Corby Spirit and Wine Limited

Welcome to Corby Spirit and Wine's Fiscal Year 2025 Q3 Financial Results Conference Call for the period ended March 31st, 2025. Joining me on the call this morning are Nicholas Krantz, President and Chief Executive Officer and Juan Alonso, Vice President and Chief Financial Officer. Hopefully, you have had the opportunity to review the press release which was issued today. Before we begin, I would like to inform listeners that information provided on today's call may contain forward-looking statements, which can be subject to 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 Corbis materials, including annual and interim MD&A filed with the securities regulatory authorities in Canada as required. At this time, All participants are in a listen-only mode. Following management's commentary, we will conduct a Q&A session. Instructions will be provided at that time for you to queue up for questions. If you have any difficulties hearing the conference, please press star zero on your phone for operator assistance or click the help button on your screen. Now, I would like to turn the call over to Mr. Krantz. Please go ahead, sir.

Thank you very much and good morning everyone. I am Nicolas Kranz and it's a pleasure to connect with you today. As usual, I'm joined by Juan Alonso, our CFO, to share the results for the nine-month period and March 31st. By the way, I will leave Juan to detail our financial results very shortly, but I would like to start by highlighting some key areas that have led to our continued performance in this industry. Our resilience performance against the volatile environment, we know the environment is volatile, we'll come back to it, despite that has delivered a robust plus 7% reported revenue growth in the full year, year-to-date March, boosted by, of course, our RTD business and, of course, the representation portfolio. Guided by our vision to be the most innovative and consumer-centric company in the industry, clearly this has given us some strength in diversification of portfolio, and we have made some substantial reshaping of our company profile. And this effort today has meant that we have consistently outperformed the market now for the last two years in a row, showing basically the sustainable effort that we've put in. Fourth, this is what we highlighted in the previous quarters, and this is a bit more true. Accretive acquisition of ADG and MUDE have been pivotal in achieving the ambition to be a key player in Canada in this fast-growing, ready-to-growing category. You will see in a minute that this is a category that is in growth compared to the rest. And these acquisitions are directly contributed to growth, so I'm very glad to report that. For this year, this growth is also further amplified by what we have called the road-to-market modernization in Ontario, which has been, of course, driving some what we call a stock pipeline field for business. benefiting our ready-to-drink and our wine portfolio. So for those who are a bit less familiar, since the last summer, grocery channels and conventions in Ontario are open for the sale of ready-to-drink beer and wine, and we've taken full advantage of that for wine and STD portfolio. But of course, this has translated as well to a degree in some reduction of some great purchasing patterns at the decor of the last few months, so that's a challenge Why not maybe on the Q3, I would say the discrete sales, which of course, as Juan will explain that. First of all, it's a quarter that is usually a small quarter for us. But I think this year what is very important is that this quarter was affected by a very strong phasing effect and we left in a very high base comparison last year. Again, Juan will explain, but last year we were going very, very fast, I think 50%. And this year we have seen as well some destocking of the liquor board versus the previous quarter. A word as well on something that is quite important. Most recently we know that the context of the trade war between the US and Canada and the Tories. So some US products have been removed from most of the provinces in Canada. But the impact on the sale has been minimal. We are not very much exposed to U.S. products. What we are looking for is that, of course, because we have a strong Canadian portfolio, this is giving us an opportunity to take some space on shelves and probably to accelerate our market share game. This has started, but of course, not yet in our shipment. And we expect, therefore, the... Finally, for this overview, and which is very important, of course, for us, and why we generated some strong cash flow. So, on the year-to-date basis, supporting back an attractive for shareholders, and ensuring that Corby maintained a solid balance sheet, and therefore, you