Good morning, ladies and gentlemen. Welcome to the Andrew Peller Limited fourth quarter and year-end fiscal 2018 results conference call. I would now like to turn the meeting over to Mr. David Mills. Please go ahead, Mr. Mills.
Good morning. Thank you, everyone, for joining us this morning. Before we begin, let me remind you that during this conference call, we may make statements containing forward-looking information. This forward-looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. We direct you to our earnings release, MD&A, and other securities filings for additional information about these assumptions, risks, and uncertainties. I'll now turn things over to Mr. John Peller, Chief Executive Officer.
Thank you, David. Good morning, everyone. It's great to be with you and follow up with our results for our year ending March 31. We've had a very positive and successful year overall as our company. We're happy really with the way everything has evolved. We're increasingly confident about our future. You'll have seen our sales are up just over 6%, which partially is a result of some of our acquisitions. Pete will give you those numbers more specifically in just a few minutes. We also had around 4% organic growth across the company, which is very strong and supports the strength of our brands at premium value and in both craft spirit and craft refreshment categories that we've entered.
I think, significantly, our gross margins are up from where they used to be at the 38% level, now up into 41%, heading to 42%. This is the result of a great deal of hard work around our supply chain. A lot of capital has been invested to upgrade line speeds and the efficiency of our cellars, the capability of our crush, and inventory planning. We take great pride and confidence in the efforts of our management team around improving our margins. While we've improved them, we've seen a very strong performance in our premium wine VQA segments, both in the Okanagan and here in Niagara.
You may recall that around 2013 and 2014, we had some very challenging short crops with some cold weather here in Ontario, and now that that is way behind us, we've actually got very balanced inventories, and we've had good quality crops. Our vintage 2015 and 2016 here are now coming onto retail shelves. They're outstanding vintages, so that not only are our brands doing well, but the grape crop and qualities that support them are in great shape. We think this augurs very well for our future, and we'll continue to focus on this premium wine segment, both from a growth and margin perspective. We did perform well at value price points as well, and there is still strong support by consumers for wine in the kind of eight to CAD 12.
It's where 80% of the volume in the industry is done, although it represents probably half of the overall retail dollars. One of our highlights for the year was we had a full year of the opening of the Wayne Gretzky Estates Winery & Distillery. It's been very positive. The results have exceeded what were our high expectations in terms of performance. Already to the start this year, we're doing better than the numbers we did last year, and we remain very optimistic with both the wine and our craft spirit. We launched our craft whiskey into the Chicago and St. Louis markets this year. It's still very early. Our distribution is strong. We have a highly motivated distributor partner, and so far, the sales have been very encouraging.
As I mentioned earlier, from a craft refreshment standpoint, we've launched our No Boats on Sunday premium craft cider. It trades at a much premium retail price to the regular category. It's been incredibly well-received, and we're excited with its prospects going forward. Basically, all the strategies we've talked to everyone about at our shareholder meetings and in all our communications are on point. They're doing well. If anything, they're doing better than what we had hoped, and we're poised to continue to invest in our brands, and we have high expectations for growth and brand development in the next few years. We'll eventually take some questions, but at this time, I'll turn it over to Pete, who can take you through some of the details.
Thanks, John. Fiscal 2018 was another record year for our company. Sales were up 6.2% to CAD 364 million on strong organic growth of 3.7% and a contribution from the three acquisitions that were completed in early October. Fourth quarter sales were up 10.4%, driven by 5.4% organic growth on our first full year's contribution from acquisitions.
Organic growth once again came from our successful sales and marketing programs, the introduction of new products and product categories, and just overall continued strength in the Canadian wine market. Gross margin strengthened again in fiscal 2018, rising to 41.3% of sales from 38.3% in the prior year. Fourth quarter margins improved to 41.1% from 39.2% in the final quarter of fiscal 2017. As John mentioned, we continue to benefit from our focus on selling more high-margin wines. We've had selected price increases that we implemented in the second quarter of last year. We have discontinued certain low-margin products, and we've had a positive impact from our cost control programs. On acquisition, we recorded a CAD 10.4 million increase to inventory to represent the fair value of goods acquired as required under IFRS guidelines. This increase will be expensed over time as finished goods are sold, thus reducing our gross margin.
