Andrew Peller Limited
TSX : ADW.A
TSX : ADW.B

Andrew Peller Limited

November 08, 2007 15:52 ET

Andrew Peller Limited Announces Strong Results for Second Quarter of Fiscal 2008

GRIMSBY, ONTARIO--(Marketwire - Nov. 8, 2007) - Andrew Peller Limited (the "Company") (TSX:ADW.A)(TSX:ADW.B) announced today its results for the three and six months ended September 30, 2007.

HIGHLIGHTS:

- Sales continue to increase due to solid growth in existing brands and from the introduction of new products

- Higher volumes of premium and ultra-premium brands drive increased profitability

- Gross profit up 4.6% and 5.8% in quarter and first six months respectively

- Six months net and comprehensive earnings up 12.9% to $5.6 million

Strong Operating Performance Continues

For the three months ended September 30, 2007 sales increased 3.1% to $61.2 million from $59.4 million last year. For the six months ended September 30, 2007, sales were up 3.3% to $118.4 million compared to $114.5 million for the same period last year. The increases are due primarily to ongoing initiatives to grow sales of the Company's premium and ultra-premium wines through all trade channels, and the introduction of new products over the last twelve months.

Gross profit as a percentage of sales improved to 42.8% for the six months ended September 30, 2007 compared to 41.8% in the same period last year. For the quarter, gross profit as a percentage of sales was 42.8% compared to 42.2% last year. The improved profit margins are the result of increased sales of the Company's premium and ultra-premium wines and the positive impact of the increase in value of the Canadian dollar which partially offset the higher cost of grapes and wine purchased on international markets. Selling and administrative expenses remained stable for the three and six months ended September 30, 2007 at 30.1% and 30.0% of sales respectively, compared with 29.8% and 29.5% of sales for the same periods last year.

As a result of the increased sales and improved gross margins, earnings before interest, taxes, amortization, other income and unusual items (EBITA) increased 5.9% to $7.8 million in the second quarter of fiscal 2008 compared to $7.3 million last year. For the first half of fiscal 2008, EBITA was up 7.5% to $15.2 million compared to $14.1 million for the same period last year.

Net and comprehensive earnings for the three months ended September 30, 2007 rose 3.7% to $2.7 million or $0.18 per Class A share compared to $2.6 million or $0.18 per Class A share last year. For the six months ended September 30, 2007, net and comprehensive earnings were up 12.9% to $5.6 million compared to $4.9 million for the same period last year. Not including the other losses and unusual items in each year, net and comprehensive earnings for the second quarter of fiscal 2008 increased 9.3% to $2.9 million compared to the same period last year. For the six months ended September 30, 2007, net and comprehensive earnings increased 11.0% to $5.6 million, not including other income and unusual items, compared to the same six months in fiscal 2007.

"Our solid organic growth continues in fiscal 2007, the result of our effective sales and marketing programs in all our targeted trade channels, and our uncompromising commitment to producing the highest quality wines," commented John Peller, President and CEO. "As the largest Canadian-owned winery in the country, we will continue to build our business by executing the same growth strategies that have proved so successful over the last fifty years, while capitalizing on the ongoing increase in demand for premium and ultra-premium wines among consumers in Canada and around the world."

Common Share Dividend Increase

Effective September 30, 2007 the Company increased its common share dividends by 19% to $0.300 per Class A share and to $0.261 per Class B share. This was the second consecutive year that common share dividends were increased.

Strong Financial Position

The Company's balance sheet remained strong as at September 30, 2007. Working capital was $23.9 million at the end of the second quarter of fiscal 2008 compared to $25.3 million at March 31, 2007. Shareholders' equity at September 30, 2007 rose to $99.0 million or $6.65 per Class A share from $95.5 million or $6.41 per Class A share at March 31, 2007 and $92.8 million or $6.23 per Class A share at September 30, 2006.

