Waterloo Brewing announces third quarter results

Third Quarter Highlights:

• Net revenue of $26.2 million, decreased from $26.9 million in the prior year.
• Gross profit of $5.4M, decrease from $6.0 million in the prior year.
• Selling, marketing and administration expenses of $3.2 million, reduced from $3.4 million in the prior year.
• EBITDA* of $4.4 million, increased from $4.3 million in the prior year.

Year-to-Date Highlights:

• Net revenue of $76.9 million, decreased from $83.6 million in the prior year.
• Gross profit of $16.2 million, decreased from $22.1 million in the prior year.
• Selling, marketing and administration expenses of $10.7 million, reduced from $11.9 million the prior year.
• EBITDA* of $12.0 million, decreased from $15.6 million in the prior year.

KITCHENER, ON, Dec. 14, 2022 /CNW/ - Waterloo Brewing Ltd. ("Waterloo Brewing" or the "Company") (TSX: WBR), Ontario's first craft brewery, announced financial results for the third quarter of fiscal 2023 which ended on October 30, 2022. Waterloo Brewing reported EBITDA* for the third quarter of fiscal 2023 of $4.4 million, on net revenue of $26.2 million.

Owner brand sales volume in the quarter grew by 3.2%, while the industry as a whole, was down by 4.3%. Volumes of the domestic mainstream Laker brand increased by 10.6% versus the prior years. As noted in the previous quarter, the Company is continuing to see consumers trade-down as a result of ongoing inflationary pressures which have contributed to the growth of the Laker brand.

This shift, however, has negatively impacted the Company's premium beer brands and ready-to-drink products which is putting pressure on gross margin. Consistent with industry trends, LandShark® volumes declined by 7.5% primarily due to softened demand for the Landshark® seltzers. LandShark® beer was flat to the same period last year, but has still grown 5% on a year-to-date basis.

Supply chain issues continued in the quarter and resulted in contract volumes shifting to the fourth quarter of the fiscal year. This represented the majority of the overall decline in net revenue. However, the Company recently announced the renewal of two strategic co-manufacturing partners which will result in approximately $18 million of combined revenue over the extended term of these contracts.

"It's been a challenging year for the industry," said George Croft, President and Chief Executive Officer of Waterloo Brewing. "I am proud of how the team has pushed through these ongoing issues and am confident we will finish this fiscal year strong."

Subsequent to the third quarter, Waterloo Brewing increased the price of their single serve 473ml Laker cans. This change was consistent with the balance of the industry and will have a significant and positive impact on gross margin in the fourth quarter.

"Our goal will always remain the same: make great quality beer for an affordable price," Croft said.

Waterloo Brewing also announced today by separate press release that it has entered into a definitive arrangement agreement (the "Arrangement Agreement") with Carlsberg Group ("Carlsberg") pursuant to which Carlsberg has agreed to acquire all of the issued and outstanding shares of Waterloo Brewing ("Waterloo Brewing Shares"), by way of a statutory plan of arrangement under the Business Corporations Act (Ontario) ("Transaction"). Under the terms of the Arrangement Agreement, holders of Waterloo Brewing Shares ("Waterloo Brewing Shareholders") will receive C$4.00 in cash for each Waterloo Brewing Share held ("Consideration"), which implies an aggregate equity value for Waterloo Brewing, of approximately C$144 million, on a fully diluted, in-the-money, treasury method basis and an enterprise value of C$217 million. The total offer Consideration also represents an implied TEV/LTM EBITDA multiple of 12.4x, based on Waterloo's third quarter results ending October 30, 2022. In connection with the Transaction, the parties agreed that last dividend paid to Waterloo Brewing Shareholders was on November 2, 2022. Please refer to the separate press release for more details regarding the Transaction.

The following financial information should be read in conjunction with the audited annual financial statements of the Company prepared under IFRS for the year ended January 31, 2022.