During the fourth quarter and year ended March 31st, 2018, we recorded a charge to earnings of CAD 1.1 million and CAD 3 million respectively to cost of goods sold because of this adjustment. In fiscal 2018, selling and admin expenses increased due to the acquisitions and the opening of the Wayne Gretzky Estates Winery & Distillery in June 2017. Sales expenses were also higher to support many new product launches throughout the year and due to the impact of the minimum wage increase in Ontario. Sales and marketing expenses in both fiscal 2018 and fiscal 2017 were impacted by certain one-time costs associated with the acquisitions. In fiscal 2018, we recorded one-time costs of approximately CAD 1.1 million for professional and transition costs related to the acquisition, and CAD 0.3 million related to severance payments.
Fiscal 2017 included a one-time charge of CAD 1.1 million for costs related to an acquisition that was not completed and CAD 1.3 million for post-retirement benefits for certain employees retired through the year. EBITDA was CAD 52.9 million for fiscal 2018, up 14.6% from CAD 45.1 million in the prior year. The increase was due to the growth in sales and improved gross margin, partially offset by the higher sales and admin costs and the reduction in margin for the three new wineries due to the inventory at fair market value adjustment charged to cost of sales. We have also disclosed our adjusted EBITDA, which excludes the one-time acquisition charges for both years. Adjusted EBITDA rose 23.7% to CAD 57.2 million in fiscal 2018 from CAD 46.2 million in fiscal 2017. Adjusted EBITDA for the fourth quarter of fiscal 2018 was CAD 5.7 million compared to CAD 5.9 million in the prior year.
Interest expense increased in fiscal 2018 due to the long-term debt incurred to complete the acquisitions in October. Interest expense in the fourth quarter was approximately CAD 1 million over the prior year. Amortization expense was higher due to the addition of three recently acquired wineries and to the completion of the Wayne Gretzky Winery in 2017. Amortization expenses in the fourth quarter were CAD 2 million over the previous year. The net unrealized non-cash gains in both years continue to reflect the mark-to-market adjustments to our interest rate swaps and foreign exchange contracts. We believe these programs continue to mitigate the impact of potential future interest rate volatility and changes in foreign currency exchange rates. Fiscal 2018 also included a one-time gain of CAD 4.2 million recorded in other income related to one of the October acquisitions.
Net earnings for fiscal 2018 were CAD 30.1 million, or CAD 0.71 per Class A share, up from CAD 26.4 million or CAD 0.64 per share in fiscal 2017. The net loss in the fourth quarter of fiscal 2018 was primarily due to the charge to cost of sales sold for the inventory adjustment, the increase in sales and admin expenses, which included one-time costs related to the acquisitions, and the increase in interest and amortization charges. As we disclosed in our year-end press release, the acquisitions contributed CAD 8.6 million in sales, CAD 1.1 million in EBITDA, and CAD 400,000 or CAD 0.01 per Class A share in net earnings in fiscal 2018, excluding the acquisition-related fees and fair market value margin adjustments. Our earnings per share in fiscal 2018 were also impacted by the 1.6 million shares issued to acquire one of the wineries.
Looking ahead, the remaining balance of CAD 7.4 million of fair market value adjustment to inventory will be expensed as the wines are sold, thus reducing gross margin. We expect the majority of this adjustment will flow through earnings within the current fiscal year. You should also note that the one-time transition and restructuring costs recorded in 2018 reduced earnings per share by approximately CAD 0.10. Looking ahead, we are confident that the three acquisitions will make strong and growing contributions to the company's performance. Despite the dilutive impact in fiscal 2018 and 2019, the acquisitions will generate positive and accretive contributions over the longer term. Turning to our balance sheet, the changes at March 31st, 2018, from the prior year-end were due primarily to the three acquisitions. Overall bank debt increased to CAD 171.7 million, due primarily to CAD 79 million drawn on our credit facilities to complete the acquisitions.
At the end of the year, we had CAD 42.7 million in our operating facility and CAD 94.7 in our investment facility, providing sufficient liquidity to continue our growth and investment programs going forward. Cash flow from operating activities was CAD 21.7 million in fiscal 2018. Investing activities included funding for the acquisitions and the completion of the Gretzky facility. In summary, fiscal 2018 was another very strong year for the company, with solid increases in sales and improved gross margins. We look for these trends to continue going forward. With the growing contribution to our revenues from our recent acquisitions, combined with the cost and operating synergies we expect to generate in our Western Canadian operations, we believe our future is very bright. I thank you for your time and attention this morning. I'll turn things back to John for a wrap-up.