will see the net debt to EBITDA ratio remain very healthy at 1.6 times, to continue as Very good. Before we move to the next slide, before going to the financials, a quick word on the commercial performance. So first of all, the market. So as I mentioned, the spirit market in Canada is a bit challenging right now. It's in decline by minus 3.6%. I would like to mention that this decline is in fact a bit of a contrasted situation between the province of Ontario that has been impacted, and I think we've said that in the past, by a series of technical effects with the strike during last summer, the route to market expansion which has... Well, the rest of Canada is in fact flat. So you can see that in terms of consumer underlying demand, the situation is quite contracted. So market around 3.6% but with mainly coming from the decline of Ontario where the rest of Canada is In that context, glad of course to continue to report that we've been winning this market. Our decline has been limited to minus 1.9%, so we are gaining share 1.6 points above the market, which is significant. And on the RTD, which is of course a fast-growing category, also very happy to report that we are going by plus 9%. It's a category that we are gaining share, and our portfolio is starting to take And that's before, I would say, the famous Q4 where we have, of course, the spring and the summer coming. So the RCD system is upon us. But on the year-to-date basis for the 10 months, we are doing plus 90%. If we look at now briefly at the various categories, as I mentioned, so we are 1.6 points above the market. Most of the categories are a bit challenged for this year. So, of course, the largest category, if not new, are slightly thin or less to both. And on the year-to-date basis, tequila and Bourbon remain, I would say, the fastest. Of course, for the Bourbon, we start to see the impact of the US tariff. So, this is the situation. clear but as you will notice all there so we're not very much you may be very much exposed to the large canadian uh in our uh whiskey uh whether it's single modes uh irish of course of course Now, if we move on before giving more detail on the financial, just to anchor a little bit on our growth strategy. This has been very, very consistent, as I mentioned. The whole objective for us is to grow faster than the market and the spirit side. Our portfolios now enable us to do that. Very much our competitive advantage in terms of sales and marketing success and execution. So we want to grow, want to point above the market, and this is quite over the last couple of years. We want to be also very much playing in the fast-growing category, and this is what the FTD is doing for us, but also on the tequila front, where we are invested a lot behind the camera and carpets. The third element, which for us is in this market is to continue to grow a value ahead of volume so we do that through mix we do that through pricing and this is also a varying element for us to what we call revenue growth management so promotional efficiency is a top of mind for the company the other element that we've also mentioned is the dynamic portfolio management we have made some acquisition we are also mindful of assets that maybe could be better used in other hands. So we are very open to make sure portfolio is fit for purpose and this is what we do. And finally, regarding the exports, which is a more marginal part of our business, it is clear that with the U.S. situation, we've been able this year to ship, I would say, ahead of the tariff. We will continue to monitor the situation. We are not very much exposed, and it remains a strategic market in terms of both, because the supervisor is full, but we're doing quite well. And we continue, of course, to force in the U.K., which is On the RCD, listen, this is very much something that we put in place about two years ago. Full, I would say, full bearing right now. Very pleased with the integration, first of all, of S-Deverage, but also of Nude. The Nude business was, of course, a business that we needed to run around. The last recent data that we have are very, very positive, and we're starting to be raising growth in British food for this brand. And overall, the portfolio is behaving very well. The team has a buoyant pipeline of innovation to come online in the next few years. And this is a category where we intend to continue to double-digit and probably in the mid-term to be one of the key players in the Canadian market. So with that, I will hand over to Juan to give you a bit more detail, both on our Q3 and our year-to-date. As I mentioned, the Q3 is a bit impacted by some technical effect and comparative basis. Very pleased with the solid results we've delivered on the year-to-date basis. Juan, over to you.

