Q1 2021 Financial Results

Diamond Estates Wines & Spirits Reports Q1 2021 Financial Results

Generated stronger EBITDA year-over-year despite challenging industry conditions arising from the COVID-19 pandemic

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August 31, 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-month period ended June 30, 2020 (“Q1 2021”).

Q1 2021 Summary:

• Revenue was $5.9 million, a decline of 18.5% from $7.3 million in the three months ended June 30, 2019 (“Q1 2020”). The revenue decline was due primarily to the negative impact of COVID-19, which resulted in the closure of most private retail and on-premise accounts nationally in the winery division, partially offset by higher revenue in the agency division;
• Gross margin was $2.7 million, a decline of 17.9% from $3.3 million in Q1 2020. Gross margin percentage increased to 45.6%, compared to 45.3% in Q1 2020, reflecting the higher relative revenue contribution from the higher-margin agency business;
• EBITDA increased to $0.3 million from $0.1 million in Q1 2020, primarily due to lower employee compensation costs, partially offset by the reduction in gross margin;
• Net loss was $0.4 million, compared to a net loss of $0.8 million in Q1 2020;
• Cash flow from operating activities, before changes in non-cash working capital items, was $0.1 million, compared to ($0.2) million in Q1 2020, reflecting the reduced net loss in Q1 2021;
•  The Company maintained its strong position in the emerging Ontario grocery channel amongst VQA wines, with 20 Bees representing three of the top 10 selling stock keeping units. Josh Cellars Cabernet Sauvignon is currently the top selling imported red wine over $15, with sales volumes growing more than 150% year-over-year;
• The Company was awarded Canadian representation of a number of Heineken International beer brands under a three-year agreement, including Tiger from Singapore, Red Stripe and Dragon Stout from Jamaica, and Gosser and Kaiser from Austria;
• 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;
• The Company identified and qualified new international distributors, including partners located in Finland, Sweden, Denmark, Mexico, Singapore, the United States and Russia. As the COVID-19 pandemic has eased in these countries, existing export orders have been re-activated and delivered; and
• As a result of COVID-19, the Company has seen a shift of wine volume sales, particularly in Ontario, from traditional retail channels to grocery, on-line, direct delivery and curbside retail channels.

Subsequent Events:

• 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, among other adjustments; and
• On August 20, 2020, the Company issued 201,898 Deferred Share Units at a price of $0.14 per share in order to pay the non-cash portion of the Director’s remuneration for Q1 2021, along with issuing 1,250,000 share options with an exercise price of $0.14. The options have a term of five years, with one of five vesting immediately and the remainder vesting evenly on each anniversary date over the next four years.

“Industry conditions remained highly challenging in the fiscal first quarter as a result of COVID-19. However, we were pleased to report stronger EBITDA and a reduced net loss compared to the same period last year, as we significantly reduced our expenses,” said Murray Souter, President and CEO. “We also made progress in our efforts to align our business to capitalize on changing customer buying patterns. We believe that our increased focus on emerging retail channels, including the Ontario grocery channel, is positioning Diamond Estates for long-term success as the pandemic subsides. We are also fortunate to have a strong stable of value-priced wines and recognized brands, which have been preferred options for customers during the pandemic.”

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.