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OPERATIONAL HIGHLIGHTS
FOR THE YEARS ENDED MARCH 31
(in thousands of Canadian dollars, except per share amounts)
SALES AND EARNINGS
Net sales
EBITA
Adjusted earnings *
FINANCIAL POSITION
Working capital
Total assets
Shareholders' equity
PER SHARE
Net earnings per Class A Share - basic and diluted
DIVIDENDS
Class A Shares, non-voting
Class B Shares, voting
MARKET VALUE
Class A - HIGH
Class A - LOW
Class B - HIGH
Class B - LOW
ANALYTICAL INFORMATION
Return on average shareholders' equity
Return on average capital employed
Ratio of current assets to current liabilities
2018
$ 363,897
52,860
29,303
2017
$ 342,606
45,137
25,608
104,417
457,780
220,246
0.71
0.1800
0.1565
19.04
10.60
18.80
10.80
15.2%
14.0%
2.1:1
78,825
327,478
177,317
0.64
0.1632
0.1420
13.00
8.38
13.00
8.67
15.7%
14.1%
2.0:1
*Adjusted earnings is defined as net earnings excluding restructuring costs, gains (losses) on derivative financial instruments, other expenses (income), non-recurring, non-
operating (gains) and losses and the related income tax effect.
CONTENTS
REPORT TO SHAREHOLDERS
THE YEAR’S TOP AWARDS
MANAGEMENT’S DISCUSSION & ANALYSIS
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TEN-YEAR SUMMARY
DIRECTORS & OFFICERS
SHAREHOLDER INFORMATION
THE WINE SHOP RETAIL STORES
EXCLUSIVE WINE OFFER FOR SHAREHOLDERS
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Report to Shareholders
Another Record Year
Fiscal 2018 was another year of record financial and operating performance as strong organic revenue growth, our focus
on higher margin premium brands, and the contribution from acquisitions completed during the year all contributed to a
14.3% increase in our net income.
For the year ended March 31, 2018, sales rose 6.2% to $363.9 million, driven by increased consumer brand building, new
product introductions, selective price increases and the contribution from the acquisition of three estate wineries
completed in early October 2017. Not including the contribution from the acquisitions, the Company generated strong
3.7% organic sales growth in fiscal 2018.
We continue to perform very well across all our well-established trade channels. Our business with provincial liquor
stores, our network of company-owned retail stores in Ontario, our award-winning estate wineries, our sales to licensed
restaurants and clubs, our export business, our two wine importing and marketing agencies, and our personal winemaking
business all contributed to our record performance in fiscal 2018. In addition, the introduction of new brands and our
entry into new markets continue to expand our distribution channels and customer base.
Our strong performance during the year was supported by the continuing growth of the Canadian wine market where
national retail wine sales rose 4.5% in fiscal 2018. Most of this gain came in the premium and ultra-premium categories,
driven largely by sales of VQA products.
With the increase in sales and our continuing focus on productivity and cost control, our gross margins strengthened again
in fiscal 2018, rising to 41.3% of sales from 38.3% in the prior year. We are also making good progress in integrating our
recent acquisitions into the Andrew Peller family, and expect to see further margin improvements as we realize operating
synergies across our operations due to our increase in scale.
As a result of our solid sales growth and strong gross margins, our adjusted earnings before interest, amortization, net
unrealized gains and losses on derivative financial instruments, other expenses, and taxes (EBITA), and excluding one-
time charges related to the acquisitions completed during the year, rose 23.7% to $57.2 million for the year ended March
31, 2018 compared to $46.2 million in the prior year. Net earnings for the year were $30.1 million or $0.71 per Class A
Share, up from $26.4 million or $0.64 per Class A Share in fiscal 2017.
Another Dividend Increase
We were very pleased to announce a 13.9% increase in common share dividends in June 2018, our fifth increase in the
last five years and a reflection of our continuing growth, strong performance, and confidence in the future. The Company
has paid dividends every year since 1979, a remarkable track record of delivering value to shareholders, and we look for
this momentum to continue going forward.
1
| ANDREW PELLER LIMITED 2018
Expanding our Presence in the Strong Canadian Wine Market
In early October 2017 we completed the acquisition of three premium and well-established wineries located in British
Columbia’s Okanagan Valley. The purchase of Gray Monk Estate Winery, Tinhorn Creek Vineyards, and Black Hills
Estate Winery complement and strengthen our premium and ultra-premium VQA brand portfolio and enhance our
presence in the strong western Canadian market. With these acquisitions the Company has become the largest producer
and the market leader of quality VQA wines in the province, almost doubling our market share to an estimated 23% of the
B.C. VQA business.
With wine consumers increasingly interested in the high-value segment of the Canadian wine business, especially those
wines coming from local producers, these new brands significantly increase our potential to capitalize on these trends. We
believe our proven sales and marketing programs, combined with our well-established trade channel presence, will
contribute to the long-term growth at all three of our new wineries.
We were also very proud to officially open our Wayne Gretzky Estate Winery and Craft Distillery in June 2017. The new
facility has quickly become a very popular destination for wine lovers in the Niagara wine region and a complement to all
our estate wineries across Canada. We have seen significant growth in sales of their quality wines, and the launch of our
Wayne Gretzky No. 99 ‘Red Cask’ Canadian Whisky is also performing very well, with future growth coming from the
brand’s recent introduction into select markets in the United States.
Taking Our Place Among the Best in the World
At Andrew Peller we have always known we produce some of the world’s best wines, and recently we received a
testament to our quality with the selection of our Thirty Bench 2015 Cabernet Franc as the world’s best varietal by the
prestigious Decanter Magazine. Published in the UK, Decanter is recognized as the world’s leading authority on wine and
wine quality. Their competition for the world’s best receives approximately 4,000 entries for each varietal being judged
from producers around the globe, and we are very proud to have been awarded the world’s best Cabernet Franc in 2018.
This award speaks volumes about the dedication and skill of not only our winemakers, but producers across Canada. We
do rank among the world’s best.
We received several other important awards at both domestic and international wine competitions during the year. At the
Decanter World Wine Awards in London, England, our Thirty Bench, Trius and Gretzky wineries were also presented
with numerous other platinum, gold and best in show medals. Our Trius 2015 Showcase Chardonnay won a gold medal at
Chardonnay du Monde in France, and at the UK’s International Wine challenge, Peller Estates won gold medals for both
its Signature Series Riesling and Vidal icewines, in addition to eight other prestigious awards. The Okanagan Spring Wine
festival presented eleven gold medals across a number of our brands, and at the San Francisco World Spirits Competition,
our Wayne Gretzky Canadian Crème was presented with a gold medal, plus three other key awards.
ANDREW PELLER LIMITED 2018 | 2
These, and many other successes at wine competitions in Canada and around the world, are testaments to the quality we
are producing at our wineries each and every day. We are very proud of these achievements and congratulate our
winemakers for their commitment to helping us achieve our goals.
Looking Ahead
Over the last few years we have effectively implemented programs aimed at becoming Canada’s Number One wine and
craft spirits company by delivering the best brand experience for every lifestyle, occasion and generation. Our vision is to
“Pour Extraordinary into Everyday Life”, and our growth and record financial performance in fiscal 2018 has
demonstrated we are well on our way to achieving our goals.
Today Andrew Peller is recognized as one of Canada’s most successful wine producers with a reputation for quality and
value, an industry-leading distribution network, well-established and popular brands, and proven programs that continue
to build brand awareness and growing sales.
Sales will continue to grow as we invest in our portfolio of powerful national and regional brands. Going forward we will
build on this enviable market presence through innovative investments that drive growth. Fiscal 2019 will also benefit
from a full year’s contribution from our recently-acquired BC wineries, and our further investments in building these
leading brands.
Operating profitability will continue to strengthen as we invest in our capacity and production efficiency through
technological advancements that drive gross margin growth. As we complete the integration of our three new wineries, we
expect further improvements in our overall profitability as we benefit from the resulting economies of scale and operating
synergies.
In addition to generating solid organic growth on our base business, we continue to prudently examine strategic
acquisitions that further strengthen our brand portfolio and build on the success we have demonstrated with the seventeen
purchases completed and successfully integrated since 1995.
These initiatives and programs are targeted at growing our business and increasing profits with the ultimate goal of
enhancing value for our shareholders. The Company has a successful track record of growth and strong operating
performance for more than forty years, and we look forward to building on this success in the years ahead.
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| ANDREW PELLER LIMITED 2018
On behalf of the Board of Directors and all shareholders, we thank our leadership team and many valued teammates at
Andrew Peller for their dedication and hard work. Our people are our most important asset - it is their unwavering
commitment that has led to our record results in the past and will continue to be our driving force going forward.
John E. Peller
Executive Chairman & CEO
Randy A. Powell
President
ANDREW PELLER LIMITED 2018 | 4
Peller Estates
(Niagara-on-the-Lake)
Chardonnay du Monde – France
Silver Medal
2015 Peller Estates AP Signature Series Chardonnay
Indy International Wine Competition – Indiana, USA
Double Gold – 2015 Family Series Riesling
Los Angeles Int’l Wine Competition – USA
Best of Class: Gold (96 Points)
2015 AP Signature Series Vidal Blanc Icewine
Gold (94 Points)
2015 AP Signature Series Oak Aged Vidal Blanc Icewine
All Canadian Wine Championships
Double Gold – 2015 Family Series Riesling
Double Gold – 2015 Private Reserve Cabernet Franc
Gold – 2015 Private Reserve Cabernet Sauvignon
Ontario Wine Awards
Gold – 2015 Private Reserve Late Harvest Vidal
Sandhill Winery
(Okanagan)
Pacific Rim Wine Competition – USA
Gold ‘Best of Class’ – 2014 Small Lots TWO
Okanagan Spring Wine Festival – Best of Varietals
Gold ‘Best Meritage Blend‘ – 2014 Small Lots Two
Gold - 2016 Small Lots Viognier
Los Angeles International Wine Competition
Gold (92 Points) – 2014 Cabernet Merlot Sandhill Estate Vineyard
Intervin International Wine Awards
Gold – 2014 Small Lots ONE Phantom Creek Vineyard
All Canadian Wine Championships
Double Gold ‘Red Wine of the Year’ – 2014 Howard Soon Red
Double Gold – 2014 Small Lots Syrah Phantom Creek Vineyard
Gold – 2014 Cabernet Franc Sandhill Estate Vineyard
Gold – 2014 Small Lots Sangiovese Sandhill Estate Vineyard
Gold – 2014 Small Lots Petit Verdot Phantom Creek Vineyard
Decanter World Wine Awards – UK
Gold (95 points) 2015 AP Signature Series Oak Aged Vidal Icewine
British Columbia Wine Awards
PREMIER'S AWARD - 2015 Syrah
Gold - 2016 Riesling Icewine
Six Nations Wine Challenge – Australia
Double Gold / 2nd Runner Up
2014 Sandhill Small Lots Syrah Phantom Creek Vineyard
Trius Winery
(Niagara-on-the-Lake)
All Canadian Wine Championships
Gold – Trius Brut
Gold – 2015 Chardonnay Barrel Fermented
Ontario Wine Awards
Gold – 2015 Showcase Clean Slate Wild Ferment Sauvignon Blanc
Gold – 2015 Trius Shiraz
Gold – 2014 Showcase Vidal Icewine
International Wine Challenge – UK
Gold (Cnd. Icewine Trophy) – 2015 Showcase Riesling Icewine
Gold – 2015 Showcase Vidal Icewine
Korea Wine Challenge
Gold Medal (Icewine Trophy) - 2015 Showcase Riesling Icewine
Gold Medal – 2015 Showcase Vidal Icewine
Gold Medal – 2015 Showcase Cabernet Franc Icewine
WineAlign – National Wine Awards of Canada
Platinum – 2015 Showcase Chardonnay Wild Ferment Oliveira Vineyard
Gold – Brut Rosé
Lieutenant Governor’s Award
for Excellence in Ontario Wines
2015 Showcase Clean Slate Sauvignon Blanc Wild Ferment
2014 Showcase Vidal Icewine
2015 Showcase Riesling Ghost Creek Vineyard
The Global Chardonnay Masters – UK
Gold (93 Points) – 2016 Sandhill Chardonnay Terroir Driven Wine
Intervin (Vines magazine) Canada
Gold – 2014 Showcase Red Shale Cabernet Franc
Six Nations Wine Challenge – Australia
Gold – Trius Brut
The Global Chardonnay Masters – UK
Gold – 2015 Showcase Chardonnay Wild Ferment Oliveira Vineyard
Sommelier Wine Awards, UK
Gold – 2015 AP Signature Series Vidal Icewine
WineAlign – National Wine Awards of Canada
Gold – 2016 Private Reserve Rose
Gold – 2015 Private Reserve Cabernet Franc
Gold – 2015 AP Signature Series Vidal Icewine
Intervin – Vines magazine – Canada
Gold – Ice Cuvee Classic
Gold – 2015 AP Signature Series Vidal Icewine
Six Nations Wine Challenge – Australia
Gold – 2015 Peller Estates Private Reserve Gamay Noir
Black Cellar
Pacific Rim Wine Competition
Gold ‘Best of Class’ – Cabernet Sauvignon Tempranillo
Indy International Wine Competition – Indiana, USA
Gold – Malbec Merlot Blend 13
Gold – Merlot Blend 4
Gold – Shiraz Cabernet Blend 19
Tasters Guild – Michigan, USA
Gold – Pinot Grigio Chardonnay Blend 11
Gold – Cabernet Sauvignon Tempranillo Blend 9
Wayne Gretzky Estates
(Niagara-on-the-Lake)
Thirty Bench Wine Makers
(Beamsville)
Red Rooster Winery
(Okanagan)
Indy International Wine Competition – Indiana, USA
Los Angeles International Wine Competition – USA
Gold (91 Points) – 2015 No.99 Estate Series Cabernet Sauvignon
Platinum ‘Best in Category’ Best Canadian White (96 points)
Double Gold – 2015 Merlot
Gold – 2016 Pinot Grigio
Los Angeles International Wine Competition – USA
Best of Class: Gold (94 Points) – 2015 No.99 Vidal Icewine
Gold (92 Points) - 2015 No.99 Cabernet Franc Icewine
Ontario Wine Awards
Gold – 2015 Estate Series Shiraz Cabernet
International Wine & Spirit Competition – UK
Gold – 2015 Vidal Icewine
Decanter World Wine Awards – UK
Gold (95 points) – 2015 Vidal Icewine
International Wine Challenge – UK
Gold – 2015 Vidal Icewine
Beverage Tasting Institute
(Tastings Spirits Competition) Tastings.com
Gold (90 Points) – Wayne Gretzky No.99 Ice Cask Whisky
Gold (92 Points) – Wayne Gretzky No.99 Muscat Spirited Wine
88 Points – Wayne Gretzky No.99 Ninety Nine Proof Whisky
86 Points – Wayne Gretzky No.99 Vidal Spirited Wine
Six Nations Wine Challenge – Australia
Gold – 2015 Wayne Gretzky Estates Estate Series Shiraz Cabernet
Gold (92 Points) – 2014 Small Lot Cabernet Franc
All Canadian Wine Championships
Gold – 2015 Winemakers Blend Riesling
Decanter World Wine Awards – UK
2014 Small Lot Riesling Steel Post Vineyard
WineAlign – National Wine Awards of Canada
#2 – Top 25 Wineries in Canada
#2 – Top 10 Wineries in Ontario
Platinum – 2015 Small Lot Riesling Wild Cask
Platinum – 2015 Small Lot Riesling Wood Post Vineyard
Gold – 2014 Small Lot Riesling Triangle Vineyard
Gold – 2014 Small Lot Chardonnay
Six Nations Wine Challenge – Australia
Trophy/Class Winner – 2015 Thirty Bench Winemaker’s Blend Riesling
Gold – 2016 Gewurztraminer
Gold – 2014 Thirty Bench Small Lot Riesling Steel Post Vineyard
West Coast Wine Competition
(East Meets West) California
Gold – 2015 Red Rooster Hen House Sly White
Pacific Rim Wine Competition – USA
Gold – 2015 The Coop Wicked White
Gold – 2015 Hen House Ruffled Red
Okanagan Life Magazine, Best of BC Wine Awards
Gold – 2016 Rare Bird Series Viognier
Okanagan Spring Wine Festival – Best of Varietals
Best Viognier ‘Gold’ – 2016 Rare Bird Series Viognier
Gold – 2016 Rare Bird Series Pinot Gris
Gold – 2014 Reserve Merlot
Dan Berger’s Intermatopmal Wine Competition
(formerly known as Riverside International)
Gold – ‘Best in Class’ – 2016 Pinot Blanc
Los Angeles Int’l Wine Competition
Gold (95 Points) ‘Best in Class’ – 2016 Pinot Blanc
Gold (95 Points) – 2016 Riesling
Intervin International Wine Awards
Gold – 2016 Riesling
Gold – 2014 Reserve Syrah
British Columbia Wine Awards
Platinum – 2016 Riesling
Gold - 2016 Pinot Blanc
Gold - 2015 Rare Bird Series Syrah
Wayne Gretzky Estates
(Okanagan)
Syrah du Monde, France
Gold– 2014 Wayne Gretzky Okanagan Signature Series Shiraz
All Canadian Wine Championships
Gold – 2015 Cabernet Sauvignon Syrah
Gold – 2016 Signature Series Riesling
Los Angeles Int’l Wine Competition
Gold (92 Points) – 2015 Cabernet Sauvignon Syrah
Gold (90 Points) – 2016 The Great White
Intervin International Wine Awards
Gold – 2015 Signature Series Chardonnay
Panama Jack’s
Harvest Challenge – USA
Gold ‘Best in Class’ – Panama Jack’s Original Cream
No Boats On Sunday
Pacific Rim Wine Competition
Gold ‘Best in Class’ – 100% Canadian Cider
Raven Conspiracy
West Coast Wine Competition
(East Meets West) California
Double Gold ‘Best of Class’ – 2015 Raven Conspiracy White (BC)
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Trius Winery
(Niagara-on-the-Lake)
All Canadian Wine Championships
Gold – Trius Brut
Gold – 2015 Chardonnay Barrel Fermented
Gold – 2015 Trius Shiraz
Gold – 2014 Showcase Vidal Icewine
Peller Estates
(Niagara-on-the-Lake)
Chardonnay du Monde – France
Silver Medal
2015 Peller Estates AP Signature Series Chardonnay
Sandhill Winery
(Okanagan)
Pacific Rim Wine Competition – USA
Gold ‘Best of Class’ – 2014 Small Lots TWO
Okanagan Spring Wine Festival – Best of Varietals
Indy International Wine Competition – Indiana, USA
Gold ‘Best Meritage Blend‘ – 2014 Small Lots Two
Ontario Wine Awards
Double Gold – 2015 Family Series Riesling
Gold - 2016 Small Lots Viognier
Gold – 2015 Showcase Clean Slate Wild Ferment Sauvignon Blanc
Los Angeles Int’l Wine Competition – USA
Best of Class: Gold (96 Points)
2015 AP Signature Series Vidal Blanc Icewine
Gold (94 Points)
Los Angeles International Wine Competition
Gold (92 Points) – 2014 Cabernet Merlot Sandhill Estate Vineyard
Intervin International Wine Awards
2015 AP Signature Series Oak Aged Vidal Blanc Icewine
Gold – 2014 Small Lots ONE Phantom Creek Vineyard
Gold – 2015 Showcase Vidal Icewine
All Canadian Wine Championships
Double Gold – 2015 Family Series Riesling
Double Gold – 2015 Private Reserve Cabernet Franc
Gold – 2015 Private Reserve Cabernet Sauvignon
Ontario Wine Awards
Gold – 2015 Private Reserve Late Harvest Vidal
Decanter World Wine Awards – UK
All Canadian Wine Championships
Double Gold ‘Red Wine of the Year’ – 2014 Howard Soon Red
Double Gold – 2014 Small Lots Syrah Phantom Creek Vineyard
Gold – 2014 Cabernet Franc Sandhill Estate Vineyard
Gold – 2014 Small Lots Sangiovese Sandhill Estate Vineyard
Gold – 2014 Small Lots Petit Verdot Phantom Creek Vineyard
British Columbia Wine Awards
PREMIER'S AWARD - 2015 Syrah
Gold (95 points) 2015 AP Signature Series Oak Aged Vidal Icewine
Gold - 2016 Riesling Icewine
Sommelier Wine Awards, UK
Gold – 2015 AP Signature Series Vidal Icewine
Six Nations Wine Challenge – Australia
Double Gold / 2nd Runner Up
Korea Wine Challenge
Gold Medal (Icewine Trophy) - 2015 Showcase Riesling Icewine
Gold Medal – 2015 Showcase Vidal Icewine
Gold Medal – 2015 Showcase Cabernet Franc Icewine
WineAlign – National Wine Awards of Canada
Platinum – 2015 Showcase Chardonnay Wild Ferment Oliveira Vineyard
Gold – Brut Rosé
Lieutenant Governor’s Award
for Excellence in Ontario Wines
2015 Showcase Clean Slate Sauvignon Blanc Wild Ferment
2014 Showcase Vidal Icewine
2014 Sandhill Small Lots Syrah Phantom Creek Vineyard
2015 Showcase Riesling Ghost Creek Vineyard
The Global Chardonnay Masters – UK
Intervin (Vines magazine) Canada
Gold (93 Points) – 2016 Sandhill Chardonnay Terroir Driven Wine
Gold – 2014 Showcase Red Shale Cabernet Franc
Six Nations Wine Challenge – Australia
Gold – Trius Brut
The Global Chardonnay Masters – UK
Gold – 2015 Showcase Chardonnay Wild Ferment Oliveira Vineyard
WineAlign – National Wine Awards of Canada
Gold – 2016 Private Reserve Rose
Gold – 2015 Private Reserve Cabernet Franc
Gold – 2015 AP Signature Series Vidal Icewine
Intervin – Vines magazine – Canada
Gold – Ice Cuvee Classic
Gold – 2015 AP Signature Series Vidal Icewine
Six Nations Wine Challenge – Australia
Gold – 2015 Peller Estates Private Reserve Gamay Noir
Wayne Gretzky Estates
(Niagara-on-the-Lake)
Thirty Bench Wine Makers
(Beamsville)
Red Rooster Winery
(Okanagan)
Indy International Wine Competition – Indiana, USA
Double Gold – 2015 Merlot
Gold – 2016 Pinot Grigio
Los Angeles International Wine Competition – USA
Best of Class: Gold (94 Points) – 2015 No.99 Vidal Icewine
Gold (92 Points) - 2015 No.99 Cabernet Franc Icewine
Gold (91 Points) – 2015 No.99 Estate Series Cabernet Sauvignon
International Wine Challenge – UK
Gold (Cnd. Icewine Trophy) – 2015 Showcase Riesling Icewine
Ontario Wine Awards
Gold – 2015 Estate Series Shiraz Cabernet
International Wine & Spirit Competition – UK
Gold – 2015 Vidal Icewine
Decanter World Wine Awards – UK
Gold (95 points) – 2015 Vidal Icewine
International Wine Challenge – UK
Gold – 2015 Vidal Icewine
Beverage Tasting Institute
(Tastings Spirits Competition) Tastings.com
Gold (90 Points) – Wayne Gretzky No.99 Ice Cask Whisky
Gold (92 Points) – Wayne Gretzky No.99 Muscat Spirited Wine
88 Points – Wayne Gretzky No.99 Ninety Nine Proof Whisky
86 Points – Wayne Gretzky No.99 Vidal Spirited Wine
Six Nations Wine Challenge – Australia
Gold – 2015 Wayne Gretzky Estates Estate Series Shiraz Cabernet
Los Angeles International Wine Competition – USA
Gold (92 Points) – 2014 Small Lot Cabernet Franc
All Canadian Wine Championships
Gold – 2015 Winemakers Blend Riesling
Decanter World Wine Awards – UK
Platinum ‘Best in Category’ Best Canadian White (96 points)
2014 Small Lot Riesling Steel Post Vineyard
WineAlign – National Wine Awards of Canada
#2 – Top 25 Wineries in Canada
#2 – Top 10 Wineries in Ontario
Platinum – 2015 Small Lot Riesling Wild Cask
Platinum – 2015 Small Lot Riesling Wood Post Vineyard
Gold – 2014 Small Lot Riesling Triangle Vineyard
Gold – 2014 Small Lot Chardonnay
Six Nations Wine Challenge – Australia
Trophy/Class Winner – 2015 Thirty Bench Winemaker’s Blend Riesling
Gold – 2014 Thirty Bench Small Lot Riesling Steel Post Vineyard
280Number of Awards
Won Nationally.
