Diamond Estates Wines & Spirits Inc. (“Diamond Estates” or “the Company”) (DWS-TSX Venture) today announced its fiscal results for the three and nine months ending December 31, 2015 (“Q3 2016 and YTD 2016”).
Sales for Q3 2016 were $8,485,304 versus $7,877,312 for Q3 2015, a 7.7% increase. Gross profit was up 8.1% to $4,031,614 in Q3 2016 from $3,730,021 in Q3 2015. Gross margin for the Company’s winery division increased by 1.0% to 44.5% in Q3 2016 from 43.5% in Q3 2015. This was offset by a similar decline in the agency division’s buy/sell margin to 33.4% in Q3 2016 from 34.3% in Q3 2015 as foreign sourced product costs increased as a result of further declines in the value of the Canadian dollar. Standardized EBITDA also increased significantly to $676,122 in Q3 2016 from $345,286 in Q3 2015 as operating expenses declined to 39.5% of revenue from 43.0% respectively. The Company generated a significantly lower net loss in Q3 2016 of $75,153 versus $861,353 in Q3 2015. The net loss attributable to Diamond's shareholders was $207,469, a year over year improvement of $416,449 or 66.7%.
Sales for YTD 2016 were $24,425,699 versus $18,907,188 in YTD 2015, an increase of 29.2% and primarily related to the creation of the Kirkwood Diamond Canada Partnership (“KDC”), effective October 1, 2014. Gross profit was up 27.4% to $11,955,909 in YTD 2016 from $9,384,505 in YTD 2015. Gross margin declined to 48.9% in YTD 2016 from 49.6% in YTD 2015 as the sales mix changed with the merger of the agency business resulting in more weighting on the Western Canada buy/sell distribution business. Standardized EBITDA grew 65.6% to $2,470,860 in YTD 2016 from $1,491,963 in YTD 2015. Operating expenses increased 20.2%, at a slower pace than the revenue growth rate, to $9,485,049 in YTD 2016 from $7,892,542 in YTD 2015. The Company generated net profit in YTD 2016 of $367,771, an improvement of $1,310,486 from the net loss of $942,715 in YTD 2015.
The sales increase is primarily related to the commencement of the KDC partnership. 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 a change in the distributorship ("buy/sell") sales mix in Q3 2016 to 39.8% (YTD 2016: 37.4%) of revenues from 43.1% in Q3 2015 (YTD 2015: 26.2%). This affected overall gross profit margins as revenues in Eastern Canada are predominantly commission based (100% margin). Buy/sell sales declined slightly in Q3 2016 to $3,373,608 (YTD 2016: $9,137,165) from $3,392,226 in Q3 2015 (YTD 2015: $4,956,804), but are up on year-to-date basis as the business combination was effective October 1, 2014. Similarly, commission revenue increased slightly to $1,135,114 in Q3 2016 (YTD 2016: $3,601,966) from $1,092,993 in Q3 2015 (YTD 2015: $2,529,608). Sales in the winery division increased by 17.2% to $3,976,582 in Q3 2016 from $3,392,093 in Q3 2015. The winery revenue was $11,686,568 in YTD 2016 versus $11,420,776 in YTD 2015, a 2.3% increase. Growth in export and licensee sales was partially offset by slightly lower volume in the LCBO channel.
Operating expenses in Q3 2016 were $3,355,492 compared to Q3 2015 expenses of $3,384,735, a slight decrease of $29,243 or 0.9%. YTD 2016 operating costs totaled $9,485,049 compared to YTD 2015 costs of $7,892,542, an increase of $1,592,507 or 20.2%, as the YTD 2016 totals reflect a full nine months of
KDC operating expenses whereas YTD 2015 costs only included three months of KDC operating expenses (from inception of the Partnership on October 1, 2014). Interest expense decreased nominally to $326,699 in Q3 2016 (YTD 2016: $1,015,834) from $358,746 in Q3 2015 (YTD 2015: $1,048,893) as the addition of the KDC credit facility was offset by a reduction in the Company’s borrowing base by applying a portion of the proceeds from the private placement completed on April 29, 2015 against the line of credit. Depreciation and amortization expense increased to $317,815 in Q3 2016 (YTD 2016: $897,890) from $228,836 in Q3 2015 (YTD 2015: $680,061) primarily related to the distribution rights vended into KDC by TKG.
Share based payment expenses increased to $106,761 in Q3 2016 (YTD 2016: $189,365) from $49,613 in Q3 2015 (YTD 2015: $136,280) due mainly to the issuance of deferred service units and vesting of stock options granted in previous periods.
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 of $1,455,026 in YTD 2016 compared to negative cash flow of $40,095 in YTD 2015, an improvement of $1,495,121. 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%.
“We are pleased with the improvements in our core business and anticipate that a number of initiatives currently underway will have a positive effect on our overall business in the future. In addition, we are seeing strength in our export business as a result of both the lower Canadian dollar and greater acceptance of our products in foreign markets.” said J. Murray Souter, President and CEO of Diamond Estates. “The plan announced on February 18, 2016 by the Ontario government to expand wine sales into grocery stores should benefit us by providing more points of distribution and broader exposure of our Niagara produced wines to our target consumers. With the core business stabilized, we continue to work towards our long-term strategic growth plan and remain optimistic given our current visibility into the marketplace.”
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, Diamond Estates 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