Andrew Peller Limited (ADW.A / ADW.B) (“APL” or the “Company”) announced today results for the three months ended June 30, 2023.

FIRST QUARTER FISCAL 2024 HIGHLIGHTS:

  • Sales increased 2.8% on solid growth at provincial liquor stores, restaurants and hospitality locations, and export;
  • Gross margin of 38.8% consistent with the prior year;
  • EBITA of $12.7 million compared to $12.0 million in the prior year; and
  • Net loss of $0.9 million ($0.02 per Class A Share) due to higher interest costs and one-time expenses related to closing the Company’s new asset-backed lending facility.

“We were very encouraged by our first quarter sales growth following a strong fourth quarter of fiscal 2023 as the majority of our well-established trade channels performed well,” commented John Peller, President and Chief Executive Officer. “Looking ahead, we anticipate improved profitability as we continue to make progress with our initiatives to reduce costs and enhance operational efficiency.   Additionally, we are also pleased that the City Council of Port Moody, B.C. gave 4th reading and approval for the Company’s five-acre development site. We will now look to market the property and intend to monetize our investment in due course.”

Sales for the three months ended June 30, 2023 increased 2.8% with solid growth at provincial liquor stores, sales to restaurants and hospitality locations, and through the Company’s export business, while sales at estate wineries have moderated slightly in comparison to increased post-pandemic traffic in the prior year. The Company’s personal winemaking business has also now stabilized following softer post-pandemic demand in the prior year. Additionally, the Company has implemented price increases to partially offset inflationary pressures, further contributing to an increase in sales compared to the prior year. In the first quarter of fiscal 2024 there was a $2.2 million reduction in sales resulting from the repeal of the federal excise duty exemption.

Gross margin as a percentage of sales was 38.8% for the three months ended June 30, 2023, consistent with the prior year. The Company continues to experience inflationary cost pressures, with the cost of imported wine, glass bottles, packaging materials, and international freight and shipping charges remaining above historical levels. However, management believes these inflationary cost pressures are now stabilizing and should improve going forward. In response to these margin pressures, the Company has implemented price increases and is executing numerous production efficiency and cost savings programs aimed at enhancing operating margins including renegotiating freight rates for imported wine and evaluating alternate sourcing for glass bottles and other components. The Company’s cost of goods sold in the first quarter of fiscal 2024 included a reduction of $4.7 million related to a Wine Sector Support Program (“WSSP”) grant provided by Agriculture Canada as it relates to historical inventory sold during the period.

As a percentage of sales, selling and administrative expenses were 26.2% in the first quarter of fiscal 2024, improved from 26.7% in the prior year due primarily to restructuring initiatives implemented in the fourth quarter of fiscal 2023.

Earnings before interest, amortization, loss on debt extinguishment and financing fees net unrealized gains and losses on derivative financial instruments, other (income) expenses, and income taxes (“EBITA”) were $12.7 million for the three months ended June 30, 2023 compared to $12.0 million in the prior year.

Interest expense for the three months ended June 30, 2023 has increased compared to prior year due to higher average debt levels and increases in interest rates. Management believes the new credit facility and corresponding interest rate swap entered into during the quarter will reduce the cost of borrowing going forward.

On June 13, 2023, the Company amended and restated its credit facility. These amendments were determined to constitute an extinguishment of long-term debt, which resulted in the de-recognition of the carrying amount of the original credit facility and the recognition of the restated facility and fair market value. As a result, the company recorded a loss on extinguishment of $1.0 million and financing fees of $1.2 million were expensed immediately.

The Company incurred a net loss of $0.9 million ($0.02 per Class A Share) for the three months ended June 30, 2023 compared to net income of $2.9 million ($0.07 per Class A Share) in the prior year.

Long-term debt was consistent at $208.3 million at June 30, 2023 compared to $208.1 million at March 31, 2023. For the three months ended June 30, 2023, the Company generated cash from operating activities, after changes in non-cash working capital items, of $13.7 million compared to $7.3 million in the prior year. As at June 30, 2023, the Company had unutilized debt capacity in the amount of $66.7 million on its credit facility.

The Company’s new asset-backed lending facility is an interest-only facility with principal repayment due upon maturity and is to be used to fund day-to-day operations, distributions, capital expenditures and acquisitions. In connection with the closing June 13, 2023, the Company also entered into an interest rate swap agreement on $65 million. From June 30, 2023 to June 13, 2027, the interest rate on this portion of the facility is fixed at 4.46%, plus the applicable margin, which at June 30, 2023 was 2.50%.

