Mr. Andrew Howard reports

DIAMOND ESTATES WINES & SPIRITS REPORTS Q3 2024 FINANCIAL RESULTS

Diamond Estates Wines & Spirits Inc. today released its financial results for the three and nine months ended Dec. 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 $700,000 and the agency division by $1.0-million. The declines in the winery division were primarily driven by excise taxes of $200,000, the loss in non-recurring government grants of $200,000 and a decrease in export sales of $300,000. The decline in the agency division was primarily driven by the loss of a key supplier which contributed to $800,000 while the remainder is transitional softness in the buy/sell markets.
• Gross margin 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 per cent for Q3 2024 compared with 41.5 per cent 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 $600,000. The declines in the winery division are a result of $500,000 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.
• EBITDA (earnings before interest, taxes, depreciation and amortization) decreased by $1.6-million to negative $1.8-million in Q3 2024 from a negative $200,000 in Q3 2023. However, when considering the fair value of EWG inventories sold, adjusted EBITDA declined by $1.7-million over the same period.
• Loss from operations for Q3 2024 was $2.9-million compared with $1.4-million in Q3 2023, a decrease in profitability of $1.5-million. The lower level of profitability compared with 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 Nov. 1, 2023, the company entered into a business collaboration agreement between its commercial division, Trajectory Beverage Partners (TBP) and Renaissance Wine Merchants Ltd. under which Renaissance will manage the combined sales forces.
• On Nov. 14, 2023, the company closed a non-brokered private placement through the issuance of 20 million common shares of the company to Lassonde Industries Inc. at an issue price of 45 cents per common share for an aggregate purchase price of $9-million, settled by $8.25-million in cash and conversion of a $750,000 loan.
• On Dec. 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 to 2025, the company estimates 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 Feb. 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 $3.2-million in cash and a vendor takeback mortgage of $500,000. The company entered into an agreement to sell an estimated $500,000 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 chief executive officer.

About Diamond Estates Wines and 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 the brand names 20 Bees, Creekside, EastDell, Lakeview Cellars, Mindful, Queenston Mile, Shiny Apple Cider, Fresh, Proud Pour, Red Tractor, Seasons, Serenity 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 and radlers from Canada, Landshark lager from the United States, 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.

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