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CORBY SPIRIT AND WINE LIMITED 2015 ANNUAL REPORT TRENDING NOW CORBY SPIRIT AND WINE LIMITED 2015 ANNUAL REPORT Financial Highlights (as at and for the years ended June 30, 2015 and 2014) (in thousands of Canadian dollars, except per share amounts) 2015 2014 RESULTS Revenue $ 132,066 $ 137,279 Earnings from operations 27,239 33,460 Earnings before income taxes 27,738 33,981 Net earnings 20,415 24,983 Cash flows from operating activities 27,072 31,418 FINANCIAL POSITION Working capital $ 145,664 $ 158,901 Total assets 233,712 254,895 Shareholders’ equity 188,124 209,141 PER COMMON SHARE Earnings from operations $ 0.96 $ 1.18 Net earnings 0.72 0.88 Dividends declared and paid 1.37 0.71 Shareholders’ equity 6.61 7.35 FINANCIAL RATIOS Working capital 6.7 6.7 Return on average shareholders’ equity 10.2 12.0 Pre-tax return on average capital employed 14.1 16.7 REVENUE NET EARNINGS CASH FLOW FROM (in thousands of Canadian dollars) (in thousands of Canadian dollars) OPERATING ACTIVITIES (in thousands of Canadian dollars) 13 14 15 13 14 15 13 14 15 $132,066 $132,7 $137 $24,983 $32,828 $20,415 $27 $27 $31,418 ,072 ,014 ,279 43 Revenues stabilize in 2015 Continued to establish Cash inflows consistent with after inventory pipeline J.P. Wiser’s in the US market with overall reduction in net buildup of J.P. Wiser’s in the a full year of advertising and earnings as we continue to US market the year before; promotional investment to drive invest in US market. consistent performance awareness and trial. from core brands. TABLE OF CONTENTS Knowing what’s trending now 2 Letter to Shareholders 5 Our Numbers is a real competitive edge for 6 Top Brands Corby. Ongoing investments 8 Whisky Renaissance 14 Today’s Consumer in market research, a leading 20 Our Responsibility 24 Management Team position in digital technology, 25 Management’s Discussion and Analysis and an organization primed to 46 Independent Auditor’s Report 47 Consolidated Financial innovate and act quickly enable Statements and Notes 76 Ten-Year Review us to turn a consumer trend into a 77 Board of Directors 78 General Corporate product, and then a profit, before Information Brand Portfolio others catch on. It’s a trend that (inside back cover) looks good on retail shelves and ultimately our bottom line. CORBY AR 2015 1 LETTER TO SHAREHOLDERS Dear Shareholders, The evolution of the spirits • We put in place a dedicated and wine industry is picking up research, development and pace. Drinking patterns and innovation team in the Hiram preferences are shifting faster Walker & Sons Innovation Centre than ever, often propelled by in Windsor, Ontario, who focus younger, more trend- and specifically on Corby-owned taste-driven consumers. Digital brands and opportunities for technology and social media are innovation in blends, flavours turning liquor marketing upside and packaging. Their proximity down – opening doors to new to experts in distilling, blending possibilities while simultaneously and bottling gives us an making it harder to elevate advantage when it comes to brands above the din. On top testing new products, and helps of all this, there’s more change maintain quality and speed in the underway in the Canadian product development process. beverage distribution system • We revamped our marketing than seen in the last 30 years. strategy, investing heavily Positioned for Growth in digital, social media and e-commerce capabilities. The companies that excel in this Adding to that, increased trade new environment are those that marketing expertise has are able to execute strategy positioned Corby to win new faster, with more flexibility, business with customers adaptability and efficiency. seeking more sophisticated I’m proud to say that Corby is approaches. among those companies. Over the past five years, we have • We’ve cultivated a vibrant, made tangible improvements passionate and entrepreneurial to the organization to position culture that is enabling us to ourselves for future growth recruit exceptional people and success: and benefit from their energy and ideas. • We have honed our market research techniques, which has led to deeper consumer insights and a clear view of trends. Today, we’re much better at anticipating opportunities and understanding how to shape our brands to capture growth. CORBY AR 2015 2 LETTER TO SHAREHOLDERS Canadian Market significant increases in both Engaging Our People Success productivity and win rates and Community against objectives. An Corby’s human resources and Corby’s 2015 performance increasingly digital approach to corporate social responsibility reflected many of the changes brand marketing campaigns is initiatives are helping solidify our made, although results were enabling tighter targeting of reputation as a stellar employer obscured by the continued messages and media efficiencies. and corporate citizen. Despite an investment in our US business. For