Financial Highlights (unaudited - complete consolidated financial statements to follow)



---------------------------------------------------------------------------
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Period Ended September 30, Three Months Six Months
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(in $,000 except per share
amounts) 2007 2006 2007 2006
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Sales 61,236 59,413 118,376 114,548
EBITA 7,765 7,328 15,196 14,130
Earnings before other income and
unusual items 4,408 4,037 8,514 7,671
Other income (loss) and unusual
items (394) (164) (80) (198)
Net and comprehensive earnings 2,652 2,556 5,566 4,932
Net earnings per share
(Basic per Class A share) $ 0.18 $ 0.18 $ 0.38 $ 0.34
Cash from operations
(after changes in non-cash working
capital items) 12,811 1,870 10,910 978

Working capital 23,939 27,596
Shareholders' equity per share $ 6.65 $ 6.23
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Andrew Peller Limited is a leading producer and marketer of quality wines in Canada. With wineries in British Columbia, Ontario and Nova Scotia, the Company markets wines produced from grapes grown in Ontario's Niagara Peninsula, British Columbia's Okanagan and Similkameen Valleys and vineyards around the world. The Company's award-winning premium and ultra-premium brands include Peller Estates, Trius, Hillebrand, Thirty Bench, Croc Crossing, XOXO, Sandhill, Copper Moon, Calona Vineyards Artist Series and Red Rooster VQA wines. Complementing these premium brands are a number of popular priced products including Hochtaler, Domaine D'Or, Schloss Laderheim, Royal and Sommet. With the acquisition of Cascadia Brands Inc., the Company also markets craft beer under the Granville Island brand. With a focus on serving the needs of all wine consumers, the Company produces and markets consumer-made wine kit products through Winexpert and Vineco International Products. In addition, the Company owns and operates Vineyards Estate Wines and WineCountry Vintners, independent wine retailers in Ontario with more than 100 well-positioned retail locations. Andrew Peller Limited common shares trade on the Toronto Stock Exchange (symbols ADW.A and ADW.B).

The Company utilizes EBITA (defined as earnings before interest, incomes taxes, depreciation, amortization, other income and unusual items). EBITA is not a recognized measure under GAAP. Management believes that EBITA is a useful supplemental measure to net earnings, as it provides readers with an indication of cash available for investment prior to debt service, capital expenditures and income taxes. Readers are cautioned that EBITA should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of the Company's performance or to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows. In addition, the Company's method of calculating EBITA may differ from the methods used by other companies and, accordingly, may not be comparable to measures used by other companies.

FORWARD-LOOKING INFORMATION

Certain statements in this news release may contain "forward-looking statements" within the meaning of applicable securities laws, including the "safe harbour provision" of the Securities Act (Ontario) with respect to Andrew Peller Limited ( the "Company") and its subsidiaries. Such statements include, but are not limited to, statements about the growth of the business in light of the Company's recent acquisitions; its launch of new premium wines; 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" and "could" 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 prices; its ability to obtain grapes, imported wine, glass and its ability to obtain other raw materials; fluctuations in the U.S./Canadian dollar exchange rates; its ability to market products successfully to its anticipated customers; the trade balance within the domestic Canadian wine market; market trends; reliance on key personnel; protection of its intellectual property rights; the economic environment; the regulatory requirements regarding producing, marketing, advertising and labelling its products; the regulation of liquor distribution and retailing in Ontario; 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 "Risk Factors" 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.



ANDREW PELLER LIMITED
CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30 March 31
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2007 2007
(000's) $ $
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Assets
Current Assets

Accounts receivable 23,972 21,365
Inventories 83,021 82,990
Prepaid expenses 4,769 2,983
Income taxes recoverable 888 319
---------------------
112,650 107,657
Property, plant and equipment 92,541 87,143
Goodwill 36,171 36,171
Other assets 7,074 7,985
---------------------
248,436 238,956
---------------------
---------------------

Liabilities
Current Liabilities

Bank indebtedness 50,237 51,449
Accounts payable and accrued liabilities 31,483 24,069
Dividends payable 1,088 917
Current portion of long - term debt 5,903 5,906
---------------------
88,711 82,341

Long-term debt 43,990 44,423
Employee future benefits 3,820 4,007
Future income taxes 12,874 12,663
---------------------
149,395 143,434
---------------------

Shareholders' Equity

Capital Stock 7,375 7,375
Retained Earnings 91,666 88,147
---------------------
99,041 95,522
---------------------

248,436 238,956
---------------------
---------------------
The accompanying notes are an integral part of these consolidated financial
statements.