West Coast Wine Competition
(East Meets West) California
Gold – 2015 Red Rooster Hen House Sly White
Pacific Rim Wine Competition – USA
Gold – 2015 The Coop Wicked White
Gold – 2015 Hen House Ruffled Red
Okanagan Life Magazine, Best of BC Wine Awards
Gold – 2016 Rare Bird Series Viognier
Okanagan Spring Wine Festival – Best of Varietals
Best Viognier ‘Gold’ – 2016 Rare Bird Series Viognier
Gold – 2016 Rare Bird Series Pinot Gris
Gold – 2014 Reserve Merlot
Dan Berger’s Intermatopmal Wine Competition
(formerly known as Riverside International)
Gold – ‘Best in Class’ – 2016 Pinot Blanc
Gold – 2016 Gewurztraminer
Los Angeles Int’l Wine Competition
Gold (95 Points) ‘Best in Class’ – 2016 Pinot Blanc
Gold (95 Points) – 2016 Riesling
Intervin International Wine Awards
Gold – 2016 Riesling
Gold – 2014 Reserve Syrah
British Columbia Wine Awards
Platinum – 2016 Riesling
Gold - 2016 Pinot Blanc
Gold - 2015 Rare Bird Series Syrah
Black Cellar
Pacific Rim Wine Competition
Gold ‘Best of Class’ – Cabernet Sauvignon Tempranillo
Indy International Wine Competition – Indiana, USA
Gold – Malbec Merlot Blend 13
Gold – Merlot Blend 4
Gold – Shiraz Cabernet Blend 19
Tasters Guild – Michigan, USA
Gold – Pinot Grigio Chardonnay Blend 11
Gold – Cabernet Sauvignon Tempranillo Blend 9
Wayne Gretzky Estates
(Okanagan)
Syrah du Monde, France
Gold– 2014 Wayne Gretzky Okanagan Signature Series Shiraz
All Canadian Wine Championships
Gold – 2015 Cabernet Sauvignon Syrah
Gold – 2016 Signature Series Riesling
Los Angeles Int’l Wine Competition
Gold (92 Points) – 2015 Cabernet Sauvignon Syrah
Gold (90 Points) – 2016 The Great White
Intervin International Wine Awards
Gold – 2015 Signature Series Chardonnay
Panama Jack’s
Harvest Challenge – USA
Gold ‘Best in Class’ – Panama Jack’s Original Cream
No Boats On Sunday
Pacific Rim Wine Competition
Gold ‘Best in Class’ – 100% Canadian Cider
Raven Conspiracy
West Coast Wine Competition
(East Meets West) California
Double Gold ‘Best of Class’ – 2015 Raven Conspiracy White (BC)
APL-AR2018-TOP-AWARDS-8.5x11-Bleeds-Hi-Res.indd 2
6/18/2018 10:01:42 AM
MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED MARCH 31, 2018
The following management’s discussion and analysis (“MD&A”) provides a review of corporate developments, results of
operations, and financial position for the three months and year ended March 31, 2018 in comparison with those for the
three months and year ended March 31, 2017 for Andrew Peller Limited (the “Company” or “APL”). This discussion is
prepared as of June 6, 2018 and should be read in conjunction with the audited consolidated financial statements and
accompanying notes contained therein for the years ended March 31, 2018 and 2017. Additional information relating to
the Company, including the audited annual consolidated financial statements, MD&A and Annual Information Form for
the years ended March 31, 2018 and March 31, 2017, is available on www.sedar.com. The financial years ending March
31, 2019, March 31, 2018 and March 31, 2017 are referred to as “fiscal 2019”, “fiscal 2018” and “fiscal 2017”
respectively. All dollar amounts are expressed in Canadian dollars unless otherwise indicated.
FORWARD-LOOKING INFORMATION
Certain statements in this MD&A may contain “forward-looking statements” within the meaning of applicable securities
laws including the “safe harbour provisions” of the Securities Act (Ontario) with respect to APL and its subsidiaries.
Such statements include, but are not limited to, statements about the growth of the business in light of the Company’s
acquisitions; its launch of new premium wines and spirits; sales trends in foreign markets; its supply of domestically
grown grapes; and current economic conditions. These statements are subject to certain risks, assumptions, and
uncertainties that could cause actual results to differ materially from those included in the forward-looking statements.
The words “believe”, “plan”, “intend”, “estimate”, “expect”, or “anticipate”, and similar expressions, as well as future or
conditional verbs such as “will”, “should”, “would”, “could”, and similar verbs often identify forward-looking statements.
We have based these forward-looking statements on our current views with respect to future events and financial
performance. With respect to forward-looking statements contained in this MD&A, the Company has made assumptions
and applied certain factors regarding, among other things: future grape, glass bottle, and wine and spirit prices; its ability
to obtain grapes, imported wine, glass, and other raw materials; fluctuations in foreign currency exchange rates; its ability
to market products successfully to its anticipated customers; the trade balance within the domestic Canadian and
international wine markets; market trends; reliance on key personnel; protection of its intellectual property rights; the
economic environment; the regulatory requirements regarding producing, marketing, advertising, and labeling of its
products; the regulation of liquor distribution and retailing in Ontario; the application of federal and provincial
environmental laws; and the impact of increasing competition.
These forward-looking statements are also subject to the risks and uncertainties discussed in the “Risks and Uncertainties”
section and elsewhere in this MD&A and other risks detailed from time to time in the publicly filed disclosure documents
of the Company which are available at www.sedar.com. Forward-looking statements are not guarantees of future
performance and involve risks, uncertainties, and assumptions which could cause actual results to differ materially from
the conclusions, forecasts, or projections anticipated in these forward-looking statements. Because of these risks,
uncertainties, and assumptions, you should not place undue reliance on these forward-looking statements. The Company’s
forward-looking statements are made only as of the date of this MD&A, and except as required by applicable law,
Andrew Peller Limited undertakes no obligation to update or revise these forward-looking statements to reflect new
information, future events, or circumstances.
Overview
The Company is a leading producer and marketer of quality wines in Canada. With wineries in British Columbia,
Ontario, and Nova Scotia, the Company markets wines produced from grapes grown in Ontario’s Niagara Peninsula,
British Columbia’s Okanagan and Similkameen Valleys, and from vineyards around the world. The Company’s award-
winning premium and ultra-premium Vintners’ Quality Alliance (“VQA”) brands include Peller Estates, Trius, Thirty
Bench, Wayne Gretzky, Sandhill, Red Rooster, Black Hills Estate, Tinhorn Creek, Gray Monk Estates, Raven Conspiracy
and Conviction. Complementing these premium brands are a number of popularly priced varietal brands including Peller
Estates French Cross in Eastern Canada, Peller Estates Proprietors Reserve in Western Canada, Copper Moon, Black
Cellar and XOXO. Hochtaler, Domaine D’Or, Schloss Laderheim, Royal, and Sommet are the Company’s key value
priced brands. The Company imports wines from major wine regions around the world to blend with domestic wine to
craft these quality and value priced brands. The Company also produces wine based liqueurs and cocktails under the
brand Panama Jack and craft cider under the brand No Boats on Sunday. In October 2016, the Company launched its new
Wayne Gretzky No. 99 Red Cask Canadian Whisky in certain markets across Canada and in 2017 expanded the Spirits
portfolio with No. 99 Ice Cask, 99 Proof, and No. 99 Canadian Whisky Cream products. With a focus on serving the
needs of all wine consumers, the Company produces and markets premium personal winemaking products through its
7
| ANDREW PELLER LIMITED 2018
wholly-owned subsidiary, Global Vintners Inc. (“GVI”), the recognized leader in personal winemaking products. GVI
distributes products through over 170 Winexpert authorized retailers and more than 500 independent retailers across
Canada, with additional distributors in the United States, the United Kingdom, New Zealand, Australia, and China. GVI’s
award-winning premium and ultra-premium winemaking brands include Selection, Vintners Reserve, Island Mist,
KenRidge, Cheeky Monkey, Traditional Vintage, and Cellar Craft. The Company owns and operates 101 well-positioned
independent retail locations in Ontario under The Wine Shop, Wine Country Vintners, and Wine Country Merchants store
names. The Company also operates Andrew Peller Import Agency and The Small Winemaker’s Collection Inc., importers
and marketing agents for premium wines from around the world.
The Company’s mission is to Pour Extraordinary into Everyday Life. The Company believes it achieves this objective by
delivering to its customers and consumers the highest quality wines, spirits, refreshments, and experiences at the best
possible value. To meet this goal, the Company invests in improvements in the quality of grapes, wines, and spirits raw
materials, its winemaking and distillation capabilities, sales and marketing initiatives, tourism and hospitality experiences,
and its quality management programs. Our achievement of this goal is evidenced in our award-winning products: VQA
brands in Eastern Canada received a total of 184 awards in fiscal 2018 (up from 171 awards a year ago and 30% more
awards than 2 years ago), including: 4 platinum, 47 gold, 78 silver, 41 bronze and 3 Lieutenant Governor Awards. VQA
brands in Western Canada won a total of 96 awards this past fiscal. The Sandhill portfolio did exceptionally well with
over 35 awards in total this year. Four of those awards were classified as “best in class” or double gold.
The Company is focused on initiatives to reduce costs and enhance its production efficiencies through a continual review
of its operations and cost structure with a view to enhancing profitability. The Company continues to expand and
strengthen its distribution through provincial liquor boards, Ontario independent retail locations and grocery outlets under
The Wine Shop, Wine Country Vintners, and Wine Country Merchants store names, estate wineries, restaurants, and other
licensed establishments. This distribution network is supported by enhanced sales, marketing, and promotional programs.
From time to time the Company also evaluates the potential for acquisitions and partnerships, both in Canada and
internationally, to further complement its product portfolio and market presence.
Recent Events
On June 6, 2018, the Company’s Board of Directors approved a 13.9% increase in common share dividends for
shareholders of record on June 29, 2018 payable on July 6, 2018. The annual dividend on Class A Shares was increased to
$0.2050 per share from $0.1800 per share and the dividend on Class B Shares was increased to $0.1783 per share from
$0.1565 per share. The Company has consistently paid common share dividends since 1979 and has increased dividends
every year for the past five years. APL currently designates all dividends paid as “eligible dividends” for purposes of the
Income Tax Act (Canada) unless indicated otherwise.
On October 10, 2017, the Company acquired 100% of the operating assets of Black Hills Estate Winery (Black Hills) for
cash consideration of approximately $31.3 million. Black Hills generates annual revenue of approximately $6.0 million
and employs approximately 20 people. The results of operations from October 10, 2017 have been included in the audited
annual consolidated financial statements for the period.
On October 1, 2017, the Company acquired 100% of the common shares of Gray Monk Cellars Ltd. (Gray Monk) and
certain operating assets held by related parties for consideration of approximately $36.4 million, of which $17.3 million
was funded in cash and $19.1 million was funded by the issuance of 1,579,670 Class A non-voting common shares. The
consideration transferred increased by $1.9 million, from $34.5 million to $36.4 million due to the appreciation of the
Company’s Class A non-voting shares from September 8, 2017, the date the share purchase agreement was signed, to
October 1, 2017, the date the acquisition closed. Gray Monk generates annual revenue of approximately $11.0 million and
employs approximately 50 people. The results of operations from October 1, 2017 have been included in the audited
annual consolidated financial statements for the period.
On October 1, 2017, the Company acquired 100% of the common and preferred shares of Tinhorn Creek Vineyards Ltd.
(Tinhorn) for cash consideration of approximately $28.9 million. Tinhorn generates annual revenue of approximately $7.0
million and employs approximately 50 people. The results of operations from October 1, 2017 have been included in the
audited annual consolidated financial statements for the period.
ANDREW PELLER LIMITED 2018 | 8
Results of Operations
For the years ended March 31,
(in $000, except per share amounts)
Sales
Gross margin
Gross margin (% of sales)
Selling and administrative expenses
EBITA
Adjusted EBITA
Interest
Net unrealized (gain) loss on derivative financial instruments
Other (income) expenses
Adjusted earnings
Net earnings
Earnings per share – basic and diluted - Class A
Earnings per share – basic and diluted - Class B
Adjusted earnings per share – basic and diluted – Class A
Adjusted earnings per share – basic and diluted – Class B
Dividend per share – Class A (annual)
Dividend per share – Class B (annual)
2018
2017 (1)
2016 (1)
$ 363,897
$ 342,606
$ 334,263
150,325
131,155
122,964
41.3%
97,465
52,860
57,225
5,345
(1,400)
(3,842)
29,303
30,117
$0.71
$0.62
$0.69
$0.60
$0.1800
$0.1565
38.3%
86,018
45,137
46,246
3,078
(2,232)
120
25,608
26,350
$0.64
$0.55
$0.62
$0.54
$0.1632
$0.1420
36.8%
82,048
40,916
40,916
3,575
1,558
(40)
20,322
19,199
$0.46
$0.40
$0.46
$0.40
$0.1500
$0.1304
1
Adjusted EBITA, Adjusted earnings and Adjusted earnings per share figures have been restated to conform to the current year’s presentation
Sales in fiscal 2018 increased 6.2% compared to fiscal 2017 due to organic growth across the majority of the Company’s
products and trade channels, introduction of new products and new product categories, selective price increases in certain
trade channels implemented during the year, and the contribution during the last half of the year from the acquisition of
three estate wineries completed in early October 2017. Not including the contribution from the recent acquisitions, the
Company generated organic growth in sales of 3.7% for the year ended March 31, 2018.
The Company defines gross margin as gross profit excluding amortization. Gross margin as a percentage of sales
improved to 41.3% for the year ended March 31, 2018 compared to 38.3% in the prior year. Gross margin in fiscal 2018
benefited from the discontinuation of lower performing products, increased focus on higher margin products, selective
pricing increases, and the positive impact of the Company’s cost control initiatives. During fiscal 2018, the Company
recorded a charge of $3.0 million to increase cost of goods sold to reflect the fair value of inventory acquired from the
new wineries that had been sold since the acquisition dates. Management is continually focused on efforts to enhance
production efficiency and productivity as well as developing synergies from the addition of the three new wineries
acquired in October 2017.
Selling and administrative expenses for the year ended March 31, 2018 included $3.2 million of expenses due to the
addition of the three new wineries, as well as increased costs related to the operations of the new Wayne Gretzky Estate
Winery and Craft Distillery, which opened in June 2017 and increased marketing support for new launches across the
Company’s product portfolio. Included in selling and administrative expenses is $1.1 million in one-time professional and
transition fees related to the acquisitions, which is comparable to the $1.1 million charged in fiscal 2017 for professional
fees related to a strategic acquisition that was not completed. In fiscal 2018, selling and administrative expenses included
$0.6 million in severance payments, compared to $1.3 million in post-retirement benefits for certain employees retiring
during fiscal 2017. Selling and administrative expenses also increased by $0.8 million when compared to fiscal 2017 due
to the increase in minimum wage in Ontario. The Company continues to increase its investment in its sales and marketing
programs while remaining focused on ensuring a strong return on these investments.
Earnings before interest, amortization, net unrealized gains and losses on derivative financial instruments, other (income)
expenses, and income taxes (“EBITA”) was $52.9 million for the year ended March 31, 2018 compared to $45.1 million
9
| ANDREW PELLER LIMITED 2018
in the prior year. The increase in fiscal 2018 was due to the increase in sales across the Company’s established
distribution network and the improved gross margin, partially offset by the increase in selling and administrative expenses
and the reduction in margin related to the three new wineries due to the inventory fair value adjustment charged to cost of
sales. Adjusted EBITA, which excludes from EBITA one-time acquisition related charges, was $57.2 million for the year
ended March 31, 2018 compared to $46.2 million in fiscal 2017.
Interest expense increased in fiscal 2018 compared to the prior year due primarily to long-term debt incurred to complete
the three acquisitions in October 2017 and the write-off of $0.4 million in unamortized deferred financing fees related to
the prior banking agreement that was amended on September 29, 2017.
Amortization expense increased in fiscal 2018 due primarily to the addition of the three recently acquired wineries and the
completion of the Wayne Gretzky Estate Winery and Craft Distillery in June 2017.
The Company recorded net unrealized non-cash gains in fiscal 2018 and fiscal 2017 related to mark-to-market
adjustments on interest rate swaps and foreign exchange contracts. The Company has elected not to apply hedge
accounting and accordingly the change in fair value of these financial instruments is reflected in the Company’s
consolidated statement of earnings each reporting period. These instruments are considered to be effective economic
hedges and have enabled management to mitigate the short-term volatility of changing foreign exchange and interest
rates.
Other income in fiscal 2018 includes a one-time gain of $4.2 million on the acquisitions completed in October 2017.
Adjusted earnings, defined as net earnings not including net unrealized gains and losses on derivative financial
instruments, other (income) expenses, non-recurring, non-operating (gains) and losses, and the related income tax effect
were $29.3 million for the year ended March 31, 2018 compared to $25.6 million in the prior year. Net earnings for the
year ended March 31, 2018 were $30.1 million or $0.71 per Class A Share compared to $26.4 million or $0.64 per Class
A Share in the prior year.
The three acquired wineries contributed $8.6 million in sales, $1.1 million in EBITA and $0.4 million in net earnings in
fiscal 2018 excluding acquisition related fees and margin adjustments as described below. The acquisitions contributed
approximately $0.01 per Class A share in net earnings, which was offset by the dilution impact of the 1.6 million Class A
shares issued to acquire one of the wineries. On acquisition the Company recorded an increase of $10.4 million to
inventory to represent the fair value of the goods acquired. This increase will be expensed over time to the consolidated
statement of earnings as finished goods are sold thus reducing gross margin. During fiscal 2018, the Company’s gross
margin was reduced by $3.0 million as a result of this adjustment. It is expected that most goods acquired will be sold
within one year of the acquisitions, and as such, the remaining balance of the fair value adjustment of $7.4 million will
continue to be dilutive into fiscal 2019. Furthermore, one-time transaction and transition costs and restructuring costs, of
which $1.4 million was expensed in fiscal 2018, also had a dilutive impact on earnings per share in fiscal 2018. The
impact of these items reduced earnings per share by approximately $0.10 per Class A Share for the year ended March 31,
2018. Additional interest expense on debt used to fund the acquisitions and higher amortization on acquired assets will
also have a dilutive impact. The above items have resulted in an overall dilution of $0.06 per Class A share for the year
ended March 31, 2018.
