Brick Brewing reports annual results - increased production taxes, input costs and softer volumes decrease net income

 
    WATERLOO, ON, April 22 /CNW/ - Brick Brewing Co. Limited (TSX: BRB),
Ontario's largest Canadian-owned and Canadian-based publicly held brewery,
today released its financial results for the fourth quarter and year ended
January 31, 2008.
    "Ironically, due to Brick's success in growing its business, it no longer
benefits from the Ontario small brewer tax reduction" said Jim Brickman,
Executive Chairman and Founder. "The Company incurred a production tax
increase of $2.5 million in the year compared to fiscal 2007, a difference
between a profit and loss this past year," added Mr. Brickman.
    "We knew we had our work cut out for us when we passed the small brewers
volume threshold and we had invested aggressively in plant and infrastructure
to seek to offset this tax loss" said Jim Brickman. "Unfortunately our
productivity gains are improving more slowly than planned and at the same time
we have been hit with unprecedented increases in some of our material costs,"
he added.
    "Operating in a key retail selling environment like The Beer Store that
is owned by our competition, presents interesting challenges unique to the
Ontario beer market, but this is the current reality and until we have it
properly addressed by government, we must find innovative ways and means to
work with it," added Mr. Brickman.
    "As a result, fiscal 2008 was disappointing financially, however our
single most important objective is our commitment to streamlining operations
and becoming as cost efficient a producer as possible," added Jim Brickman.

    Fourth Quarter Financial Highlights

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

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

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

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

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

    Annual Financial Highlights

    Net revenue for the year was $30.3 million compared to $34.8 million for
fiscal 2007. Gross revenues decreased 7.3% to $68.6 million for fiscal 2008,
compared to $74.1 million for fiscal 2007. For the year, net losses were
$2.6 million compared to net earnings of $127 thousand for the previous year
due to, among other things, increased production taxes and an income tax
adjustment of $580 thousand to reflect reductions in future tax rates. The
loss per share was $0.12 compared with earnings of $0.01 per share in the same
period last year.
    EBITDA(*) in fiscal 2008 decreased by $3.1 million in the year, primarily
reflecting, among other things, an increase in production taxes of
$2.5 million and non-recurring costs of $582 thousand associated with the
strategic review and severance costs.
    For the year, the Company's overall beer volumes decreased by 10% over
the previous year.
    Cost of goods sold were $24.4 million for the year, unchanged from last
year. Reflecting the increases in input costs and the reduced volumes, the per
unit cost of producing and distributing beer increased by 11%, or $2.5 million
in the aggregate, in fiscal 2008 compared to the previous year.

    Other fiscal 2008 highlights included:

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

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

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

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



                          Brick Brewing Co. Limited
                     Statements of Earnings and Deficit
                                 (unaudited)
                                  ($ 000's)

                                Three Months Ended          Year Ended

    -------------------------------------------------------------------------
                              January 31, January 31, January 31, January 31,
                                    2008        2007        2008        2007

    Gross Revenue               $ 14,047    $ 16,510    $ 68,597    $ 74,064
      Less: Production taxes
       & distribution fees        (7,776)     (8,960)    (38,288)    (39,225)
    -------------------------------------------------------------------------
    Net Revenue                    6,271       7,550      30,309      34,839

    Cost of goods sold             5,220       6,061      24,424      24,360

    -------------------------------------------------------------------------
    Gross margin                   1,051       1,489       5,885      10,478

    Expenses:
      Selling, marketing and
       administration              1,130       2,041       6,460       7,868

    -------------------------------------------------------------------------
    Earnings/(loss) before
     the undernoted                  (80)       (552)       (575)      2,611

