March 2, 2015, Niagara-on-the-Lake, Ontario - Diamond Estates Wines & Spirits Inc. (“Diamond Estates” or “the Company”) (DWS-TSX Venture) today announced its third quarter results for the fiscal period ending December 31, 2014 (“Q3 2015” and “YTD 2015”).
The Company generated a net loss in Q3 2015 of $861,353. The net loss excluding the portion attributable to non-controlling interest was $623,918, up slightly from the loss of $589,130 in Q3 2014 and largely attributable to the restructuring charges associated with the merger of the Diamond Estates’ agency business with that of The Kirkwood Group on October 1, 2014. EBITDA improved to $352,664 in Q3 2015 from $247,578 in Q3 2014. Sales for Q3 2015 were $7,877,312 compared to $5,412,780 for Q3 2014, representing an increase of 45.5%. Gross profit for Q3 2015 was up 43.7% over the prior year, to $3,724,721 from $2,592,652. Gross margin for Q3 2015 was 47.3%, a decrease of 0.6% compared to 47.9% for Q3 2014. Operating expenses for Q3 2015 increased by $1,026,983 compared to the same period in the prior year as a result of the business combination.
On a year to date (YTD) basis, the Company had a net loss for the nine months ended December 31, 2014 of $942,715 ($705,280 excluding non-controlling interest) compared to $3,359,675 for the nine months ending December 31, 2013. EBITDA for YTD 2015 was $1,513,025, up significantly from $505,327 in YTD 2014. YTD 2015 sales were $18,907,188 compared to $16,637,566 in YTD 2014, representing an increase of 13.6%. YTD gross profit for 2015 increased to $9,376,319 from $7,778,367 in YTD 2014, while gross margin for YTD 2015 was up 2.8% to 49.6% compared to 46.8% for YTD 2014. Operating expenses increased by $590,254 in YTD 2015 over YTD 2014 as a result of the business combination.
The Company generated negative cash flow from operations for YTD 2015 of $40,095 compared to negative cash flow from operations for YTD 2014 of $1,543,552, an improvement in cash flow from operations of $1,583,647, comprised of the following major components:
Increase in gross profit $ 1,597,652
Increase in operating expense (590,254)
Decrease in interest expense 209,652
Decrease in financing expenses 401,550
Other (35,253)
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$ 1,583,647
Sales for Q3 2015 were up $2,464,532 over Q3 2014 primarily as a result of the merger with The Kirkwood Group that was effective October 1, 2014. The merger brought significant scale to Diamond’s western Canadian business where it operates as a distributor and reseller of product in addition to being the sales and marketing agent. This had an impact on the revenue mix in the quarter, as buy-sell accounted for 43.1% of total revenue compared to 19.5% in the same period of the prior year. The gross margin for the agency business fell to 50.3% in Q3 2015 from 67.3% in Q3 2014 due largely to the change in mix with the addition of the brands from the legacy Kirkwood business.
Sales for the winery division in Q3 2015 were down slightly by 3.8% or $135,249 to Q3 2014. This was the result of the Company choosing to focus on improving profitability throughout the current fiscal year. Low margin services and bulk wine sales to third parties were down by $147,141 as the Company focused on more profitable, brand building sales channels. The result was continued improvement in gross margin that was up by 5.8% to 43.3% in Q3 2015 versus Q3 2014. On a year-to-date basis, sales for the winery division were up slightly by $11,836 (0.1%) from YTD 2014. Gross margin was 5.8% higher at 45.0% versus 39.2% for YTD 2015 and YTD 2014 respectively.
Operating expenses increased $1,026,983 or 43.8% in Q3 2015 over Q3 2014 as a result of the merger of the agency businesses. This includes the personnel, office, general and administration costs of the former Kirkwood Group and also includes one-time costs associated with the integration such as travel, information technology, communications, legal, accounting and tax advisors.
Non-operating related expenses were $619,057 in Q3 2015 compared to $78,648 in Q3 2014. The difference is primarily attributable to a restructuring charge of $488,528 associated with redundancies created by the merger of the agency businesses. The Company also incurred a non-cash loss of $80,916 related to the sale-leaseback of its De Sousa Estates winery to Oakwest Corporation.
On February 18, 2015, the Board of Directors of Diamond Estates approved a plan to amalgamate Niagara Cellars Ltd, a wholly owned subsidiary, with its parent company, Diamond Estates Wines and Spirits Ltd. This will simplify the operating and legal structures of the Company while consolidating tax losses that can be used against future income streams from both the winery and agency divisions. In addition, the Board approved a motion to implement a deferred compensation plan for Directors that will see half of their fees change to Deferred Share Units or Restricted Shares.
“The combination of The Kirkwood Group and Diamond’s agency business has created the scale that we expected” stated J. Murray Souter, President & CEO of Diamond Estates, “We are the agent of choice for over 120 brands of beer, wine and spirits and are now one of the leading national agencies in Canada. In the third quarter we successfully integrated the sales and marketing functions of the two organizations and Q4 will see the completion of the back office integration. At that point, the full synergies of the merger will be realized allowing for greater focus and resources to be committed to growing our suppliers’ brands.”
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, R i d e r s V a l l e y , 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 reco gnizable 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 f r o m C a n a d a and m a n y o t h e r s. 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 and Spirits Inc.
jmurraysouter@diamondwines.com
905 641 1042 Ext 234
Alan Stratton, CPA, CA
CFO
Diamond Estates Wines & Spirits Inc.
astratton@diamondwines.com
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 the Diamond Estates Wines and Spirits Inc., the Kirkwood Group, or the proposed partnership’s (the “parties”) 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 ability of the parties to complete the transaction; the economy generally; consumer interest in the services and products of the joint venture; financing; competition; and anticipated and unanticipated costs. While the parties acknowledge that subsequent events and developments may cause its views to change, the parties specifically disclaim any obligation to update these forwardlooking statements. These forward-looking statements should not be relied upon as representing the views of either party as of any date subsequent to the date of this press release. Although the parties have 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. Closing of the transaction remains subject to the final approval of the TSX Venture Exchange.