Thank you, Nicolas, and good morning, everyone. I'm Juan Alonso, Corviz CFO, and I'm pleased to walk you through our financial results. Very quickly, before we talk about our financial performance, you are going to notice some mentions of adjusted metrics and organic revenue growth. We believe that these non-IFRS financial measures support a better understanding of our underlying business performance and trends. We provided a detailed explanation for each of those elements in our Q3 FY25 MD&A. And I invite you to refer to this document for any questions related to it. Let's start with Q3 results. As Nicola mentioned, Q3 was challenging for Corby, reflecting difficulties in the broader spirit market. One significant impact was a reduction in inventory levels at the LCBO and weak consumer trends. Additionally, we faced a high comparison basis as we were comparing against an exceptional Q3 performance in FY24. To provide some context, let's revisit the drivers behind last year's Q3 results. In FY24, last year, Q3 delivered an impressive organic growth of 18%, driven by strong pipeline fuels to new export markets and the recovery of our Commission Pernod Ricard product shipment. Additionally, excluding ABG brands, The revenue waiting for Q3 FY24 was higher than usual, contributing 23% of total revenue. In comparison, Q3 FY23, two years ago, contributed 20% to total FY23 revenue. Now, turning to this year's Q3 results, we observed a normalization of sales of the high basis set in FY24. This was further influenced by these talking patterns at the Ontario Liquor Board. As a result, it becomes increasingly important to focus on the fiscal year-to-date results to reflect Corby's true underlying performance evolution. So now that we understand a bit more about the context, we can start off with the top line. Corby generated $48 million in revenue during Q3, reflecting a 1% decrease in reported revenue. And when excluding contribution from the newly acquired nude beverage brands, our organic revenue saw a 9% decline. As I explained before, it's important to remember that Q3 FY24 was a standout quarter with a remarkable 50% increase in reported revenue and 18% rise in organic revenue compared to FY23. With a softer top line and increased costs due to our expanded operation, Corbi saw a 10% decrease in adjusted EBITDA for Q3. However, this needs to be viewed in the context of FY24, where we saw an outstanding growth of 53%. This ultimately impacts our bottom line, where we reported adjusted earnings per share of $0.16 and reported earnings per share of $0.14 for Q3. These figures represent a decline of 20% and 6% respectively. Again, this decrease is accentuated by the high comparison basis from FY24, where we achieved 90% growth in reported earnings per share and 44% growth in adjusted earnings per share. Despite our challenges in Q3, Corby recorded a slight improvement in cash from operating activities over Q3 FY24, benefiting from favorable changes in working capital as well as interest and taxes. While Q3 was softer, we remained confident and optimistic in the strengths and depths of our portfolio, as well as the effectiveness of our dynamic strategies during the year. In line with our commitment in Q2, the Board declared a dividend of 23 cents for Q3, marking a 2 cents or 10% increase over the dividends declared in Q3 FY24. That was our performance in Q3. Now let's shift our attention to the nine-month period ended March 31st, 2025, or fiscal year-to-date March. Following a softer Q3, Corby's year-to-date earnings growth highlights the resilience of our portfolio and management, emphasizing our continued market share gains in a challenging and volatile market environment. Let's start with the top line. In fiscal year to date March, Corby delivered 174.8 million in revenue, which represents a solid 7% growth in reported revenue. This growth is powered by the contribution from our recently acquired Nude Beverage RTD brands. When we exclude these brands, Our organic revenue remains broadly flat, comparing to year-to-date March FY24. We'll go deeper into our revenue growth in the next slide. Our resilient top-line growth, combined with diligent cost management and operational efficiencies, enabled Corby to achieve improvements in operating income. This is reflected in our adjusted EBITDA, which reaches 48.4 million, a steady 4% increase compared to FY24. Despite some increases in interest expenses, including those related to leased assets, loans from Pernod Ricard for the acquisition of ABG and non-controlling interest obligations to ABG, Corby delivered 81 cents in adjusted earnings per share and 75 cents in reporting earnings per share. These figures represent growth of 1% and 11% over the year-to-date March FY24, respectively. In the year-to-date March, Corby generated $29.2 million in cash flow from operating activities, demonstrating strong liquidity driven by an increase in earnings and also favorable changes in working capital management. Reflecting our confidence in our earnings and profitability growth and our strong commitment to our shareholders, Corby declared 68 cents per share in dividends for the year-to-date