, let's take a quick look at some of our brands and exciting activations on the horizon. On J.P. Wiser, of course, a flagship. We've been working hard with our Wisely Done platform to build an [Audio Gap]. So in October, we announced that J.P. Wiser's now is the official whiskey of the NHL, fantastic game changer for the brand. So this partnership integrates J.P. Wiser's with the Canada #1 fashion reaching [ 20 ] hockey fans. And with this partnership, we are positioning J.P. Wiser's as the official whiskey of Game Night. This will give us the opportunity to have what we call 360 activations, including, for example, limited edition player bottle for J.P. Wiser's Deluxe and 10-year-old, NHL branded gift with purchase in stores and a new hockey themes Wisely Done campaign featuring 2 NHL legends, but let's have a look together. [Presentation]

[indiscernible] Okay. Polar is among the top-selling vodka brands in Canada, as we know. And in FY '24, we really pushed the brand and it continues to disrupt the market with its on-trend innovation and really understanding of consumer needs. So I've mentioned some innovation before, but it was really impactful. Polar Ice Berry Blizzard was recognized as the #2 vodka innovation, Orange Blizzard is the #2 vodka innovation as well in Ontario. And we just launched the Berry Blizzard RTD as well. So a lot going on in that space. But it doesn't stop here. We have Polar Ice Cinnamon Sugar Vodka in partnership with BeaverTails. Really, it's a fun collaboration that sees 2 iconic Canadian brands bring the taste of cinnamon and Sugar pass straight to your glass. So this is another exciting news, and we see the brand has been very, very dynamic. Now moving over to our RTDs. As mentioned, the integration of ABG was the best, and it was an exciting year. Cottage Spring remains the #1 brand in the LCBO with [indiscernible] being the #2 innovation and [indiscernible], the #3 innovation in the LCBO. So really a strong performance. We believe the momentum will continue as we look forward to seeing the traction of ABG's latest innovation. We are launching a mix [indiscernible], which also is going to be very visible in store. And that's not the only exciting news on the RTD portfolio. You may have heard about our new partnership between Absolut Vodka and Ocean Spray with the launch of the Absolut Spray vodka soda. So that's going to be launched in Ontario and hopefully, will be available across Canada by spring 2025. So Ocean Spray and Absolut. In FY '25, of course, Absolut will become a key focus. We continue to launch some exciting innovation and that's also going to be the case for the new brands, which we intend to revitalize across Canada. Now looking at our Pernod Ricard brands briefly, there's a lot as well here to be excited. We have already seen some incredibly growth on the newly represented brands portfolio. The brand is couple of matrix. The integration of these new brands not only help us to diversify the portfolio, but as I mentioned, to really position us to capitalize on the growing demand for premium spirits, which again was very dynamic during last year. One innovation front to mention as well is the release of the Glenlivet, latest innovation, the Twist and Mix cocktail. It's just released again in time for the holidays. It is the first-to-market technology that allows consumers to simply twist the cap and mix a burst of cocktail flavoring than single malt. So you can enjoy a new old fashion. This is exciting, and this is going to be a great gifting occasion in stores. So exciting to see all this coming to play. And with that, I would like to hand over to our Chief Financial Officer, Juan Alonso, to share an overview of financial results last year. Juan, over to you.

