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Big Rock Brewery Inc
Symbol BR
Shares Issued 6,981,628
Close 2018-05-03 C$ 4.75
Market Cap C$ 33,162,733
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Big Rock Brewery loses $387,000 in Q1

2018-05-03 19:50 ET - News Release

Mr. Wayne Arsenault reports

BIG ROCK BREWERY INC. ANNOUNCES 2018 FIRST QUARTER FINANCIAL RESULTS

Big Rock Brewery Inc. has released its financial results for the three months ended March 31, 2018.

"Big Rock reduced its operating loss to $505,000 compared with $1,157,000 in the first quarter of 2017," said chief executive officer Wayne Arsenault. "Our British Columbia sales grew in the first quarter of 2018, due in part to an increase in sales of cider. Sales volumes declined in Alberta mainly due to discontinued lower-margin brands and the impact of increased competition in the craft beer market, which were partly offset by increased volumes of our Alberta genuine draft. The impact of lower sales volumes on financial results was largely mitigated by price increases implemented in late 2017 and early 2018. The provincial markup and grant structure introduced by the Alberta government late in 2016, which had negatively impacted results in 2017, was largely alleviated during the first quarter due to steps we have taken to optimize our Alberta sales volumes under the current grant structure, including discontinuing two lower-margin products and reducing the number of limited-time offer price discounts. We expect this improvement to continue until the semi-annual remeasurement of the Alberta grant rate at the end of July, 2018. Discussions are ongoing with the Alberta government to find a longer-term solution to the impediments to growth under the current markup and grant program."

As a result of a search for initiatives to improve Big Rock's asset utilization, on April 19, 2018, Big Rock Brewery and Fireweed Brewing Corp. announced a joint venture agreement. The Vancouver brewery, located on West 4th Avenue and Alberta Street, will see the addition of a new canning line and brewing vessels to expand brewing capacity up to 26,000 hectolitres to allow for the production of products for both companies. Fireweed products for the Alberta market will be handled under a contract manufacturing agreement.

"This joint venture agreement allows Fireweed to operate and manage the Vancouver brewery at full capacity, effective June 1, 2018. We expect this will improve our profitability in the second half of 2018," said Mr. Arsenault.

Financial highlights

For the three months ended March 31, 2018, compared with the first quarter of 2017, Big Rock:

  • Improved its operating loss by $652,000 to $505,000, compared with an operating loss of $1,157,000;
  • Reduced its net loss by $520,000 to $387,000 from $907,000;
  • Reported earnings before interest, tax and depreciation (EBITDA) of $267,000, compared with negative EBITDA of $413;
  • Reported sales volumes of 41,144 hectolitres, compared with 43,477 hectolitres;
  • Reported net revenue of $9,466,000, compared with $9,589,000;
  • Improved net revenue per hectolitre to $230.07, compared with $220.55;
  • Reduced cost of sales per hectolitre to $135.43, compared with $137.59;
  • Used cash in operating activities of $1,213,000, compared with cash used in operating activities of $1,228,000.

Operating highlights

Big Rock's operating results for the quarter ended March 31, 2018, improved by $652,000, to report an operating loss of $505 compared with $1,157 in the first quarter of 2017. Despite a 5-per-cent decrease in total sales volumes during the three months ended March 31, 2018, Big Rock realized an increase in its net revenue per hectolitre of $9.52 (4.3 per cent) to $230.07 compared with $220.55 per hectolitre in the first quarter of 2017. In addition, gross profit margin improved in the first quarter of 2018 to 41 per cent, compared with 38 per cent in the first quarter of 2017. These improvements reflect the impact of price adjustments that were introduced in Alberta in late 2017 and in other sales regions during the first quarter of 2018, as well as improved Alberta net markup rates on beer and cider.