ANDREW PELLER LIMITED
Consolidated Statements of Earnings, Comprehensive Earnings and Retained
Earnings
(Unaudited)
(000's)
For the Three For the Six
Months Ended Months Ended
September 30 September 30
2007 2006 2007 2006
$ $ $ $
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Sales 61,236 59,413 118,376 114,548
Cost of goods sold, excluding
amortization 35,040 34,369 67,714 66,674
------- ------- ------- --------
Gross profit 26,196 25,044 50,662 47,874
Selling and administration 18,431 17,716 35,466 33,744
------- ------- ------- --------

Earnings before interest and
amortization
7,765 7,328 15,196 14,130
Interest 1,439 1,383 2,864 2,658
Amortization of plant, equipment and
intangibles 1,918 1,908 3,818 3,801
------- ------- ------- --------
Earnings before other items 4,408 4,037 8,514 7,671
Other income (loss) (Note 1) (325) - 44 -
Unusual items (69) (164) (124) (198)
------- ------- ------- --------
Earnings before income taxes 4,014 3,873 8,434 7,473
------- ------- ------- --------

Provision for (recovery of) income
taxes
Current 1,409 1,248 2,725 2,408
Future (47) 69 143 133
------- ------- ------- --------
1,362 1,317 2,868 2,541
------- ------- ------- --------

Net and comprehensive earnings for
the period 2,652 2,556 5,566 4,932
Retained earnings- Beginning of
period 90,101 83,803 88,147 82,205
Impact of adopting accounting
pronouncements on April 1, 2007
(Note 1) - - 128 -
------- ------- ------- --------

Retained earnings- Beginning of
period as restated 90,101 83,803 88,275 82,205
------- ------- ------- --------

Dividends:
Class A and Class B 1,087 917 2,175 1,695
------- ------- ------- --------
Retained earnings- End of period 91,666 85,442 91,666 85,442
------- ------- ------- --------
------- ------- ------- --------

Net earnings per share
Basic and Diluted
Class A shares 0.18 0.18 0.38 0.34
------- ------- ------- --------
------- ------- ------- --------
Class B shares 0.16 0.15 0.33 0.30
------- ------- ------- --------
------- ------- ------- --------
The accompanying notes are an integral part of these consolidated financial
statements.



ANDREW PELLER LIMITED
Consolidated Statements of Cash Flows
(Unaudited) For the Three For the Six
Months Ended Months Ended
September 30 September 30
2007 2006 2007 2006
$ $ $ $
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Cash provided by (used in)

Operating activities
Net earnings for the period 2,652 2,556 5,566 4,932

Items not affecting cash:
Amortization of plant, equipment and
intangibles 1,918 1,908 3,818 3,801
Unrealized loss (gain) on foreign
exchange contracts and interest rate
swaps (Note 1) 325 - (44) -
Employee future benefits (162) (92) (187) (186)
Future income taxes (47) 69 143 133
Non-cash interest expense 37 73 -
Amortization of deferred financing costs - 37 - 71
------ ------ ------ --------

4,723 4,478 9,369 8,751

Changes in non-cash working capital items
related to operations (Note 4) 8,088 (2,608) 1,541 (7,773)
------ ------ ------ --------

12,811 1,870 10,910 978
------ ------ ------ --------

Investing activities
Acquisition of Cascadia, net of cash
acquired - - - (309)
Purchase of property and equipment (4,396) (1,692) (8,212) (2,944)
------ ------ ------ --------
(4,396) (1,692) (8,212) (3,253)
------ ------ ------ --------

Financing activities
Increase in deferred financing costs - (27) - (27)
Repayment of long-term debt (1,476) (1,472) (2,951) (2,928)
Increase in long-term debt 3,470 - 3,470 -
Increase in (repayment of) bank
indebtedness (9,321) 2,099 (1,212) 6,786
Dividends paid (1,088) (778) (2,005) (1,556)
------ ------ ------ --------
(8,415) (178) (2,698) 2,275
------ ------ ------ --------

Cash at beginning and end of period - - - -
------ ------ ------ --------
------ ------ ------ --------

The accompanying notes are an integral part of these consolidated financial
statements.