Thanks, Pete. I inadvertently omitted to highlight the fact that our dividends just have been increased 14%. I believe that's the sixth or seventh year in a row that we've increased our dividend. We're proud of our dividend record, and it's a critical part of our return-to-shareholder value strategy. We've got good crops growing in both the Niagara and the Okanagan, and we're pleased with that this year. I did want to highlight, recently we won a very significant award with Decanter Magazine out of the U.K. Those of you who follow the wine world know that Decanter is probably the leading authority on wine and wine quality globally. I tell you this because I've always tried to punctuate my remarks whenever I get a chance to make them around the fact that our country makes wine as good as the very best around the world.
Decanter hands out an award by variety for the best wines around the world. This year, they probably get 3,000 to 4,000 entries per variety for these awards, where they will give as many as 200 to 300 gold medals. Beyond that, they'll honor 15 or so of those wines with platinum awards, then they choose amongst those platinum winners one wine which they declare to be the very best in the world. This year, we were honored that they selected our Thirty Bench 2015 Cabernet Franc Red as the best Cabernet Franc red varietal wine in the world. I'm going to change my remarks in the future and not say that we rank among the best, but in fact, we are the very best.
A little attempt at humor there, it's an award that we're extremely proud of, and I think that winning these types of awards does a lot for everyone in our industry to believe and want to invest in our quality and to have the confidence to promote our brands, not just here in Ontario and in Canada, but around the world. Just a couple of quick comments on the political landscape, and hopefully we'll address a few of the questions that we normally get. We've got a lot of activity happening on the global trade front with NAFTA becoming less and less certain as it goes forward and trade issues between the EU and the U.S. and China and the U.S.
There's not a lot of optimism in the business community that these issues are going to get resolved in the short term, and that we're likely headed for some bumpy times in terms of increased application of duties and penalties. In addition, the U.S. has brought a WTO complaint against the BC Liquor Board over a policy involving the selling of wine in grocery. I was surprised that they did it. I think that if anything, the liquor boards have gone out of their way to support the California wine industry in Canada, and I think this is a bit of a slap in their face. They've grown more than any other country in the world. Their sales have grown in Canada significantly, and they've been treated very well.
I think one of the themes that comes out of all of this is that all the countries that complain about trade policies have the most restrictive trade policies in their own country when it comes to wine. I think the fact that there may be a trend towards reassessing the openness of the markets might, in the end, play into our favor. Similarly, you'll note we had a lot of discussion of the Comeau case at the Supreme Court of Canada. The result that came out of Comeau that you recall that the Constitution said that all goods of manufacture and produce and agricultural shall trade free. The court felt that the word free was equivocal and basically supported the provincial regulated trade systems, and it was a result that we were not expecting.
Having said that, it at least allows us to understand what the trade environment is going to look like going forward. They've emboldened provincial regulators to be restrictive with their trade practices, and so long as we know that, we can adjust our strategies accordingly. We've always done well trading in all the markets, and more than anything, it's just trying to anticipate changes in rules and policy. This helps clarify that for us, and we'll respond accordingly. We have a big election in Ontario. The usual comments that have been made around beverage alcohol distribution. It's not clear to us what the policies will be of a new government.
I do know for sure that increasingly, the Ontario, all political parties, and the bureaucracy are becoming increasingly aware of the great potential in our industry to add employment and investment growth that's good for our region. I think going forward, I'm optimistic that the policies that support our industry are going to improve. Lastly, just a quick comment on cannabis. It is a once in a lifetime kind of disruptive event, and it's going to have a significant presence. At the same time, it's very difficult for us to know how things will unfold because there'll be so much regulatory and political intervention as the system rolls out. There's a lot to have observed in the U.S. markets that have legalized marijuana.
They all did it a different way so that there really isn't a clear sense of what best practice will look like. All the provinces are taking a different approach, and they're very concerned about taxing cannabis too highly so that the black market doesn't go away. There's so much speculation on all this. We're definitely talking with people in the industry to making sure that we're aware of how the industry is developing, and we'll be keenly focused on whether there are opportunities for us in the future. At this point in time, we're happy to watch from the sidelines and monitor things as they develop. I think as Pete mentioned in his comments, and I tried to mention in the start of mine, Canadian wine industry continues to strengthen. This is principally because consumers are increasingly supporting us.