    Other income/(expenses):
      Bottle dispute                 (37)         (6)        (45)       (102)
      Amortization                  (414)       (621)     (1,736)     (1,726)
      Interest on long-term debt     (65)       (104)       (444)       (400)
      Other interest income         (129)         15        (102)         73
      Gain on disposal of fixed
       assets                          -          15           -          15
      Equity earnings/(loss) of
       long term investment           14         (11)         26         (24)
    -------------------------------------------------------------------------
                                    (632)       (712)     (2,301)     (2,165)

    -------------------------------------------------------------------------
    Earnings/(loss) before
     provision for income taxes     (711)     (1,263)     (2,875)        446

    Future income tax
     expense/(recovery)              407        (263)       (285)        319

    -------------------------------------------------------------------------
    Net earnings/(loss)           (1,118)     (1,000)     (2,591)        127

    Deficit, beginning of the
     period                       (5,734)     (3,158)     (4,158)     (4,285)

    Impact of change in
     accounting policy for
     deferred financing
     charges                           -           -        (103)          -

    -------------------------------------------------------------------------
    Deficit, end of period      $ (6,852)   $ (4,158)   $ (6,852)   $ (4,158)
    -------------------------------------------------------------------------

    Net earnings/(loss) per share:
      Basic                     $  (0.05)      (0.05)   $  (0.12)   $   0.01
      Diluted                      (0.05)      (0.04)      (0.12)       0.01
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                          Brick Brewing Co. Limited
                               Balance Sheets
                                 (unaudited)
                                  ($ 000's)

    -------------------------------------------------------------------------
                                                      January 31, January 31,
                                                            2008        2007
    -------------------------------------------------------------------------

    Assets

    Current assets:
      Cash                                               $     -    $     54
      Accounts receivable                                  2,571       2,590
      Inventories                                          7,277       8,382
      Future income taxes                                     55          80
      Prepaid expenses                                       510         487
      -----------------------------------------------------------------------
      Total current assets                                10,413      11,593

    Property, plant and equipment                         16,989      17,687
    Long term investment                                     106          79
    Trademarks and listing fees                            5,430       5,407
    Deferred costs                                           384         638
    Other assets                                             213         243
    Future income taxes                                    2,063       1,705

    -------------------------------------------------------------------------
                                                        $ 35,596    $ 37,352
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Liabilities and Shareholders' Equity

    Current liabilities:
      Bank indebtedness                                 $  2,791    $      -
      Trade accounts payable and accrued liabilities       3,038       3,912
      Current portion of long-term debt                      907         890
      Current portion of obligations under capital
       lease                                                 138         204
      -----------------------------------------------------------------------
      Total current liabilities                            6,874       5,006

    Long-term debt                                         2,992       3,899
    Obligations under capital lease                          419         557

    Shareholders' equity:
      Share capital                                       31,539      31,504
      Contributed surplus                                    624         545
      Deficit                                             (6,852)     (4,158)
      -----------------------------------------------------------------------
      Total shareholders' equity                          25,311      27,890

    -------------------------------------------------------------------------
                                                        $ 35,596    $ 37,352
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                          Brick Brewing Co. Limited
                           Statements of Cash Flows
                                 (unaudited)
                                  ($ 000's)

                                Three Months Ended          Year Ended

    ------------------------------------------------- -----------------------

                              January 31, January 31, January 31, January 31,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operations:
      Earnings/(loss) for the
       period                   $ (1,118)   $ (1,000)   $ (2,591)   $    127
      Items not involving cash:
        Amortization                 414         621       1,736       1,758
        Amortization of other
         assets                        8           -          30           -
        Stock based compensation      10          81          80         131
        Equity (earnings)/loss
         of long term investment     (14)         11         (26)         24
        Future income tax
         expense/(recovery)          370        (183)       (358)        399
        Future income tax effect
         of adopting new
         accounting policies           -           -          47           -
        Gain on sale/leaseback        (2)          -          (8)          -
      Change in non-cash
       operating working capital    (459)     (1,382)        253      (4,245)
      -----------------------------------------------------------------------
                                    (792)     (1,851)       (837)     (1,806)