The Company believes that sales will continue to grow going forward due to strong positioning of key brands, the
continued launch of new and innovative products in the Canadian wine, cider and spirits markets, continued growth in
new wine-related markets, and the full year’s contribution from the three estate wineries acquired in October 2017 in
fiscal 2019.
The Company has exposure to foreign currency risk as purchases of bulk wine and concentrate are made in U.S. dollars,
Australian dollars, and Euros. Fluctuating foreign currencies may have a positive or negative impact on gross margins.
Management believes the impact on gross margin will be largely offset by the Company’s continued ability to leverage
scale and successful cost control initiatives to reduce distribution, operating and packaging expenses, and raw material
cost savings. The Company also uses foreign exchange forward contracts to protect against changes in foreign currency
rates and, as at March 31, 2018, had locked in $4.7 million in U.S. dollar contracts at rates averaging $1.26 Canadian,
€0.9 million in Euro con tracts at rates averaging $1.55 Canadian and $1.4 million in Australian dollar contracts at rates
averaging $1.00 Canadian. These contracts expire at various dates through June 30, 2018.
ANDREW PELLER LIMITED 2018 | 10
Quarterly Performance
The following table outlines key quarterly highlights.
(in $000, except per share amounts)
Q4 18
Q3 18
Q2 18
Q1 18
Q4 17 (1) Q3 17 (1) Q2 17 (1)
Q1 17
Sales
Gross margin
79,817
103,583
91,857
$88,640
$72,295
$94,048
$88,357
$87,906
32,811
43,217
38,693
35,604
28,326
35,042
33,644
34,143
Gross margin (% of sales)
41.1%
41.7%
42.1%
40.2%
39.2%
37.3%
38.1%
38.8%
EBITA
Interest
Adjusted EBITA
Net unrealized gain on financial
4,279
1,749
5,740
17,833
16,290
14,458
5,865
11,886
12,583
14,803
1,656
1,157
783
813
702
780
783
20,175
16,852
14,458
5,865
12,167
13,411
14,803
instruments
(833)
(216)
(285)
Other expenses (income)
Adjusted earnings (loss)
Net earnings (loss)
E.P.S. – Class A basic & diluted
E.P.S. – Class B basic & diluted
Adjusted E.P.S – Class A basic &
35
(4,092)
(904)
12,402
(1,691)
14,391
$(0.04)
$(0.03)
$0.33
$0.29
70
9,556
9,226
$0.22
$0.19
(66)
145
8,249
8,191
$0.20
$0.18
(189)
(15)
1,859
2,010
$0.05
$0.04
(868)
(1,128)
52
7,741
8,137
$0.20
$0.17
56
7,450
7,630
$0.18
$0.16
(47)
27
8,558
8,573
$0.21
$0.18
diluted
$(0.02)
$0.29
$0.23
$0.20
$0.05
$0.19
$0.18
$0.20
Adjusted E.P.S – Class B basic &
diluted
$(0.02)
$0.25
$0.20
$0.17
$0.04
$0.16
$0.16
$0.18
1
Adjusted EBITA, Adjusted earnings and Adjusted EPS figures have been restated to conform to the current year’s presentation
The third quarter of the Company’s fiscal year is historically the strongest due to increased consumer purchasing of the
Company’s products during the holiday season.
Sales in the fourth quarter of fiscal 2018 increased 10.4% compared to the same quarter of fiscal 2017 due primarily to the
contribution of the three new estate wineries acquired in early October 2017, selective price increases in certain trade
channels, and strong organic growth across most of the Company’s trade channels. The three acquisitions contributed $3.7
million in sales in the fourth quarter of fiscal 2018. Not including the contribution from the recent acquisitions, the
Company generated organic revenue growth of approximately 5.4% through the three months ended March 31, 2018.
Gross margin for the three months ended March 31, 2018 was 41.1% of sales compared to 39.2% in the fourth quarter of
fiscal 2017. The increase in gross margin is attributable to improved product mix, increased pricing, and raw material and
packaging costs savings. During the fourth quarter of fiscal 2018, the Company recorded a charge of approximately $1.1
million to increase cost of goods sold to reflect the fair value of inventory acquired from the new wineries that had been
sold since the acquisition dates.
Selling and administrative expenses increased in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal
2017 due to the addition of three new wineries acquired in October 2017 as well as an increase in marketing activities and
support for recent new product launches. Included in selling and administrative expenses in the fourth quarter of 2018 is
$0.1 million in one-time professional services fees and transition costs related to the three acquisitions completed in
October 2017 and $0.6 million in severance payments. During the fourth quarter of fiscal 2017, selling and administrative
expenses included $0.6 million in one-time costs related to restructuring.
Interest expense increased in the fourth quarter of fiscal 2018 due primarily to long-term debt incurred to complete the
three acquisitions in October 2017. Amortization expense also increased in the fourth quarter of fiscal 2018 due primarily
to the addition of the three recently acquired wineries and the completion of the Wayne Gretzky Estate Winery and Craft
Distillery in June 2017.
11
| ANDREW PELLER LIMITED 2018
EBITA declined to $4.3 million for the three months ended March 31, 2018 compared to $5.9 million in the same quarter
in fiscal 2017 primarily due to the fair value adjustment to cost of goods sold and the increase in selling and
administration costs related to the recent acquisitions. Adjusted EBITA was $5.7 million for the three months ended
March 31, 2018 compared to $5.9 million for the three months ended March 31, 2017.
The Company generated an adjusted loss for the three months ended March 31, 2018 of $0.9 million compared to adjusted
earnings of $1.9 million in the same prior year period. The net loss was $1.7 million or $0.04 per Class A Share for the
three months ended March 31, 2018 compared to net earnings of $2.0 million or $0.05 per Class A Share in the fourth
quarter of fiscal 2017.
Liquidity and Capital Resources
As at
(in $000)
Current assets
Property, plant, and equipment
Intangibles
Goodwill
Derivative financial instruments
Total assets
Current liabilities
Long-term debt
Long-term derivative financial instruments
Post-employment benefit obligations
Deferred income
Deferred income tax
Shareholders’ equity
Total liabilities and shareholders’ equity
March 31, 2018
March 31, 2017
March 31, 2016
$ 198,014
188,191
17,733
53,638
204
$ 457,780
$ 93,597
116,257
-
5,140
-
22,540
220,246
$ 457,780
$ 160,567
118,838
10,600
37,473
-
$ 327,478
$ 81,742
46,678
642
5,279
-
15,820
177,317
$ 327,478
$ 150,867
108,929
11,040
37,473
-
$ 308,309
$ 79,202
48,202
1,529
5,947
102
15,591
157,736
$ 308,309
The changes to the Company’s balance sheet as at March 31, 2018 compared to March 31, 2017 related primarily to the
acquisition of three estate wineries completed in early October 2017.
Of the overall increase in inventory at March 31, 2018 compared to March 31, 2017, approximately $21.7 million related
to inventory from the three wineries acquired in October 2017. The remaining increase in inventory is due to an increase
in inventory volumes on hand as the harvest was larger compared to prior year, as well as an increase in spirits due to new
market and product launches. The Company continued to benefit from improved information technology systems
introduced to monitor and control the Company’s supply chain. These systems include improvements to the Company’s
ability to manage supply shortages and excesses. Inventory is dependent on the increase of domestically grown grapes
that are used in the sale of premium and ultra-premium wines that are held for a longer period than imported wine. These
grapes are typically aged for one to three years before they are sold. The cost of producing wine from domestically grown
grapes is also significantly higher than wine purchased on international markets.
Accounts receivable are predominantly with provincial liquor boards and, to a lesser extent, licensed establishments and
independent retailers of consumer made wine products. The Company had $16.5 million of accounts receivable with
provincial liquor boards at March 31, 2018, all of which is expected to be collectible. The balance represents amounts
due from licensees, export customers, and independent retailers of consumer made wine products. The amount of
accounts receivable that was 30 days past due was $1.5 million at March 31, 2018. Against these amounts an allowance
for doubtful accounts of $0.2 million has been provided which the Company has determined represents a reasonable
estimate of amounts that may not be collectible.
Property, plant, and equipment increased at March 31, 2018 compared to the prior year end due to investments in the three
estate wineries acquired in October 2017. Other capital expenditures during fiscal 2018 related to completion of the new
Wayne Gretzky Estate Winery and Craft Distillery which opened on June 7, 2017 and other operational investments at the
Company’s Ontario production facilities.
As part of the acquisitions of the three estate wineries, the Company recorded intangible assets of $8.1 million, relating to
brands and customer lists, and goodwill of $16.2 million.
ANDREW PELLER LIMITED 2018 | 12
On September 29, 2017, the Company amended and restated its debt facilities. Amendments included a revised maturity
date of September 29, 2022, revised financial covenants and updated applicable margins based on the Company’s
leverage. Additionally, the total borrowing limit was increased to $310.0 million and separated into two facilities: a
revolving, non-amortizing facility with a borrowing limit of $90.0 million to be used for day-to-day operations,
distributions and capital expenditures and a revolving, amortizing investment facility with a borrowing limit of $220.0
million to be used for acquisitions or capital expenditures. Each draw on the investment facility is subject to a new
amortization schedule and annual repayments increase over the term. The initial draw on the investment facility was used
to refinance the previous operating and capital term loans and fund the acquisitions of the three British Columbia
premium estate wineries in early October 2017. Up to September 30, 2018, monthly principal repayments of $0.5 million
are required on the revolving, amortizing investment facility based on the initial draw. Thereafter, monthly principal
repayments of $0.8 million are required. At March 31, 2018, the applicable margin was 1.90% (March 31, 2017 – 1.25%).
Overall bank debt increased to $171.7 million at March 31, 2018 compared to $87.7 million at March 31, 2017. The
increase in bank debt is due primarily to $79.0 million drawn on the Company’s credit facility related to the above-
mentioned estate winery acquisitions. The increase in bank debt has been partially offset by the strong earnings in fiscal
2018, the positive impact of working capital management, and regularly scheduled debt repayments. With the increase in
debt, the Company’s debt to equity ratio increased to 0.78:1 at March 31, 2018 compared to 0.49:1 at March 31, 2017. At
March 31, 2018, the Company had unutilized debt capacity in the amount of $42.7 million on its operating facility and
$94.7 million on its investment facility.
The following table outlines the Company’s contractual obligations as at March 31, 2018:
As at March 31, 2018
(in $000)
< 1
year
2 - 3
years
4 - 5
years
> 5
years
Long-term debt
Leases and royalties
Pension obligations
Grape and bulk wine purchase contracts
Packaging purchase contracts
Bulk whiskey purchase contracts
Interest rate swap
Foreign exchange forwards
Total contractual obligations
$ 8,135
5,092
514
79,100
30,392
525
123,758
2,740
8,720
$ 135,218
$ 20,982
6,419
734
77,282
1,457
80
106,954
4,828
-
$ 111,782
$ 96,350
4,373
576
56,850
-
-
158,149
2,934
-
$ 161,083
-
8,176
888
144,276
-
-
153,340
-
-
$ 153,340
Total
$ 125,467
24,060
2,712
357,508
31,849
605
542,201
10,502
8,720
$ 561,423
Management expects to generate sufficient cash flow from operations to meet its debt servicing, principal payment, and
working capital requirements over both the short and long-term through increased profitability and strong management of
working capital and capital expenditures. The Company regularly reviews all of its assets to ensure appropriate returns on
investment are being achieved and that they fit with the Company’s long-term strategic objectives.
For the year ended March 31, 2018, the Company generated cash from operating activities, after changes in non-cash
working capital items, of $21.7 million compared to $25.6 million in the prior year. Investing activities were $97.8
million in fiscal 2018 compared to $20.5 million in the prior year. The increase in fiscal 2018 includes $77.4 million
related to the acquisition of the three estate wineries in October 2017. The remaining investing activities related to capital
expenditures to improve operations, as well as costs incurred related to the completion of the new Wayne Gretzky Estate
Winery and Craft Distillery which officially opened on June 7, 2017.
Financing activities for the year ended March 31, 2018 included a $79.0 million increase in long-term debt related to the
acquisition of the three estate wineries in October 2017.
Working capital as at March 31, 2018 increased to $104.4 million compared to $78.8 million at March 31, 2017. The
increase in working capital was due to increases in inventory and accounts receivable due primarily to the acquisitions
completed in October 2017, partially offset by increases in current debt. Shareholders’ equity as at March 31, 2018 was
$220.2 million or $4.99 per common share compared to $177.3 million or $4.16 per common share as at March 31, 2017.
The increase in shareholders’ equity was due to the issuance of Class A Shares to fund a portion of the purchase price for
one of the acquired wineries and strong net earnings, partially offset by the payment of dividends and net actuarial losses
on post-employment benefit plans.
13
| ANDREW PELLER LIMITED 2018
Common Shares Outstanding
The Company is authorized to issue an unlimited number of Class A and Class B Shares. Class A Shares are non-voting
and are entitled to a dividend in an amount equal to 115% of any dividend paid or declared on Class B Shares. Class B
Shares are voting and convertible into Class A Shares on a one-for-one basis.
Shares outstanding
Class A Shares
Class B Shares
Total
March 31, 2018 March 31, 2017 March 31, 2016
35,471,185
8,702,095
44,173,280
33,581,487
9,012,123
42,593,610
33,581,487
9,012,123
42,593,610
On October 2, 2017, the Company issued approximately 1.6 million Class A Shares to fund a portion of the purchase
price for one of the acquisitions. In March 2018, approximately 0.3 million Class B Shares were converted into Class A
shares on a one-for-one basis.
Strategic Outlook and Direction
Andrew Peller Limited is committed to a strategy of growth that focuses on the expansion of its core business as a
producer and marketer of quality wines and wine related products through concentrating on and developing leading
brands that meet the needs of our consumers and customers. Over the long term the Company believes higher-priced
premium wine and spirits sales will continue to grow in Canada, generating higher margins and increased profitability
compared to its lower-priced products. The Company has also entered the spirits category, through its strategic alliance
with Wayne Gretzky, and has introduced sangrias and ciders through its own brand labels.
The market for wine in Canada continues to grow due to a movement toward the consumption of wine by young
consumers who have adopted wine as their beverage of choice, an aging population that favours the more sophisticated
experience that wine offers, and the reported health benefits of moderate wine consumption. The Company has focused its
product development and sales and marketing initiatives by capitalizing on the trend of increased wine consumption and
expects to see continued sales growth. The Company will continue to closely monitor its costs and will react quickly to
changes to risks and opportunities in the marketplace.
The Company will continue to launch wine and other craft alcohol brands in the future and increase its use of
differentiated package formats. The Company will also expand product offerings outside the traditional table wine
segment into other alcoholic beverages where it is able to leverage its detailed knowledge of growth opportunities in the
Canadian market. The Company will also make packaging design changes that are more appealing to its target markets
and are consistent with its initiative to be more environmentally friendly. Increased focus will be made on coordination
between the Company’s business-to-consumer trade channels to provide customers with a more intimate awareness of its
broad product portfolio. New product launches and directed focus to support key brands through all of the Company’s
distribution channels will continue to receive increased marketing and sales support.
The Company expects to increase its investments in capital expenditures over the next five years to increase capacity,
support its ongoing commitment to producing the highest-quality wines and spirits, and improve productivity. The
Company also expects to invest additional funds in the next five years in vineyards and operations in Western Canada to
support the three recent acquisitions. Improvements to enhance the coordination throughout its supply chain have been
implemented recently and benefits have begun to accrue. Investments made over the past few years are expected to
continue to result in increased sales and improved profitability.
The Company plans to dedicate further resources towards rectifying unfair trade barriers and taxes by continuing to work
closely with other members of the Canadian wine industry and the Canadian and provincial governments.
From time to time the Company evaluates investment opportunities, including acquisitions, which support its strategic
direction.
ANDREW PELLER LIMITED 2018 | 14
Risks and Uncertainties
The Company’s sales of wine and spirits are affected by general economic conditions such as changes in discretionary
consumer spending and consumer confidence, future economic conditions, changes to Inter-Provincial trade laws, tax
laws, and the prices of its products. A steep and sustained decline in economic growth may cause a lower demand for the
Company’s products. Such general economic conditions could impact the Company’s sales through the Company’s estate
wineries, distillery and restaurants, direct sales through licensed establishments, and export sales through duty free shops.
The Company believes that these effects would likely be temporary and would not have a significant impact on financial
performance.
The Canadian wine market continues to be the target of low-priced imported wines from regions and countries that
subsidize wine production and grape growing as well as providing sizeable export incentives on subsidies. Many of these
countries and regions prohibit or restrict the sale of imported wine in their own domestic markets. The Company, along
with other members of the Canadian wine industry, are working with the Canadian government to improve support for the
domestic industry.
The Company operates in a highly competitive industry and the dollar amount and unit volume of sales could be
negatively impacted by its inability to maintain or increase prices, changes in geographic or product mix, a general
decline in beverage alcohol consumption, or the decision of retailers or consumers to purchase competitive products
instead of the Company’s products. Retailer and consumer purchasing decisions are influenced by, among other things,
the perceived absolute or relative overall value of the Company’s products including their quality or pricing compared to
competitive products. Unit volume and dollar sales could also be affected by purchasing, financing, operational,
advertising, or promotional decisions made by provincial agencies and retailers which could affect supply of or consumer
demand for the Company’s products. APL could also experience higher than expected selling and administrative
expenses if it finds it necessary to increase the number of its personnel, advertising, or promotional expenditures to
maintain its competitive position.
APL expects to increase the sales of its premium wines in Canada principally through the sale of VQA wines, and as a
result, is dependent on the quality and supply of domestically grown premium quality grapes. If any of the Company’s
vineyards or the vineyards of our grape suppliers experience certain weather variations, natural disasters, pestilence, other
severe environmental problems, or other occurrences, APL may not be able to secure a sufficient supply of grapes, a
situation which could result in a decrease in production of certain products from those regions and/or result in an increase
in costs. The inability to secure premium quality grapes could impair the ability of the Company to supply certain wines
to its customers. APL has developed programs to ensure it has access to a consistent supply of premium quality grapes
and wine. The price of grapes is determined through negotiations with the Ontario Grape Growers Marketing Board in
Ontario and with independent growers in British Columbia.
Foreign exchange risk exists on the purchases of bulk wine and concentrate that are primarily made in United States
dollars, Euros, and Australian dollars. The Company’s strategy is to hedge approximately 50% - 80% of its foreign
exchange requirements throughout the fiscal year and to regularly review its on-going requirements. APL enters into a
series of foreign exchange contracts as a hedge against movements in U.S. dollar, Euro, and Australian dollar exchange
rates. The Company does not enter into foreign exchange contracts for trading or speculative purposes. These contracts
are reviewed periodically. Based on the Company’s forecasts for foreign currency purchases and the amount of foreign
exchange forward contracts outstanding at March 31, 2018, each one percent change in the value of the U.S. dollar, Euro
or the Australian dollar would impact the Company’s net earnings by an estimated $0.2 million, $0.1 million and $0.1
million respectively.
The Company purchases glass, bag in box, tetra paks, and other components used in the bottling and packaging of wine
and spirits. The largest component in the packaging of wine and spirits is glass, of which there are few domestic or
international suppliers. There is currently only one commercial supplier of glass in Canada that is able to supply glass to
APL’s specifications. Any interruption in supply could have an adverse impact on the Company’s ability to supply its
markets. APL has taken steps to reduce its dependence on domestic suppliers through the development of relationships
with several international producers of glass and through carrying increased inventory of selected bottles.
The Company operates in a highly regulated industry with requirements regarding the production, distribution, marketing,
advertising, and labelling of wine and spirits. These regulatory requirements may inhibit or restrict the Company’s ability
to maintain or increase strong consumer support for and recognition of its brands and may adversely affect APL’s
business strategies and results of operations. Privatization of liquor distribution and retailing has been implemented in
15
| ANDREW PELLER LIMITED 2018
varying degrees across the country. The recent regulatory changes relating to privatization in Ontario and sales through
grocery outlets remains a risk to the Company through its impact on the Company’s retail operations.
The wine industry and the domestic and international market in which the Company operates are consolidating. This has
resulted in fewer, but larger, competitors who have increased their resources and scale. The increased competition from
these larger market participants may affect the Company’s pricing strategies and create margin pressures resulting in
potentially lower revenues. Competition also exerts pressure on existing customer relationships which may affect APL’s
ability to retain existing customers and increase the number of new customers. The Company has worked to improve
production efficiencies, selectively increase pricing to increase gross margin, and implement a higher level of promotion
and advertising activity to remain competitive. APL and other wine industry participants also generally compete with
other alcoholic beverages like beer and spirits for consumer acceptance, loyalty, and shelf space. Any legalization of
recreational cannabis may also have an impact on consumption of wine and other beverage alcohol products. No
assurance can be given that consumer demand for wine and premium wine products will continue at current levels in the
future.