They're happy with our brands, with the experiences in wine country. Particularly millennials, younger consumers are supporting the Okanagan and Niagara wine industries with more and more enthusiasm. That, more than anything, emboldens us and gives us confidence about our future. We have a great marketing and sales trade channel system. We can get our products to market in every available path. We'll continue to monitor acquisitions. There are lots of opportunities in the market these days, and we're focused on making sure any opportunity is the right one at the right price, which is kind of the challenge in all of this. We expect to be active going forward in the acquisition market, and we're happy that our balance sheet gives us lots of strength to look at these opportunities.
With that, I'll turn the call back to the operator, and we can poll for questions.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound key. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Amr Ezzat with Echelon Partners. Please go ahead.
Good morning, gents.
Morning.
Your organic growth for the quarter is quite impressive. I know you don't usually quantify that, but can you maybe give us a sense of how volumes evolved on a year-on-year basis? I believe last quarter, the organic growth was mostly driven by price increases. Is it more of the same?
I think we were selective with price increases and took them up in a few areas. I think the growth reflects increased volumes and some retail pricing. We basically had strong consumer support right across the board in liquor boards, in our retail stores, through our export market, and through our direct-to-consumer trade channels. It really reflects strong support for all our brands and all our segments. Definitely we've increased our investment behind our brands this year. As our margins have improved, it's enabled us to invest more money behind our brands. I think it's really the nirvana of all things working in the right direction: improved margins, increased investment, and strong consumer support right across the board.
That's great to hear. Maybe on the price increases or the selective price increases, I think we've seen you do that for a couple of quarters now. I'm just wondering how much more do you believe, or how much more price increases do you believe you can do over the next couple of quarters, or are you mostly done?
It's an important part of our strategy, in terms of managing margin, but also the different competitive responses that come in different trade channels. I think by and large that we still feel that there's a lot of upward potential for the premium category in particular. Some of the prices we took on premium wines, prices went up CAD 1, CAD 2, or CAD 3, and there was absolutely no impact at the consumer level. The support was every bit as strong. I think at the premium end, as it grows, we have a lot of latitude for growth and for margin strengthening. I think it's when you get down into the kind of CAD 10-CAD 15 segment, which is the lower end of VQA, that there's a lot more discounting and consumers are a little more price sensitive.
Once you get down below that segment in the CAD 8-CAD 12 range, price promotion and pricing are critical. I think we're in a good spot at the value points, and I think there's lots of potential for us to grow our premium side, both in the Okanagan and in Niagara and in our export markets. We think we're in a very good position there.
Understood. Maybe a housekeeping on the SG&A. It is a bit higher than the past few quarters. I understand that some of that is recurring and that you added the three wineries. You guys also mentioned it is linked to marketing and the launch of several new products during the quarter. I am just wondering, is that SG&A number a good run rate to use going forward, or there are some unusuals in there above and beyond the one-timers of the acquisitions?
No, I think it is more an indication of increased investment in our brands that will be of the norm as opposed to a one-time off item. Again, it is very market select. We have launched some new products this year, and they tend to get more investment in the early phases. We expect to strengthen our marketing investment behind our core brands going forward.
Okay, maybe just one last one before I pass the line. To the extent that you can you comment on how the M&A landscape evolved since your acquisitions, both in terms of pricing and in terms of the pipeline of opportunities you are looking at?
That is a very good question. I would start by highlighting, there are almost 500 wineries in the industry across Canada, maybe even more than that. The small wine business in particular is a very challenging financial environment. There are always many wineries that are looking to divest, and it is never a question of trying to find wineries for sale. It is being strategic about finding a brand that you feel has great value and that fits an important piece of your portfolio and especially on the premium side, ensuring that you have the capability to increase supply to invest in the capital, because most of the wineries, when they choose to sell, they have kind of come to the end of their capital capability, if you will. They are needing to make big investments, not unlike all the three that we just purchased in the Okanagan.
