Diamond Estates Wines & Spirits Reports Solid Q1 2018 Financial Results

Revenue growth in winery division drives stronger year-over-year financial performance

NIAGARA-ON-THE-LAKE, ON, Aug. 24, 2017 /CNW/ - Diamond Estates Wines & Spirits Inc. ("Diamond Estates" or "the Company") (DWS-TSX Venture) today announced continued improvement in financial performance in the three-month period ended June 30, 2017 ("Q1 2018").

Q1 2018 Highlights:

• Revenue was $9.6 million, an increase of 5.3% from $9.1 million in Q1 2017, driven by strong growth in export sales and the LCBO channel, which includes grocery stores;
• Gross margin was $4.5 million, representing 46.3% of revenue, compared to $4.0 million, or 43.8% of revenue in Q1 2017, as the winery division implemented targeted price increases, reduced promotional activity in the LCBO channel and generated improved operating leverage;
• EBITDA¹ rose 11.5% to $1.4 million, compared to $1.3 million in Q1 2017, as the winery division generated increased operating leverage attributable to increased sales volume;
• Cash flow from operating activities, before changes in non-cash working capital items, increased 24.7% to $1.2 million, up from $1.0 million in Q1 2017, reflecting the increased operating leverage;
• Net income increased 23.5% to $0.9 million, compared to $0.7 million in Q1 2017;
• On April 6, 2017, the Company announced an agreement to acquire the 49.99% minority interest in its agency business, Kirkwood Diamond Canada ("KDC") previously owned by its joint venture partner, Kirkwood Brands Ltd. The Company agreed to pay $4.4 million to complete the acquisition. On May 5, 2017, the Company completed the transaction, increasing its interest in the agency business to 100%;
• On May 17, 2017, the Company opened its new retail store, Lakeview Wine Co., at its production facility in Niagara-on-the-Lake, Ontario; and
• The winery continues to win accolades, earning 15 awards at the 2017 Finger Lakes International Wine Competition that included a prestigious 'Best in Show' for icewine.

"Our business continued to have strong momentum in the first quarter of Fiscal 2018," said Murray Souter, President and CEO. "The earnings from our winery division are improving substantially as we generate enhanced operating leverage from stronger sales volumes. Export sales and LCBO revenue, which includes sales into the grocery channel, were both strong, increasing 24.0% and 32.0% respectively during the quarter. It is notable that our winery operations performed well during Q1 2018 despite temporary grape supply constraints. Had these constraints not existed, we expect that we could have generated 10% sales growth in the quarter. The profitability of this division will be enhanced when we complete our expansion of the Lakeview winery, which is expected to increase our production capacity by approximately 50%."

"During Q1 2018, we also assumed full ownership of KDC, our agency division. We are undertaking a comprehensive review of this business and have identified numerous synergies and other opportunities to enhance value. KDC is already a profitable business, but we are confident that we can drive improved earnings from this division in the months ahead," added Mr. Souter.

The Company is also continuing to benefit from the introduction of wine in Ontario grocery stores, one of the most significant events in the history of the province's wine sector. Diamond Estates is well positioned in this channel with listings in all stores, and the Company anticipates stronger grocery sales in the future as more stores obtain licenses to sell wine and Canadians get accustomed to the convenience of buying wine through this channel.

Conference Call
Murray Souter, CEO, and Alan Stratton, CFO, will host a conference call for the investment community today, Thursday, August 24 at 9:00 a.m. (ET). The call-in numbers for participants are [phone] or [phone].  In addition, the call will be webcast live at: http://event.on24.com/wcc/r/1491295-1/FB5F2F7D512631058B609291A7D128CA.

A replay of the call will be available until Thursday, August 31, 2017. To access the replay, dial [phone] or [phone] (Passcode: 017356). 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 two wineries in the Niagara region of Ontario producing VQA and blended wines under such well-known brand names as 20 Bees, EastDell Estates, Lakeview Cellars, Dois Amigos, Dan Aykroyd, Benchmark and Seasons. Through its subsidiary, Kirkwood Diamond Canada, the Company is the sales agent for top selling international brands in all regions of the country as well as being a distributor in the western provinces.  These recognizable brands include Fat Bastard wines from France, Kaiken wines from Argentina, Charles Wells beers from England, Hpnotiq Liqueur from France, Anciano wines from Spain, Francois Lurton wines from France and Argentina, Blue Nun wines from Germany, coolers and spirits from Independent Distillers in New Zealand, Brick Brewing from Canada, Evan Williams Bourbon from USA, Flor de Cana rum from Nicaragua, Iceberg Vodka from Canada and many others. For further information on the company, please visit the company's SEDAR profile at www.sedar.com.

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.

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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