Federal and provincial governments impose excise, other taxes, and mark-ups on beverage alcohol products which have
been subject to change. Significant increases in excise and other taxes on beverage alcohol products could materially and
adversely affect the Company’s financial condition or results of operations. Federal and provincial governmental agencies
extensively regulate the beverage alcohol products industry concerning such matters as licensing, trade practices,
permitted and required labelling, advertising, and relations with consumers and retailers. Certain federal and provincial
regulations also require warning labels and signage. New or revised regulations, increased licensing fees, requirements,
taxes, or mark-ups could also have a material adverse effect on the Company’s financial condition or results of operations.
The Company’s future operating results also depend on the ability of its officers and other key employees to continue to
implement and improve its operating and financial systems and manage the Company’s significant relationships with its
suppliers and customers. The Company is also dependent upon the performance of its key senior management personnel.
The Company’s success is linked to its ability to identify, hire, train, motivate, promote, and retain highly qualified
management. Competition for such employees is intense and there can be no assurances that the Company will be able to
retain current key employees or attract new key employees.
Increases in the minimum wage across Canada will also continue to negatively affect the profitability of the Company. It
is estimated that increases in Ontario will increase selling and administrative expenses by approximately $3 million in the
coming year.
The Company has certain defined benefit pension plans. The expense and cash contributions related to these plans depend
on the discount rate used to measure the liability to pay future benefits and the market performance of the plan assets set
aside to pay these benefits. The Company’s Pension Committee reviews the performance of plan assets on a regular basis
and has a policy to hold diversified investments. Nevertheless, a decline in long-term interest rates or in asset values could
increase the Company’s costs related to funding the deficit in these plans.
The competitive nature of the wine industry internationally has resulted in the discounting of retail prices of wine in key
markets such as the United States and the United Kingdom. Although significant price discounting may occur in Canada
beyond current levels, the Company believes that its product quality, advertising, and promotional support along with its
competitive pricing strategies will effectively mitigate the impact of this to the Company.
The Company considers its trademarks, particularly certain brand names and product packaging, advertising and
promotion design, and artwork to be of significant importance to its business and ascribes a significant value to these
intangible assets. APL relies on trademark laws and other arrangements to protect its proprietary rights. There can be no
assurance that the steps taken by APL to protect its intellectual property rights will preclude competitors from developing
confusingly similar brand names or promotional materials. The Company believes that its proprietary rights do not
infringe upon the proprietary rights of third parties, but there can be no assurance in this regard.
As an owner and lessee of property the Company is subject to various federal and provincial laws relating to
environmental matters. Such laws provide that the Company could be held liable for the cost of removal and remediation
of hazardous substances on its properties. The failure to remedy any situation that might arise could lead to claims against
the Company. A perceived failure to maintain high ethical, social, and environmental standards could have an adverse
effect on the Company’s reputation.
ANDREW PELLER LIMITED 2018 | 16
The success of the Company’s brands depends upon the positive image that consumers have of those brands.
Contamination of APL’s products, whether arising accidentally or through deliberate third-party action, or other events
that harm the integrity or consumer support for those brands could adversely affect their sales. Contaminants in raw
materials purchased from third parties and used in the production of the Company’s products or defects in the
fermentation process could lead to low product quality as well as illness among, or injury to, consumers of the products
and may result in reduced sales of the affected brand or all of the Company’s brands.
Non-IFRS Measures
The Company utilizes EBITA (defined as earnings before interest, amortization, net unrealized gains and losses on
derivative financial instruments, other (income) expenses, and income taxes) and Adjusted EBITA (EBITA before non-
recurring expenses such as acquisition transaction and transition costs) to measure its financial performance. EBITA and
Adjusted EBITA are not recognized measures under IFRS; however, management believes that EBITA and Adjusted
EBITA are useful supplemental measures to net earnings as these measures provide readers with an indication of earnings
available for investment prior to debt service, capital expenditures, and income taxes, as well as provide an indication of
recurring earnings compared to prior periods.
The Company calculates EBITA and Adjusted EBITA as follows.
For the three months and years ended March 31,
(in $000)
Net earnings (loss)
Add: Interest
Provision for income taxes
Amortization of plant and equipment used in production
Amortization of equipment and intangibles used in selling and administration
Net unrealized gains on derivative financial instruments
Other (income) expenses
EBITA
Acquisition transaction and transition costs
Fair value adjustment for acquired inventory sold during the period
Adjusted EBITA
1
Adjusted EBITA figures have been restated to conform to the current year’s presentation
Three Months
Year
2018
2017 (1)
2018
2017 (1)
$ (1,691)
$ 2,010
$ 30,117
$ 26,350
1,749
1,411
1,782
1,826
(833)
35
813
597
1,763
886
(189)
(15)
5,345
10,937
6,891
4,812
(1,400)
(3,842)
3,078
7,895
6,549
3,377
(2,232)
120
$ 4,279
$ 5,865
$ 52,860
$ 45,137
363
1,098
-
-
1,393
2,972
1,109
-
$ 5,740
$ 5,865
$ 57,225
$ 46,246
Readers are cautioned that EBITA and Adjusted EBITA should not be construed as an alternative to net earnings
determined in accordance with IFRS as an indicator of the Company’s performance or to cash flows from operating,
investing, and financing activities as a measure of liquidity and cash flows.
The Company also utilizes gross margin (defined as sales less cost of goods sold, excluding amortization) as calculated
below.
For the three months and years ended March 31,
(in $000)
Sales
Less: Cost of goods sold, excluding amortization
Gross margin
Gross margin (% of sales)
Three Months
2018
2017
Year
2018
2017
$ 79,817
$ 72,295
$ 363,897
$ 342,606
47,006
43,969
213,572
211,451
$ 32,811
$ 28,326
$ 150,325
$ 131,155
41.1%
39.2%
41.3%
38.3%
17
| ANDREW PELLER LIMITED 2018
The Company calculates adjusted earnings and adjusted earnings per share as follows.
For the three months and years ended March 31,
(in $000)
Net earnings (loss)
Three Months
Year
2018
2017 (1)
2018
2017 (1)
$ (1,691)
$ 2,010
$ 30,117
$ 26,350
Net unrealized gains on derivative financial instruments
(833)
(189)
(1,400)
(2,232)
Other expenses (income)
Acquisition transaction and transition costs
Fair value adjustment for acquired inventory sold during the period
Income tax effect of the above
Adjusted earnings (loss)
Adjusted earnings (loss) per share – Class A
Adjusted earnings (loss) per share – Class B
35
363
1,098
124
(15)
(3,842)
-
-
53
1,393
2,972
63
120
1,109
-
261
$ (904)
$ 1,859
$ 29,303
$ 25,608
$(0.02)
$(0.02)
$0.05
$0.04
$0.69
$0.60
$0.62
$0.54
1
Adjusted earnings and Adjusted earnings per share figures have been restated to conform to the current year’s presentation
The Company’s method of calculating EBITA, Adjusted EBITA, gross margin, adjusted earnings, and adjusted earnings
per share may differ from the methods used by other companies and accordingly, may not be comparable to the
corresponding measures used by other companies.
Transactions with Related Parties
The Company is controlled by Jalger Limited, which owns 57.4% of the Company’s Class B voting shares. No individual
has sole voting power or control in respect of the shares of the Company owned by Jalger Limited.
The compensation expense recorded for directors and members of the Executive Management Team of the Company is
shown below:
For the year ended March 31,
(in $000)
Compensation and short-term benefits
Post-employment benefits
Stock based compensation expense
Payments to a share purchase plan
2018
$ 3,848
296
1,422
-
2017
$ 6,951
302
-
381
$ 5,566
$ 7,634
The compensation and short-term benefits expense consists of amounts that will primarily be settled within twelve
months.
Financial Statements and Accounting Policies
The Company’s consolidated financial statements have been prepared in accordance with IFRS, as issued by the
International Accounting Standards Board (“IASB”).
Critical Accounting Estimates
During the year management is required to make estimates and assumptions that are inherently uncertain. These estimates
can vary with respect to the level of judgment involved and ultimately the impact that these estimates may have on the
Company's financial statements. Estimates are deemed to be critical when a different estimate could reasonably be used
or where changes are reasonably likely to occur which could materially affect the Company’s financial position or
financial performance. The Company’s significant accounting policies are discussed in the notes to the consolidated
financial statements for the years ended March 31, 2018 and March 31, 2017. Critical estimates inherent in these
accounting policies are set out below:
ANDREW PELLER LIMITED 2018 | 18
Business combinations
For each business combination, the Company measures the identifiable assets acquired and the liabilities assumed at their
acquisition-date fair values. The determination of fair value requires the Company to make assumptions, estimates, and
judgments regarding future events. The allocation process is inherently subjective and impacts the amounts assigned to
individual identifiable assets and liabilities, including the fair value of finished goods inventory, long-lived assets, the
recognition and measurement of any identified intangible assets, and the final determination of the amount of goodwill or
gain on acquisition. The inputs to the exercise of judgments include legal, contractual, business and economic factors. As
a result, the purchase price allocation impacts the Company’s reported assets and liabilities and future net earnings due to
the impact on future cost of goods sold, amortization, and impairment tests.
Impairment of goodwill and indefinite life intangible assets
Testing goodwill for impairment at least annually involves estimating the recoverable amount of the cash generating units
to which goodwill is allocated. This requires making assumptions about future cash flows, growth rates, and discount
rates. Testing indefinite life intangible assets for impairment at least annually involves estimating the fair value using the
relief of royalty method. This requires making assumptions about royalty rates, growth rates, and discount rates. These
assumptions are inherently uncertain and as such, actual amounts may vary from these assumptions and cause significant
adjustments. Management has concluded that a 10% change in any key assumption in the impairment tests would not
result in an impairment of goodwill or indefinite life intangible assets as at March 31, 2018 and March 31, 2017.
Post-employment benefits
Measuring the liability for post-employment benefits uses assumptions for the discount rates, increases in compensation,
increases in medical costs, and timing of the payment of benefits. Actual amounts may vary from these assumptions and
cause significant adjustments.
Fair value of grapes at the point of harvest
Where possible, the fair value of grapes at the point of harvest is determined by reference to local market prices for grapes
of a similar quality and same varietal. For grapes for which local market prices are not readily available, the average price
of similar grapes is used. Actual amounts may vary from these assumptions and cause significant adjustments.
Recently Adopted Accounting Policies
Business combinations
Business combinations are accounted for using the acquisition method. The consideration transferred by the Company is
measured as the fair value of assets transferred and equity instruments issued at the date of completion of the acquisition.
Identifiable assets acquired and liabilities assumed in a business combination are measured initially at fair value at the
acquisition date. The excess of the consideration transferred over the fair value of the net assets acquired is recorded as
goodwill. If the consideration transferred is less than the share of the net assets acquired, the difference is recognized
directly in the consolidated statement of earnings as a gain on acquisition. Results of operations of a business acquired are
included in the Company’s consolidated financial statements from the date of the business acquisition. Acquisition costs
incurred are expensed and included in selling and administrative expenses.
Share based compensation
The Company can grant stock options, performance share units (PSUs), and deferred share units (DSUs) to employees
under its share based compensation plan. All share based compensation arrangements are equity-settled in Class A non-
voting common shares.
Equity-settled share based payments to employees are measured at the fair value of the equity instrument granted. An
option valuation model (Black-Scholes) is used to fair value stock options issued to employees on the date of grant.
The grant date fair value of equity-settled share based awards is recognized as compensation expense with a
corresponding increase in equity reserves over the related service period provided to the Company. The total amount of
expense recognized in profit or loss is determined by reference to the fair value of the options granted or share awards,
which factors in the number of options expected to vest. Equity-settled share based payment transactions are not
remeasured once the grant date fair value has been determined except in cases where the share based payment is linked to
non-market performance conditions. Stock options vest in tranches (graded vesting) and accordingly, the expense is
recognized in vesting tranches. PSUs vest in full at the end of the third fiscal year after the date of grant and accordingly,
19
| ANDREW PELLER LIMITED 2018
the expense is recognized evenly over the vesting period. DSUs vest immediately and accordingly, the expense is
recognized in full at the date of grant.
Compensation expense is recognized over the applicable vesting period by increasing contributed surplus based on the
number of awards expected to vest. At the end of each reporting period, the Company revises its estimates of the number
of awards that are expected to vest based on the non-market performance vesting conditions. The Company recognizes the
impact of the revision to original estimates, if any, in the consolidated statements of earnings, with a corresponding
adjustment to contributed surplus.
Statement of cash flows
In January 2016, the IASB issued an amendment to IAS 7, Statement of Cash Flows, introducing additional disclosure
that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The
amendments were effective for annual periods beginning on or after January 1, 2017. The new requirements were
adopted effective April 1, 2017. The adoption of these amendments did not have a material impact on the consolidated
financial statements.
Income taxes
In January 2016, the IASB issued amendments to IAS 12, Income Taxes to clarify the requirements for recognizing
deferred tax assets on unrealized losses. The amendments clarify the accounting for deferred tax where an asset is
measured at fair value and that fair value is below the asset’s tax base. They also clarify certain other aspects of
accounting for deferred tax assets. The amendments were effective for annual periods beginning on or after January 1,
2017. The new requirements were adopted effective April 1, 2017. The adoption of these amendments did not have a
material impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements
During July 2014, the IASB issued the complete version of IFRS 9, Financial Instruments - Classification and
Measurement of Financial Assets and Financial Liabilities. IFRS 9 will replace IAS 39, Financial Instruments -
Recognition and Measurement. In addition, IFRS 7, Financial Instruments - Disclosures was amended to include
additional disclosure requirements on transition to IFRS 9. The mandatory effective date of applying these standards is for
annual periods beginning on or after January 1, 2018. The standard uses a single approach to determine whether a
financial asset is measured at amortized cost or fair value. The approach is based on how an entity manages its financial
instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard
also requires a single impairment method to be used. The standard requires that for financial liabilities measured at fair
value, any changes in an entity’s own credit risk are generally to be presented in other comprehensive income instead of
net earnings. A new hedge accounting model is included in the standard, as well as increased disclosure requirements
about risk management activities for entities that apply hedge accounting. The adoption of these amendments is not
expected to have a material impact on the consolidated financial statements.
During May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, which supersedes IAS 18,
Revenue, and IAS 11, Construction Contracts. The standard details a revised model for the recognition of revenue from
contracts with customers. In April 2016, the IASB has amended IFRS 15 to clarify the guidance on identifying
performance obligations, licenses of intellectual property, and principal versus agent. The amendments also provide
additional practical expedients on transition. The standard is effective for first interim periods within annual periods
beginning on or after January 1, 2018. During the year the Company carried out a detailed review of the current
recognition criteria for revenue against the requirements of IFRS 15. This review closely examined its agency wine
businesses, presentation of certain customer related trade spending and timing of recognition of certain promotional
discounts. Based on preliminary work completed, the adoption of this standard is not expected to have a material impact
on the consolidated financial statements.
In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases and related Interpretations. The
new standard will be effective for fiscal years beginning on or after January 1, 2019, with early adoption permitted
provided the Company has adopted IFRS 15, Revenue from Contracts with Customers. The new standard requires lessees
to recognize a lease liability reflecting future lease payments and a “right-of-use asset” for virtually all leases contracts,
and record it on the statement of financial position, except with respect to lease contracts that meet limited exception
criteria. Given that the Company has significant contractual obligations in the form of operating leases under IAS 17,
there will be a material increase to both assets and liabilities on adoption of IFRS 16, and material changes to the timing
ANDREW PELLER LIMITED 2018 | 20
of recognition of expenses associated with the lease arrangements. The Company is analyzing the new standard to
determine the impact of adopting this standard.
Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information required to
be disclosed by the Company in reports filed with or submitted to various securities regulators are recorded, processed,
summarized and reported within the time periods specified. This information is gathered and reported to the Company’s
management, including the Chief Executive Office (“CEO”) and Chief Financial Officer (“CFO”) on a timely basis so
that decisions can be made regarding the Company’s disclosures to the public.
The Company’s management, under the supervision of, and with the participation of the CEO and CFO, have designed
and maintained the Company’s disclosure controls and procedures as required in Canada by “National Instrument 52-109
– Certification of Disclosure in Issuers’ Annual and Interim Filings”.
Internal Controls Over Financial Reporting
Internal controls over financial reporting are procedures designed to provide reasonable assurance that transactions are
properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded
and reported. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance with respect to reliability of financial reporting and financial statement presentation.
Designing, establishing, and maintaining adequate internal controls over financial reporting is the responsibility of
management. Internal controls over financial reporting is a process designed by, or under the supervision of senior
management and effected by the Board of Directors to provide reasonable assurance regarding the reliability of financial
reporting and preparation of the Company’s financial statements in accordance with IFRS.
For the year ended March 31, 2018, there have been no material changes in the Company’s internal controls over financial
reporting or changes to disclosure controls and procedures that materially affected or were likely to affect, the Company’s
internal control systems. As at June 6, 2018, the CEO and CFO of the Company have evaluated the effectiveness of the
Company’s internal controls over financial reporting. Based on these evaluations, the CEO and CFO have concluded that
the controls and procedures were operating effectively.
21
| ANDREW PELLER LIMITED 2018
INDEPENDENT AUDITOR’S REPORT
June 6, 2018
Independent Auditor’s Report
To the Shareholders of Andrew Peller Limited
We have audited the accompanying consolidated financial statements of Andrew Peller Limited and its subsidiaries,
which comprise the consolidated balance sheets as at March 31, 2018 and 2017 and the consolidated statements of
earnings, comprehensive income, changes in equity and cash flows for the years then ended, and the related notes, which
comprise a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Andrew Peller Limited and its subsidiaries as at March 31, 2018 and 2017 and their financial performance and their cash
flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
ANDREW PELLER LIMITED 2018 | 22
Consolidated Balance Sheets
As at March 31, 2018 and 2017
(in thousands of Canadian dollars)
Assets
Current assets
Accounts receivable (note 21)
Inventories (note 5)
Biological assets (note 7)
Prepaid expenses and other assets
Current portion of derivative financial instruments (note 21)
Property, plant and equipment (note 6)
Intangible assets (note 8)
Goodwill (note 9)
Derivative financial instruments (note 21)
Liabilities
Current liabilities
Bank indebtedness (note 10)
Accounts payable and accrued liabilities (note 11)
Dividends payable
Income taxes payable (note 14)
Current portion of derivative financial instruments (note 21)
Current portion of long-term debt (note 12)
Long-term debt (note 12)
Long-term derivative financial instruments (note 21)
Post-employment benefit obligations (note 13)
Deferred income taxes (note 14)
Shareholders’ Equity
Capital stock (note 15)
Contributed surplus (note 16)
Retained earnings
Accumulated other comprehensive loss
$
$
$
2018
2017
$
$
$
31,406
160,154
1,901
4,401
152
198,014
188,191
17,733
53,638
204
457,780
47,324
33,404
1,935
2,775
24
8,135
93,597
116,257
-
5,140
22,540
237,534
26,097
1,673
196,713
(4,237)
220,246
26,973
129,088
1,400
3,106
-
160,567
118,838
10,600
37,473
-
327,478
36,620
36,260
1,690
2,348
418
4,406
81,742
46,678
642
5,279
15,820
150,161
6,967
-
174,193
(3,843)
177,317
$
457,780
$
327,478
Director
Director
The accompanying notes are an integral part of these consolidated financial statements.
23
| ANDREW PELLER LIMITED 2018
Consolidated Statements of Earnings
For the years ended March 31, 2018 and March 31, 2017
(in thousands of Canadian dollars, except per share amounts)
Sales
Cost of goods sold, excluding amortization (note 17)
Amortization of plant and equipment used in production
Gross profit
Selling and administration (note 17)
Amortization of equipment and intangible assets used in selling and
administration
Interest
Net unrealized gain on derivative financial instruments (note 21)
Other (income) expense (note 17)
Earnings before income taxes
Provision for (recovery of) income taxes (note 14)
Current
Deferred
Net earnings for the year
Net earnings per share (notes 15 and 18)
Basic and diluted
Class A shares
Class B shares
$
2018
363,897
213,572
6,891
143,434
97,465
4,812
5,345
(1,400)
(3,842)
41,054
11,797
(860)
10,937
2017
342,606
211,451
6,549
124,606
86,018
3,377
3,078
(2,232)
120
34,245
7,664
231
7,895
30,117
$
26,350
0.71
0.62
$
$
0.64
0.55
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
ANDREW PELLER LIMITED 2018 | 24
Consolidated Statements of Comprehensive Income
For the years ended March 31, 2018 and March 2017
(in thousands of Canadian dollars)
Net earnings for the year
Items that are never reclassified to net earnings
Net actuarial losses on post-employment benefit plans (note 13)
Deferred income taxes (note 14)
Other comprehensive loss for the year
2018
2017
$
30,117
$
26,350
(533)
139
(394)
(9)
2
(7)
Net comprehensive income for the year
$
29,723
$
26,343
The accompanying notes are an integral part of these consolidated financial statements.
