NIAGARA-ON-THE-LAKE, ON, July 22, 2016 /CNW/ - Diamond Estates Wines & Spirits Inc. ("Diamond Estates" or "the Company") (DWS-TSX Venture) today announced its financial results for the fiscal year ending March 31, 2016 ("FY2016").
Fiscal 2016 Highlights:
- Completed an equity raise for gross proceeds of $3,207,995;
- Debt to equity ratio improved significantly to 1.8:1;
- Sales growth of 44.7% in the agency division on a full year of post-merger operations;
- Completed plans and obtained approvals for a proposed new 2,400 square foot retail facility at the Niagara-on-the-Lake winery site; and
- Completed the rebranding and relaunch of all the company's major brands to better focus on our target consumer's preferences.
The Company has reviewed its financial statement presentation of various costs, including customer incentive programs (such as Air Miles), discount programs and product returns, previously included in Advertising and Promotion and excise taxes previously included in change in inventories of finished goods and warehousing and receiving. Following this review, management has determined that these costs are better presented as deductions against revenue. This change in presentation resulted in a reduction in revenue previously reported by $1,354,267 for the nine months ended December 31, 2015 and $1,434,781 for the fiscal year ending March 31, offset by equal reductions in expenses for those periods. There was no change to EBITDA, and net income or loss as a result.
Sales for FY2016 were $29,194,116 versus $24,296,115 for FY2015, a 20.2% increase. This is primarily related to the full‑year impact of the business combination that created the Kirkwood Diamond Canada Partnership (KDC) half‑way through FY2015, on October 1, 2014, effectively doubling the size of the agency division. This created a stronger presence in Western Canada where the Company operates as both sales agent and distributor for its suppliers' brands. Revenue in the agency division increased 44.7% as a result to $15,751,163 in FY2016 from $10,886,727 in FY2015. Revenue in the winery division was essentially flat, increasing 0.3% to $13,442,953 in FY2016 compared to $13,409,387 in FY2015. Increases in sales to bars, restaurants, other wineries and export customers were offset by declines in the LCBO retail channel. Rebranding initiatives and new listings are expected to stimulate sales growth in the LCBO channel in fiscal 2017.
Gross margin was up 12.0% to $11,842,740 in FY2016 from $10,574,033 in FY2015. Gross margin as a percentage of revenue declined to 40.6% in FY2016 from 43.5% in FY2015. Gross margin in the agency division increased 26.0% to $6,717,459 in FY2016 from $5,329,299 in FY2015. The associated gross margin percentage decreased to 42.6% in FY2016 from 49.0% in FY2015 as the sales volume in the distribution channel increased as did the cost of products sourced in foreign currencies due to the depreciation of the Canadian dollar against the US dollar and Euro in the second half of FY2016. The gross margin in the winery division decreased 2.0% to $4,344,574 in FY2016 from $4,431,567 in FY2015 primarily as a result of writing off $184,727 in excess and obsolete packaging, partially related to launching new designs for the core brands, 20 Bees, EastDell and Fresh, in early fiscal 2017. This reduced gross margin by 0.7% to 32.3% in FY2016 from 33.0% in FY2015. Excluding the inventory write‑offs, gross margin would have increased 0.7% to 33.7% in FY2016 from 33.0% in FY2015.
Operating expenses in FY2016 were $10,203,903 compared to FY2015 expenses of $9,029,301, an increase of $1,174,603 or 13.0%, as the FY2016 totals reflect a full twelve months of KDC operating expenses compared to only six months in FY2015 (from inception of the Partnership on October 1, 2014). It also includes $119,475 of foreign exchange losses in FY2016 (FY2015 ‑ $71,234) on agency product sourced in foreign currencies but paid for after an unusually steep decline in the Canadian dollar in Q4 2016. Standardized EBITDA increased to $1,638,837 in FY2016 from $1,489,807 in FY2015 as operating expenses declined to 35.0% of revenue from 37.2% respectively.
The Company incurred a loss on disposal of assets in FY2016 of $652,973, which primarily represent costs incurred in prior years to design and develop expansion plans for the winery at its main production facility and retail outlet in Niagara‑on‑the‑Lake. Management determined that these plans would no longer be of use when new plans were finalized for a proposed new 2,400 square foot retail building with construction anticipated to commence in the Fall of 2016. The Company incurred a net loss in FY2016 of $1,745,162 versus $1,710,255 in FY2015.
The operations and net loss for the year have resulted in the Company being in breach of one of its financial covenants under the terms of its current credit agreement with Meridian Credit Union ("MCU"), its primary lender. The Company's effective net worth was marginally below the minimum requirement of $7,500,000 by an amount of $126,350. As required under IFRS, the non-current portion of the MCU term loans of $9,264,045 have been classified as a current liability as at March 31, 2015. As of July 19, 2016, MCU has indicated in writing that it is prepared to waive the default, subject to no further defaults occurring and the expectation that the covenant in default is met at the next stipulated reporting period, being June 30, 2016, which has been satisfied.
All Canadian Wine Championships
The Company is pleased to announce that seven of its wines were awarded medals at the 36th annual All Canadian Wine Championships held in Prince Edward County on June 7th – 9th, 2016. Our EastDell Black Cab, the best selling VQA red blends in the LCBO, won gold in the red hybrid category. The McMichael Gallery "Group of Seven" Chardonnay won silver in the "Chardonnay under $20 category." It also won gold at the 2016 Ontario Wine Awards and is one of several new listings at the LCBO. The awards are a testament to our passionate winemakers and growers for the high quality VQA wine for which the Company has developed a strong reputation. For a complete listing of the medal winning wines from these and other competitions, please visit www.diamondestates.ca/site/winery-news.
Habitat for Humanity
The Company is also pleased to announce that it has exceeded its $100,000 fundraising goal as title sponsor for a new Habitat house in Niagara Falls. Habitat for Humanity Niagara recently began construction on a home for the Ali family of ten that has been in need of affordable housing for six years.
Amendment to DSU Plan
The Company also wishes to announce the that the Board of Directors approved an amendment to the DSU plan on June 21, 2016, increasing the number of DSU's available for grant under the plan to 2,000,000 from 1,000,000, subject to approval by disinterested shareholders at the Company's annual general meeting.
"The company remains focused on growing our domestic and export businesses for Ontario VQA wines" said Murray Souter, President and CEO of Diamond Estates. "The past year has seen a significant investment in rebranding our products to better target our core consumers. Those efforts are anticipated to benefit Diamond as the industry moves into a more open and competitive environment coincident with the recent announcements by the Ontario, Saskatchewan, BC and New Brunswick provincial governments regarding the sale of alcoholic beverages in non-government controlled outlets. Although our profitability and growth suffered this past year due to a number of factors, the changing and expanding markets will allow us to continue to focus on reducing fixed costs and improving margins."
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 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, 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.
Diamond Estates Wines & Spirits Inc. common shares trade on the TSX Venture Exchange (symbol: DWS).
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.
SOURCE Diamond Estates Wines & Spirits Inc.
For further information: 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 and Spirits Inc., [email protected], 905-641-1042 Ext 225