Diamond Estates Wines & Spirits Reports Q1 2019 Financial Results

Continued profitability despite short-term challenges in export and LCBO channels

NIAGARA-ON-THE-LAKE, ON, Aug. 29, 2018 /CNW/ - Diamond Estates Wines & Spirits Inc. ("Diamond Estates" or "the Company") (DWS-TSX Venture) today announced its financial results for the three-month period ended June 30, 2018 ("Q1 2019").

Q1 2019 Highlights:

• On June 20, 2018, the Company acquired Backyard Vineyards Inc., a winery in British Columbia, for $2.8 million. The transaction transforms Diamond Estates into a national producer of VQA wines and positions the Company to build a new winery in British Columbia's acclaimed Okanagan Valley;
• Revenue was $8.0 million, a decline of 16.9% from $9.6 million in the three months ended June 30, 2017 ("Q1 2018"), driven by lower wine sales to the export market and LCBO channel, in addition to the loss of a supplier in the agency division;
• Gross margin was $3.7 million, a decline of 16.1% from $4.4 million in Q1 2018, primarily driven by the revenue reduction in the quarter;
• EBITDA¹ was $0.8 million, compared to $1.4 million in Q1 2018;
• Net income was $0.1 million, compared to $0.9 million in Q1 2018;
• Cash flow from operating activities, before changes in non-cash working capital items, was $0.5 million, compared to $1.2 million in Q1 2018;
• Working capital was $14.6 million as at June 30, 2018, an increase of approximately $0.9 million from $13.6 million as at March 31, 2018;
• The Company's new retail store has exceeded management's high expectations by generating a 65.7% revenue increase compared with the previous year and has significantly enhanced the winery's profile in the Niagara region;
• Diamond Estates set an industry first in Canada with the launch of a single-serve, 200 ml polyethylene terephthalate (PET) bottle for four of its products. The lightweight, shatterproof, environmentally-friendly bottle reduces the Company's carbon footprint and allows wine lovers to enjoy the Company's products at venues where glass bottles are prohibited; and
• The winery has continued to enjoy success, receiving 16 awards across four prestigious competitions during Q1 2019, including Gold, Double Gold and Best Dessert Wine of the Year at the All Canadian Wine Championships.

"Despite short-term challenges, Diamond Estates remained profitable in the fiscal first quarter," said Murray Souter, President and CEO. "In the winery division, export sales through our Chinese distributor were impacted by delayed store openings in China. The new stores will open in the current and next fiscal years, which is expected to drive a return to strong volume growth. The winery division was also impacted by a decrease in sales in the LCBO channel, which related to the short-crop strategy we implemented in 2017 in response to poor grape harvests in 2014 and 2015. While we have worked hard to re-introduce VQA products to LCBO stores that were temporarily de-listed, this process has been slower than anticipated due to continued competitive pressures on distribution and a lack of available programming in the fiscal first quarter. Following recent adjustments to our distribution strategy, we have experienced strong distribution gains at the store level and we expect a return to full distribution in the LCBO during the current quarter."

"The agency division was impacted by the loss of a supplier during fiscal 2018 who we previously represented as their national distributor. It will take some time to replace all of the lost business but we are confident that our new strategy for the agency division will produce meaningful growth."

"Despite these challenges, we have much to be pleased about. We continue to maintain a very strong competitive position in the Ontario grocery channel, which will become increasingly important as the provincial government issues licenses to more stores. Sales performance has been stellar at our flagship retail store at the Lakeview winery. Additionally, we are very excited about our recent Backyard Vineyards acquisition, which makes us a national VQA producer and positions us for significant growth in the Okanagan Valley."

Conference Call

Murray Souter, CEO, and Alan Stratton, CFO, will host a conference call for the investment community today, Wednesday, August 29 at 10:00 a.m. (ET). The call-in numbers for participants are [phone] or [phone].  In addition, the call will be webcast live at: https://event.on24.com/wcc/r/1822332/06C7FF1A5598D28C80B3A6E7A4D02AFE.

A replay of the call will be available until Wednesday, September 5, 2018. To access the replay, dial [phone] or [phone] (Passcode: 220668 #). A transcript of the call will be archived on the Company's website.

About Diamond Estates Wines and Spirits Inc.

Diamond Estates Wines and Spirits Inc. is a producer of high quality wines and a sales agent for over 120 beverage alcohol brands across Canada. The Company operates three wineries, two in Ontario and one in British Columbia, that produce predominantly VQA wines under such well‑known brand names as 20 Bees, EastDell, Lakeview Cellars, Dan Aykroyd, Fresh, McMichael Collection, Benchmark, Seasons and Backyard Vineyards. Through its wholly‑owned subsidiary, Kirkwood Diamond Canada Partnership ("KDC"), the Company is the sales agent for many leading international brands in all regions of the country as well as being a distributor in the western provinces. These recognizable brands include Josh wines from California, Fat Bastard wines from France, Kaiken wines from Argentina, Marston's beers from England, Hpnotiq Liqueur from France, Anciano wines from Spain, Francois Lurton wines from France and Argentina, Waterloo Brewing and Amsterdam Brewery, both from Canada, Landshark Lager from the USA, Blue Nun wines from Germany, Malfy Gin from Italy, Edinburgh Gin from Scotland, Barcelo Rum from the Dominican Republic and Evan Williams Bourbon from the USA.

Forward Looking Statement

This press release contains forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.  Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Diamond Estates Wines and Spirits Inc. to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release.  Such forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to: the economy generally; consumer interest in the services and products of the Company; financing; competition; and anticipated and unanticipated costs. While the Company acknowledges that subsequent events and developments may cause its views to change, the Company specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the views of the Company as of any date subsequent to the date of this press release. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

Non IFRS Financial Measure

Management uses net income (loss) and comprehensive income (loss) as presented in the unaudited interim condensed consolidated statements of net income (loss) and comprehensive income (loss) as well as "EBITDA" as a measure to assess performance of the Company. EBITDA is another financial measure and is reconciled to net income (loss) and comprehensive income (loss) under "Results of Operations" in the Company's MD&A.

EBITDA is a supplemental financial measure to further assist readers in assessing the Company's ability to generate income from operations before taking into account the Company's financing decisions, depreciation of property, plant and equipment and amortization of intangible assets. EBITDA comprises gross margin less operating costs before financial expenses, depreciation and amortization, non-cash expenses such as share based compensation, one time and other unusual items, and income tax. Gross margin is defined as gross profit excluding depreciation on property, plant and equipment used in production. Operating expenses excludes interest, depreciation on property, plant and equipment used in selling and administration, and amortization of intangible assets.

EBITDA does not represent the actual cash provided by the operating activities nor is it a recognized measure of financial performance under IFRS. Readers are cautioned that this measure should not be considered as a replacement for those as per the unaudited interim condensed consolidated financial statements prepared under IFRS. The Company's definitions of this non IFRS financial measure may differ from those used by other companies.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

________________________

¹ See Non IFRS Financial Measure

 

SOURCE Diamond Estates Wines & Spirits Inc.

J. Murray Souter, President & CEO, Diamond Estates Wines & Spirits Inc., [email protected], 905.641.1042 Ext 234; Alan Stratton, CPA, CA, Chief Financial Officer, Diamond Estates Wines & Spirits Inc., [email protected], 905.641.1042 Ext 225

Related Links

www.diamondestates.ca