25
| ANDREW PELLER LIMITED 2018
Consolidated Statements of Changes in Equity
For the years ended March 31, 2018 and March 31, 2017
(in thousands of Canadian dollars)
Capital
stock
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
loss
Total
shareholders’
equity
$
154,605
$
(3,836) $
157,736
Balance at April 1, 2016
$
6,967
$
Net earnings for the year
Net actuarial losses (net of $2
deferred tax recovery)
(note 13)
Net comprehensive income for
the year
Dividends (Class A $0.163 per
share, Class B $0.142 per
share)
Balance at March 31, 2017
Balance at April 1, 2017
Net earnings for the year
Net actuarial losses (net of $139
deferred tax recovery)
(note 13)
Net comprehensive income for
the year
-
-
-
-
$
$
6,967
6,967
$
$
-
-
-
Issuance of Class A non-voting
shares (note 4)
19,130
Share based compensation
(note 16)
Dividends (Class A $0.180 per
share, Class B $0.156 per
share)
-
-
-
-
-
-
-
-
-
-
-
-
-
1,673
26,350
-
26,350
$
$
(6,762)
$
$
174,193
174,193
30,117
-
30,117
-
-
-
(7,597)
-
(7)
(7)
-
26,350
(7)
26,343
(6,762)
(3,843) $
177,317
(3,843) $
177,317
-
30,117
(394)
(394)
-
-
-
(394)
29,723
19,130
1,673
(7,597)
Balance at March 31, 2018
$
26,097
$
1,673
$
196,713
$
(4,237) $
220,246
The accompanying notes are an integral part of these consolidated financial statements.
ANDREW PELLER LIMITED 2018 | 26
Consolidated Statements of Cash Flows
For the years ended March 31, 2018 and March 31, 2017
(in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net earnings for the year
Adjustments for non-cash items
Gain on acquisition of subsidiary
Loss (gain) on disposal of property, plant and equipment
Amortization of plant, equipment and intangible assets
Interest expense
Provision for income taxes
Net unrealized gain on derivative financial instruments
Share based compensation expense
Post-employment benefits
Deferred income
Interest paid
Income taxes paid
Change in non-cash working capital items related to operations (note 20)
Investing activities
Acquisition of subsidiaries, net of cash acquired
Proceeds from disposal of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Financing activities
Increase in bank indebtedness
Drawings of long-term debt
Repayment of long-term debt
Deferred financing costs
Dividends paid
Cash - Beginning and end of year
Supplementary information
Property, plant and equipment and intangible assets acquired that were unpaid in
cash and included in accounts payable and accrued liabilities
$
$
The accompanying notes are an integral part of these consolidated financial statements.
27
| ANDREW PELLER LIMITED 2018
2018
2017
$
30,117
$
26,350
(4,164)
181
11,703
5,345
10,937
(1,400)
1,673
(672)
-
(4,600)
(11,484)
37,636
(15,889)
-
(174)
9,926
3,078
7,895
(2,232)
-
(677)
(102)
(3,101)
(7,741)
33,222
(7,658)
21,747
25,564
(77,438)
-
(19,996)
(378)
-
175
(19,836)
(822)
(97,812)
(20,483)
10,642
79,000
(5,003)
(1,222)
(7,352)
76,065
2,919
3,000
(4,181)
(194)
(6,625)
(5,081)
-
$
-
384
$
1,196
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and March 31, 2017
(in thousands of Canadian dollars, except per share amounts)
1 Nature of operations
Andrew Peller Limited (the Company) produces and markets wine, spirits and wine related products. The
Company’s products are produced and sold predominantly in Canada. The Company is incorporated under the
Canada Business Corporations Act and is domiciled in Canada. The address of its head office is 697 South Service
Road, Grimsby, Ontario, L3M 4E8.
2
Summary of significant accounting policies
Basis of presentation
These consolidated financial statements have been prepared in compliance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements were approved by the Board of Directors for issue on June 6, 2018.
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for
derivatives, which are measured at fair value, and biological assets, which are measured at fair value less costs to
sell.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and all subsidiary companies.
Subsidiaries are those entities the Company controls by having the power to govern their financial and operating
policies. Subsidiaries are fully consolidated from the date on which control is obtained by the Company and are de-
consolidated from the date control ceases. Intercompany transactions, balances, income and expenses, and profits
and losses are eliminated.
Business combinations
Business combinations are accounted for using the acquisition method. The consideration transferred by the
Company is measured as the fair value of assets transferred and equity instruments issued at the date of completion
of the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured
initially at fair value at the acquisition date. The excess of the consideration transferred over the fair value of the net
assets acquired is recorded as goodwill. If the consideration transferred is less than the net assets acquired, the
difference is recognized directly in the consolidated statements of earnings as a gain on acquisition. Results of
operations of a business acquired are included in the Company’s consolidated financial statements from the date of
the business acquisition. Acquisition costs incurred are expensed and included in selling and administrative
expenses.
Foreign currency translation
The consolidated financial statements are presented in Canadian dollars, which is the Company’s functional
currency.
ANDREW PELLER LIMITED 2018 | 28
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in
currencies other than the Company’s functional currency are recognized in the consolidated statements of earnings.
Revenue
The Company records a sale when: it has transferred the risks and rewards of ownership of the goods to the buyer;
the Company has no continuing managerial involvement over the goods; it is probable the consideration will be
received by the Company; and the amount of revenue and costs related to the transaction can be measured reliably.
For transactions with provincial liquor boards, licensee retail stores and wine kit retailers, the Company’s terms are
primarily “FOB shipping point.” Accordingly, sales are recorded when the product is shipped from the Company’s
distribution facilities. Sales to consumers through retail stores, winery restaurants, and estate wineries are recorded
when the product is purchased.
Excise taxes collected on behalf of the federal government, licensing fees, and levies paid on wine sold through the
Company’s independent retail stores in Ontario, product returns, breakage, promotional and advertising allowances,
and discounts provided to customers are deducted from gross revenue to arrive at sales.
Cost of goods sold
Cost of goods sold includes the cost of finished goods inventories sold during the year, inventory writedowns and
revaluations of agricultural produce to fair value less costs to sell at the point of harvest.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined on an average cost basis. The
Company utilizes a weighted average cost calculation to determine the value of ending inventory (bulk wine and
finished goods). Average cost is determined separately for import wine and domestic wine and is calculated by
varietal and vintage year.
Grapes produced from vineyards controlled by the Company that are part of inventories are measured at their fair
value less costs to sell at the point of harvest.
The Company includes borrowing costs in the cost of certain wine inventories that require a substantial period of
time to become ready for sale.
Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated amortization. Cost includes borrowing costs for
assets that require a substantial period of time to become ready for use. Amortization of buildings, vines and
vineyard infrastructure and machinery and equipment is calculated on the straight-line basis in amounts sufficient to
amortize the cost of buildings, vines and vineyard infrastructure and machinery and equipment over their estimated
useful lives as follows:
Buildings
Vines and vineyard infrastructure
Machinery and equipment
Land is carried at cost and is not amortized.
40 years
20 years
5 to 20 years
Vines and vineyard infrastructure amortization commences in the year the vineyard yields a crop that approximates
50% of expected annual production.
29
| ANDREW PELLER LIMITED 2018
Biological assets
The Company measures biological assets, consisting of grapes grown on vineyards controlled by the Company, at
cost, which approximates fair value as there has been minimal biological transformation since the initial cost
incurred. The initial costs incurred are comprised of direct expenditures required to enable the biological
transformation of agricultural produce.
At the point of harvest, the fair value of biological assets is determined by reference to local market prices for grapes
of a similar quality and the same varietal. At this point, agricultural produce is measured at fair value less cost to sell,
which becomes the basis for the cost of inventories after harvest.
Gains or losses arising from a change in fair value less costs to sell are included in the consolidated statements of
earnings in the period in which they arise.
Intangible assets
Intangible assets include brands, customer contracts, customer lists, contract co-packaging arrangements, software
and customer-based relationships. These intangible assets are recorded at their estimated fair value on the date of
acquisition or at cost for regular way purchases.
Brands
Customers
Contract packaging
Software
Other
Amortization
method
n/a
straight-line
straight-line
straight-line
straight-line
Useful life
indefinite
10 - 20 years
10 years
5 years
5 years
Remaining
useful life
indefinite
3 - 16 years
1 year
3 - 5 years
1 year
Brands have been assessed as having an indefinite life because the expected usage, period of control and other
factors do not limit the life of these assets. Intangible assets with an indefinite life are not amortized but are tested for
impairment at least annually or more frequently if events or circumstances indicate the asset might be impaired. To
test for impairment the Company primarily compares the amount of royalty the Company would have to pay in an
arm’s length licensing arrangement to secure access to the same rights to its carrying value. If necessary, the fair
value is also considered. An impairment charge is recorded to the extent the carrying value exceeds the fair value.
Management has determined there was no impairment in intangible assets for the years ended March 31, 2018 and
2017.
Goodwill
Goodwill represents the cost of a business combination in excess of the fair values of the net tangible and identifiable
intangible assets acquired. Goodwill is not amortized but is tested for impairment on an annual basis, or more
frequently if circumstances indicate goodwill may be impaired. The Company assigns goodwill combined with other
assets to a cash generating unit (CGU) based on certain regions and product lines, which is the lowest level at which
the combined assets generate independent cash inflows. To test for impairment the Company primarily compares a
CGU’s value in use, determined based on expected future discounted cash flows, to its carrying value. If necessary, a
CGU’s fair value is also considered. An impairment charge is recorded to the extent the carrying value of a CGU
exceeds the greater of the CGU’s fair value and its value in use. An impairment loss in respect of goodwill cannot be
reversed. Management has determined there is no impairment in goodwill for the years ended March 31, 2018 and
2017.
ANDREW PELLER LIMITED 2018 | 30
Post-employment benefits
The Company sponsors defined contribution pension plans, defined benefit pension plans, post-employment medical
benefit plans, and other post-employment benefit plans for certain employees. Contributions to the defined
contribution pension plans are recognized as an expense as services are rendered by employees. The costs of the
defined benefit plans, the post-employment medical benefit plans, and other post-employment benefit plans are
actuarially determined and include management’s best estimate of expected plan investment performance, the
interest rate on the plan obligation, salary escalation, expected retirement ages, and medical cost escalation. The
liability recognized in the consolidated balance sheets in respect of these plans is the present value of the defined
benefit obligation at the end of the reporting period as determined by the Company’s actuary less the fair value of
plan assets adjusted for the unamortized portion of negative past service credits. The current service cost,
amortization of past service credits, and the interest cost net of the expected return on plan assets are recognized in
earnings in the period they arise. Adjustments arising from actuarially determined gains or losses are recognized in
other comprehensive loss in the period in which they arise. The corresponding change in shareholders’ equity is
adjusted to retained earnings for the year.
Deferred income
Advance payments received for use of the Company’s assets are initially recorded in deferred income. The income is
recognized on a straight-line basis in net earnings over the period of use.
Financial instruments and hedge accounting
The Company classifies its financial instruments into the following categories: loans and receivables, liabilities at
amortized cost, and financial assets and liabilities at fair value through profit or loss.
The Company has chosen to not apply hedge accounting to any of its derivative financial instruments. As a result of
this policy choice, these derivative instruments are recorded initially and subsequently at fair value and the change in
the fair value is recorded directly in the consolidated statements of earnings.
The Company classifies accounts payable and accrued liabilities, dividends payable, bank indebtedness, and long-
term debt as liabilities at amortized cost. Accounts payable and accrued liabilities and dividends payable are initially
measured at the amount to be paid, which approximates fair value because of the short-term nature of these
liabilities. Subsequently, they are measured at amortized cost. Bank indebtedness and long-term debt are measured
initially at fair value, net of transaction costs incurred and subsequently at amortized cost using the effective interest
method.
Accounts receivable are classified as loans and receivables. Accounts receivable are primarily amounts due from
customers from the sale of goods or the rendering of services. The Company maintains an allowance for doubtful
accounts to record an estimate of credit losses. When no recovery of an amount owing is possible, the account
receivable is reduced directly.
Transaction costs related to long-term debt are netted against the carrying value of the liability and are then
amortized over the expected life of the instrument using the effective interest method. The Company recognizes
financial instruments when it becomes a party to the terms of the instrument and has elected to use “trade date”
accounting for regular way purchases and sales of financial assets.
Embedded derivatives (elements of contracts whose cash flows move independently from the host contract similar to
a stand-alone derivative) are required to be separated and measured at fair value if certain criteria are met.
Management reviewed its contracts and determined the Company does not currently have any embedded derivatives
in these contracts that require separate accounting and disclosure.
31
| ANDREW PELLER LIMITED 2018
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases are charged to the consolidated statements of earnings on a
straight-line basis over the period the asset is used under the lease. Leases under which the Company has
substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at
the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum
lease payments. Payments on finance leases are allocated to the liability and expense so as to recognize a constant
rate of interest on the remaining balance of the liability. Assets acquired under finance leases are amortized over
their useful lives.
Impairment of non-financial assets
The Company reviews long-lived assets and definite life intangible assets for impairment when events or
circumstances indicate an asset may be impaired. Assets are assigned to a CGU based on the lowest level at which
they generate independent cash inflows. When there is an indication of impairment, an impairment charge is
recorded to the extent the carrying value of a CGU exceeds the greater of the CGU’s fair value less costs to dispose
and its value in use, determined by discounting expected cash flows (recoverable amount). An impairment loss is
reversed if a CGU’s recoverable amount increases to the extent that the related assets’ carrying amounts are no larger
than the amount that would have been determined, net of amortization, had no impairment loss been recorded.
Net earnings per share
Basic net earnings per share have been calculated using the weighted average number of Class A and Class B shares
outstanding during the year. Diluted net earnings per share have been calculated by considering the impact of any
potential ordinary shares that are dilutive on the two classes of shares when considered together.
Dividends
Dividends on Class A and Class B shares are recognized in the period in which they are formally declared by the
Board of Directors.
Segmented information
The Company produces and markets wine and spirits products in Canada. A significant portion of the Company’s
sales are made to the liquor control boards in each province in which the Company transacts business. Management
has concluded that the chief operating decision maker allocates resources and assesses performance of the Company
on a consolidated basis. Furthermore, based on the type of products sold and the fact that its customers are similar in
nature, the Company operates in a single operating segment. In addition, substantially all of the Company’s sales are
made in Canada. As a result, management has concluded the Company operates in one geographic segment.
Income taxes
Current income tax is the expected amount of tax payable or recoverable on taxable income or loss during the period.
Current income tax may also include adjustments to taxes payable or recoverable in respect of previous periods.
The Company accounts for deferred income taxes based on temporary differences, which are the differences between
the carrying amount of an asset or liability and its tax base. Deferred income taxes are provided for all temporary
differences between the carrying amount and tax bases of assets and liabilities, except for those arising from the
initial recognition of goodwill or for those arising from the initial recognition of an asset or liability in a transaction
that is not a business combination and has no impact on earnings or taxable income or loss. Deferred income tax
assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered or settled. The deferred income tax
ANDREW PELLER LIMITED 2018 | 32
provision recorded in net earnings and other comprehensive loss represents the change during the year in deferred
income tax assets and deferred income tax liabilities.
Contingencies
In the ordinary course of business activities, the Company may be contingently liable for litigation and claims.
Management believes adequate provisions have been recorded in the accounts where required. Although it is not
possible to accurately estimate the extent of potential claims, if any, management believes the ultimate resolution of
such contingencies would not have a material adverse effect on the financial position of the Company.
Comprehensive income
Comprehensive income is comprised of net earnings and other comprehensive loss. Other comprehensive loss
represents the change in equity for a period that arises from transactions that are required to be or are elected to be
recognized outside of net earnings. The Company has chosen to record actuarial gains and losses on defined benefit
pension plans and other post-employment benefit plans in other comprehensive loss in the period incurred.
Equity
The Company separately presents changes in equity related to capital stock, contributed surplus, retained earnings
and accumulated other comprehensive loss in the consolidated statements of changes in equity.
Share based compensation
The Company grants stock options, performance share units (PSUs) and deferred share units (DSUs) to employees
and directors under its share based compensation plan. All share based compensation arrangements are equity-settled
in Class A non-voting common shares.
Equity-settled share based payments to employees are measured at the fair value of the equity instrument granted.
An option valuation model (Black-Scholes) is used to fair value stock options issued to employees on the date of
grant.
The grant date fair value of equity-settled share based awards is recognized as compensation expense with a
corresponding increase in equity reserves over the related service period provided to the Company. The total amount
of expense recognized in profit or loss is determined by reference to the fair value of the options granted or share
awards, which factors in the number of options expected to vest. Equity-settled share based payment transactions are
not remeasured once the grant date fair value has been determined, except in cases where the share based payment is
linked to non-market performance conditions. Stock options vest in tranches (graded vesting) and accordingly, the
expense is recognized in vesting tranches. PSUs vest in full at the end of the third fiscal year after the date of grant
and accordingly, the expense is recognized evenly over the vesting period. DSUs vest immediately and accordingly,
the expense is recognized in full at the date of grant.
Compensation expense is recognized over the applicable vesting period by increasing contributed surplus based on
the number of awards expected to vest. At the end of each reporting period, the Company revises its estimates of the
number of awards that are expected to vest based on the non-market performance vesting conditions. The Company
recognizes the impact of the revision to original estimates, if any, in the consolidated statements of earnings, with a
corresponding adjustment to contributed surplus.
Recently adopted accounting pronouncements
In January 2016, the IASB issued an amendment to IAS 7, Statement of Cash Flows, introducing additional
disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing
activities. The amendments are effective for annual periods beginning on or after January 1, 2017. The adoption of
these amendments did not have a material impact on the consolidated financial statements.
33
| ANDREW PELLER LIMITED 2018
In January 2016, the IASB issued amendments to IAS 12, Income Taxes, to clarify the requirements for recognizing
deferred tax assets on unrealized losses. The amendments clarify the accounting for deferred tax where an asset is
measured at fair value and that fair value is below the asset’s tax base. They also clarify certain other aspects of
accounting for deferred tax assets. The amendments are effective for annual periods beginning on or after January 1,
2017. The adoption of these amendments did not have a material impact on the consolidated financial statements.
Recently issued accounting pronouncements
During July 2014, the IASB issued the complete version of IFRS 9, Financial Instruments - Classification and
Measurement of Financial Assets and Financial Liabilities. IFRS 9 will replace IAS 39, Financial Instruments -
Recognition and Measurement. In addition, IFRS 7, Financial Instruments - Disclosures, was amended to include
additional disclosure requirements on transition to IFRS 9. The mandatory effective date of applying these standards
is for annual periods beginning on or after January 1, 2018. The standard uses a single approach to determine
whether a financial asset is measured at amortized cost or fair value. The approach is based on how an entity
manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial
assets. The new standard also requires a single impairment method to be used. The standard requires that for
financial liabilities measured at fair value, any changes in an entity’s own credit risk are generally to be presented in
other comprehensive income instead of net earnings. A new hedge accounting model is included in the standard, as
well as increased disclosure requirements about risk management activities for entities that apply hedge accounting.
The adoption of these amendments is not expected to have a material impact on the consolidated financial
statements.
During May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, which supersedes IAS 18,
Revenue, and IAS 11, Construction Contracts. The standard details a revised model for the recognition of revenue
from contracts with customers. In April 2016, the IASB amended IFRS 15 to clarify the guidance on identifying
performance obligations, licences of intellectual property and principal versus agent. The amendments also provide
additional practical expedients on transition. The standard is effective for first interim periods within annual periods
beginning on or after January 1, 2018. During the year, the Company carried out a detailed review of the current
recognition criteria for revenue against the requirements of IFRS 15. This review closely examined its agency wine
businesses, presentation of certain customer related trade spending and timing of recognition of certain promotional
discounts. Based on preliminary work completed, the adoption of this standard is not expected to have a material
impact on the consolidated financial statements.
In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases and related interpretations.
The new standard will be effective for fiscal years beginning on or after January 1, 2019, with early adoption
permitted provided the Company has adopted IFRS 15, Revenue from Contracts with Customers. The new standard
requires lessees to recognize a lease liability reflecting future lease payments and a “right-of-use asset” for virtually
all leases contracts, and record it on the consolidated statement of financial position, except with respect to lease
contracts that meet limited exception criteria. Given that the Company has significant contractual obligations in the
form of operating leases under IAS 17, there will be a material increase to both assets and liabilities on adoption of
IFRS 16, and material changes to the timing of recognition of expenses associated with the lease arrangements. The
Company is analyzing the new standard to determine the impact of adopting this standard.
3 Critical accounting estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated
financial statements, the reported amounts of revenues and expenses during the reporting periods and the extent of
and the reported amounts in disclosures. Actual results may vary from current estimates. These estimates are
reviewed periodically and, as adjustments become necessary, they are recorded in the period in which they change.
Specific areas of uncertainty include but are not limited to:
ANDREW PELLER LIMITED 2018 | 34
Business combinations
For each business combination, the Company measures the identifiable assets acquired and the liabilities assumed at
their acquisition-date fair values. The determination of fair value requires the Company to make assumptions,
estimates and judgments regarding future events. The allocation process is inherently subjective and impacts the
amounts assigned to individual identifiable assets and liabilities, including the fair value of finished goods inventory,
long-lived assets, the recognition and measurement of any identified intangible assets and the final determination of
the amount of goodwill or gain on acquisition. The inputs to the exercise of judgments include legal, contractual,
business and economic factors. As a result, the purchase price allocation impacts the Company’s reported assets and
liabilities and future net earnings due to the impact on future cost of goods sold, amortization and impairment tests.