Reconciliation of Net Earnings (loss) to EBITDA*
	Quarter ended (unaudited)		Fiscal year-to-date ended (unaudited)
(in thousands of dollars)	October 30, 2022	October 31, 2021	October 30, 2022	October 31, 2021
Net income (loss)	$                     194	$                     738	$                      (61)	$                  4,792
Add (deduct):
Income tax recovery (provision)	85	268	(26)	1,681
Gain on misappropriated funds	-	-	-	(900)
Depreciation and amortization	2,914	2,491	8,882	7,475
(Gain) loss on disposal of property, plant and equipment, and right-of-use assets	(2)	(37)	130	(86)
Share-based payments	302	275	810	685
Finance costs	862	599	2,313	1,933
Subtotal	4,161	3,596	12,109	10,788
EBITDA *	4,355	4,334	12,048	15,581

STATEMENTS OF FINANCIAL POSITION
As at October 30, 2022 and January 31, 2022
(Not audited or reviewed by the Company's external auditor)

	October 30, 2022	January 31, 2022
ASSETS
Current assets
Accounts receivable and contract assets	$              19,164,840	$          15,526,799
Inventories	16,984,167	15,841,135
Prepaid expenses	1,017,760	754,088
	37,166,767	32,122,022
Non-current assets
Property, plant and equipment	49,009,377	51,930,553
Right-of-use assets	31,293,999	32,067,772
Intangible assets	15,159,359	14,846,687
Construction deposits	61,266	466,818
	95,524,001	99,311,830
TOTAL ASSETS	132,690,768	131,433,852
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness	14,868,607	16,861,218
Accounts payable and accrued liabilities	19,086,652	14,062,415
Dividends payable	1,091,871	-
Current portion of lease liabilities	3,677,799	4,134,584
Current portion of long-term debt	6,386,223	5,327,821
	45,111,152	40,386,038
Non-current liabilities
Provisions	1,267,804	1,211,324
Lease liabilities	24,680,153	25,535,180
Long-term debt	21,598,485	21,751,775
Deferred income tax liability	5,799,146	5,825,398
	53,345,588	54,323,677
TOTAL LIABILITIES	98,456,740	94,709,715
Equity
Share capital	40,717,681	40,618,496
Share-based payments reserves	3,192,856	2,447,275
Deficit	(9,676,509)	(6,341,634)
TOTAL EQUITY	34,234,028	36,724,137
SUBSEQUENT EVENT
TOTAL LIABILITIES AND EQUITY	$            132,690,768	$        131,433,852

STATEMENTS OF COMPREHENSIVE INCOME
For the quarters ended October 30, 2022 and October 31, 2021
(Not audited or reviewed by the Company's external auditor)

		Quarter ended		Fiscal year-to-date ended
		October 30, 2022	October 31, 2021	October 30, 2022	October 31, 2021
Revenue		$          26,155,387	$          26,878,165	$          76,897,638	$          83,564,020
Cost of sales		20,797,437	20,918,137	60,745,309	61,448,475
Gross profit		5,357,950	5,960,028	16,152,329	22,115,545
Selling, marketing and administration expenses		3,193,144	3,363,501	10,748,676	11,897,668
Other expenses		1,025,991	1,006,133	3,181,964	2,747,732
Finance costs		861,542	599,501	2,313,179	1,933,708
Gain on misappropriated funds, net		-	-	-	(899,646)
Gain on disposal of property, plant and equipment,      and right-of-use assets		(1,500)	(14,902)	(4,967)	(37,388)
Income (loss) before tax		278,773	1,005,795	(86,524)	6,473,471
Income tax expense (recovery)		84,587	267,649	(26,250)	1,681,105
Net income (loss) and comprehensive income (loss)		$                194,186	$                738,146	$                (60,274)	$            4,792,366
Basic earnings per share		$                       0.01	$                       0.02	$                           -	$                       0.13
Diluted earnings per share		$                       0.01	$                       0.02	$                           -	$                       0.13

STATEMENTS OF CASH FLOWS
For the quarters ended October 30, 2022 and October 31, 2021
(Not audited or reviewed by the Company's external auditor)