March. This follows the Board's declaration of 23 cents per share in dividends for Q3, showcasing a solid 5 cents or 8% increase over the same period in FY24. Lastly, as of March 31st, 2025, our net debt to adjusted EBITDA ratio was 1.6 times, reflecting a solid solvency position and healthy balance sheet. Now let's go to the next slide and go deeper into our year-to-date revenue growth. Let's take a moment to review Corby's fiscal year-to-date revenue for March. So, firstly, our domestic case goods revenue reached $138 million, with the nude beverage brands contributing to almost $12 million. This resulted in a total reported domestic case goods revenue growth of 7%. Including the impact of the nude brands, our organic domestic case goods revenue experienced a modest 2% decline in a further declining spirit market. Clearly affected by LCBO strike in July and a reduction of spirits purchasing patterns in Ontario. However, our dynamic RTD portfolio helped offset these challenges by effectively tapping into the grocery and convenience store retail modernization opportunities in Ontario. Secondly, our commission sales rose to $22.9 million, demonstrating impressive growth of 17%. This increase was driven by imported RTD and wines, which successfully capitalized on the retail modernization in Ontario. Lastly, our export revenue totaled $11.2 million, reflecting a 12% decline year over year. This decrease comes from lapping the pipeline fuel to new markets during last year, which had seen a remarkable 44% increase compared to year-to-date March FY23. Despite this, we can see an encouraging rebound of JP Weiser's performance in the U.S. These results highlight our ability to navigate and adapt to the evolving market landscape and we remain committed to leveraging opportunities for growth in the next quarters. So, to summarize our P&L's results for year-to-date March, Corby had resilient revenue growth of 7%, bolstered by the strength of our portfolio, the new channel expansion in Ontario, and the acquisition of new brands. Our total operating expenses increased by 6% at a slower pace comparing to the growth in our revenue, with strategic investments behind key strategic brands and disciplined spend management. As a result, Corby delivered a solid growth of 4% in adjusted EBITDA, underscoring our ability to effectively manage costs while expanding our revenue base. On a per share basis, our adjusted net earnings was 81 cents, and reported net earnings was 75 cents, reflecting growth of 1% and 11%, respectively, versus last year. Now moving to the next one. In the first three quarters, Corby generated $29.2 million of cash from operating activities, supported by higher net earnings, underpinned by new acquisitions and lapping the ABG acquisition-related costs incurred last year, as well as favorable working capital changes. These favorable working capital changes were driven primarily by the timing of spend. Our free cash flow turned positive and improved significantly year over year, benefiting from the lapping of last year a $136 million cash outflow related to the ABG acquisition. As a result, our net debt position was $99.1 million at the end of March, and our net debt to adjust EBITDA ratio remained low at 1.6 times, demonstrating a robust solvency position and reinforces our financial health. Furthermore, Corby has an attractive dividend payout ratio at 54% on a rolling 12-month basis, highlighting the sustainability of the company's quarterly dividends. Notably, quarterly dividend payments increased by 10% in Q3 FY25 compared to Q3 FY24. These actions have contributed to a high dividend yield over recent years, At 5.9% at the end of March, a consistent yield compared to FY23 and FY24. We are pleased with our results so far in the fiscal year, and we remain committed to delivering on our value proposition for our stakeholders and shareholders. Before I hand back to Nicola, I want to finish with a final look at what's ahead for Corby. We know there are a few challenges in the market context, but we believe our clear strategy and the foundations we have discussed today leave us well positioned for the last quarter of the fiscal year. The market is forecasted to continue to decline in Q4, but we continue to target market share gains thanks to the strength of our portfolio. We are closely monitoring our regulatory and trade changes, including the recent announcements regarding tariffs between the US and Canada. We believe Corbi is well positioned to navigate the challenges ahead of us with our diversified portfolio, strong local footholds and execution strategy. We are going to continue to unlock the full potential of our RTD portfolio, including the realization of ABG and new sales with operational synergies throughout a successful integration. We are going to address consumer needs and keep agility in our dynamic approach to capitalize on new opportunities presented like the route to market modernization in Ontario. And finally, as we have mentioned, revenue growth management and disciplined investments will remain a very important feature to protect our margins. Now, back to Nicolas for some closing remarks.

