Q1 2020 Financial Results

Diamond Estates Wines & Spirits Reports Q1 2020 Financial Results

Company well positioned for success in key, emerging Ontario grocery channel

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August 29, 2019, 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-month period ended June 30, 2019 (“Q1 2020”).

Q1 2020 Summary:

•  Revenue was $7.3 million, a decline of 8.8% from $8.0 million in the prior-year period (“Q1 2019”), driven by a decrease in winery export sales and severance revenue in Q1 2019 that was not replicated this year;
•  Gross margin was $3.3 million, or 45.3% of revenue, a decline of 10.8% from $3.7 million, or 46% of revenue in Q1 2019, primarily driven by a decline in higher margin export sales that were partially offset by an increase in lower margin bulk wine sales;
•  EBITDA was $0.1 million, compared to $0.8 million in Q1 2019, with the shortfall resulting from lower revenues as gross margin percentage was essentially flat, and higher expenses due to the addition of Backyard Vineyards;
•  Net loss was $0.8 million, compared to net income of $0.1 million in Q1 2019;
•  Cash flow from operating activities, before changes in non-cash working capital items, was ($0.2) million, compared to $0.6 million in Q1 2019;
•  Working capital was $14.4 million as at June 30, 2019, slightly below the $14.9 million total as at March 31, 2019;
•  Significant new business development wins included: Charles Mondavi & Family wines including Charles Krug from Napa; Bols Vodka from Amsterdam; Brokers Gin from the UK; Koyle Family Wines – organic Chilean wines; Pearse Lyons – a premium line of Irish Whiskies and Dublin Gins; Niagara Craft Distillers - an Ontario-based craft distiller; Octavia Vodka – a British-Columbia-based craft Vodka distiller; Fontana di Papa wines from Italy, and Castoro de Oro, an award-winning British Columbia winery.
•  The Company’s restructured sales team in BC and Alberta secured numerous chain and monopoly wins, and the national focus in building on-premise business has yielded both wine and spirits business wins with some of Canada’s largest and best known regional and national chains;
•  The Company maintained its leadership position in the emerging grocery channel in Ontario with the #1 position amongst VQA wines, with 20Bees holding three of the top five positions and EastDell holding the fifth position;
•  Winery brands received 20 awards across five prestigious competitions during Q1 2020, including seven Gold and two Double Gold. Both Lakeview Cellars’ 2016 Merlot and 2017 Gewurztraminer Icewine won Double Gold at the All Canadian Wine Championships, Lakeview Cellars 2017 Vidal Icewine was awarded the Gold medal from the Decanter awards, and Serenity, which was launched late in Q1 as a mid-premium line of wines and has already garnered accolades, won the Gold medal for its 2018 Sauvignon Blanc at the All Canadian Wine Championships.

“As expected, our financial results in the first quarter of fiscal 2020 continued to reflect the temporary challenge to our China export business, where revenue decreased $1.5 million from last year,” said Murray Souter, President and CEO. “This also impacted our margins, as export sales are relatively higher in profitability. However, we remain highly confident that export sales will get back on track later this fiscal year, due in part to the expansion of our distribution to new markets including Russia, Europe, Mexico and Hong Kong.”

“Importantly, we continued to solidify our position as the leading seller of VQA wines in the Ontario grocery channel, which we expect will become the preferred sales channel for Ontario customers. On June 6, 2019, the Government of Ontario announced the expansion of wine sales into 87 additional grocery stores, bringing the total number of authorized stores in the province up to 225.”

“During Q1 2019, we spent considerable time and effort in negotiations with Lassonde Industries Inc. (“Lassonde”). This culminated in an agreement subsequent to Q1 2020, announced on July 29, 2019, under which Lassonde, a North American leader in the development, manufacture and sale of a wide range of beverages, made an equity investment of $7 million in the Company. Not only does this transaction bring us the capital to support our growth strategies, it also brings us a partner with a sales team that is positioned to help us build and expand our market share in grocery stores across Canada.”

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 three wineries, two 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 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, Anciano 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, Malfy Gin from Italy, Edinburgh Gin from Scotland, Ian MacLeod and Glengoyne scotches from Scotland, Barcelo Rum from the Dominican Republic and Tequila Rose Liqueur from McCormick Distilling in the USA.

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.