		Quarter ended		Fiscal year-to-date ended
		October 30, 2022	October 31, 2021	October 30, 2022	October 31, 2021
Operating activities
Net income (loss)		$              194,186	$            738,146	$              (60,274)	$        4,792,366
Adjustments for:
Income tax expense (recovery)		84,587	267,649	(26,250)	1,681,105
Finance costs		861,542	599,501	2,313,179	1,933,708
Depreciation and amortization of property, plant and      equipment, right-of-use assets and intangibles		2,914,397	2,490,806	8,882,083	7,475,000
Gain on disposal of property, plant and equipment      and right-of-use assets		(1,500)	(14,902)	(4,967)	(37,388)
Share-based payments		302,149	275,228	809,834	684,616
Change in non-cash working capital		(91,965)	(1,777,312)	(136,394)	(8,068,479)
Less:
Interest paid		(828,815)	(577,315)	(2,186,945)	(1,897,011)
Cash provided by operating activities		3,434,581	2,001,801	9,590,266	6,563,917
Investing activities
Purchase of property, plant and equipment		(134,026)	(2,056,111)	(2,123,746)	(9,943,507)
Construction deposit paid		-	(448,737)	-	(679,973)
Proceeds from sale of property, plant and equipment, and    right-of-use assets, net		1,500	15,090	6,084	38,989
Purchase of intangible assets		(3,372)	(1,313)	(486,312)	(46,777)
Cash used in investing activities		(135,898)	(2,491,071)	(2,603,974)	(10,631,268)
Financing activities
Increase (decrease) in bank indebtedness		194,183	881,037	(1,992,611)	6,401,928
Issuance of long-term debt		-	-	5,000,000	4,536,234
Increase to obligation under finance lease		-	2,656,846	-	2,656,846
Repayment of long-term debt		(1,503,236)	(1,231,564)	(4,094,888)	(3,869,213)
Repayment of lease liabilities		(897,924)	(829,864)	(3,750,995)	(2,815,891)
Dividends paid		(1,091,706)	(987,186)	(2,182,730)	(2,956,986)
Issuance of shares, net of fees		-	-	34,932	115,943
Stock option costs		-	-	-	(10,809)
Proceeds from stock option exercise, net of costs		-	-	-	9,299
Cash generated from (used in) financing activities		(3,298,683)	489,270	(6,986,292)	4,067,351
Net increase in cash		-	-	-	-
Cash, beginning of period		-	-	-	-
Cash, end of period		$                        -	$                        -	$                        -	$                        -
Non-cash investing and financing activities:
Acquisition of assets under lease		$         1,066,908	$         3,991,554	$         2,442,634	$         6,268,994

About Waterloo Brewing

Waterloo Brewing is Ontario's largest Canadian-owned brewery. The Company is a regional brewer of award-winning premium quality and value beers and is officially certified under the Global Food Safety Standard, one of the highest and most internationally recognized standards for safe food production. Founded in 1984, Waterloo Brewing Ltd. was the first craft brewery to start up in Ontario and is credited with pioneering the present-day craft brewing renaissance in Canada. Waterloo Brewing has complemented its Waterloo premium craft beers with the popular Laker brand. In 2011, Waterloo Brewing purchased the Canadian rights to Seagram Coolers and in 2015, secured the exclusive Canadian rights to both LandShark® and Margaritaville®. In addition, Waterloo Brewing utilizes its leading-edge brewing, blending, and packaging capabilities to provide an extensive array of contract manufacturing services in beer, coolers, and ciders. Waterloo Brewing trades on the TSX under the symbol WBR. Visit us at www.WaterlooBrewing.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 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-IFRS earnings measure, therefore it does not have any standardized meaning prescribed by International Financial Reporting Standards and may not be similar to measures presented by other companies. EBITDA represents earnings before interest, income taxes, depreciation, and amortization, gain(loss) on disposal of property, plant, and equipment and right-of-use assets, gain on misappropriated funds, and share-based payments. 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.

SOURCE Waterloo Brewing Ltd.

Enida Zaimi, Chief Financial Officer, 519-742-2732 x 106, E-mail: [email protected]