    Financing:
      Repayment of long term debt    (50)        (20)       (890)       (676)
      Repayment of obligation
       under capital lease           (51)        (69)       (204)       (193)
      Issuance of long-term debt       -           -           -       2,000
      Proceeds from obligations
       under capital lease             -           -           -         750
      Issue of capital stock,
       net of costs                   13       1,487          35       3,787
      -----------------------------------------------------------------------
                                     (88)      1,398      (1,059)      5,667

    Investments:
      Acquisition of property,
       plant and equipment and
       listing fees                  (72)       (473)       (949)     (3,970)
      Pre-operating costs              -          64           -        (345)
      -----------------------------------------------------------------------
                                     (72)       (410)       (949)     (4,314)
                                                               -           -
    -------------------------------------------------------------------------
    Net increase in cash            (952)       (863)     (2,845)       (453)

    Cash beginning of period      (1,839)        917          54         507

    -------------------------------------------------------------------------
    Cash/(bank indebtedness),
     end of period              $ (2,791)   $     54    $ (2,791)   $     54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    These statements should be read in conjunction with the audited annual
financial statements of the Company. Certain prior year amounts have been
reclassified to conform to the current year's presentation format.

    Additional Information

    For further details the Company's complete MD&A and financial statements
for the year ended January 31, 2008 will be available on the investor section
of the Brick website at www.brickbeer.com. Additional information relating to
the Company, including its Annual Information Form is or will be available
there and on SEDAR at www.sedar.com.

    About Brick Brewing

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

    Forward-Looking Statements

    All statements in this press release that do not directly and exclusively
relate to historical facts constitute forward-looking statements as of the
date of this press release. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may", "will",
"expect", "intend", "anticipate", "seek", "plan", "believe" or "continue" or
the negatives of these terms or variations of them or similar terminology.
Although the Company believes that the expectations and assumptions reflected
in these forward-looking statements are reasonable, undue reliance should not
be placed on these forward-looking statements, which are not guarantees and
are subject to certain risks, uncertainties and assumptions, which may cause
actual performance and financial results to differ materially from such
forward-looking statements. The forward-looking statements, including the
statements regarding expected volumes, operating efficiencies and costs are
based on, among other things, the following material factors and assumptions:
volumes in the current fiscal year ending January 31, 2009 ("fiscal 2009")
will continue to decline, no material changes in consumer preferences,
operating efficiencies at the packaging and warehousing facility in Kitchener,
Ontario will continue to be realized, input costs for brewing and packaging
materials will continue to increase, competitive activity from other brewers
will continue, no material change to the regulatory environment in which the
Company operates and no material supply, cost or quality control issues with
vendors. Readers are urged to consider the foregoing factors and assumptions
when reading the forward-looking statements and, for more information
regarding the risks, uncertainties and assumptions that could cause the
Company's actual financial results to differ from the forward-looking
statements, to also refer to the Company's MD&A, annual information form and
various other public filings. The forward-looking statements included in this
press release are made only at the date of this press release and, except as
required by applicable securities laws, the Company does not undertake to
publicly update such forward-looking statements to reflect new information,
future events or otherwise.

    (*) EBITDA is a non-GAAP earnings measure, therefore it does not have any
standardized meaning prescribed by Canadian generally accepted accounting
principles and may not be similar to measures presented by other companies.
EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Management uses this measurement to evaluate the operating
results of the Company. This measure is also important to management since it
is used by the Company's lenders to evaluate the ongoing cash generating
capability of the Company and therefore the amounts those lenders are willing
to lend to the Company. Investors find EBITDA to be useful information because
it provides a measure of the Company's operating performance.

    %SEDAR: 00003334E
For further information: Graydon Moore, Chief Financial Officer, Tel:
(519) 576-9100 Ext. 222, E-mail: finance@brickbeer.com; Jim Brickman,
Executive Chairman, Founder, Tel: (519) 576-9100 Ext. 232