E-Malt.com News article: Canada: Big Rock Brewery pleased with its Q2 and H1 results despite COVID-19 challenges

Big Rock Brewery Inc. announced on July 30 its financial results for the three and six months ended June 30, 2020.

"Big Rock achieved 510% EBITDA growth, compared to the same period in 2019, and cash flow from operations of C$2.8 million in the second quarter of 2020. Despite the challenges faced related to the COVID-19 pandemic, including a significant loss in bar, restaurant and event revenue, we are extremely pleased with the success of the business and the resilience of our employee base through these uncertain times," said President & CEO Wayne Arsenault, "Since the beginning of the pandemic, we have prioritized and implemented extraordinary measures to protect the safety of our employees, customers and consumers. Through commitment to these principles, we reported an excellent second quarter and believe we are well positioned to continue to find success in the quarters to come."

As at June 30, 2020, the Corporation was undrawn on its operating credit facility of C$5 million and C$3.1 million drawn on its $6 million term facility with its lender.

"Although the Corporation faced significant financial challenges in 2019 and the uncertain economic circumstances presented by COVID-19 in 2020, as a result of the continued support of our lender, partners and provincial and federal governments, along with strong working capital and cost structure management, we are pleased with the current financial position of the Corporation," said Chief Financial Officer Don Sewell.

Financial Highlights

For the three months ended June 30, 2020, compared to the three months ended June 30, 2019, the Corporation reported:

operating income of $1.1 million, compared to an operating loss of C$0.5 million;

earnings before interest, taxes, depreciation and amortization ("EBITDA") increase of C$1.7 million, from C$0.3 million to C$2.0 million;

cash flow provided from operating activities of C$2.8 million, compared to cash flow used in operating activities of C$0.4 million;

sales volumes decreased by 4.5%, from 48,900 hl to 46,693 hl;

net revenue decreased by 10.3%, from C$13.3 million to C$11.9 million; and
net income of C$0.6 million from C$0.3 million.

For the six months ended June 30, 2020 compared to the six months ended June 30, 2019, the Corporation reported:

operating income of C$0.1 million compared to an operating loss of C$2.7 million;

positive EBITDA of C$2.1 million compared to negative EBITDA of C$1.1 million;

cash flow provided from operating activities of C$3.0 million, compared to cash flow used in operating activities of C$1.6 million;

sales volumes decreased by 0.8%, from 83,875 hl to 83,183 hl;

net revenue decreased by C$1.0 million from C$21.9 million to C$20.9 million;

net loss decreased by C$1.1 million to a net loss of C$0.3 million, from a net loss of C$1.4 million; and

a reduction in bank indebtedness and long term debt of C$1.8 million as the Corporation continued to focus on using its cash flow to pay down debt.

Operating Highlights

Despite the continued market headwinds experienced in the beer category in Canada, the Corporation achieved a C$1.7 million increase in EBITDA in the second quarter of 2020 compared to the same period in 2019 and continues to see a strong contribution from its contract manufacturing business. The significant improvement in the Corporation's EBITDA in the quarter can be attributed to the following:

20% increase in contract manufacturing volumes;

significant reductions in cost of sales, selling expenses and general and administrative costs as a result of the Canada Emergency Wage Subsidy received by the Corporation and cost cutting initiatives implemented by the Corporation during the second quarter of 2019;

increased sales of the Corporation's allied brands;

continued growth in value offerings including Alberta Genuine Draft, Bow Valley Lager and Bow Valley Strong;

growth from the Corporation's Rock Creek Cider series; and

the resurgence in the Corporation's gross profit primarily driven by the Alberta Gaming, Liquor and Cannabis Commission's amendment of the beer mark-up policy in September 2019.

The loss of keg sales related to COVID-19 put the performance of Big Rock's Signature series of beers under significant pressure, along with continued decline in beer consumption trend in Canada.

The Corporation experienced several manufacturing issues during the second quarter of 2020 that have since been remediated. Given the downtime for capital expenditure in March as a result of the rapid onset of COVID-19 along with manufacturing issues experienced by the Corporation at the beginning of April, the Corporation struggled to build adequate inventory to meet shifting consumer demand. In conjunction with significant returns in expired kegs due to COVID-19, the Corporation realized a $1.2 million charge due to obsolete and damaged inventories during the second quarter. The Corporation's manufacturing issues were fully remediated in April and all COVID-19 related inventory charges were fully incurred during the second quarter. Big Rock is confident that existing inventory levels, production planning and local procurement are well positioned to meet consumer demand.

Despite sales volumes declining by 2,207 hl (5%) to 46,693 hl and the manufacturing and inventory issues experienced in the second quarter of 2020, Big Rock reported net income of C$0.6 million or C$0.08 per common share, compared to a net income of $0.3 million or C$0.04 per common share in the same period of 2019.

30 July, 2020