Impairment of goodwill and indefinite life intangible assets
Testing goodwill for impairment at least annually involves estimating the recoverable amount of the CGUs to which
goodwill is allocated. This requires making assumptions about future cash flows, growth rates and discount rates.
Testing indefinite life intangible assets for impairment at least annually involves estimating the fair value using the
relief of royalty method. This requires making assumptions about royalty rates, growth rates and discount rates.
These assumptions are inherently uncertain and as such, actual amounts may vary from these assumptions and cause
significant adjustments. Management has concluded that a 10% change in any key assumption in the impairment
tests would not result in an impairment of goodwill or indefinite life intangible assets as at March 31, 2018 and 2017.
Post-employment benefits
Measuring the liability for post-employment benefits uses assumptions for the discount rates, increases in
compensation, increases in medical costs and the timing of the payment of benefits. Actual amounts may vary from
these assumptions and cause significant adjustments.
Fair value of grapes at the point of harvest
Where possible, the fair value of grapes at the point of harvest is determined by reference to local market prices for
grapes of a similar quality and same varietal. For grapes for which local market prices are not readily available, the
average price of similar grapes is used. Actual amounts may vary from these assumptions and cause significant
adjustments.
4 Acquisitions
During the year, the Company made the following acquisitions:
� On October 1, 2017, the Company acquired 100% of the common shares of Gray Monk Cellars Ltd. (Gray
Monk) and certain operating assets held by related parties for consideration of $36,384, of which $17,254
was funded in cash and $19,130 was funded by the issuance of 1,579,670 Class A non-voting common
shares. Gray Monk generates annual revenue of approximately $11,000 and employs approximately 50
people. The results of operations from October 1, 2017 have been included in these consolidated financial
statements. Since the date of acquisition, Gray Monk has generated revenue of $4,951 and net income of
$1,069.
� On October 1, 2017, the Company acquired 100% of the common and preferred shares of Tinhorn Creek
Vineyards Ltd. (Tinhorn) for cash consideration of $28,880. Tinhorn generates annual revenue of
approximately $7,000 and employs approximately 50 people. The results of operations from October 1, 2017
have been included in these consolidated financial statements. Since the date of acquisition, Tinhorn has
generated revenue of $3,191 and has incurred a net loss of $376.
35
| ANDREW PELLER LIMITED 2018
� On October 10, 2017, the Company acquired 100% of the operating assets of Black Hills Estate Winery
(Black Hills) for cash consideration of $31,328. Black Hills generates annual revenue of approximately
$6,000 and employs approximately 20 people. The results of operations from October 10, 2017 have been
included in these consolidated financial statements. Since the date of acquisition, Black Hills has generated
revenue of $544 and has incurred a net loss of $266.
These acquisitions have been accounted for as business combinations.
The following table summarizes the amounts paid or payable at the dates of the acquisitions and the allocation of the
purchase prices to the identifiable assets acquired and liabilities assumed based on management’s estimate of the fair
values:
Gray Monk
Cellars Ltd.
Tinhorn Creek
Vineyards
Ltd.
Black Hills
Estate
Winery
Assets acquired
Cash
Receivables
Inventories
Current portion of biological assets
Prepaid expenses and other assets
$
Property, plant and equipment
Intangible assets - brand
Intangible assets - customer lists
Goodwill
Liabilities assumed
Debt
Accounts payable and accrued
liabilities
Income taxes payable
Deferred income taxes
Net assets acquired
Total purchase consideration
24 $
- $
934
11,882
312
71
13,223
20,356
2,440
-
5,190
41,209
-
1,358
114
3,353
4,825
36,384
36,384
468
7,977
-
107
8,552
27,459
1,439
-
-
37,450
62
532
-
3,812
4,406
33,044
28,880
Total
24
1,402
23,478
312
190
25,406
60,851
6,439
1,680
16,165
- $
-
3,619
-
12
3,631
13,036
2,560
1,680
10,975
31,882
110,541
-
-
-
554
554
62
1,890
114
7,719
9,785
31,328
100,756
31,328
96,592
Gain on acquisition
$
- $
4,164 $
- $
4,164
Recognized goodwill reflects the value assigned to expected future synergies and an assembled workforce within the
companies. The gain on acquisition relating to the purchase of Tinhorn was a result of the limited number of market
participants with the resources to acquire the assets and business of this scale. The gain on acquisition has been
recorded as other income (expense) in the consolidated statements of earnings.
ANDREW PELLER LIMITED 2018 | 36
5
Inventories
Packaging materials and supplies
Bulk wine and spirits
Finished goods
Interest included in the cost of inventories
2018
8,177
85,780
66,197
160,154
644
$
$
$
2017
9,627
70,806
48,655
129,088
566
$
$
$
Inventory writedowns recognized as an expense amounted to $1,306 (2017 - $1,906).
The cost of inventories recognized as an expense and included in cost of goods sold, excluding amortization, was
$212,266 (2017 - $209,545).
6
Property, plant and equipment
$
$
$
At March 31, 2016
Cost
Accumulated amortization
Net carrying amount
Year ended March 31, 2017
Additions
Disposals
Amortization
Closing net carrying amount
At March 31, 2017
Cost
Accumulated amortization
Net carrying amount
Year ended March 31, 2018
Additions
Additions from acquisition (note 4)
Disposals
Amortization
Vines,
vineyard
land and
infrastructure Buildings
Machinery
and
equipment
Total
40,374 $
(8,069)
45,343 $
(18,066)
116,585 $ 207,118
(98,189)
(72,054)
32,305
27,277
44,531
108,929
Land
4,816 $
-
4,816
-
-
-
573
-
(1,329)
9,777
-
(1,227)
8,213
(1)
(6,097)
18,563
(1)
(8,653)
4,816 $
31,549 $
35,827 $
46,646 $ 118,838
4,816 $
-
4,816
-
30,988
-
-
40,947 $
(9,398)
55,120 $
(19,293)
122,325 $ 223,208
(104,370)
(75,679)
31,549
35,827
46,646
118,838
395
6,119
(72)
(1,814)
2,771
21,705
-
(1,838)
16,012
2,039
(109)
(6,843)
19,178
60,851
(181)
(10,495)
Closing net carrying amount
$
35,804 $
36,177 $
58,465 $
57,745 $ 188,191
At March 31, 2018
Cost
Accumulated amortization
$
35,804 $
-
47,373 $
(11,196)
79,596 $
(21,131)
139,285 $ 302,058
(113,867)
(81,540)
Net carrying amount
$
35,804 $
36,177 $
58,465 $
57,745 $ 188,191
37
| ANDREW PELLER LIMITED 2018
Included in buildings and machinery and equipment are assets amounting to $1,562 (2017 - $12,378) that are under
development and are not being amortized.
Contractual commitments to purchase property, plant and equipment were $12,272 as at March 31, 2018 (2017 -
$2,890).
7 Biological assets
Biological assets consist of grapes prior to harvest that are controlled by the Company. The Company owns and
leases land in Ontario and British Columbia to grow grapes in order to secure a supply of quality grapes for the
making of wine.
During the year ended March 31, 2018, the Company harvested grapes valued at $7,150 (2017 - $6,238).
The changes in the carrying amount of biological assets are as follows:
Carrying amount - Beginning of year
$
1,400
$
2018
Acquisitions (note 4)
Net increase in fair value less costs to sell due to biological
transformation
Transferred to inventory on harvest
Net gain
Biological assets
2017
1,196
-
6,442
(6,238)
204
312
7,339
(7,150)
501
$
1,901
$
1,400
The Company is exposed to financial risk because of the long period of time between the cash outflow required to
plant grape vines, cultivate vineyards, and harvest grapes and the cash inflow from selling wine and related products
from the harvested grapes.
Substantially all of the grapes from owned and leased vineyards are used in the Company’s winemaking processes.
Owned and leased vineyards, in combination with supply contracts with grape growers, are used to secure a supply
of domestic grapes. These strategies reduce the financial risks associated with changes in grape prices.
ANDREW PELLER LIMITED 2018 | 38
8
Intangible assets
Brands -
indefinite
life Customers
Contract
packaging Software
Other
Total
At March 31, 2016
Cost
Accumulated amortization and
impairment
$
4,175 $
11,147 $
1,100 $
2,133
$
1,917 $
20,472
(200)
(5,821)
(863)
(897)
(1,651)
(9,432)
Net carrying amount
3,975
5,326
237
1,236
266
11,040
Year ended March 31, 2017
Additions
Amortization
-
-
-
(647)
-
(110)
833
(384)
-
(132)
833
(1,273)
Closing net carrying amount $
3,975 $
4,679 $
127 $
1,685
At March 31, 2017
Cost
Accumulated amortization and
impairment
$
4,175 $
11,147 $
1,100 $
2,966
(200)
(6,468)
(973)
(1,281)
(1,783)
(10,705)
Net carrying amount
3,975
4,679
127
1,685
134
10,600
Year ended March 31, 2018
Additions
Additions from acquisitions
(note 4)
Amortization
-
6,439
-
-
1,680
(734)
-
-
(110)
384
-
(493)
Closing net carrying amount $
10,414 $
5,625 $
17 $
1,576
$
$
134 $
10,600
1,917 $
21,305
-
-
(33)
384
8,119
(1,370)
101 $
17,733
1,917 $
29,808
$
$
At March 31, 2018
Cost
Accumulated amortization and
impairment
$
10,614 $
12,827 $
1,100 $
3,350
(200)
(7,202)
(1,083)
(1,774)
(1,816)
(12,075)
Net carrying amount
$
10,414 $
5,625 $
17 $
1,576
$
101 $
17,733
9 Goodwill
In order to test goodwill for impairment, the Company allocates the carrying value of goodwill to CGUs based on the
lowest level that goodwill is monitored for internal management purposes. The aggregate carrying amount of
goodwill allocated to each unit is as follows:
Ontario and eastern Canadian wine
Western Canadian wine
Personal winemaking products
2018
3,134
26,695
23,809
53,638
$
$
2017
3,134
10,530
23,809
37,473
$
$
39
| ANDREW PELLER LIMITED 2018
The Company determined the recoverable amount of the related CGUs by estimating their value in use. Key
assumptions used are:
Pre-tax discount rate
Period of projected cash flows
Growth rate beyond period of projected cash flows
2018
12%
5 years
3%
2017
11%
5 years
3%
The Company uses past experience and current expectations about future performance in projecting cash flows,
which are based on financial budgets for five years. For the period after five years, the Company projects cash flows
using an assumed growth rate, which is based on expectations about long-term economic growth in Canada and any
known industry specific factors that may influence long-term growth in the Canadian wine industry. The discount
rate is estimated by referring to external sources of information about the cost of capital and the leverage of
companies that operate in a similar industry to the Company and that are of similar size. The rate determined is then
adjusted to a pre-tax basis.
10 Bank indebtedness
Significant terms of the Company’s operating loan facility are summarized below. The floating rates are stated in
relation to the one to six-month Canadian Dealer Offered Rate (CDOR).
Bank indebtedness
Significant terms
Committed until
Borrowing limit
Interest rate
Unused amount
11 Accounts payable and accrued liabilities
Trade payables
Accrued liabilities
Deferred revenue - gift cards
Foreign exchange forward contracts liability (note 21)
Deferred income
2018
2017
$
47,324
$
36,620
September 29,
2022
$90,000
CDOR + 1.90%
$42,676
July 31, 2021
$90,000
CDOR + 1.25%
$53,380
$
2018
22,211
10,796
397
-
-
33,404
$
$
$
2017
23,725
12,045
380
8
102
36,260
ANDREW PELLER LIMITED 2018 | 40
12 Long-term debt
Revolving, amortizing loan - Investment facility
Term loan - Operating facility
Term loan - Capital facility
Other
Less: Financing costs
Less: Current portion
$
$
2018
125,255
-
-
212
125,467
1,075
124,392
8,135
$
116,257
$
2017
-
48,333
2,925
319
51,577
493
51,084
4,406
46,678
On September 29, 2017, the Company amended and restated its debt facilities. Amendments include a revised
maturity date of September 29, 2022, revised financial covenants and updated applicable margins based on the
Company’s leverage. Additionally, the total borrowing limit was increased to $310,000 and separated into two
facilities: a revolving, non-amortizing facility with a borrowing limit of $90,000 to be used for day-to-day
operations, distributions and capital expenditures and a revolving, amortizing investment facility with a borrowing
limit of $220,000 to be used for acquisitions or capital expenditures. Each draw on the investment facility is subject
to a new amortization schedule and required annual repayments increase over the term of the loan. The initial draw
on the investment facility was used to refinance the previous operating and capital term loans and to fund
acquisitions. Monthly principal repayments of $535 are required on the revolving, amortizing investment facility
based on the initial draw until September 30, 2018. Thereafter, monthly principal repayments of $803 are required.
As at March 31, 2018, the applicable margin was 1.90% (2017 - 1.25%).
Unamortized financing costs relating to the refinanced facilities of $435 as at September 29, 2017 were expensed to
interest expense in the consolidated statements of earnings. Financing costs of $1,222 were incurred to amend the
debt facilities and these costs will be amortized over the new term of the loan.
On October 31, 2017, the Company terminated its existing swap agreements and entered into a new swap agreement
to fix the interest rate on the balance outstanding on the investment facility. Until September 29, 2022, the interest
rate is fixed at 2.25%, plus the applicable margin.
The Company and its subsidiaries have provided their assets as security for these loans.
Interest expense on long-term debt during the year was $3,227 (2017 - $1,858).
41
| ANDREW PELLER LIMITED 2018
13 Post-employment benefits
Defined contribution plans
The total expenses for the defined contribution savings plans were $1,630 (2017 - $1,519).
Defined benefit plans
The Company has funded defined benefit pension plans. The Company also has an unfunded post-retirement medical
benefits plan for certain employees and provides a monthly wine allowance to retired employees, which are
collectively referred to as other post-employment benefits.
Nature
The Company’s defined benefit pension plans pay benefits based on a percentage of final average salary. There are
two defined benefit pension plans in British Columbia with members who continue to accrue benefits. New
employees are no longer entitled to accrue benefits under these defined benefit pension plans. There is one defined
benefit pension plan in Ontario and no further benefits accrue to the members of this plan. All members of the
defined benefit pension plan in Ontario have retired. The Company is responsible for administering these pension
plans and determining investment policies. A committee of the Company’s Board of Directors is responsible for
overseeing the Company’s defined benefit pension plans.
Regulatory information
The defined benefit pension plans are governed by the Pension Benefits Standards Act in British Columbia and the
Pension Benefits Act in Ontario. An appointed actuary prepares a valuation at least every three years for each of the
plans. These valuations determine the Company’s minimum contributions. The minimum contributions are primarily
based on the normal going concern cost, the funding deficit amortized over 15 years, and the solvency deficit
amortized over five years. The solvency deficit is calculated assuming the plan is wound up on the effective date of
the valuation. Contributions could be reduced in certain instances via a funding holiday if requirements of the
relevant regulations are met, which normally requires the plan to have a surplus above certain threshold levels.
Risks
The defined benefit plan’s assets are invested in mutual funds. The investment mix for each plan is chosen with the
objective that sufficient assets will be available to pay benefits as they come due and to achieve a reasonable return
at an acceptable level of risk to stakeholders. The defined benefit plans subject the Company to market, interest rate,
currency, price, credit, liquidity and longevity risks, which are typical of such plans. The most significant of these
risks is that the expense and cash contributions related to these plans depend on the discount rate used to measure the
liability to pay future benefits and the market performance of the plan’s assets set aside to pay these benefits. A
decline in long-term interest rates or in asset values could increase the Company’s costs related to funding the deficit
in these plans.
ANDREW PELLER LIMITED 2018 | 42
Amounts pertaining to defined benefit plans are as follows:
Pension
benefits
Other post-
employment
benefits
2018
Total
22,320
$
-
$
22,320
$
$
(650)
805
1,398
(1,346)
22,527
24,889
559
892
(1,346)
(566)
147
358
$
$
-
-
91
(91)
-
2,710
72
99
(91)
(33)
9
(32)
24,933
2,406
$
$
2,734
2,734
$
$
Pension
benefits
Other post-
employment
benefits
559
87
646
$
$
(589) $
1,362
$
13.1
$
$
$
$
72
99
171
56
128
10.4
(650)
805
1,489
(1,437)
22,527
27,599
631
991
(1,437)
(599)
156
326
27,667
5,140
2018
Total
631
186
817
(533)
1,490
12.8
$
$
$
$
$
$
$
$
$
Plan assets
Fair value - Beginning of year
Return on plan assets excluding amounts in
interest income
Interest income
Company’s contributions
Benefits paid
Fair value - End of year
Plan obligations
Accrued benefit obligations - Beginning of year
Total current service cost
Interest cost
Benefits paid
Remeasurements
Experience gain
Loss from change in demographic
Loss (gain) from change in financial
assumptions
assumptions
Accrued benefit obligations - End of year
Post-employment benefit obligations
Benefit plan expense
Current service cost
Net interest cost on defined benefit liability
Net benefit plan expense
Amount recognized in other comprehensive loss
Net actuarial (loss) gain
Expected contributions for the year ending March 31,
2019
Weighted average duration of the defined benefit
obligations in years
43
| ANDREW PELLER LIMITED 2018
Plan assets
Fair value - Beginning of year
Return on plan assets excluding amounts in
interest income
Interest income
Company’s contributions
Benefits paid
Fair value - End of year
Plan obligations
Accrued benefit obligations - Beginning of year
Total current service cost
Interest cost
Benefits paid
Remeasurements
Experience loss (gain)
Loss from change in financial assumptions
Accrued benefit obligations - End of year
Post-employment benefit obligations
Benefit plan expense
Current service cost
Net interest cost on defined benefit liability
Net benefit plan expense
Amount recognized in other comprehensive loss
Net actuarial (loss) gain
Expected contributions for the year ending March 31,
2018
Weighted average duration of the defined benefit
obligations in years
Pension
benefits
Other post-
employment
benefits
2017
Total
20,966
$
-
$
20,966
177
804
1,397
(1,024)
22,320
24,084
520
916
(1,024)
76
317
24,889
2,569
Pension
benefits
520
112
632
$
$
$
$
$
$
(216) $
1,357
$
14.7
-
-
109
(109)
-
2,829
88
109
(109)
(231)
24
2,710
2,710
Other post-
employment
benefits
88
109
197
207
122
11.1
$
$
$
$
$
$
$
$
177
804
1,506
(1,133)
22,320
26,913
608
1,025
(1,133)
(155)
341
27,599
5,279
2017
Total
608
221
829
(9)
1,479
12.7
$
$
$
$
$
$
$
$
$
ANDREW PELLER LIMITED 2018 | 44
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations and benefits
costs are as follows:
Discount rate for expenses
Discount rate for obligations
Rate of compensation increase
Rate of medical cost increases
Retirement age
Inflation rate
Mortality tables
2018
2017
3.6%
3.5%
2.5%
5.0%
60 - 65 years
2.0%
MI-2017
3.8%
3.6%
2.5%
5.0%
60 - 65 years
2.0%
CPM-B 2014
Private table
The following table outlines the impact of a reasonable change in significant assumptions assuming all other
assumptions are held constant. Changes in numerous assumptions may occur at the same time, which could increase
or decrease the impact. With respect to a 1% increase or decrease in the inflation rate, the analysis excludes any
impact this would have on the discount rate, medical cost trend rates and the rate of compensation increase.
2018
Pension
benefits
Other post-
employment
benefits
Pension
benefits
2017
Other post-
employment
benefits
Increase (decrease) in the post-employment
benefit obligations
1% increase in the discount rate
1% decrease in the discount rate
1% increase in the rate of
compensation increase
1% decrease in the rate of
compensation increase
1% increase in the inflation rate
1% decrease in the inflation rate
$
(2,928) $
3,583
(267)
301
$
(3,301) $
4,023
667
(604)
360
(326)
5
(5)
-
-
952
(840)
365
(329)
(263)
339
10
(9)
-
-
At March 31, 2018, the accumulated actuarial losses recognized in other comprehensive loss were $5,725 (2017 -
$5,192).
