ADW.B Andrew Peller Ltd

Andrew Peller Limited (TSX:ADW.A / ADW.B) (“APL” or the “Company”) announced today results for the three and nine months ended December 31, 2023. All amounts are expressed in Canadian dollars unless otherwise stated.

THIRD QUARTER 2024 HIGHLIGHTS

• Sales were $100.2 million, down 4.5% compared with $104.9 million in Q3 2023;
• Gross Margin was $34.7 million or 34.7%, compared with $42.3 million and 40.3% in Q3 2023;
• EBITA decreased 15.2% to $13.2 million, from $15.6 million in Q3 2023; and
• Net loss of $0.4 million ($0.01 per Class A Share), compared with $3.9 million ($0.09 per Class A Share) in Q3 2023.

FISCAL 2024 YTD HIGHLIGHTS:

• Sales year-to-date decreased 1.2% to $300.8 million compared to $304.4 million in the prior year.
• Gross margin was 38.2% compared to 39.4% in the prior year;
• EBITA of $41.1 million, up from $39.3 million in the prior year;
• Net income of $4.1 million ($0.10 per Class A Share), down from $6.7 million ($0.16 per Class A Share) last year; and
• Dividend of $0.246 per Class A Share and $0.214 per Class B Share.

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

For the three and nine months ended December 31,	Three Months				Nine Months
(in $000 except per share amounts)	2023		2022		2023		2022
Sales	100,192		104,913		300,848		304,428
Gross margin (1)	34,742		42,290		115,037		119,833
Gross margin (% of sales)	34.7%		40.3%		38.2%		39.4%
Selling and administrative expenses	21,494		26,660		73,979		80,574
EBITA (1)	13,248		15,630		41,058		39,259
Interest	4,802		5,273		12,972		13,902
Net unrealized loss (gain) on derivative financial instruments	2,840		-		1,644		(380)
Loss on debt extinguishment and financing fees	-		-		2,172		-
Other expenses (income)	31		(93)		1,146		517
Net earnings (loss)	(369)		3,892		4,091		6,657
Earnings (loss) per share – Class A	$(0.01)		$0.09		$0.10		$0.16
Earnings (loss) per share – Class B	$(0.01)		$0.08		$0.08		$0.14
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)					39,943		5,497
Shareholders’ equity per share					$5.78		$5.87

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

“The third quarter represents another quarter of solid performance in the face of continued macroeconomic headwinds across our sector, which speaks to the breadth of our portfolio and distribution channels,” commented John Peller, President and Chief Executive Officer. “Our brands have maintained their sales performance across the majority of our channels, often outperforming the industry. We are encouraged by our year to date results and anticipate further profitability improvements based on our initiatives to reduce costs and enhance operational efficiency.”

“Looking ahead, we have strategically positioned ourselves for sustained EBITA growth by capitalizing on opportunities in the importation of bulk wines, optimizing our freight and logistics costs, rationalizing and finding cost effective supply channels, and continuing our proven efforts to enhance operational efficiency. From a sales and market share perspective, we are focused on continuing to outperform the industry over the long term due to the strong positioning of key brands, increasing sales of our higher-margin premium products, the continued launch of new and innovative products, potential strategic acquisitions, as well as overall growth in the Canadian beverage alcohol market.”

“It is also important to note the significance of the Government of Ontario’s alcohol modernization announcement on December 14, 2023 which included a comprehensive set of policies designed to support and grow the Ontario wine industry. The suite of measures introduced will support investment in Ontario’s wineries and allow Ontario to achieve its potential as one of the world's great wine and tourism regions.”  

Financial ReviewSales for the third quarter of fiscal 2024 were $100.2 million, a decrease of 4.5% compared to the prior year’s third quarter due to timing of shipments, reduced consumer discretionary spending due to tightening economic conditions and continued traffic softness at the estates, particularly in British Columbia after the wildfires in September 2023. Sales for the quarter were further reduced by $1.8 million from the repeal of the federal excise duty exemption as previously disclosed.

