E-Malt.com News article: Canada: Brick Brewing Q4 loss widens

Brick Brewing Co. Limited, Ontario's largest Canadian-owned and Canadian-based publicly held brewery, released its financial results for the fourth quarter and year ended January 31, 2008, on April 22.

"Ironically, due to Brick's success in growing its business, it no longer benefits from the Ontario small brewer tax reduction" said Jim Brickman, Executive Chairman and Founder. "The Company incurred a production tax increase of $2.5 million in the year compared to fiscal 2007, a difference between a profit and loss this past year," added Mr. Brickman.

"We knew we had our work cut out for us when we passed the small brewers volume threshold and we had invested aggressively in plant and infrastructure to seek to offset this tax loss" said Jim Brickman. "Unfortunately our productivity gains are improving more slowly than planned and at the same time we have been hit with unprecedented increases in some of our material costs," he added.

"Operating in a key retail selling environment like The Beer Store that is owned by our competition, presents interesting challenges unique to the Ontario beer market, but this is the current reality and until we have it properly addressed by government, we must find innovative ways and means to work with it," added Mr. Brickman.

"As a result, fiscal 2008 was disappointing financially, however our single most important objective is our commitment to streamlining operations and becoming as cost efficient a producer as possible," added Jim Brickman.

Fourth Quarter Financial Highlights

During the fourth quarter ended January 31, 2008, net revenues declined 17% to C$6.3 million, compared to C$7.5 million in the same period last year, and beer volumes decreased by 14% over the same period last year. In the fourth quarter, a seasonally slower quarter, EBITDA(*) registered a loss of C$116 thousand, compared to a loss of C$557 thousand in the fourth quarter of fiscal 2007, an improvement of C$441 thousand. In the quarter, there was a net earnings loss of C$1.1 million compared with a net earnings loss of C$1.0 million for the same period last year. In the fourth quarter:

- The Company's marginal production tax rate increased by 13.8% or C$717 thousand in aggregate additional taxes compared to the fourth quarter last year. Due to Brick's success in growing its business, the Company no longer benefited from the Ontario small brewer tax reduction in fiscal 2008.

- Selling, marketing and administration costs decreased by C$910 thousand in the fourth quarter over the fourth quarter last year, due primarily to reductions in ongoing overhead expenditures.

- Future income tax expense was C$407 thousand in the quarter compared to a recovery of C$263 thousand in the same quarter last year. In the fourth quarter this year, future income taxes were charged with an expense of C$580 thousand to revalue the future tax asset for reduced future tax rates that were enacted in the quarter.

- The Company temporarily discontinued essentially all brewing and packaging operations in Formosa, except for a small amount of brewing. However in January the Company restarted its Formosa operation and began production of the Motts Caesar brand. The Company will also require additional brewing from this facility in the first quarter of fiscal 2009 due to increased seasonal demand for beer.

Annual Financial Highlights

Net revenue for the year was C$30.3 million compared to C$34.8 million for fiscal 2007. Gross revenues decreased 7.3% to C$68.6 million for fiscal 2008, compared to C$74.1 million for fiscal 2007. For the year, net losses were $2.6 million compared to net earnings of C$127 thousand for the previous year due to, among other things, increased production taxes and an income tax adjustment of C$580 thousand to reflect reductions in future tax rates. The loss per share was C$0.12 compared with earnings of C$0.01 per share in the same period last year.

EBITDA in fiscal 2008 decreased by C$3.1 million in the year, primarily reflecting, among other things, an increase in production taxes of C$2.5 million and non-recurring costs of C$582 thousand associated with the strategic review and severance costs.

For the year, the Company's overall beer volumes decreased by 10% over the previous year.

Cost of goods sold were C$24.4 million for the year, unchanged from last year. Reflecting the increases in input costs and the reduced volumes, the per unit cost of producing and distributing beer increased by 11%, or C$2.5 million in the aggregate, in fiscal 2008 compared to the previous year.

Other fiscal 2008 highlights included:

- The Company announced that it had entered into an agreement with Cadbury Schweppes to manufacture and package the Motts Caesar alcohol-based beverages. Production began in January 2008. Pursuant to the agreement, the Company also began to provide sales representation for Motts Caesar in the Ontario market effective July 1, 2007.

- The Company implemented a series of targeted cost reductions to reduce ongoing overhead expenditures in selling, marketing and administration.

- Efficiencies realized at the new Kitchener packaging facility contributed to reductions in per unit variable manufacturing costs in the year compared to the previous year.

- During the year the Company undertook a review of strategic alternatives to enhance shareholder value. The process was conducted on a broad basis in terms of alternatives considered. As a result of the review the Board of Directors of the Company determined that the Company's current strategy of seeking profitable growth and driving cost efficiencies represents the preferable means of enhancing value for shareholders.

About Brick Brewing

Brick Brewing Co. Limited is Ontario's largest Canadian-owned and Canadian-based publicly held brewery. The Company is a regional brewer of award winning premium quality and value beers. The Company, founded by Jim Brickman in 1984, was the first craft brewery to start up in Ontario, and is credited with pioneering the present day craft brewing renaissance in Canada. Brick has complemented its J. R. Brickman Founder's Series and Waterloo Dark premium craft beers with other popular brands such as Laker, Red Cap and Formosa Springs Draft. Brick trades on the TSX under the symbol BRB.


23 April, 2008