Plan assets
The plan assets consist of the following:
Mutual funds
Fixed income
Equity
$
$
16,177
6,350
22,527
2018
72%
28
100%
$
$
16,094
6,226
22,320
2017
72%
28
100%
45
| ANDREW PELLER LIMITED 2018
14
Income taxes
Current tax on earnings for the year
Adjustments in respect of prior years
Provision for current income taxes
Change in temporary differences
Impact of change in tax rate
Other
Provision for (recovery of) deferred income taxes
$
$
2018
11,797
-
11,797
(714)
(1)
(145)
(860)
2017
9,220
(1,556)
7,664
72
14
145
231
Total provision for income taxes
$
10,937
$
7,895
The Company’s income tax expense consists of the following:
Provision for income taxes at blended statutory rate of
26.05% (2017 - 25.98%)
Permanent differences and non-deductible items
Deferred tax liability required for purchased assets
Future tax rate differential
Future income tax rate changes
Refunds relating to prior years
Other
The movement of the deferred income tax account is as follows:
At beginning of year
Deferred tax liability recognized on acquired assets (note 4)
Provision for (recovery of) deferred income taxes in net earnings
Recovery of deferred income taxes in other comprehensive loss
At end of year
2018
2017
$
10,696
(741)
228
185
(1)
-
570
8,897
346
-
-
14
(1,357)
(5)
10,937
$
7,895
2018
15,820
7,719
(860)
(139)
$
2017
15,591
-
231
(2)
22,540
$
15,820
$
$
$
$
ANDREW PELLER LIMITED 2018 | 46
The significant temporary differences giving rise to the deferred income tax liability are comprised of the following:
Deferred income tax liability
Accelerated
tax
depreciation
and
deductions
on property,
plant and
equipment
Accelerated
tax
deductions
on
intangible
assets
$
12,681 $
2,287 $
(27)
12,654
1,826
1,884
(375)
1,912
2,054
(2,019)
March 31, 2016
(Recovery) provision in net
earnings
March 31, 2017
Deferred tax liability recognized on
acquisition of assets
(Recovery) provision in net
earnings
Tax
deductions
on inventory
Tax
deductions
on goodwill
Total
- $
-
3,171 $
18,139
-
(402)
-
3,171
17,737
3,891
(1,872)
(52)
659
7,719
(1,348)
March 31, 2018
$
16,364 $
1,947 $
2,019 $
3,778 $
24,108
Deferred income tax asset
March 31, 2016
(Recovery) provision in net earnings
Recovery in other comprehensive loss
March 31, 2017
(Recovery) provision in net earnings
Recovery in other comprehensive loss
Fair value
change on
derivatives
Post-
employment
benefits
$
(862) $
583
-
(279)
366
-
(1,554) $
175
(2)
(1,381)
175
(139)
Other
Total
(132) $
(125)
-
(257)
(53)
-
(2,548)
633
(2)
(1,917)
488
(139)
March 31, 2018
$
87 $
(1,345) $
(310) $
(1,568)
47
| ANDREW PELLER LIMITED 2018
15 Capital stock
Authorized
Unlimited preference shares
Unlimited Class A shares, non-voting
Unlimited Class B shares, voting
Issued
Class A shares, non-voting
Class B shares, voting
Number
of shares
35,471,185
8,702,095
44,173,280
$
$
2018
Amount
Number
of shares
25,711
386
33,581,487
9,012,123
$
26,097
42,593,610
$
2017
Amount
6,567
400
6,967
All of the issued Class A and Class B shares are fully paid and have no par value.
Class A shares are non-voting and are entitled to a dividend in an amount equal to 115% of any dividend paid or
declared on Class B shares. Class B shares are voting and convertible into Class A shares on a one-for-one basis. In
March 2018, 310,028 Class B shares were converted into Class A shares on a one-for-one basis.
Quarterly dividends of $0.0450 (previously $0.0408) per Class A share and $0.0391 (previously $0.0355) per Class
B share were approved by the Board of Directors on June 7, 2017 and are formally declared in each quarter.
The authorized share capital of the Company also consists of an unlimited number of preference shares, issuable in
one or more series, of which 33,315 are designated as preference shares, Series A. As at March 31, 2018 and 2017,
there were no preference shares issued or outstanding.
Stock purchase plan
The Company’s full-time salaried and certain hourly employees participate in a Company sponsored stock purchase
plan. Under the terms of the plan, employees can purchase a certain number of Class A shares on an annual basis.
Employees are required to pay 67% of the market price per Class A share. The Company is responsible for the
remainder of the cost and, during 2018, expensed $197 (2017 - $268) related to the employee program. In fiscal
2017, officers of the Company participated in an Equity Incentive Program, where Class A shares of the Company
were purchased on their behalf from the open market. During 2018, this program was replaced by the share based
compensation program as described in note 16.
ANDREW PELLER LIMITED 2018 | 48
16 Share based compensation
On September 13, 2017, the Company established a new share based compensation plan comprised of stock options,
PSUs and DSUs. The impact of the share based compensation expense is summarized as follows:
241,600 stock options (2017 - nil) (a)
72,750 performance share units (2017 - nil) (b)
69,559 deferred share units (2017 - nil) (c)
2018
259
146
1,268
1,673
$
$
The stock options, PSUs and DSUs are equity settled and as such, the expense associated with these instruments is
recorded as a share based compensation expense through the consolidated statements of earnings and comprehensive
income with a corresponding entry made to contributed surplus on the consolidated balance sheets.
The maximum number of shares that may be issued under all share based compensation arrangements implemented
by the Company, including the stock option plan, the PSU plan and the DSU plan, may not exceed 10% of the total
number of Class A non-voting common shares issued and outstanding from time to time. As at March 31, 2018, the
Company had 3,358,149 Class A non-voting common shares reserved for issuance under the share based
compensation arrangements.
a) Stock options
The Company has a stock option plan under which options to purchase Class A non-voting common shares may
be granted to officers and employees of the Company. Options granted under the plan have an exercise price of
not less than the volume weighted average trading price of the Class A non-voting common shares where they
are listed for the five trading days prior to the date of the grant. Options granted vest in tranches, equally over a
three-year period on each anniversary of the grant date, commencing on the first anniversary of the grant date.
The Company’s stock option transactions during the year were as follows:
Balance - March 31, 2017
Granted on September 21, 2017
Granted on November 13, 2017
Forfeited on November 17, 2017
Forfeited on February 9, 2018
Forfeited on February 28, 2018
Forfeited on March 16, 2018
Weighted
average
exercise
price per
share
-
11.66
12.80
(11.66)
(11.66)
(11.66)
(11.66)
Number of
options
- $
252,300
17,600
(1,900)
(1,700)
(6,300)
(18,400)
241,600 $
11.74
The stock options granted on September 21, 2017 expire on September 21, 2027. The stock options granted
November 13, 2017 expire on November 13, 2027.
49
| ANDREW PELLER LIMITED 2018
For options granted during the year, the fair value was estimated on the grant date using the Black-Scholes fair
value option pricing model using the following weighted average assumptions:
Weighted average fair value per share option
Expected volatility (1)
Dividend yield
Risk-free interest rate
Weighted average expected life in years
$3.41
30.43%
1.75%
1.00%
10
(1) Expected volatility was determined using historical volatility.
No stock options granted under the share based compensation plan have vested or been exercised as at
March 31,2018.
b) PSU plan
The Company has established a PSU plan for employees and officers of the Company. PSUs represent the right
to receive Class A non-voting common shares settled by the issuance of treasury shares or shares purchased on
the open market. PSUs vest in full at the end of the third fiscal year after the grant date. The number of units
that will vest is determined based on the achievement of certain performance conditions (i.e., financial targets)
established by the Board of Directors and are adjusted by a factor, which ranges from 0.5 to 2.0, depending on
the achievement of the targets established. Therefore, the number of units that will vest and are exchanged for
Class A non-voting common shares may be higher or lower than the number of units originally granted to a
participant.
The Company’s PSU transactions during the year were as follows:
Balance - March 31, 2017
Granted on September 21, 2017
Granted on November 13, 2017
Forfeited on November 17, 2017
Forfeited on February 9, 2018
Forfeited on February 28, 2018
Forfeited on March 16, 2018
Number of
units
Grant date
fair value
per unit
- $
76,280
4,690
(560)
(510)
(1,570)
(5,580)
-
11.66
12.80
(11.66)
(11.66)
(11.66)
(11.66)
72,750 $
11.74
No PSUs granted under the share based compensation plan have vested or been exercised as at March 31, 2018.
c) DSU plan
The Company has established a DSU plan for employees, officers and Directors of the Company. DSUs
represent the right to receive Class A non-voting common shares settled by the issuance of treasury shares or
shares purchased on the open market. DSUs vest immediately, but are only exercisable when the participant’s
employment with the Company ceases, or when the participant is no longer a director of the Company.
ANDREW PELLER LIMITED 2018 | 50
The Company’s DSU transactions during the year were as follows:
Balance - March 31, 2017
Granted on March 13, 2018
Granted on March 31, 2018
Number of
units
Grant date
fair value
per unit
- $
9,780
59,779
69,559 $
-
18.41
18.22
18.25
No DSUs granted under the share based compensation plan have been exercised as at March 31, 2018.
17 Nature of expenses
The nature of expenses included in selling and administration and cost of goods sold, excluding amortization, are as
follows:
Raw materials and consumables
Employee compensation and benefits
Advertising, promotion and distribution
Occupancy
Repairs and maintenance
Other external charges
Other (income) expenses are as follows:
Gain on acquisition (note 4)
Ongoing maintenance costs related to Port Moody winery
facility (a)
Income related to Port Moody winery facility (b)
Other
$
2018
174,825
67,712
28,504
11,885
6,708
21,403
2017
173,225
63,412
24,025
11,169
6,803
18,835
311,037
$
297,469
2018
(4,164)
$
572
(101)
(149)
(3,842)
$
2017
-
524
(404)
-
120
$
$
$
$
a) During fiscal 2006, the Company closed its Port Moody winery facility and transferred production to its winery
operations in Kelowna, British Columbia. Effective July 1, 2012, the property was expropriated for a five-year
period. The cost of maintaining this idle facility and costs associated with its expropriation amounted to $572 in
2018 (2017 - $524).
b)
Income amounting to $101 (2017 - $404) was recorded related to the Company’s idle Port Moody property
related to expropriation notices received by the Company.
51
| ANDREW PELLER LIMITED 2018
18 Net earnings per share
Class A
Class B
2018
Total
Net earnings attributed for the year - basic and
diluted
$
24,545
$
5,572
$
30,117
Weighted average number of shares outstanding -
basic and diluted
34,539,843
8,986,571
Net earnings per share - basic and diluted
$
0.71
$
0.62
Net earnings attributed for the year - basic and
diluted
Weighted average number of shares outstanding -
basic and diluted
Net earnings per share - basic and diluted
$
$
19 Commitments
Class A
Class B
2017
Total
21,363
$
4,987
$
26,350
33,581,487
9,012,123
0.64
$
0.55
In certain instances, the Company leases land for the purpose of operating vineyards. The terms of the land leases are
30 and 32 years, which expire in 2036 and 2029, respectively. Under the terms of one land lease, the Company has
the option to agree in advance to purchase any grapes grown on the property at fair value for five or more years after
the termination of the lease. The Company also has a right of first refusal to purchase the land under both land leases.
The terms of such a purchase would be negotiated based on market conditions existing at the time of the purchase.
The Company leases various storage facilities, offices, and retail locations. The remaining terms of these leases
range between one and ten years. The Company also leases various equipment and vehicles with remaining lease
terms between one and five years. In many cases, the Company has renewal options for fair market rental prices at
the time of renewal.
The Company’s minimum lease payments as at March 31, 2018 under long-term non-cancellable leases are outlined
in note 21 along with its other contractual obligations.
In 2018, minimum lease payments of $6,249 (2017 - $5,289) were recognized as an expense.
ANDREW PELLER LIMITED 2018 | 52
20 Non-cash working capital items
The change in non-cash working capital items related to operations is comprised of the change in the following
items:
Accounts receivable
Inventories and current portion of biological assets
Prepaid expenses and other assets
Accounts payable and accrued liabilities
2018
(3,031)
(7,615)
(1,105)
(4,138)
$
(15,889)
$
$
$
2017
1,250
(9,626)
(1,324)
2,042
(7,658)
21 Financial instruments
Classification of financial instruments
The classification and measurement of the financial assets and liabilities, as well as their carrying amounts and fair
values are as follows:
Assets/liabilities
Category
Measurement
Carrying
amount
Loans and receivables Amortized cost
Amortized cost
Other liabilities
$
31,406 $
47,324
Accounts receivable
Bank indebtedness
Accounts payable and
accrued liabilities
Dividends payable
Long-term debt
Interest rate swap asset
Foreign exchange forward
contracts asset
Other liabilities
Other liabilities
Other liabilities
Derivatives
Amortized cost
Amortized cost
Amortized cost
Fair value
Derivatives
Fair value
33,404
1,935
124,392
180
152
Carrying
amount
Assets/liabilities
Category
Measurement
Accounts receivable
Bank indebtedness
Accounts payable and
accrued liabilities
Dividends payable
Long-term debt
Interest rate swap liability
Foreign exchange forward
contracts liability
Loans and receivables Amortized cost
Amortized cost
Other liabilities
$
26,973 $
36,620
Other liabilities
Other liabilities
Other liabilities
Derivatives
Amortized cost
Amortized cost
Amortized cost
Fair value
Derivatives
Fair value
36,252
1,690
51,084
1,060
8
2018
Fair
value
31,406
47,324
33,404
1,935
124,392
180
152
2017
Fair
value
26,973
36,620
36,252
1,690
51,084
1,060
8
The Company’s interest rate swaps and foreign exchange contracts are derivatives and are recorded at fair value. As
a result, unrealized gains and losses are included each period through earnings, which reflect changes in fair value.
Fair value
The fair value of accounts receivable, accounts payable and accrued liabilities and dividends payable approximates
their carrying value because of the short-term maturity of these instruments.
53
| ANDREW PELLER LIMITED 2018
The fair value of bank indebtedness and long-term debt is equivalent to its carrying value because the variable
interest rate is comparable to market rates. The fair value of the interest rate swaps used to fix the interest rate on
long-term debt is included in the current and long-term derivative financial instruments in the consolidated balance
sheets.
The fair value of foreign exchange forward contracts is determined based on the difference between the contract rate
and the forward rate at the date of the valuation.
The fair value of the interest rate swaps is determined based on the difference between the fixed interest rate in the
contract that will be paid by the Company and the forward curve of the floating interest rates that are expected to be
paid by the counterparty. The fair value of foreign exchange forward contracts and the interest rate swaps are
adjusted to reflect any changes in the Company’s or the counterparty’s credit risk.
Fair value estimates are made at a specific point in time, using available information about the instrument. These
estimates are subjective in nature and often cannot be determined with precision.
The net unrealized gain on derivative financial instruments is comprised of:
Unrealized gains on foreign exchange forward contracts
Unrealized gains on interest rate swaps
2018
160
1,240
1,400
$
$
2017
1,118
1,114
2,232
$
$
The fair value measurements of the Company’s financial instruments are classified in the hierarchy below according
to the significance of the inputs used in making the fair value measurements.
Quoted prices in
active markets
for
identical assets
Significant
observable
inputs
other than
quoted prices
Asset/liability
(Level 1)
(Level 2)
Interest rate swap asset
Foreign exchange forward contracts asset
$
- $
-
180 $
152
Asset/liability
Quoted prices in
active markets
for
identical assets
(Level 1)
Significant
observable
inputs
other than
quoted prices
(Level 2)
2018
Significant
unobservable
inputs
(Level 3)
-
-
2017
Significant
unobservable
inputs
(Level 3)
Interest rate swap liability
Foreign exchange forward contracts liability
$
- $
-
1,060 $
8
-
-
ANDREW PELLER LIMITED 2018 | 54
Objectives and policy relating to financial risk management
Interest rate risk
The Company is exposed to interest rate risk as a result of cash balances, floating rate debt, and interest rate swaps.
Of these risks, the Company’s principal exposure is that increases in the floating interest rates on its debt, if
unmitigated, could lead to decreases in cash flow and earnings. The Company’s objective in managing interest rate
risk is to achieve a balance between minimizing borrowing costs over the long term, ensuring it meets borrowing
covenants, and ensuring it meets other expectations and requirements of investors. To meet these objectives, the
Company’s policy is to effectively fix the rates on long-term debt to match the duration of investments in long-lived
assets and to use floating rate funding for short-term borrowing.
The Company has effectively fixed its interest rate on its long-term debt until September 2022 by entering into
interest rate swaps. The interest rate swaps are measured at fair value. An unrealized gain of $1,240 (2017 - $1,114)
was recognized on the interest rate swaps, which are classified as a component of the net unrealized gain on
derivative financial instruments in the consolidated statements of earnings.
The Company’s short-term borrowings are funded using a floating interest rate and as such are sensitive to interest
rate movements. As at March 31, 2018, with other variables unchanged, a 100 basis point change in interest rates
would impact the Company’s net earnings by approximately $350 (2017 - $271), exclusive of the mark-to-market
adjustments on the interest rate swaps.
Credit risk
Credit risk arises from cash, derivative financial instruments and accounts receivable. The Company places its cash
and cash equivalents with major Canadian financial institutions. Counterparties to derivative contracts are also major
financial institutions.
Credit risk for trade receivables is monitored through established credit monitoring activities. Over 50% of the
Company’s accounts receivable balance relates to amounts owing from Canadian provincial liquor boards.
Excluding accounts receivable from Canadian provincial liquor boards, the Company does not have a significant
concentration of credit risk with any single counterparty or group of counterparties. Amounts owing from Canadian
provincial liquor boards represent $16,509 (2017 - $14,115) of the total accounts receivable for which no allowance
has been provided. Of the remaining non-provincial liquor board balances, $1,483 (2017 - $948) was over thirty days
past due as at March 31, 2018. An allowance for doubtful accounts of $162 (2017 - $127) has been provided against
these accounts receivable amounts, which the Company has determined represents a reasonable estimate of amounts
that may be uncollectible.
Sales to its largest customer, a provincial Crown corporation, were $64,215 (2017 - $60,415) during the year ended
March 31, 2018. Sales to its second largest customer, a branch of a provincial government, were $42,622 (2017 -
$41,304) during the year.
An analysis of accounts receivable is as follows:
Liquor boards
Non-liquor boards
Current
Past due 0 - 30 days, due on delivery accounts
Past due 0 - 30 days
Past due 31 - 60 days
Past due > 60 days
Allowance for doubtful accounts
55
| ANDREW PELLER LIMITED 2018
2018
$
16,509
$
11,110
913
1,553
786
697
(162)
$
31,406
$
2017
14,115
10,709
534
794
332
616
(127)
26,973
The change in the allowance for doubtful accounts was as follows:
Balance - Beginning of year
Provision for current year
Bad debts
Balance - End of year
Liquidity risk
2018
127
110
(75)
162
$
$
2017
124
141
(138)
127
$
$
The Company incurs obligations to deliver cash or other financial assets on future dates. Liquidity risk inherently
arises from these obligations, which include requirements to repay debt, purchase grape inventory and make
operating lease payments.
The Company manages liquidity risk by maintaining adequate cash and cash equivalent balances and by
appropriately utilizing its operating line of credit. Company management continuously monitors and reviews both
actual and forecasted cash flows and matches the maturity profile of financial assets and financial liabilities.
Accounts payable and accrued liabilities are generally due within 30 days.
The following table outlines the Company’s contractual undiscounted obligations. The Company analyzes
contractual obligations for financial liabilities in conjunction with other commitments in managing liquidity risk.
Contractual obligations include long-term debt, the expected payments under swap agreements that fix the
Company’s interest rate on long-term debt, operating leases and commitments on short-term forward foreign
exchange contracts used to mitigate the currency risk on purchases denominated in foreign currencies as at
March 31, 2018.
$
Long-term debt
Leases and royalties
Pension obligations
Grape and bulk wine purchase
contracts
Packaging purchase contracts
Bulk whiskey purchase contracts
Interest rate swap
Foreign exchange forwards
< 1
year
8,135 $
5,092
514
79,100
30,392
525
123,758
2,740
8,720
2 - 3
years
4 - 5
years
20,982 $
6,419
734
77,282
1,457
80
96,350 $
4,373
576
56,850
-
-
106,954
4,828
-
158,149
2,934
-
> 5
years
- $
8,176
888
144,276
-
-
153,340
-
-
Total
125,467
24,060
2,712
357,508
31,849
605
542,201
10,502
8,720
Total contractual obligations
$
135,218 $
111,782 $
161,083 $
153,340 $
561,423
The Company’s obligations under its interest rate swaps and foreign exchange forward contracts are stated above on
a gross basis rather than net of the corresponding contractual benefits.
The Company has entered into grape purchase contracts with certain suppliers to purchase their crops at the time of
harvest for prices set by the market. The amount of the commitment will change based on the total tonnes harvested
or the prices set by the market for specific grapes and the amount included in the table above represents
management’s best estimate of the Company’s commitment over the periods noted.
Foreign exchange risk
Certain of the Company’s purchases are denominated in US dollars (US$), euro (EUR) or Australian dollars (AU$).
Any increases or decreases to the foreign exchange rates could increase or decrease the Company’s earnings. To
mitigate the exposure to foreign exchange risk, the Company has entered into forward foreign currency contracts.
