Canada, AB: Calgary’s Big Rock Brewery Inc. reports Q3 and nine-month results

Big Rock Brewery Inc. announced on November 2 its financial results for the three and nine months ended September 30, 2017.

"Big Rock continued to grow production volumes and net revenue during the third quarter of 2017," said CEO Wayne Arsenault. "Although our operating results were impacted by increased costs caused by Alberta government revisions to the provincial markup and grant structure, our net markup rate (markup less grant) improved in September due to steps we have taken to optimize our Alberta sales volumes and profit margins, and we expect this improvement to continue. In Ontario, sales more than doubled due to the addition of the Etobicoke brewery in the fall of 2016 and the Liberty Commons at Big Rock Brewery restaurant in early 2017. Although the pace of growth in Alberta was tempered by the discontinuance of two low margin products, this was partially offset by increased sales of other products. Declining sales in British Columbia, due to our efforts to improve margins by de-emphasizing value-priced products and an increase in the number of competing breweries in the province, partly offset sales increases in other provinces."

Financial Highlights

For the quarter ended September 30, 2017, compared to the third quarter of 2016, the company:

increased sales volumes by 5%, from 54,237 hectolitres ("hl") to 57,075 hl;

increased net revenue by 6%, from C$11,669 thousand to C$12,399 thousand;

reported an operating loss of C$159 thousand, compared to an operating profit of C$416 thousand;

reported a net loss of C$179 thousand compared to net income of C$234 thousand; and

used cash in operating activities of C$996 thousand compared to cash provided from operating activities of C$3,015 thousand.

For the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, Big Rock:

increased sales volumes by 6%, from 152,461 hl to 162,255 hl;

increased net revenue by 9%, from C$32,687 thousand to C$35,484 thousand;

increased operating loss to C$1,070 thousand from C$46 thousand;

increased net loss to C$879 thousand from C$166 thousand; and

used cash from operating activities of C$1,591 thousand compared to cash provided from operating activities of C$3,585 thousand.

Big Rock's operating results for July and August of 2017 continued to be negatively impacted by increased costs caused by the Alberta government's revision in August 2016 to the markup and grant structure. Under this revised structure, the maximum grant available to producers is achieved at an equivalent annual Alberta sales level of 150,000 hl. The amount of grant a producer can qualify for is reduced below the maximum, on an increasing scale, as sales in Alberta exceed 150,000 hl. Big Rock's Alberta sales volumes exceed this threshold, which has resulted in higher net costs per hectolitre ("hl") compared to the costs per hl imposed by the markup program that was in place during the first half of 2016. In order to improve Big Rock's grant rate going forward, the company has taken steps to optimize its Alberta sales volumes and profit margins by discontinuing two lower margin products. As a result, Big Rock's net markup rate (markup less grant) improved in September 2017 and the company expects this to continue for the next six to twelve months. Big Rock will continue discussions with the Alberta government with the objective of improving the environment for growth beyond 150,000 hl in the province. The number of limited-time offer price discounts presented to customers during the first nine months of 2017 were reduced, and to further alleviate the impact of the higher net markup rates, price increases have been put in place in Alberta for the fourth quarter of 2017 on Big Rock's value-priced and private-label products.

Big Rock grew production volumes and net revenue for the three and nine months ended September 30, 2017. In Ontario, sales more than doubled, when compared to the same period in 2016, due to the addition of the Etobicoke brewery in the fall of 2016 and the Liberty Commons at Big Rock Brewery restaurant in early 2017. Big Rock beer products are now available in all three key retail channels in Ontario: the Liquor Control Board of Ontario retail stores, The Beer Store outlets and licensed grocery chains.

Although the pace of growth in Alberta during the third quarter was tempered considerably by the discontinuance of two low margin products, this was partially offset by increased sales of both Alberta Genuine Draft ("AGD"), Big Rock's most approachable lager, and Big Rock branded products.

Sales of Big Rock products in British Columbia ("BC") declined during the third quarter of 2017 compared to the same period in 2016, due to a conscious effort to improve margins by de-emphasizing value-priced products, and an increase in the number of breweries and products vying for a limited number of listings available through BC government and retail channels.

Sales of Big Rock packaged products increased in the quarter, particularly in Alberta, led by AGD, private-label brands, the limited-edition Canada 150 and fall edition variety packs, Big Rock's flagship Traditional brand and newer brands such as Pilsner and Rhinestone Cowboy. The packaged product increases were partially offset by decreases in keg sales due to overall industry declines in keg sales and the proliferation of new craft breweries in Alberta, which tend to sell exclusively in keg format in their early stages. Similar trends were seen in the company's private-label business, where new packaged products contributed to increased sales but on-premise keg sales declined.

05 November, 2017