Big Rock's net revenues are highly sensitive to pricing adjustments, regulatory changes to markup rates and excise tax rates. During 2017, Alberta, Big Rock's largest market, was negatively impacted by changes to the Alberta government's markup and grant structure, implemented in late 2016, which introduced a grant available under the Alberta small brewers development grant policy. Under this policy, an annual sales level of 150,000 hectolitres in Alberta results in the maximum grant available. Big Rock's annual Alberta sales volumes exceed this threshold, which resulted in higher net markup costs per hectolitre during 2017. The corporation took steps to improve the grant rate in 2017, including optimizing its Alberta sales volumes and profit margins by discontinuing two lower-margin products, reducing its number of limited-time offer price discounts, and implementing price increases on value-priced and private label products in Alberta in the fourth quarter of 2017.

Big Rock expects the grant rate improvement to continue until the end of July, 2018, at which time the grant rate will be reset, based on the Alberta small brewers development grant policy then in effect. The corporation continues to work with the Alberta government with the objective of improving the environment for growth beyond 150,000 hectolitres in the province.

Big Rock's volumes were 41,144 hectolitres in the first quarter of 2018, compared with 43,477 hectolitres in the first three months of 2017, reflecting the discontinuation of two low-margin products in 2017, partially offset by increased sales of cider, value-priced brands and Big Rock's Barn Burner variety pack. Big Rock's B.C. region sales increased in the first quarter of 2018, due in part to sales of cider and increased beer sales resulting from the sales team focusing on select core brands. Sales volumes declined in Big Rock's other major regions (Alberta and Ontario) during the first three months of 2018 compared with the first quarter of 2017, mainly reflecting the discontinued brands from 2017 and the impact of increased competition in the craft beer market, which were, in part, offset by increased volumes of Big Rock's most approachable lager, Alberta genuine draft (AGD).

Big Rock packaged product sales decreased in the first quarter of 2018, particularly in Alberta, largely due to the previously noted discontinued products. As well, Big Rock's packaged product sales are directly impacted by weakness in the general economy and, in particular, retail store channels. Big Rock keg sales increased during the first quarter of 2018 over the prior-year quarter due mainly to increases in the Ontario and B.C. markets, where AGD kegs have taken a lead in brand sales.

The corporation continues to search for initiatives that will improve its asset utilization in its B.C. brewery. As a result, on April 19, 2018, Big Rock announced that it has entered into a contractual joint venture arrangement with another independently owned craft brewery, which will operate and manage the Vancouver brewery location, effective June 1, 2018. This is expected to contribute to the corporation's profitability in the second half of 2018, as the facility's production capacity will be maximized.

                  SUMMARY OF RESULTS
   ($000, except hectolitres and per-share amounts)

                                 Three months ended March 31,
                                          2018          2017          

Sales volumes (hectolitres or hl)       41,144        43,477    
Net revenue                             $9,466        $9,589     
Operating (loss)                          (505)       (1,157)   
Net (loss)                                (387)         (907)     
(Loss) per share (basic and diluted)     (0.06)        (0.13)
                                        ------        ------
$ per hectolitre
Net revenue                             230.07        220.55    
Cost of sales                           135.43        137.20    
                                        ------        ------

Additional information

The unaudited consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2018, dated May 3, 2018, can be viewed on Big Rock's website and on SEDAR under Big Rock Brewery Inc. Big Rock's annual general meeting will be held on May 10, 2018, at 2 p.m. MST at the Big Rock Brewery, 5555 76 Ave. Southeast, Calgary, Alta.

About Big Rock Brewery Inc.

In 1985, Ed McNally founded Big Rock to buck the time's beer trends. Three bold, European-inspired offerings -- bitter, porter and traditional ale -- forged an industry at a time heavy on easy drinking lagers and light on flavour. Today, its 10 signature beers, continuing seasonal offerings, four ciders (Rock Creek Cider series) and custom-crafted private label products keep the company at the forefront of the craft beer revolution, still proudly bucking the time's beer trends. Big Rock brews in Calgary, Alta., Vancouver, B.C., and Toronto, Ont.

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