Mr. Andrew Howard reports

DIAMOND ESTATES WINES & SPIRITS REPORTS FISCAL 2023 FINANCIAL RESULTS

Diamond Estates Wines & Spirits Inc. has released its financial results of position for the three and 12 months ended March 31, 2023.

Fiscal 2023 summary:

• Revenue for FY 2023 increased $1.7-million from $30.0-million in FY 2022 to $31.7-million in FY 2023. The largest contribution to the increase year over year came from the winery division with the Equity Wine Group acquisition, the continued growth in the grocery channel, a resurgence in retail and on premise, and the opening of the new Shiny retail outlet. The agency experienced a moderate decline of $800,000 in FY 2023 from lost suppliers over the last fiscal year.
• Gross margin for FY 2023 was $10.6-million, a decrease of $400,000 from $11.0-million in FY 2022, while gross margin as a percentage of revenue was 33.4 per cent for FY 2023 compared with 36.8 per cent in FY 2022. The winery experienced gross margins of 32.0 per cent while the agency experienced gross margins of 35.2 per cent. The gross margin of the winery business for FY 2023 increased by $100,000 compared with FY 2022 from the revenue increases experienced in its highest gross margin channels. The gross margin of the agency business decreased by $600,000 in FY 2023 from FY 2022 due to higher product costs in the buy/sell market.
• Gross margin for FY 2023 increases to $13.2-million and 41.5 per cent of revenue, compared with $11.7-million and 39.0 per cent of revenue for FY 2022 when factoring the adjustments to cost of goods sold of $800,000 for the fair value of EWG inventories sold and the $1.7-million adjustment to deferred fixed overheads for the low yields experienced from the vintage 2022 harvest. As a result, the winery experienced an adjusted gross margin of 46.5 per cent as a percentage of revenue.
• EBITDA (earnings before interest, taxes, depreciation and amortization) declined by $2.8-million from ($1.7-million) in FY 2022 to ($4.5-million) in FY 2023. The improvements experienced in gross margin were diminished by an increase in selling, general and administration expenses of $2.3-million partly explained by a full-year complement of expenses associated with the Equity Wine Group acquisition compared with five months in FY 2022. As a percentage of revenue, SG&A expense increased from 42.6 per cent for FY 2022 to 47.5 per cent for FY 2023. The SG&A increased mainly due to an increase in employee compensation, advertising and promotion costs, and general and administrative expenses.
• Adjusted EBITDA was ($1.9-million) for FY 2023 when accounting for incremental fair value of EWG inventories of $800,000 and $1.7-million in fixed production overheads.
• Net loss was $8.5-million, compared with a net loss of $2.5-million in FY 2022.

Fourth quarter 2023 summary:

• Q4 2023 revenue was $5.9-million, a decrease of $1.2-million, compared with the results experienced for the three-month period ended March 31, 2022. The decrease is attributable to a decline of $1.1-million in the winery division and $100,000 from the agency division year over year. The decline is because of softening sales throughout the industry and continued weakness in export sales.
• Gross margin before factoring in the cost of sales adjustments noted above was $200,000, a decrease of $1.8-million from $2.0-million in Q4 2022. Gross margin as a percentage of revenue was 4.2 per cent for Q4 2023 compared with 28.9 per cent in Q4 2022, with all the decline being attributable to the fixed production overhead adjustment of $1.7-million from the low yields experienced in the vintage 2022 harvest.
• Adjusted EBITDA was ($900,000), compared with ($1.1-million) in Q4 2022, and the net loss was $4.4-million compared with $3.1-million in Q4 2022 partly due to the $1.7-million adjustment as well. The January to March quarter is a seasonally slow period for the company, and financial results in the fiscal fourth quarter are therefore typically weaker than in other quarters.

"The wine industry has had a very difficult year with inflation and recessionary consumer behaviour immediately on the heels of challenging COVID years. That said, we saw modest growth despite these challenges, and, on an adjusted basis, our wineries posted continued margin improvements. We are adjusting our business model to mitigate the impact of the difficult market conditions while preserving the long-term value of the company," said Andrew Howard, president and chief executive officer.

"We do see signs of normalizing activity with supply chains returning to near normal, shipping costs coming down and consumer confidence in the economy remaining strong. Our agency business has attracted several exciting new suppliers, and we anticipate further improvements and returning growth. However, consumers are restricting their dining and wine purchases to afford significantly higher prices in many essential categories as inflation and high interest rate reduces their disposable income."

Deferred share units (DSUs)

The company is also pleased to announce that it has issued deferred share units to its directors as of today. Under the DSU plan of the company, an aggregate of 98,177 DSUs have been issued by the company to non-executive directors in settlement of $47,125 of directors compensation for the period of April 1, 2023, to June 30, 2023. The DSUs are to be settled in common shares of the company when the director retires from all positions with the company.

About Diamond Estates Wines & Spirits Inc.

Diamond Estates 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 brand names such 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 Josh wines from California, 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, Redemption bourbon and rye whiskies from the United States, Gray Whale gin from California, Storywood and Cofradia tequilas from Mexico, Magnum cream liqueur from Scotland, Talamonti and Cielo wines from Italy, Catedral and Cabeca de Toiro wines from Portugal, Waterloo beer and radlers from Canada, Landshark lager from the U.S., 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, Koyle Family wines from Chile, and Pearse Lyons whiskies and gins from Ireland.

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