They had reached a point where it required a significant amount of investment to get to the next level. We monitor it carefully, and the expectations for people's price are very difficult to manage. Having said that, we've got great relationships in the community. We've worked hard with most of these wineries our whole life. We have good relationships with owners, and we kind of wait until we get exactly what we want and where we need it, and then we are poised to make something happen. I think similarly in craft refreshment, there's lots of opportunities out there, but you need to be very strategic in how you approach it, and we're doing the best we can to stay apprised of all the opportunities, and we'll continue to monitor very closely.
Many thanks. I'll pass the line.
Thanks.
Thank you. The next question is from Brian Pow with Acumen. Please go ahead.
Good morning, gentlemen.
Morning, Brian.
I just wanted to follow on the conversation about your SG&A expenses. Again, if I look at it is up sequentially about 12.5%, 27% year-over-year. Then on the sales and marketing investment that you referred to, John, just how quick should we expect to see returns on those investments?
Truthfully, I don't think most of the sales and marketing investment was acquisition-related. We've launched some new products across Canada and into the U.S., and we've had a fair amount of startup associated with those. As well, we've looked at consolidating more marketing support behind our larger brands. So that I don't think it's fair to expect them to go up 27%, but I think at the level of +10%-12%, reflects what we think is an opportunity for us to provide more opportunity behind our big brands. What was the second part of your question there, Brian?
Well, I was really just trying to understand, as you make these investments in your brands, really, how soon should we anticipate to see that top-line growth benefit from that?
First of all, I think our top-line growth is benefiting. That's why we're growing ahead of market right now. We see an opportunity to continue investing, and a lot of the marketing investment is social media based now, and we have a huge direct-to-consumer and hospitality experiential side to our business that continues to grow and strengthen as well, over and above just the absolute dollars in marketing investment, and the two work very well together. I can't predict beyond our ambitions. We had a very solid year of growth at the top line. I expect to do a little better this year than we did last year. I expect us to continue to grow slightly ahead of market. In the 3%-4% range of organic growth is a significant achievement in the competitive market in which we play.
Okay. When we look at the sales and marketing investments you made in Q4, would they have benefited Q4? Is that really what's, again, helping you on the top line, or some of the investment we're seeing in Q4 relate more to future periods?
I think both. I think we had some big promotions in the Q4, but a lot of them are focused for the next year as well. The growth is so broad. It's not just one brand. The Peller brand is doing very well. Our large VQA brands, Trius, Red Rooster, they're all performing strongly. We're off to a good start with our acquisition brands. Our Black Cellar and XO brands received some support and promotion, so it's really very much across the board and across trade channels, which is a very positive thing for us.
Okay, great. Just turning to, again, Wayne Gretzky, you said this year continues to look better than last year. Can you just comment more specifically on sort of how the various SKUs are doing and maybe what's working for you there and what else you'd like to see in that area?
Well, I will tell you that we're very pleased with the performance of the VQA wine brand in Niagara and in the Okanagan. It's done very well. It's nice to see the quality continues to get recognized. It trades at premium prices, and the quality of the wine is outstanding, and the wine continues to grow. Naturally, the whiskey's in an early year of launch and growth. It's been very well received, and it's doing well at retail. We took prices up significantly at the start of the year, and the brand continues to grow notwithstanding the increases in the price. We went from CAD 34.95 to almost CAD 40 on the base price. I can tell you that the reception of consumers down at the distillery and winery is enthusiastic. It's really been positive.
Like I said, our initiatives in the export market are off to a very good start, but it's way too early to make any predictions.
Okay, in terms of the export market, again, you said Chicago and St. Louis is where you've launched. Where else should we expect to see you launch in the next fiscal or this fiscal year?
Well, knowing that Wayne has a lot to say about where we go, we're following his favorite hockey cities, and he played in St. Louis and Janet was from there. In Chicago, he had a very close relationship with the Wirtz family. They are hockey cities, but they were great opportunities for us because of our partnership, and we're trying to make sure we do a great job launching the brand and get as much learning out of the gate as we can. We have gotten very good distribution, and so far we're doing well. I'm not 100% sure, but we'd likely go west with our next market launch, but we're waiting to see how we do here first.
Okay, great. Thanks so much for all the information, again, congratulations on the quarter.
Thank you. The next question is from John Chu with Laurentian Bank Securities. Please go ahead.
Hi. Good morning.
Morning, John.