Thank you very much, Juan, very clear. So before we head into the Q&A session, just as I usually do, we'd like just to reiterate for us what are the key reasons to invest in coffee. Five key points to keep in mind. So Kobe is, in fact, the largest public multi-beverage alcohol company in Canada. And really, our portfolio is one of the most comprehensive portfolios in the market. So we are very proud of that. And of course, we know that this is delivering value. Coupled with our strong position here, we can leverage our close partnership with the Group America, which is the number two global player. That is giving us a lot of competitive advantage and a weapon to win this market. We're proud to have operational experience in our execution. Really, our sales and marketing execution is and we are well known for that, and it helps us to attract the best talent, and this is where we... Finally, of course, the company is delivering what I will call a financial consistency. We fundamentally are resilient. I will almost say no matter what, our revenue and our strong cash generation are there, and this is, of course, continue to adapt our financial policy to maintain. We know the dividend is an important feature for shareholders and of course we will aim to continue to grow the dividend over time. And with that, that's it for today. I want to thank you once again for joining us and hear a bit more detail about our year-to-date results. I look forward to sharing our full year results in the coming months. And now if there is any question, one in myself would be

Thank you. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you use a speakerphone, please lift the handset before pressing any keys.

One moment, please, for your first question.

So, we see a question, so I'm going to read the questions. When your Canadian business is going to see the benefits from the U.S. e-cores being removed from shelves, what net benefits do you expect? So the situation, of course, is a bit volatile, but what happened in the month of March is, of course, when the tariff threat was announced, two things happened. First, there has been some stocking of U.S. products made by licenses, entrepeneurs, and entrepreneurs. So we have seen for, let's say, 10 days a surge of those U.S. products. But in the same time where the products were removed, We have seen, of course, a lot of empty shelf, and Corby, in particular, was able to come at full force and take advantage with the portfolio. So, as you know, we have a portfolio of strong Canadian brands with GP Wise's Canyon Whiskey, with Polarize Vodka, with Lamb Rum. For example, against the Bourbon, I would probably highlight that we have a small brand called Lot 40, which is one of the best rye in the world and is brewing extremely strongly right now. But, of course, the GECO board did not order new, I would say, stock during the month of March. They were, in fact, facing a significant cash pressure because they were supposed to hold the inventory of those U.S. products, and they were depleting basically what they could. So we, therefore, expect the dynamism of our Canadian portfolio to show up, of course, more in our shipment in Q4. And this is what we are monitoring. We are putting in place a lot of what we have called an All Canada Plan, in store, but also with our consumers, with our main brands. So we'll be driving quite a dynamic campaign, I would say, across the country during Q4. I just want also to mention that it's true for the Canon portfolio, but it is also true for some of our large brands. brands like Absolute Vodka or Jameson Whiskey, which are also competitors on some brands which have been removed as well from shelves. So, overall, the portfolio is extremely well positioned for... Customers have to show up and, of course, purchase. We don't control that, but in terms of relative strength to the market, we expect

Once again, should you have a question, please press the star followed by the number one on your touchstone phone, and you will hear a prompt that your hand has been raised.

Maybe just to complement the first question, there is another one, which is in terms of maybe Canadian consumers and several domestic products. The answer is yes. Overall, there is definitely a move from consumers to several domestic products, which is, by the way, not just, you know, You see that across categories. But in a major way, it's true that the liquor board has made some space, I would say, for that. This is also true for on-premise customers who have been very happy to support. So overall, I would say, yes, there is definitely a sentiment for Made in Canada right now in the market.

There are no further questions at this time. I would now like to turn the call over to Nicolas Krentz for closing remarks.

Thank you very much for your time and attention. Again, we'll be looking forward to report hopefully next year. A good week, and as we often say when we close our call, the best way to get to know brands is to consume with moderation. So for us, it's also a big moment of consumption across our portfolio. So please enjoy your brand and respond to me, and looking forward to reconnecting very much.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.