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2020 Financial Results

Diamond Estates Wines & Spirits Reports Fiscal 2020 Financial Results

Generated 18.7% revenue growth in the fourth quarter while responding rapidly to the market disruption created by COVID-19

July 28, 2020, Niagara-on-the-Lake, Ontario – Diamond Estates Wines & Spirits Inc. (“Diamond Estates” or “the Company”) (DWS-TSX Venture) today announced its financial results for the three and 12-month periods ended March 31, 2020 (“Q4 2020” and “FY 2020” respectively).

FY 2020 Summary:
  • Revenue was $26.8 million, a decline of 4.7% from $28.1 million in the 12-month period ended March 31, 2019 (“FY 2019”). The decrease was primarily related to continued softness in winery export sales, partially offset by solid performance across the majority of the Company’s well-established trade channels;
  • The Company maintained its strong position in the emerging Ontario grocery channel amongst VQA wines with 20 Bees representing four of the top 10 selling stock keeping units (“SKU’s”) and EastDell Black Cab also placing in the top 20. Year over year growth continues at 18%
  • In April 2020, we renewed the Deutsch Family Wines agreement for an additional three years, recognizing the considerable success of TBP in building the Josh brand within the Canadian retail and on-premise channels. The Company was also awarded Canadian representation of a number of the Heineken International beer brands under a 3-year agreement;
  • Gross margin was $12.1 million, a slight decline of 1.0% from $12.2 million in FY 2019. Gross margin percentage increased to 45.2% from 43.5% last year, driven primarily by increased focus on higher-margin products and the positive impact of the Company’s cost control initiatives;
  • EBITDA was ($0.9) million compared to ($0.5) million in FY 2019, with the reduction
  • attributable to higher SG&A expenses and softness in export sales, partially offset by effective cost controls and improved gross margins;
  • Net loss was $4.2 million, compared to a net loss of $3.3 million in FY 2019;
  • On July 29, 2019, the Company completed a brokered private placement with Lassonde Industries Inc. to issue 36.9 million common shares at $0.19 per share for gross proceeds of $7 million;
  • On October 30, 2019, the Company closed a private placement offering of 12.2 million common shares at a price of $0.19 per common share for gross proceeds of $2.3 million;
  • The Company maintained its strong position in the emerging Ontario grocery channel amongst VQA wines, with 20 Bees representing four of the top 10 selling stock keeping units and EastDell Black Cab also placing in the top 20. Josh Cellars Cabernet Sauvignon is currently the top selling imported red wine over $15;
  • The 2019 harvest resulted in the Company’s wineries taking in a combined 3,100 tonnes of grapes yielding 2.5 million litres of bulk wine. This represents an increase of 830 tonnes from the 2018 harvest, and positions the Company well to compete in the expanding Ontario grocery channel;
  • The Company continued to explore and implement actions to improve operational efficiencies in order to mitigate the effects of rising production input costs, mainly in the winery operations. The Grape Growers of Ontario negotiated a price increase on grapes ranging from 2% to 4%, depending on varietal. This increase went into effect for the most recent harvest, resulting in an increase in grape costs of $0.1 million compared to 2018 pricing levels;
  • The Company continued to leverage its national footprint as a result of the Backyard Vineyards acquisition through new business wins in the high-margin licensee channel, bringing expanded distribution with domestic and partner brands across British Columbia, Alberta and Ontario; and
  • On July 24, 2020, the Company completed a fourth amendment to its existing credit agreement with Bank of Montreal ("BMO") under which the maturity date of the credit agreement was extended to July 1, 2022, and for the quarters ending September 30, 2020 and December 31, 2020, (i) the minimum fixed charge coverage ratio was amended to 1.20|1.00 and 1.05|1.00 respectively, (ii) the definitions of certain EBITDA adjustments were refined, and (iii) quarterly principal payments of $125,000 were deferred. As consideration for the lender entering into this agreement, the Company has agreed to issue 750,000 warrants to BMO, with each such warrant being exercisable for one common share in the Company for a period of 2 years from issuance at an exercise price of $0.16 per common share, vesting immediately and expiring as of July 1, 2023.

Q4 2020 Summary:

Q4 2020 revenue was $5.4 million, an increase of 18.7% compared to $4.5 million in the three-month period ended March 31, 2019 (“Q4 2019”), primarily attributable to higher revenue in the agency division that was driven by increased sales of major partner brands in Ontario. Gross margin increased 13.5% to $2.0 million, or 37.9% of revenue, compared to $1.8 million, or 39.6% of revenue, in Q4 2019. EBITDA was ($0.8) million, compared to ($1.4) million in Q4 2019, and the net loss was $1.6 million compared with $2.2 million in Q4 2019. The January-to-March quarter is a seasonally slow period for the Company, and financial results in the fiscal fourth quarter are therefore typically weaker than in other quarters.

“The COVID-19 pandemic has caused significant disruption to our industry, but we are also seeing new opportunities,” said Murray Souter, President and CEO. “Consumer buying patterns are changing, with greater demand for value-priced wines and recognized brands, such as those offered through both our winery and agency divisions. And while sales through certain traditional channels have weakened, we are seeing strength in emerging channels such as grocery and online. The revenue growth we achieved in the fourth quarter demonstrates that we are beginning to capitalize on these shifting market dynamics.”

“We have moved quickly and decisively to improve Diamond Estates’ competitive position during this period of uncertainty. We have reduced overhead costs, reduced spending on channels with weakening sales outlooks, extended the debt maturity in our credit agreement, and introduced protocols to support the health and safety of our customers, employees and other stakeholders. I am also pleased to announce that we just reopened our flagship retail store, as the Niagara region entered Stage 3 of Ontario’s reopening plan last Friday. Market conditions today remain highly challenging and volatile but, looking further out to the post-pandemic economy, we expect both a resumption of export sales and improving results from domestic winery and agency operations.”

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, one 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, Serenity, 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, Felix Solis 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, Edinburgh Gin from Scotland, Tamdhu, Glengoyne and Smokehead single‑malt Scotch whiskies, Barcelo Rum from the Dominican Republic, C.K. Mondavi & Family wines including Charles Krug from Napa, Bols Vodka from Amsterdam, Koyle Family Wines from Chile, Pearse Lyons whiskies and gins from Ireland, Niagara Craft Distillers’ beverages from Ontario, Fontana di Papa wines from Italy, and certain Heineken International beer brands, including Red Stripe and Dragon Stout from Jamaica, Tiger from Singapore and Gosser and Kaiser from Austria.

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.

For more information, please contact:

J. Murray Souter                                                      
President & CEO                                                      
Diamond Estates Wines & Spirits Inc.                                     
905.641.1042 Ext 234 

Geoff Kritzinger, CPA, CA
Interim CFO
Diamond Estates Wines & Spirits Inc.

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.

Diamond Estates Wines & Spirits LTD

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