For the nine months ended December 31, 2023, sales were $300.8 million, down 1.2% from the prior year. The majority of the Company’s well-established trade channels have performed well on a year to date basis, particularly provincial liquor stores, restaurants and hospitality locations, as well as sales in the export channel due to the improvement in international travel. This solid performance is offset by softness in sales from the estate wineries. In the first nine months of fiscal 2024 there was a $5.8 million reduction in sales resulting from the repeal of the federal excise duty. The Company has implemented price increases to partially offset the excise exemption repeal.

Gross margin as a percentage of sales decreased to 34.7% in the third quarter of fiscal 2024, down from 40.3% in the prior year. The Company’s cost of goods sold in the third quarter of fiscal 2024 included a reduction of $3.5 million related to WSSP grants provided by Agriculture Canada, compared to $7.2 million in the same period of fiscal 2023 when the company recorded the reduction in cost of goods sold related to historical inventory sold in the nine months ended December 31, 2022. Gross margin in the third quarter of fiscal 2024 has also been impacted by product mix, as consumers trade down to value-priced options, and inflationary cost pressures in imported wine, glass bottles, packaging materials, and international freight and shipping charges. 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, such as renegotiating freight rates for raw materials and evaluating alternate sourcing for glass bottles and other components.

Gross margin as a percentage of sales was 38.2% for the nine months ended December 31, 2023, down from 39.4%. The Company’s cost of goods sold in the first nine months of fiscal 2024 included a reduction of $12.2 million related to WSSP grants provided by Agriculture Canada, compared to $7.6 million in the same period of fiscal 2024. Cost of goods sold has been further impacted by the reasons outlined above.

As a percentage of sales, selling and administrative expenses improved to 21.5% and 24.6% for the three and nine months ended December 31, 2023, respectively, compared to 25.4% and 26.5% in the prior year. The decrease in selling and administrative expenses is due to restructuring initiatives implemented in the fourth quarter of fiscal 2023, compensation optimization at the Company’s retail stores and estate wineries, and rationalization of marketing spend in line with current market conditions.

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”) was $13.2 million in the third quarter of fiscal 2024, down from $15.6 million in the same prior year period. EBITA increased to $41.1 million for the nine months ended December 31, 2023 from $39.3 million in the prior year.

Interest expense for the three and nine months ended December 31, 2023 decreased from the prior year due primarily to lower costs associated with the Company’s new debt facility. Management believes the new credit facility entered on June 13, 2023 and corresponding interest rate swap will continue to contribute to reductions in 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 in the first quarter of fiscal 2024. 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 December 31, 2023 was 2.50%. The interest rate on the balance of the facility has a variable interest rate of CDOR, plus the applicable margin.

The Company generated a net loss of $0.4 million (loss of $0.01 per Class A share) for the third quarter of fiscal 2024 compared to net income of $3.9 million (earnings of $0.09 per Class A share) in the prior year and net income of $4.1 million ($0.10 per Class A share) for the nine months ended December 31, 2023 compared to net income of $6.7 million ($0.16 per Class A Share) in the prior year.

Long-term debt was $201.3 million at December 31, 2023 compared to $208.1 million at March 31, 2023. For the nine months ended December 31, 2023, the Company generated cash from operating activities, after changes in non-cash working capital items, of $39.9 million compared to $5.5 million in the prior year. As at December 31, 2023 the Company had unutilized debt capacity in the amount of $73.7 million on its credit facility.

Investor Conference CallThe Company will hold a conference call to discuss the results on Tuesday, February 13, 2024 at 10:00 a.m. ET. John Peller, President and CEO and Paul Dubkowski, CFO will host the call, with a question and answer period following management’s presentation.

Conference Call Dial In Details:Local/International Dial In: 1 (416) 764-8659North American Toll Free Dial In: 1 (888) 664-6392Confirmation number: 03918890

If connecting with an operator, we advise calling ten to fifteen minutes prior to the start time. The live webcast and recording of the call will be archived on the Company’s website at 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 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:        Paul Dubkowski, CFO and Executive Vice-President, IT(905) 643-4131

Source: Andrew Peller Limited