Financial Highlights(Financial Statements and the Company’s Management Discussion and Analysis for the period can be obtained on the Company’s web site at www.ir.andrewpeller.com)

For the three months ended June 30, (in $000, except per share amounts)   2023       2022  
Sales $ 100,481     $ 97,699  
Gross margin (1)   39,028       38,063  
Gross margin (% of sales)   38.8 %     39.0 %
Selling and administrative expenses   26,328       26,092  
EBITA (1)   12,700       11,971  
Interest   4,284       2,613  
Net unrealized loss (gain) on derivative financial instruments   631       (492 )
Loss on debt extinguishment and financing fees   2,172       -  
Other expenses   1,217       397  
Net (loss) earnings   (931 )     2,863  
(Loss) earnings per share – basic and diluted - Class A $ (0.02 )   $ 0.07  
(Loss) earnings per share – basic and diluted - Class B $ (0.02 )   $ 0.06  
Dividend per share – Class A (annual) $ 0.246     $ 0.246  
Dividend per share – Class B (annual) $ 0.214     $ 0.214  
Cash provided by operations (after changes in non-cash working capital items)   13,747       7,331  
Shareholders’ equity per share $ 5.80     $ 5.87  

(1) Please refer to the Company’s MD&A concerning “Non-IFRS Measures”

Investor Conference CallAn investor conference call hosted by John Peller, President and CEO and Paul Dubkowski, CFO will be held Wednesday August 9, 2023 at 10:00 a.m. ET. To join the conference call please register within one hour of the start time by accessing https://emportal.ink/3rdXjRE to receive an instant automated call back. You will need to enter your name, company, and your phone number to receive the call back. You can also dial one of the following numbers to connect through an operator. If connecting with an operator we advise calling ten to fifteen minutes prior to the start time: Local/International: (416) 764-8659, North American Toll Free: (888) 664-6392. The confirmation number for the call is 60742741. The call will be archived on the Company’s website at www.ir.andrewpeller.com.

About Andrew Peller Limited        Andrew Peller Limited is one of Canada’s leading producers and marketers of quality wines and craft beverage alcohol products. The Company’s award-winning premium and ultra-premium Vintners’ Quality Alliance brands include Peller Estates, Trius, Thirty Bench, Wayne Gretzky, Sandhill, Red Rooster, Black Hills Estate Winery, Tinhorn Creek Vineyards, Gray Monk Estate Winery, Raven Conspiracy, and Conviction. Complementing these premium brands are a number of popularly priced varietal offerings, wine-based liqueurs, craft ciders, and craft spirits. The Company owns and operates 101 well-positioned independent retail locations in Ontario under The Wine Shop, Wine Country Vintners, and Wine Country Merchants store names. The Company also operates Andrew Peller Import Agency and The Small Winemaker’s Collection Inc., importers and marketing agents of premium wines from around the world. With a focus on serving the needs of all wine consumers, the Company produces and markets premium personal winemaking products through its wholly owned subsidiary, Global Vintners Inc., the recognized leader in personal winemaking products. More information about the Company can be found at www.ir.andrewpeller.com.

The Company utilizes EBITA (defined as earnings before interest, amortization, loss on debt extinguishment and financing fees, net unrealized gains and losses on derivative financial instruments, other (income) expenses, and income taxes) to measure its financial performance. EBITA is not a recognized measure under IFRS. Management believes that EBITA is a useful supplemental measure to net earnings, as it provides readers with an indication of earnings available for investment prior to debt service, capital expenditures, and income taxes, as well as provides an indication of recurring earnings compared to prior periods. Readers are cautioned that EBITA should not be construed as an alternative to net earnings determined in accordance with IFRS as indicators of the Company’s performance or to cash flows from operating, investing, and financing activities as a measure of liquidity and cash flows. The Company also utilizes gross margin (defined as sales less cost of goods sold, excluding amortization). The Company’s method of calculating EBITA and gross margin may differ from the methods used by other companies and, accordingly, may not be comparable to measures used by other companies.

Andrew Peller Limited common shares trade on the Toronto Stock Exchange (symbols ADW.A and ADW.B).

FORWARD-LOOKING INFORMATIONCertain statements in this news release may contain “forward-looking statements” within the meaning of applicable securities laws including the “safe harbour provisions” of the Securities Act (Ontario) with respect to APL and its subsidiaries. Such statements include, but are not limited to, statements about the growth of the business; its launch of new premium wines and craft beverage alcohol products; sales trends in foreign markets; its supply of domestically grown grapes; and current economic conditions. These statements are subject to certain risks, assumptions, and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. The words “believe”, “plan”, “intend”, “estimate”, “expect”, or “anticipate”, and similar expressions, as well as future or conditional verbs such as “will”, “should”, “would”, “could”, and similar verbs often identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. With respect to forward-looking statements contained in this news release, the Company has made assumptions and applied certain factors regarding, among other things: future grape, glass bottle, and wine and spirit prices; its ability to obtain grapes, imported wine, glass, and other raw materials; fluctuations in foreign currency exchange rates; its ability to market products successfully to its anticipated customers; the trade balance within the domestic Canadian and international wine markets; market trends; reliance on key personnel; protection of its intellectual property rights; the economic environment; the regulatory requirements regarding producing, marketing, advertising, and labelling of its products; the regulation of liquor distribution and retailing in Ontario; the application of federal and provincial environmental laws; and the impact of increasing competition.

These forward-looking statements are also subject to the risks and uncertainties discussed in this news release, in the “Risks and Uncertainties” section and elsewhere in the Company’s MD&A and other risks detailed from time to time in the publicly filed disclosure documents of Andrew Peller Limited which are available at www.sedar.com. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and assumptions which could cause actual results to differ materially from those conclusions, forecasts, or projections anticipated in these forward-looking statements. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. The Company’s forward-looking statements are made only as of the date of this news release, and except as required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new information, future events or circumstances or otherwise.

For more information, please contact:Mr. Paul Dubkowski, CFO and Executive Vice-President, IT(905) 643-4131

Source: Andrew Peller Limited

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