November 20, 2015 - Diamond Estates Wines & Spirits Inc. (“Diamond Estates” or “the Company”) (DWS-TSX Venture) today announced its fiscal results for the three and six months ending September 30, 2015 (“Q2 2015 and YTD 2016”).
Sales for Q2 2016 were $8,381,108 versus $5,863,300 for Q2 2015, a 42.9% increase. Gross profit was up 37.1% to $4,199,241 in Q2 2016 from $3,062,528 in Q2 2015. Gross margin declined to 50.1% in Q2 2016 from 52.2% in Q2 2015 as the sales mix changed as a result of the business combination that created Kirkwood Diamond Canada Partnership (KDC) effective October 1, 2014. Standardized EBITDA also increased significantly to $1,044,444 in Q2 2016 from $786,872 in Q2 2015 as operating expenses declined to 37.6% of revenue from 38.8% respectively. The Company generated a net profit in Q2 2016 of $382,817 versus $116,323 in Q2 2015. The net profit attributable to Diamond's shareholders was $230,678, a year over year improvement of $114,355 or 98.3%.
Sales for YTD 2016 were $15,940,395 versus $11,029,876 in YTD 2015, an increase of 44.5% and primarily related to the launch of KDC. Gross profit was up 40.1% to $7,924,502 in YTD 2016 from $5,654,484 in YTD 2015. Gross margin declined to 49.7% in YTD 2016 from 51.3% in YTD 2015. Standardized EBITDA grew 56.5% to $1,794,945 in YTD 2016 from $1,146,679 in YTD 2015. Operating expenses increased 36.0%, lower than the revenue growth rate, to $6,129,557 in YTD 2016 from $4,507,805 in YTD 2015. The Company generated net profit in YTD 2016 of $443,132, up $524,491 from a net loss of $81,359 in YTD 2015.
The sales increase is primarily related to the business combination. KDC has a stronger presence in Western Canada where the Company operates as both sales agent and distributor for its suppliers’ brands, which resulted in an increase in the distributorship ("buy/sell") sales mix to 37.0% in Q2 2016 (YTD 2016: 36.2%) of revenues from 11.9% in Q2 2015 (YTD 2015: 14.2%). This affected overall gross profit margins as revenues in Eastern Canada are predominantly commission based (100% margin). As a result of the merger, buy/sell sales jumped in Q2 2016 to $3,104,922 (YTD 2016: $5,763,557) from $699,517 in Q2 2015 (YTD 2015: $1,564,578) and commission revenue increased to $1,378,484 in Q2 2016 (YTD 2016: $2,466,852) from $907,639 in Q2 2015 (YTD 2015: $1,436,615). Sales in the winery division decreased by 8.4% to $3,897,702 in Q2 2016 from $4,256,143 in Q2 2015. On a year-to-date basis, the winery revenue was $7,709,986 in 2016 versus $8,028,683 in 2015, a 4.0% decline. Growth in export and licensee sales were offset by restrained volume in the LCBO channel as brand rationalization, lower promotional activity and price increases dampened performance.
Operating expenses increased by $879,141 or 38.6% in Q2 2016 over Q2 2015 ($1,621,752 in YTD 2016, an increase of 36.0% over YTD 2015), primarily as a result of the combination of the agency businesses. The increased cost base relative to the prior year reflects larger sales, marketing and administration teams that enable KDC to compete more effectively as a leading national agent for suppliers with internationally recognized brands. Interest expense decreased nominally to $352,438 in Q2 2016 (YTD 2016: $689,136) from $358,138 in Q2 2015 (YTD 2015: $690,147) as the addition of the KDC credit facility was offset by a reduction in the Company’s borrowing base by applying the proceeds from the private placement completed on April 29, 2015 (see note 12(a)) against the line of credit).
Depreciation and amortization expense increased to $271,848 in Q2 2016 (YTD 2016: $580,074) from $225,744 in Q2 2015 (YTD 2015: $451,224) primarily related to the distribution rights vended into KDC by TKG.
Share based payment expenses declined to $37,341 in Q2 2016 (YTD 2016: $82,603) from $86,667 in Q1 2015 (YTD 2015: $86,667) as stock options granted in previous periods vested during the year.
As reflected in the unaudited interim condensed consolidated statements of cash flows, the Company generated positive cash flow from operations before changes in non-cash working capital items for YTD 2016 of $1,105,809 compared to $462,055 in YTD 2015, an improvement of $643,754. Coincident with the private placement, the Company accelerated retirement of term debt in the amount of $456,069 that had an interest rate of 12%.
“With our focus on profitability, we have a number of initiatives under way that we expect to drive future growth. In addition, macro economic and political trends favour local Ontario VQA wine, which should benefit our performance in the winery division in the near future.” said J. Murray Souter, President and CEO of Diamond Estates. “We continue to focus on executing against our long-term strategic plan and are optimistic given the opportunities that we see unfolding in the industry.”
The Company also wishes to announce the issuance of an aggregate of 819,133 deferred share units (“DSUs”) to non-executive directors under the Company’s deferred share unit plan (the “DSU Plan”) in settlement of $84,125 of deferred directors' compensation. The DSUs are to be settled in common shares of the Company (“Common Shares”) when the director retires from all positions with the Company.
Pursuant to the DSU Plan, the DSUs were priced based on the weighted average price per Common Share at which the Common Shares have traded on the TSX Venture Exchange during the last five trading days preceding the issuance.
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, Riders Valley, Benchmark and Seasons. Through its partnership, 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, Fireball Whiskey Shooter from Canada, Hpnotiq Liqueur from France, Anciano wines from Spain, Francois Lurton wines from France and Argentina, Brick Brewing from Canada, Buffalo Trace 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.
Diamond Estates Wines & Spirits Inc. common shares trade on the TSX Venture Exchange (symbol: DWS). For more information, please contact:
J. Murray Souter
President & CEO
Diamond Estates Wines & Spirits Inc.
905 641 1042 Ext 234
Alan Stratton, CPA, CA
Chief Financial Officer
Diamond Estates Wines and Spirits Inc.
905-641-1042 Ext 225
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.)
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