Canada: Brick Brewing reports first quarter results

Brick Brewing Co. Limited, Ontario's largest Canadian-owned and Canadian-based publicly held brewery released its first quarter financial results for the quarter ended April 30, 2007, according to Canadian News Wire, June 12.

First Quarter Financial Highlights

Gross revenues for the first quarter of fiscal 2008 were $15.6 million as compared to $16.1 million a decrease of 2.9%. Net revenues for the first quarter of fiscal 2008 were $6.9 million compared to $7.7 million in the first quarter of fiscal 2007, a decrease of 10.3%, due primarily to increased production taxes paid compared to the same period last year. These increased production taxes negatively impacted net revenues by $326 thousand in increased marginal production taxes compared to the same quarter last year. These increased per unit production taxes are due to the Company no longer benefiting from the Ontario small brewer tax reduction in fiscal 2008.

The Ontario small brewer tax reduction reduced provincial taxes payable for the Company by a total of $2.6 million in fiscal 2007. In the quarter, the Company's overall beer volumes decreased by 6% over the same period last year. A portion of the lower volumes related to less price promotion activity in the recent quarter when compared with Fiscal 2007.

However, one of the causes for the decrease in sales volume was difficulties encountered by Brick in implementing marketing initiatives at The Beer Store. The decrease was partially offset by a strong increase in volume through the LCBO channel.

An earnings before interest, taxes, depreciation and amortization (EBITDA) was a loss of $771 thousand compared to $630 thousand in the same quarter last year.

For the first quarter ended April 30, 2007, Brick recorded a net loss of $898 thousand compared to net earnings of $126 thousand for the same period last year. Recovery of future income taxes was $448 thousand in the first quarter this year compared to a future income expense of $65 thousand in the same period last year.

"One of the causes for the decrease in sales volume were difficulties encountered by Brick in implementing marketing initiatives at The Beer Store," said Doug Berchtold, President and CEO. "We intend to continue to take all necessary steps to maintain the competitiveness of our products at TBS, and have developed a number of marketing and selling strategies for that purpose."

Cost of Goods Sold

Cost of goods sold was $6.0 million for the first quarter ended April 30, 2007, up from $5.4 million last year. The per unit cost of producing and distributing beer increased by 16% or $841 thousand in the aggregate in the quarter compared to the same quarter last year.

"Cost of goods sold in the first quarter of fiscal 2008 reflects higher material and other input costs of $198 thousand compared to last year," Berchtold stated. "These higher costs were primarily for aluminum cans and brewing and packaging materials. We are taking efficiency measures to offset these increased costs by consolidating packaging activities into the Kitchener facility, increasing the selling price on certain products and re-sourcing certain inputs."

The Company experienced increased per unit variable manufacturing costs of $334 thousand in the first quarter this year compared to the same period last year. During the quarter the Company packaged all beer in the Kitchener facility. This transition of remaining SKUs from Formosa added complexity to the Kitchener packaging line. The Company anticipates a reduction in these costs as efficiencies continue to improve.

Subsequent to the first quarter the Company implemented a series of targeted cost reductions to seek to reduce selling, marketing and administration expenses by approximately $1.5 million over the balance of fiscal 2008.

Announcements

During and subsequent to end of the quarter, Brick announced several developments to enhance its business operations and to examine its future structure. The Company augmented its sales agency business through its affiliate Direct Cellars Beverage Co. (DCB), which completed three new representation agreements during the quarter. The new brands to be represented are expected to add significantly to DCB's sales in the short term, with the potential for significant longer-term growth. Subsequent to the end of the quarter, the Company announced an addition to its growing contract brewing business with a multi-year agreement to brew Tiger Malt non-alcoholic beer for the Canadian market for Banks Brewing (Barbados) Limited.

In addition, Brick has previously announced the commencement of a review of strategic alternatives available to the Company to enhance shareholder value, including, but not limited to, offers to acquire shares or assets of the Company, a recapitalization review or some form of business combination. Berchtold stated, "This review is ongoing. While the review is comprehensive there can be no assurance that the review will result in any specific strategic or financial transaction being completed and no timetable has been set for the completion of the review." The Company will make a public announcement at the appropriate time.

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.

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