Just on the G&A, I'm just going to push on that a little bit more. If we can just talk on the employee compensation and benefits expense line. Can you break down to what extent was minimum wage driving that higher? Was there year-end bonuses and other benefits that drove that higher? I'm just trying to understand a bit of a run rate for that line, and then as well as for the other external charges. Not sure what's in that, what drove that higher.
I think for sure on the minimum wage, we've been explicit. There's CAD 800,000 of increased wage expenses for the partial year, and on a full year basis, it will be about a CAD 3 million charge to our system. We've strengthened our human resource requirements in a couple of critical areas, we've also had the offsets of the acquisitions and some charges related to reorganizing around them. As we've grown, we've brought some more resources in, and we're, particularly on the marketing and supply chain front, we're investing in our systems and bringing in new skills and capabilities to help us be more effective there. I think this was a significant year of growth in our HR kind of capability, but I expect it to kind of plateau going forward.
On the BC Winery sales, the three that you acquired, how is that tracking this quarter on a year-over-year basis? Really since you've acquired it, are you seeing growth in the sales for those three acquisitions on a year-over-year basis?
I don't have that number on the tip of my tongue here, I can't really comment. I think in terms of total revenue, last year, it was only a CAD 8 million contribution to the top line. It's still very early, and we're assessing some opportunities to invest in the wineries and to add some programs. They were growing at market when we bought them, and I suspect that that's exactly what they're doing right now.
Okay, great. Lastly then, just on the global wine juice shortage, I think we're at a 60-year low, so maybe just talk about how that's impacting you sourcing some foreign grape juice. Are you seeing prices going up? Secondly, are you seeing the prices of imported wine going up as a result of that? Is it this year that you're seeing it, or is it kind of delayed for next year? Just curious on the impact. Thank you.
Yeah. It's a good question. I think the first thing to acknowledge is there is a ginormous amount of global wine available in the bulk wine market. Every year, we seem to notice weather patterns kind of hitting one area and just because Mother Nature's a huge part of the industry, it's increasingly common to see one area suffer from either cold temperatures or storm activity, fires. Even when that happens, the total amount available wine does not put us in any way at risk, and we have a great deal of flexibility as to where we source from. We obviously like to source for certain areas where we get the highest quality at the best value. Sometimes there are some temporary blips, but as it currently stands, I don't really feel that there's any issue with shortages.
I think when you see prices go up, it's always because some varietal's in hot demand. Like for example, in the last few years when Pinot Grigio became so popular, it was harder to get it at the prices we want. Eventually the growing community catches up with that and a commodity type of pricing environment will take effect. I don't think right now we have any concerns with it, and there's good supply available for us. We have a great network of partners around the world that we've worked with for 25 years. It's a very professional and technically data-driven supply chain environment right now. The quality is better than it's ever been, and the value is quite significant, which is why our local markets in Niagara, we focus on premium and super premium and ultra premium segments and not the value segments.
It is something we pay close attention to, and right now, in our view, the markets are very positive.
Are you seeing the imported wine prices going up? That means that it's probably better for you because consumers may now choose to buy your wine, the domestic wine, versus the now higher-priced wines from Italy and France and where they were hardest hit by the wine shortage?
I mean, I don't want to come across as totally cynical about this, but I am. No matter what happens in their markets with bad crops or whatever, their prices never change. Even when their foreign exchange moves 20% or 30%, their prices never change, and they're heavily subsidized. They all produce way more wine than they need, their government is always looking to support moving surplus wine out of the market with some export marketing subsidy associated with it. Once they have market share, they don't ever want to give it up. For some reason, we do not see responsive pricing to foreign exchange and/or changes in control. It supports what I've always said, that these industries are incredibly valuable to their countries.
They put an enormous amount of investment into them, they are very dependent on their export sales, they invest more in their businesses in our market than we get support from our government in our own. This is an issue we're addressing with governments as we go forward, hopefully we'll get better policies going forward.
Okay, great. I'll get back in the queue. Thank you.
Thank you. Once again, please press * one at this time if you have a question. The next question is a follow-up question from Amr Ezzat with Echelon Wealth Partners. Please go ahead.
Hi. Thanks. Just a couple of follow-ups. On your craft whiskey products south of the border, I know it's early days, but can you speak to the margin profile there relative to the rest of the business?
