Diamond Estates Wines & Spirits Inc. (“Diamond Estates” or “the Company”) (DWS-TSX Venture) today announced its financial results for the three and nine-month periods ended December 31, 2018 (“Q3 2019” and “YTD 2019” respectively).
Q3 2019 Highlights:
• Revenue declined to $7.4 million, compared to $10.4 million in the three-month period ended December 31, 2017 (“Q3 2018”) due to lower export sales and the loss of two large agency suppliers, partially offset by positive momentum in the LCBO and grocery channels, the positive contribution from the acquisition of Backyard Vineyards, and the addition of new high-growth suppliers in the agency division;
• Gross Margin was $3.0 million, or 40.8% of revenue, compared to $4.7 million, or 45.8% of revenue, in Q3 2018, with lower revenue driving the decline in dollars and non-recurring severance revenue in Q3 2018 driving the decline in margin percentage;
• EBITDA declined to negative $0.2 million, compared to $1.0 million in Q3 2018, due to lower gross margin contribution and increased investment in distribution and promotional programming to expand brand presence in the LCBO channel;
• Sales in the Ontario grocery channel remained strong, with Diamond Estates’ brands having maintained the number one market share position in grocery during the quarter, keeping the Company well positioned for the anticipated expansion of wine in grocery and convenience stores;
• LCBO-specific sales were strong with revenue increasing 17% and case volumes increasing 20% compared to Q3 2018, as distribution improved due to increased promotional activity and a re-vectored marketing strategy;
• The annual harvest was completed during Q3 2019, yielding 2,100 tonnes of high-quality grapes, which is sufficient inventory to meet the Company’s production needs; and
• The Company continued to accumulate accolades for its high-quality wines, with Backyard Vineyards wines winning six medals at the San Francisco International Wine Competition, including a gold medal for its 2017 Riesling.
“While we are disappointed with our financial results for the third quarter of fiscal 2019, we are excited about our improved competitive position in Ontario,” said Murray Souter, President and CEO. “Over the last three years, one of our biggest points of emphasis has been to establish and maintain a leading position in the Ontario grocery channel. We have done just that, putting us in an outstanding position to capitalize as the Ontario government authorizes further roll-out of wine in grocery and convenience stores. We are also pleased with the continuing rebound in our LCBO sales, as we have overcome the distribution challenges that affected us earlier in the fiscal year.”
“We are confident that the declines in export and agency division sales are temporary. As previously disclosed, export sales have been impacted because our key distributor in China did not open new stores as quickly as anticipated. Accordingly, the distributor is working through excess ice-wine inventory and has reduced purchases. Our partnership with this distributor remains strong and with the distributor recently opening its full complement of stores, China will continue to be a very important market for Diamond Estates. We have also qualified several new export distributors globally and are beginning to export our wines to new markets including the USA, United Kingdom and Russia.
“In the agency division, revenue is down because of the loss of two major suppliers that accounted for a significant proportion of overall sales. While we cannot replace these sales overnight, we have recently established new agency partnerships and are generating solid sales growth from both these newer partner brands and from key brands belonging to long-time partners. We have the right team and the right strategy in place in the agency division to generate strong long-term growth.”
“Looking ahead, we believe that we can drive substantial value for shareholders as we overcome the short-term export and agency sales shortfalls, benefit from the continued Ontario grocery rollout, complete the expansion of the Lakeview winery in Niagara-on-the-Lake, and develop an attractive new Lakeview winery in the Okanagan Valley in British Columbia.”
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, Trajectory Beverage Partners, 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 and Andre Lurton wines from France, Kaiken wines from Argentina, Anciano wines from Spain, Blue Nun wines from Germany, Francois Lurton wines from France and Argentina, Waterloo Brewing and Amsterdam Brewery, both from Canada, Landshark Lager from the USA, Marston’s beers from England, Social Lite vodka sodas from Canada, Malfy Gin from Italy, Edinburgh Gin from Scotland, Ian MacLeod and Glengoyne scotches from Scotland, Barcelo Rum from the Dominican Republic and Tequila Rose Liqueur from McCormick Distilling in the USA.
Forward Looking Statements
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.