example, the marketing of internal effort aimed at reducing Our primary goal for the year was Absolut vodka has gone 100% infrastructure costs and realigning to gain market share in Canada in digital and experiential, and the organizational capabilities to priority areas and we did that in brand had its strongest year in ® ® new business needs, employee spades. J.P. Wiser’s , Pike Creek 2015, growing by 8%. and Lot No. 40® Canadian engagement levels remained whiskies, The Glenlivet Scotch In addition, many new high as measured by third-party whisky, Jameson Irish whiskey, e-commerce platforms are surveys. Corby was named one Absolut vodka, and Jacob’s Creek emerging and Corby is at the of the “50 Best Workplaces in wines all took market share. forefront of identifying the best Canada” for the fourth opportunities. Our partnership consecutive year. We made tremendous progress with Checkout 51, an innovative Year two of Corby Safe Rides, a with on-premise national account mobile app that operates a three-year partnership with the chains, establishing new loyalty program, is one such Toronto Transit Commission (TTC) partnerships, strengthening opportunity. Checkout 51 credits in which we foot the bill for TTC existing relationships and gaining members for consumer goods riders on New Year’s Eve, was important listings. Thanks to purchases which accumulate until an unequivocal success. The the strong efforts of our trade a certain reward level is reached. initiative generated more than marketing and national accounts The program will provide new 18 million impressions through teams, Corby’s market share with insight into consumer behaviours media and blogger outreach to national accounts rose to 29%, and enable us to test and refine create awareness of the dangers up from 21% two years ago. our marketing tactics. of drinking and driving. We have accelerated the integration of digital into every aspect of our business. In the management of our sales force, our digital customer relationship management system has led to 2015 SUPPLIER OF THE YEAR Corby was honoured to be named 2015 Agent/Supplier of the Year (large company category) by the Liquor Control Board of Ontario, our LCBO largest customer. The award distinguished Corby for going above and beyond to deliver excellence to customers and the industry. CORBY AR 2015 3 LETTER TO SHAREHOLDERS Export Progress and The US market is a dynamic and Similarly, there’s room to expand Challenges profitable opportunity but is also in the Canadian wine market, extremely competitive. We will where consumption is still Given the relative maturity of require patience and consistent relatively low and the fiscal regime the Canadian spirits market, investment to establish and makes wine an attractive margin international expansion is a key introduce our new whiskies to category. With the combination of element of our growth strategy. US consumers. wines from Pernod Ricard and With the help of Pernod Ricard The Wine Group, we have critical USA, we launched a Canadian We also launched our Canadian mass, which helps position whisky portfolio in the United whisky portfolio in Australia in us towards our ambition of States in February 2014. Two the summer of 2015 in selective becoming a top three player in premium whiskies under the distributions. Australians have the domestic market. J.P. Wiser’s name were launched traditionally appreciated at retail outlets, and our craft Pike Canadian whisky and we see We also continue to look for ways Creek and Lot No. 40 Canadian good opportunity for our to increase our revenue, through whisky brands were introduced products. Our portfolio includes both existing activities and new at select on-premise accounts. a new J.P. Wiser’s Triple Barrel opportunities. For example, a product, as well as Lot No. 40 and new agreement negotiated While the Pernod Ricard USA Pike Creek Canadian whiskies. between the Corby independent team and their distributors directors and Pernod Ricard will added a large number of Market Opportunities increase our commission rates, distribution points, the breadth Amidst Modest Growth effective as of July 1, 2015, in of distribution caused some exchange for more specialized challenges by overstretching the As we look ahead, growth of the sales and marketing services. funding available to generate pull Canadian spirits and wine industry is projected to be through. As a result, we adjusted We’re confident that the changes modest. That said, highly our approach, narrowing the put in place over the last five attractive opportunities remain scope to a smaller number of years have positioned Corby to in Canadian whisky both markets where the portfolio seize the opportunities ahead. domestically and abroad. performed well, and we shifted We’re also confident in our people Premium whisky is on a roll and the focus from distribution gains and their ability to drive growth. there are no signs of a slowdown.