The margins are exactly where we kind of want them to be. They're positive, they're strong. I think critical to that is it's a premium price product. We're not at the CAD 28 level where the base value brands are. We don't have the economy of scale that the large brands have. We make up for it in premium pricing, the margins are strong.
Thanks. Any updates on your Port Moody property that you can provide us with?
We're still very active on the file, and there are a lot of positive indications we'll do well going forward. It's a hugely bureaucratic planning environment that we're kind of struggling with there. Having said that, I think the five issues or so we have left around sewer lines and [top-of-bank] creek adjustments, and we're down to some very nitty-gritty issues there. Until the chicken gets across the road, we have to be careful about not trying to assure people that certain things are going to happen the way we want. We're still confident, and we're working very hard on it, and we're optimistic it'll be something of value for the company.
I think in the past you spoke to it's probably worth anywhere between CAD 20 million and CAD 30 million or a little higher. Is that number still good, or do you care to comment on that?
I suspect that that could be the low end of the range. Having said that, it's only dependent upon a positive outcome on the zoning. It's certainly a significant value, which is why we indicated that. The market in Western Canada and in Vancouver in particular is a very strong market, and it only continues to go up. We have good support in the community for our proposal and at the council level, at the mayoral level. It's just a matter of trying to work all the issues through. As I said, we're working as hard on it as we can.
Understood. How's the CFO search coming along? Just to be clear, I'm not suggesting that Pete isn't doing a great job.
First of all, Pete's doing a great job. That is a certainty. We're well into our search, and the pool of candidates is exceptionally strong, and we expect that we'll have some news in the short to medium term here.
Great. Thank you very much.
Thank you. The next question is a follow-up question from John Chu with Laurentian Bank Securities. Please go ahead.
Hi. Just two follow-up questions. First, before you were discontinuing some of the underperforming brands, I'm just curious where you are with that. Are you still discontinuing some more brands? Just the general outlook for that.
Yeah, for sure there was a significant effort at the start of the year around that. We obviously have a protocol in our supply chain that constantly reviews our scan for slow-moving products. I think in support of Brendan and Randy, they've put a great deal of discipline into that effort so that you're not always kind of waiting every two or three years to do a major cleanup. You're being progressive as you go. I'm extremely pleased with what they've done there. We have so many SKUs. We're probably up to 600, 700, 800 SKUs in total in the company. That in order to get the economies that we need to be price competitive at value price points. We have to be progressive, and at the same time, the ultra-premium and premium categories are lots of small moving volumes.
We've had to learn to suck and blow at the same time at this. That's the real art and science behind it. I really think that they've done an outstanding job.
Okay, great. Secondly, maybe an update on the grocery outlets for you and how that's coming along from a sales perspective.
Yeah, I probably should have highlighted that earlier. The system is incredibly complex. I couldn't dare try to explain to you all the changes that have been made, but the top-line story is that, of our 103 or 104 licenses, we agreed to move 30 retail stores that we had in grocery that were outside the grocery store's cash register system to inside the center of the store. When they went inside the center of the store, they were co-located with beer. The grocery store owns the beer part of the license, and we continue to own the wine part of the license. I think we're almost completed now.
28.
Yeah. Where 28 of the 30 licenses have been actuated, the volumes as expected have gone up. As a result, so have the taxes. You recall when we went into the center of the store, we had to give up 25% of our shelf space to other wines in the region and agreed to a higher tax formula. Net-net, we're kind of coming out where we were prior to making the move at this point in time. Naturally, we're back with the government. They've planned subsequent tax increases on us as well. They were prepared to wait and see how things went before they implemented them, there is a dialogue around this. Like all things, there are pros and cons. Consumers like purchasing in the center of the store.
They enjoy the opportunity to buy wine and beer together, we've seen the volumes increase in the system. The margin gain we would've hoped for has been offset by a tax increase, that's about the best summary I can give you.
Okay, that's helpful. Thank you.
Thank you.
Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Peller.
Thank you so much. Our AGM, what is our date for AGM in September?
September 12th.
September the 12th?
It's that Wednesday.
Whatever Wednesday is that week. Hopefully, we'll get to see all of you at our AGM on the 12th. We're having it at Gretzky this year. If you can't make it, don't hesitate to call us anytime with questions. Hope you enjoy your summer, and we'll look forward to speaking with you soon. Thanks very much.
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