ANDREW PELLER LIMITED 2018 | 56
The Company’s foreign exchange risk arises on the purchase of bulk wine and concentrate, which are priced in US
dollars, euro and Australian dollars. The Company’s strategy is to hedge approximately 50% to 80% of its annual
foreign exchange requirements prior to or during the beginning of each fiscal quarter. As at March 31, 2018, the
Company has forward foreign currency contracts to buy US$4,700 at rates ranging between $1.23 and $1.27,
EUR900 at rates averaging 1.55 and AU$1,400 at rates averaging $1.00. These contracts mature at various dates to
June 2018. After considering the offsetting impact of these forward contracts, a 1% increase or decrease to the
exchange rate of the US dollar, the euro or the Australian dollar would impact the Company’s net earnings by
approximately $197 (2017 - $162), $68 (2017 - $27) or $111 (2017 - $98), respectively. The Company has elected to
not use hedge accounting and as a result, has recognized unrealized foreign exchange gains of $160 (2017 - $1,118)
in the consolidated statements of earnings as a component of the net unrealized gain on derivative financial
instruments and has recorded the fair value of $152 in the current portion of derivative financial instruments (2017 -
$8 liability recorded in accounts payable and accrued liabilities) in the consolidated balance sheets.
22 Capital disclosures
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going
concern, to provide an adequate return to shareholders and to meet external capital requirements on debt and credit
facilities.
The Company’s capital consists of cash, bank indebtedness, long-term debt and shareholders’ equity. The primary
uses of capital are to make increases to non-cash working capital, fund maintenance and growth-related capital
expenditures, pay dividends and finance acquisitions. In order to meet the Company’s objectives in managing
capital, the Company prepares annual budgets of cash, earnings and capital expenditures that are updated during the
year as necessary. The annual budget is approved by the Board of Directors.
As part of the existing debt agreement, the Company is subject to financial covenants, which consist of the
following:
�
funded debt to a rolling twelve-month EBITDA, which is defined as consolidated earnings before interest,
amortization and taxes excluding unusual and non-recurring items that are agreed to by the Company and the
lender; and
�
fixed charge coverage ratio.
Compliance with these covenants is monitored by management on a quarterly basis. As at March 31, 2018 and
March 31, 2017, the Company was in compliance with these covenants.
23 Related parties and management compensation
The Company is controlled by Jalger Limited, which owns 57.4% of the Company’s Class B voting shares. No
individual has sole voting power or control in respect of the shares of the Company owned by Jalger Limited.
57
| ANDREW PELLER LIMITED 2018
Compensation of directors and executives
The compensation expense recorded for directors and members of the Executive Management Team of the Company
is shown below:
Compensation and short-term benefits
Post-employment benefits
Share based compensation expense
Payments to a share purchase plan
2018
3,848
296
1,422
-
$
5,566
$
2017
6,951
302
-
381
7,634
$
$
The compensation and short-term benefits expense consists of amounts that will primarily be settled within twelve
months.
24 Segmented information
During the year, export sales were $12,247 (2017 - $12,177), primarily in the United States. The remainder of sales
occurred in Canada. All of the Company’s assets are located in Canada.
25 Events after the reporting period
On June 6, 2018, the Company’s Board of Directors approved a 14% increase in the quarterly dividend for holders of
its Class A and Class B shares, from $0.0450 per Class A share and $0.0391 per Class B share to $0.0513 per Class
A share and $0.0446 per Class B share. This increased quarterly dividend will be paid on July 6, 2018 to
shareholders of record at the close of business on June 29, 2018.
ANDREW PELLER LIMITED 2018 | 58
TEN-YEAR SUMMARY
(in thousands of Canadian dollars,
except per share amounts)
Sales and earnings
Net sales
EBITA
Net earnings (loss)
Financial position
Working capital
Total assets
Shareholders’ equity
Per share (10)
Net earnings (loss) (10)
Basic & diluted Class A
Basic & diluted Class B
Dividends (10)
Class A Shares, non-voting
Class B Shares, voting
Number of shares outstanding
(in thousands of shares) (10)
Class A Shares, non-voting
Class B Shares, voting
Other information
Return on average
shareholders’ equity (8)
Return on average
capital employed (9)
2018
2017
2016
$ 363,897
52,860
30,117
$ 342,606
45,137
26,350
$ 334,263
40,916
19,199
2015
Restated (7)
$ 315,697
35,184 (7)
15,224 (7)
$ 297,824
33,729
14,021
2014
104,417
457,780
220,246
78,825
327,478
177,317
71,665
308,309
157,736
68,982
301,519 (7)
147,375 (7)
44,564
301,015
138,003
0.71
0.62
0.180
0.156
35,471
8,702
44,173
15.2%
14.0%
0.64
0.55
0.163
0.142
33,581
9,012
42,593
0.46
0.40
0.150
0.130
33,581
9,012
42,593
15.7%
12.6%
14.1%
13.2%
0.36 (7)
0.32 (7)
0.140
0.122
33,882
9,012
42,894
10.6% (7)
11.0% (7)
0.34
0.29
0.133
0.116
33,882
9,012
42,894
10.5%
10.8%
(1) Excludes the net impact of discontinued operations.
(2) Excludes the after-tax impact of mark-to-market adjustments on an interest rate swap.
(3) Includes an after-tax gain of $11.9 million for the sale of Granville Island Brewing Company Ltd. and Mainland Beverage
(4) Excludes an after-tax gain of $11.9 million for the sale of Granville Island Brewing Company Ltd. and Mainland Beverage
Distribution Ltd.
Distribution Ltd.
59
| ANDREW PELLER LIMITED 2018
2013
Restated (6)
2012
2011
Restated (5)
2010
$ 289,143
33,489 (6)
14,519 (6)
$ 276,883
32,651
13,001
$ 265,420
31,544 (5)
11,223 (5)
$ 263,151 (3)
27,354 (3)
21,661 (3)
41,670
296,519
129,701 (6)
34,869
285,552
120,552
27,643 (5)
267,996 (5)
114,297 (5)
29,357
263,716
113,665
2009
Restated (1)
$ 251,136(1)
23,359(1)
(125)
29,203
293,507
96,791
0.35 (6)
0.30 (6)
0.120
0.105
33,882
9,012
42,894
11.6%(6)
11.1%(6)
0.31
0.27
0.120
0.105
33,882
9,012
42,894
11.1%
11.5%
0.26 (5)
0.22 (5)
0.110
0.096
33,882
9,012
42,894
9.8% (5)
11.6% (5)
0.50 (3)
0.43 (3)
0.110
0.096
35,664
9,012
44,676
6.8% (2,4)
9.1% (2,4)
($0.00)
($0.00)
0.110
0.096
35,664
9,012
44,676
6.0% (2)
7.9% (2)
(5) March 31, 2012 and subsequent periods have been prepared in accordance with International Financial Reporting
Standards ("IFRS"). The March 31, 2011 period was restated in accordance with IFRS. Amounts for March 31, 2010 and
prior have not been prepared in accordance with IFRS. They have been presented in accordance with Canadian GAAP prior
to IFRS transition and may not be comparable to subsequent periods.
(6) Restated to reflect the adoption of the amendments to IAS 19.
(7) Restated to reflect the adoption of the amendments to IAS 16 and IAS 41.
(8) Return on average shareholders' equity is calculated as net earnings divided by average shareholders’ equity.
(9) To determine return on average capital employed, return is calculated as EBITA less amortization. Capital employed is
calculated as total assets less non-interest bearing liabilities. For 2008 and prior periods certain non-interest-bearing debt was
included in capital employed and may not be comparable to subsequent periods.
(10) Restated to reflect the three-for-one stock split completed in October of 2016.
ANDREW PELLER LIMITED 2018 | 60
Officers
JOHN E. PELLER
Executive Chairman & Chief Executive Officer
RANDY A. POWELL
President
PETER B. PATCHET
CFO and Executive Vice-President, IT
SHAWN B. MACLEOD
Executive Vice-President, Marketing
SARA E. PRESUTTO
Executive Vice-President, Human Resources
ERIN L. ROONEY
Executive Vice-President, Sales
BRENDAN P. WALL
Executive Vice-President, Operations
GREGORY J. BERTI
Vice-President, Government Relations and Export
JAMES H. COLE
Vice-President, Retail and Estate Wine Group
GAVIN J. HAWTHORNE
Vice-President, Sales & Marketing GVI
CRAIG D. MCDONALD
Vice-President, Winemaking
DIRECTORS & OFFICERS
Directors
JOHN E. PELLER
Burlington, Ontario
Executive Chairman & CEO
Andrew Peller Limited
MARK W. COSENS
Burlington, Ontario
Managing Director
Kilbride Capital Partners
LORI C. COVERT
Halifax, Nova Scotia
Corporate Director
RICHARD D. HOSSACK, PhD
Toronto, Ontario
Corporate Director
MICHELLE E. MALLETT DIEMANUELE
President & CEO
Trillium Health Partners
Toronto, Ontario
PERRY J. MIELE
Burlington, Ontario
Chairman and Partner
Beringer Capital
A. ANGUS PELLER M.D.
Toronto, Ontario
Senior Medical Consultant
Medcan Health Management Inc.
Honorary Directors
C. WILLIAM DANIEL, O.C.
Toronto, Ontario
JOHN F. PETCH, O.C.
Toronto, Ontario
BRIAN J. SHORT
Hamilton, Ontario
61
| ANDREW PELLER LIMITED 2018
SHAREHOLDER INFORMATION
Head Office
ANDREW PELLER LIMITED
697 South Service Road
Grimsby, Ontario L3M 4E8
Tel: (905) 643-4131
Fax: (905) 643-4944
Stock Exchange
TORONTO
Symbols: ADW.A/ADW.B
Shareholder Inquiries
Computershare
Inc. operates
Investor Services
services for inquiries regarding changes of address,
stock transfers, registered shareholdings, dividends
and lost certificates.
Phone:
Fax:
1-800-564-6253 toll free North America
(International 514-982-7555)
1-866-249-7775 toll free North America
(International 416-263-9524)
Rgistrar and Transfer Agent
COMPUTERSHARE INVESTOR SERVICES INC.
Internet:
Auditors
PRICEWATERHOUSECOOPERS LLP
Bankers
BANK OF MONTREAL
NATIONAL BANK
RABOBANK
ROYAL BANK OF CANADA
TORONTO DOMINION BANK
www.computershare.com
The Investors section offers enrolment
for self-service account management for
registered shareholders through Investor
Centre.
Mail:
Computershare Investor Services
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Investor Relations
For additional information regarding the Company’s
activities, please contact:
Peter Patchet
Chief Financial Officer and Executive Vice President,
Information Technology at the Head Office address or
by email at: info@andrewpeller.com
2018 Annual Shareholders’ Meeting
The 2018 Annual Meeting of Shareholders’ will be
held at the Wayne Gretzky Estate Winery & Craft
Distillery, Niagara-on-the-Lake, Ontario
on Wednesday, September 12, 2018 at 3:00 p.m.
ANDREW PELLER LIMITED 2018 | 62
AJAX
SOBEYS
WITHIN GROCERY AISLE
955 WESTNEY ROAD S.
(905) 6831705
SOBEYS
260 KINGSTON ROAD W.
(905) 4286500
REAL CANADIAN SUPERSTORE
30 KINGSTON ROAD W.
(905) 4287829
ANCASTER
SOBEYS
WITHIN GROCERY AISLE
977 GOLF LINKS ROAD
(905) 6481465
FORTINOS
54 WILSON STREET
(905) 3040094
BARRIE
ZEHRS
11 BRYNE DRIVE
(705) 7258121
BARRIE ESSA CENTRE
555 ESSA ROAD UNIT#5
(705) 7971480
BOLTON
ZEHRS
487 QUEEN STREET S.
(905) 8574166
BRAMALEA
METRO
25 PEEL CENTRE DRIVE
(905) 7934246
BRAMPTON
FOOD BASICS
CENTENNIAL MALL
227 VODDEN STREET
(905) 4592386
SOBEYS
WITHIN GROCERY AISLE
930 NORTH PARK DRIVE
(905) 7939071
BROCKVILLE
REAL CANADIAN SUPERSTORE
1972 PARKEDALE AVE.
(613) 3428477
BURLINGTON
FORTINOS
WITHIN GROCERY AISLE
2025 GUELPH LINE
(905) 3363849
MARILU’S MARKET
4025 NEW STREET
(905) 6328580
SOBEYS
WITHIN GROCERY AISLE
1250 BRANT STREET
(905) 3198670
WALKERS PLACE
3505 UPPER MIDDLE ROAD
(905) 3369101
LAKESIDE SHOPPING VILLAGE
5353 LAKESHORE ROAD
(905) 6818282
CAMBRIDGE
ZEHRS
180 HOLIDAY INN DRIVE
(519) 6511145
ZEHRS
400 CONESTOGA BLVD.
(519) 6241103
NO FRILLS
980 FRANKLIN BLVD
(519) 6222552
COLLINGWOOD
LOBLAWS
12 HURONTARIO STREET
(705) 4462237
METRO
WITHIN GROCERY AISLE
640 FIRST STREET EXTENSION
(705) 4441730
EAST YORK
SOBEYS
1015 BROADVIEW AVE.
(416) 4677760
ETOBICOKE
LOBLAWS
WITHIN GROCERY AISLE
380 THE EAST MALL
(416) 6959567
FERGUS
ZEHRS
800 TOWER STREET S.
(519) 7877721
GEORGETOWN
REAL CANADIAN SUPERSTORE
WITHIN GROCERY AISLE
171 GUELPH STREET
(905) 8771815
GRIMSBY
REAL CANADIAN SUPERSTORE
361 SOUTH SERVICE ROAD
(905) 9459982
63
| ANDREW PELLER LIMITED 2018
GUELPH
ZEHRS
297 ERAMOSA ROAD
(519) 8247922
ZEHRS HARTSLAND PLAZA
WITHIN GROCERY AISLE
160 KORTRIGHT ROAD, W.
(519) 8379293
NO FRILLS
167 SILVERCREEK PARKWAY
(519) 8370540
HAMILTON
FORTINOS
50 DUNDURN STREET S.
(905) 5284003
MILTON
LONGOS
1079 MAPLE AVE
(905) 6938850
MISSISSAUGA
SOBEYS
5602 10th LINE W.
(905) 8580123
CREDIT LANDING SHOPPING
CENTRE
228 LAKESHORE ROAD W.
(905) 2718686
SOUTH COMMON CENTRE
2150 BURNHAMTHORPE ROAD W.
(905) 8209958
FORTINOS EASTGATE MALL
WITHIN GROCERY AISLE
75 CENTENNIAL PARKWAY N.
(905) 5614504
NEWMARKET
METRO
1111 DAVIS DRIVE
(905) 8530401
FORTINOS
WITHIN GROCERY AISLE
1579 MAIN STREET W.
(905) 5228882
KESWICK
ZEHRS
24018 WOODBINE AVE.
(905) 4768544
KINGSTON
LOBLAWS
WITHIN GROCERY AISLE
1048 MIDLAND AVE.
(613) 3896139
KITCHENER
ZEHRS
750 OTTAWA STREET S.
(519) 7452183
LOBLAW SUPERSTORE
WITHIN GROCERY AISLE
39 875 HIGHLAND ROAD W.
(519) 7425844
LONDON
METRO ADELAIDE CENTRE
WITHIN GROCERY AISLE
1030 ADELAIDE STREET N.
(519) 6793717
METRO
WITHIN GROCERY AISLE
395 WELLINGTON STREET S.
(519) 6497180
LOBLAWS
3040 WONDERLAND ROAD S.
(519) 6682224
REAL CANADIAN SUPERSTORE
WITHIN GROCERY AISLE
18120 YONGE STREET N.
(905) 8952412
METRO
16640 YONGE STREET
(905) 8303448
NIAGARA ON THE LAKE
THE OUTLET COLLECTION
300 TAYLOR ROAD
(905)7040550
WINE COUNTRY VINTNERS
27 QUEEN STREET
(905) 4681881
NORTH YORK
LOBLAW GREAT FOOD
3501 YONGE STREET
(416) 4817699
OAKVILLE
SOBEYS
511 MAPLE GROVE DRIVE
(905) 3383042
LONGOS
469 CORNWALL ROAD
(905) 3380880
SOBEYS ABBEY PLAZA
1500 UPPER MIDDLE ROAD W.
(905) 8472944
ORANGEVILLE
ZEHRS, HERITAGE MALL
50 4TH AVE.
(519) 9428752
OSHAWA
METRO
285 TAUNTON ROAD E.
(905) 5716167
REAL CANADIAN SUPERSTORE
1385 HARMONY ROAD N.
(905) 4381800
NO FRILLS
1300 KING STREET E.
(905) 7283767
OTTAWA
SOUTHGATE SHOPPING CENTRE
2515 BANK STREET
(613) 5235837
SOBEYS
187 METCALFE STREET
(613) 5655062
METRO
WITHIN GROCERY AISLE
50 BEECHWOOD AVENUE
(613) 7464300
(Ottawa) GLOUCESTER
YOUR INDEPENDENT GROCER
671 RIVER ROAD
(613) 8223080
(Ottawa) NEPEAN
LOBLAWS
59 ROBERTSON ROAD
(613) 8207219
LOBLAWS
1460 MERIVALE ROAD
(613) 7235507
(Ottawa) VANIER
LOBLAWS
WITHIN GROCERY AISLE
100 MCARTHUR ROAD
(613) 7499618
OWEN SOUND
ZEHRS
1150 SIXTEENTH STREET E.
(519) 3718664
PETERBOROUGH
REAL CANADIAN SUPERSTORE
769 BORDEN AVE.
(705) 7402513
PICKERING
YOUR INDEPENDENT GROCER
1900 DIXIE ROAD
(905) 8316705
SCARBOROUGH
METRO
WITHIN GROCERY AISLDE
3221 EGLINTON AVE. E.
(416) 2672795
SIMCOE
SOBEYS
WITHIN GROCERY AISLE
470 NORFOLK STREET S.
(519) 4261033
ST. CATHARINES
FRESCHO
318 ONTARIO STREET
(905) 6858898
ZEHRS, PEN CENTRE
221 GLENDALE AVE.
(905) 6884767
ZEHRS, FAIRVIEW MALL
WITHIN GROCERY AISLE
285 GENEVA STREET
(905) 6467363
REAL CANADIAN SUPERSTORE
411 LOUTH STREET
(905) 6859779
GRANTHAM PLAZA
400 SCOTT STREET
(905) 9340981
LAKESHORE SQUARE PLAZA
33 LAKESHORE ROAD
(905) 9375093
ST. THOMAS
REAL CANADIAN SUPERSTORE
1063 TALBOT STREET
(519) 6336343
STITTSVILLE
YOUR INDEPENDENT
GROCER
WITHIN GROCERY AISLE
1251 MAIN STREET
(613) 8313837
TORONTO
1002 BAY STREET S.
(416) 9299706
METRO
656 EGLINTON AVE. E.
(416) 4850093
LOBLAWS
WITHIN GROCERY AISLE
50 MUSGRAVE STREET
(416) 6936336
LONGOS
93 LAIRD DRIVE
(416) 4241362
LOBLAWS
WITHIN GROCERY AISLE
3671 DUNDAS STREET W.
(416) 7628635
QUEENS QUAY
228 QUEENS QUAY W.
(416) 5988880
SOBEYS
125 THE QUEENSWAY
(416) 2018221
YORKVILLE VILLAGE
87 AVENUE ROAD
(416) 9236336
ST. LAWRENCE WINE
MARKET
93 FRONT STREET E.
(416) 3641811
SOBEYS URBAN FRESH
22 FORT YORK BLVD.
(416) 6230793
LOBLAWS
650 DUPONT STREET
(416) 5338484
METRO
1230 QUEEN STREET WEST
(416) 5339180
BLOOR WEST VILLAGE
2273 BLOOR STREET W.
(416) 7668654
UXBRIDGE
ZEHRS
WITHIN GROCERY AISLE
323 TORONTO STREET S.
(905) 8525008
WATERDOWN
WATERDOWN SHOPPING
CENTRE
255 DUNDAS STREET E.
(905) 6893420
WATERLOO
ZEHRS, BEECHWOOD PLAZA
450 ERB STREET W.
(519) 7475897
ZEHRS
315 LINCOLN ROAD
(519) 7467226
WELLAND
ZEHRS
821 NIAGARA STREET
(905) 7149521
WHITBY
SOBEYS
1615 DUNDAS STREET E.
(905) 7284118
REAL CANADIAN
SUPERSTORE
WITHIN GROCERY AISLE
200 TAUNTON ROAD
(905)6687568
WHITBY TOWN SQUARE
3050 GARDEN STREET
(905) 4305314
WINDSOR
METRO
WITHIN GROCERY AISLE
3100 HOWARD AVENUE
(519) 9728346
WOODBRIDGE
LONGOS
9200 WESTON ROAD
(905) 3033055
ANDREW PELLER LIMITED 2018 | 64
Complimentary Delivery within Ontario - $25 Charge to
other select provinces
Complimentary Delivery within Ontario - $25 Charge to
other select provinces
Complimentary Delivery within Ontario - $25 Charge to
other select provinces
Complimentary Delivery within Ontario - $25 Charge to
other select provinces
Complimentary Delivery within Ontario - $25 Charge to
other select provinces
Complimentary Delivery within British Columbia - $25 Charge
to other select provinces – Applicable to BC Taxes
Complimentary Delivery within British Columbia - $25
Charge to other select provinces – Applicable to BC Taxes
Complimentary Delivery within British Columbia - $25
Charge to other select provinces – Applicable to BC Taxes
Complimentary Delivery within British Columbia - $25 Charge
to other select provinces – Applicable to BC Taxes
Complimentary Delivery within British Columbia - $25
Charge to other select provinces – Applicable to BC Taxes
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