Diamond Estates Wines & Spirits Reports Q3 2024 Financial Results
Debt recapitalization continues with positive future support
February 22, 2024, 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 nine months ended December 31, 2023 ("Q3 2024 and "YTD 2024" respectively).
Q3 2024 Summary:
· Revenue for Q3 2024 was $7.3 million, a decrease of $1.8 million, from $9.1 million in Q3 2023. The Winery division experienced a decrease in sales of $0.7 million and the Agency division by $1.0 million. The declines in the Winery division were primarily driven by excise taxes of $0.2 million, the loss in non-recurring government grants of $0.2 million and a decrease in export sales of $0.3 million. The decline in the Agency division was primarily driven by the loss of a key supplier which contributed to $0.8 million while the remainder is transitional softness in the buy/sell markets;
· Gross margin1 for Q3 2024 was $1.9 million, a decrease of $1.9 million, from $3.8 million in Q3 2023 while gross margin as a percentage of revenue was 26.2% for Q3 2024 compared to 41.5% in Q3 2023. The decrease in gross margin for the period was from the Winery experiencing a decrease of $1.3 million and the Agency division $0.6 million. The declines in the Winery division are a result of $0.5 million of one-time adjustments, higher overheads experienced from prior short crop vintages across all channels, greater discounts in higher margin channels such as on-site retail and direct to consumer and on-premise, and the loss of non-recurring government grants. The decline experienced in the Agency division comes from the loss of a key supplier and its impacts in the commission and buy/sell market. The company is currently adapting its structure to adjust to the new reality.
· EBITDA1 decreased by $1.6 million to negative $1.8 million in Q3 2024 from a negative $0.2 million in Q3 2023. However, when considering the fair value of EWG inventories sold, adjusted EBITDA declined by $1.7 million over the same period; and
· Loss from operations for Q3 2024 was $2.9 million compared to $1.4 million in Q3 2023, a decrease in profitability of $1.5 million. The lower level of profitability compared to revenue is a direct result of the decrease in sales and gross margin and an increase in interest expense quarter over quarter.
Significant Events:
· On November 1, 2023, the Company entered into a business collaboration agreement between its commercial division, Trajectory Beverage Partners ("TBP"), and Renaissance Wine Merchants Ltd. ("Renaissance") under which Renaissance will manage the combined sales forces.
· On November 14, 2023, the Company closed a non-brokered private placement through the issuance of 20,000,000 common shares of the Company to Lassonde Industries Inc. at an issue price of $0.45 per common share for an aggregate purchase price of $9,000,000, settled by $8.25 million in cash and conversion of a $750,000 loan..
· On December 14, 2023, the Province of Ontario announced significant policies and changes to an existing program intended to provide economic support to enhance the Ontario wine industry for years to come. Based on the assumptions in the program, starting in 2024-2025, we estimate eligible sales under the VQA Wine Support Program will qualify for approximately $2.5 million in funding..(cash flow) for the Company.
Subsequent Events:
· On February 16, 2024, the Company closed on the sale of its Queenston Mile Vineyard winery for estimated gross proceeds of $4.5 million. On closing the Company received net proceeds of $3.7 million, comprising of $3.2 million in cash and a vendor take-back mortgage of $0.5 million. The Company entered into an agreement to sell an estimated $0.5 million of inventory over a one- year period. The cash proceeds will be applied against the non- revolving term loan under the BMO credit facility.
“We are continuing with our debt reduction strategy through the sale of Queenston Mile which will help to restructure our business for future success. We are also focused on finding future opportunities to strengthen our core business at both the Winery and Agency. I am very pleased with the announcement and commitment from the Province of Ontario; this is a game changer for the industry and will increase our stability and focus on growing our domestic brand portfolio. says Andrew Howard, President and CEO.
About Diamond Estates Wines and Spirits Inc.
Diamond Estates Wines and Spirits Inc. is a producer of high-quality wines and ciders as well as a sales agent for over 120 beverage alcohol brands across Canada. The Company operates five production facilities, four in Ontario and one in British Columbia, that produce predominantly VQA wines under such well-known brand names as 20 Bees, Creekside, EastDell, Lakeview Cellars, Mindful, Queenston Mile, Shiny Apple Cider, Fresh, Proud Pour, Red Tractor, Seasons, Serenity, Persona and Backyard Vineyards.
Through its commercial division, 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 Fat Bastard, Meffre, Pierre Chavin and Andre Lurton wines from France, Brimincourt Champagne from France, Merlet and Larsen Cognacs from France, Kaiken wines from Argentina, Blue Nun and Erben wines from Germany, Calabria Family Estate Wines and McWilliams Wines from Australia, Saint Clair Family Estate Wines and Yealands Family Wines from New Zealand, Storywood and Cofradia Tequilas from Mexico, Maverick Distillery spirits (including Tag Vodka and Barnburner Whisky) from Ontario, Magnum Cream Liqueur from Scotland, Talamonti and Cielo wines from Italy, Catedral and Cabeca de Toiro wines from Portugal, Waterloo Beer & Radlers from Canada, Landshark Lager from the USA, Edinburgh Gin, Tamdhu, Glengoyne and Smokehead single- malt Scotch whiskies from Scotland, Islay Mist, Grand MacNish and Waterproof whiskies from Scotland, C. Mondavi & Family wines including C.K Mondavi & Charles Krug from Napa, Wize Spirits, Hounds Vodka and Valley of Mother of God Gins from Canada, Bols Vodka from Amsterdam, Collective Arts beers, spirits and RTDs from Ontario, Koyle Family Wines from Chile and Pearse Lyons whiskies and gins from Ireland.
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 "gross margin", "EBITDA" and "Adjusted EBITDA" as a measure to assess performance of the Company. The Company defines "gross margin" as gross profit excluding depreciation. EBITDA and "Adjusted EBITDA" are other financial measures and are reconciled to net income (loss) and comprehensive income (loss) below under "Results of Operations".
EBITDA and Adjusted EBITDA are supplemental financial measures to further assist readers in assessing the Company’s ability to generate income from operations before considering 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. Adjusted EBITDA comprises EBITDA before non- recurring expenses including cost of sales adjustments related to inventory acquired in business combinations, EWG transaction costs expensed, government funding under CEWS and CERS programs, and other non-recurring adjustments included in the calculation of EBITDA. Gross margin is defined as gross profit excluding depreciation on property, plant and equipment used in production. Operating expenses exclude 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 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:
Andrew Howard
President & CEO, Diamond Estates Wines & Spirits Inc.
ahoward@diamondwines.com
Ryan Conte, CPA, CA, CBV
CFO, Diamond Estates Wines & Spirits Inc.
rconte@diamondwines.com
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.