Good morning, everyone. I'm Juan Alonso, Corby's CFO, and I'm very pleased to present to you today Corby's financial results for the full year FY '24 and give you a glimpse at our first quarter's results for fiscal 2025. Very quickly, before we talk about our financial performance, you will notice some mentions of adjusted metric revenue growth. We believe that these non-IFRS financial measures support a better understanding of our underlying business performance and trends. We provided detailed explanations for each of those elements in our Q4 FY '24 and Q1 FY '25 and invite you to refer to these documents for any questions related. So at nearly $230 million at the end of June FY '24, breaking the $200 million for the first time in history, a growth of plus 41% underpinned by our recent -- excluding the contribution of ABG and the new brands, our organic revenue remained robust with an increase driven by the following elements. First, our domestic case goods revenue, excluding ABG, saw a solid 2% growth despite the headwinds of market and the customer pricing [indiscernible]. Then our total commission income slightly decreased by 1%, mostly due to the lapping of certain third-party wine brands, no longer. Lastly, we recorded dynamic export sales up plus 16%, capitalizing on new market opportunities, the recovery of [indiscernible] performed last year and broad-based pricing initiatives. As a result, significant year-over-year revenue growth in addition to the realization of operating and organizational efficiencies helped to drive strong earnings and profitability growth in FY '24. Indeed, full year adjusted earnings from operations reached $44.6 million and -- in addition, while FY '24 included interest charges related to the loan to acquire ABG, adjusted net earnings per share grew by 13% to reach $1 per share. In FY '24, Corby generated $31.5 million of cash flow from operating activities and closed the year with a healthy balance sheet with a net debt over adjusted EBITDA ratio at 1.8x. Following the declaration of $0.22 dividend per share, our total dividend declared for the full year FY '24 was $0.85 per share. Now adding some color on our branded performance for full year FY '24, I can highlight the solid performance of 2 of our flagship. First, J.P. Wiser's family FY '24 revenue saw a 2% growth versus last year over declining volume, driven by pricing favorability from Wiser's Deluxe and 10 years old, although it was affected by the negative impact of the customer pricing ongoing dispute. And Polar Ice Vodka recorded a strong revenue growth of plus 9%, supported by successful innovation launches of ready-to-serve cocktails, such as Polar Ice Orange Blizzard and the new RTD offerings. Ace Beverage represent of total revenue and Cottage Springs remained a top-selling RTD brand in Ontario and successfully launched new innovations, with 2 of them among the top 3 new innovations in Ontario. In FY '24, Cottage Springs outpaced the RTD category in retail. Finally, as I said before, our total commission income slightly decreased by 1%, mostly due to the lapping of certain third-party wine brands no longer represented by Corby. But when it comes to Pernod Ricard brands, the portfolio commission is growing with a dynamic performance from key strategic Pernod Ricard brands, including Bumbu, [indiscernible], Malibu, Jameson, and Altos tequila, but partially offset by Pernod Ricard represented wines challenged in a very competitive environment. Now to summarize our P&L results for the full year FY '24, we recorded a significant revenue growth of plus 41%, driven by recent acquisitions and a solid organic revenue growth of plus 4% despite some headwinds. Our total operating expenses increased by 40% with the integration of Ace Beverage Group, but also strategic investments in J.P. Wiser's and Polar Ice during the year and efficiencies realized across the organization. Corby has taken price initiatives to mitigate the inflationary pressure on cost of raw materials and finished goods. As a result, our adjusted earnings from operations grew plus 37% and our adjusted net earnings per share achieved the $1, reflecting a strong growth of plus 13% versus the prior year despite higher interest charges. For the year ended June 2024, Corby generated $31.5 million of cash from operating activities, supported by higher net earnings and a robust commercial performance, leading to a strong cash conversion ratio of 1.3x the net earnings. This operating cash flow included higher interest charge due to the loan contracted to acquire ABG and higher tax payments driven by timing differences over year and the inclusion of ABG tax payments. Our cash flow from investing activities reflected the payment of $136.3 million for the acquisition in July 2023 and payment of $11.8 million for the acquisition of new assets in May 2024, while our financing activities were mostly comprised of the [ $0.22 ] in dividend paid over the fiscal '24. Our resulting net debt position was $105.8 million at the end of June with a net debt to adjusted EBITDA ratio of 1.8x and significant financial flexibility to execute on our strategic initiatives to drive longer value. Lastly, our general dividend payments drove high dividend yield over years at 6.5% at the end of June and a sustainable dividend is [ 26%. ] Now let's share a word on our results for the first quarter of fiscal '25 and I invite you to join our quarterly earnings conference call tomorrow morning at 9:00 a.m. Toronto time to get provided with more details on our Q1 performance and on our growth strategy and outlook. Corby delivered a solid Q1 with accretive contribution of the newly-acquired ready-to-drink and ongoing market share gains in spirits despite a volatile market environment. Our Q1 revenue for the first quarter was $65.1 million, a double-digit reported growth of 11%, benefiting from the inclusion of Nude sales of $4.9 million. Our organic revenue, which excludes the contribution from Nude, saw a resilient increase of plus 3%, driven by solid execution and diversity of our product portfolio despite the negative impact of the LCBO strike in July. Reflecting the strong revenue growth and a more modest expense growth, Corby delivered robust improvements in earnings and profitability in the first quarter of fiscal year 2025 with adjusted earnings of $15.6 million, increasing plus 9% versus last year. Despite increased interest charges related to the loan to acquire ABG, Corby delivered adjusted net earnings per share of $0.36, increasing by 7% year-over-year. Corby delivered cash flow from operating activities at [indiscernible], a remarkable $8.5 million improvement of prior year's strong leverage standpoint, Corby remains in a healthy spot with a net debt earlier today a dividend at $0.22 per share for the first quarter of FY -- increase of $0.01 or 5% compared to previous quarters. Dividend to shareholders of record as at the close of business on November 29...

Thank you very much, Juan. So as we look ahead business in FY '24, we continue to drive our success in FY '25 and beyond. Now before we conclude, I would like to leave you all with -- multi-beverage alcohol company in Canada and our diverse portfolio allows us to play in every category. We continue to focus on innovation and premiumization and draw on the numerous operational and financial support it brings to Corby and gain value share. And as we do this, we will stay true to our execution excellence, leveraging data and [indiscernible] we remain consistent with reasonable revenues and strong cash flow generation that underpin our financial setting and after which, we will be happy to take any questions.

Thank you, Nicolas and Juan and -- with momentum continuing into Q1 2025. So is there -- on behalf of the Board, I would like to express our sincere appreciation to all Corby employees for their dedication and efforts throughout the year and to my fellow directors, my sincere thanks. I ask Jordan Giurlanda to propose a motion for the termination of the meeting.

Mr. Chair, I move that the meeting be terminated.

I second the motion.

Ladies and gentlemen, the meeting is now concluded. The floor is now open for questions -- on activities. Again, if any voting shareholder or proxy holder would like to submit a question, please select the messaging icon and then click the send button. We may direct the question to our CEO or CFO [Audio Gap] time for joining us today. And as Juan mentioned earlier, you'll have another opportunity to [indiscernible] tomorrow on the earnings call after you've had time to absorb the information that was released this morning. So thanks, everybody, and have a great day.