Notes to the Interim Consolidated Financial Statements (000's)
September 30, 2007 and 2006
(in thousands of dollars, except per share amounts)


UNAUDITED

1. Summary of Significant Accounting Policies

The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The note disclosure for these interim consolidated financial statements only presents material changes to the disclosure found in the Company's audited consolidated financial statements for the year ended March 31, 2007. These interim consolidated financial statements should be read in conjunction with those consolidated financial statements and follow the same accounting policies as the audited consolidated financial statements except as disclosed below. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly, in all material respects the financial position of the Company as at September 30, 2007 and for the three and six-month periods then ended.

Recently adopted accounting pronouncements

On April 1, 2007 the Company adopted the Canadian Institute of Chartered Accountants (CICA) handbook sections 1530 "Comprehensive Income," section 3251 "Equity," section 3855 "Financial Instruments - Recognition and Measurement" and section 3865 "Hedges." As required, these standards have been adopted prospectively and comparative amounts for the periods have not been restated.

a) Comprehensive Income

Comprehensive income is comprised of net earnings or loss and other comprehensive income (OCI). OCI represents the change in equity for a period that arises from unrealized gain and losses on available-for-sale securities and changes in the fair market value of derivative instruments designated as hedges.

b) Equity

This section requires for separate presentation of changes in equity for the period arising from net income, OCI, contributed surplus, retained earnings, share capital and reserves. Accumulated OCI would be included in the consolidated balance sheet as a separate component of shareholders' equity. The Company does not currently have any accumulated OCI.

c) Financial Instruments

This section establishes standards for the recognition and measurement of financial instruments; which is comprised of financial assets, financial liabilities, derivatives and non-financial derivatives. All financial instruments are initially recorded at fair value and are subsequently accounted for based on one of four classifications: held for trading, held to maturity, loans and receivables or available for sale. The classification of a financial instrument depends on its characteristics and the purpose for which it was acquired. Fair values are based upon quoted market prices from active markets or are otherwise determined using a variety of valuation techniques and models. The Company's interest rate swaps and foreign exchange contracts are derivatives and are recorded at fair value through other income. As a result, on adoption of this standard, the Company recorded a net increase of $216 to other assets, a net increase of $68 to future income taxes, a net increase of $20 to long-term debt and an opening retained earnings adjustment of $128.

d) Hedges

Hedge accounting is optional. When hedge accounting is not applied, the change in the fair value of the hedging instrument is recorded directly into earnings. The Company has chosen not to designate any of its current hedging instruments as hedges for the purpose of this section and has recorded the fair value adjustments of these instruments through other income.

e) Transaction Costs

Transaction costs related to long-term debt are netted against the carrying value of the liability and are then amortized over the expected life of the instrument using the effective interest method. On adoption of this new standard the Company recorded an adjustment on April 1, 2007 to reduce other assets by $599 and long-term debt by $599.

Recently issued accounting pronouncements

The Canadian Institute of Chartered Accountants ("CICA") issued the following accounting standards effective for the fiscal years beginning after October 1, 2007 and January 1, 2008:

a) Accounting Standards Section 3031 "Inventories" provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories and is effective for the fiscal years beginning after January 1, 2008.

b) Accounting Standards Section 3862 "Financial Instruments - Disclosures" requires disclosures in the financial statements that will enable users to evaluate: the significance of financial instruments for the company's financial position and performance; and the nature and extent of risks arising from financial instruments to which the company is exposed during the period and at the balance sheet date, and how the company manages those risks. This accounting standard is effective for fiscal years beginning after October 1, 2007.

The Company has not yet determined the impact of adopting the above accounting standards.

2. Seasonality

The third quarter of each year is historically the strongest in terms of sales, gross profit and net earnings due to increased consumer purchasing of the Company's products during the holiday season.

3. Capital Stock

At the Company's Annual and Special Meeting of Shareholders held on September 20, 2006, Class B shareholders approved a three-for-one split of the Class A and Class B shares for shareholders of record at October 31, 2006. The Company recorded the effect of the split retroactively to all disclosures of share capital and per share amounts.

As at September 30, 2007 there were 11,888,241 Class A shares issued and outstanding (March 31, 2007 - 11,888,241) and 3,004,041 Class B shares issued and outstanding (March 31, 2007 - 3,004,041). There were 11,888,241 weighted average Class A shares outstanding (2006 - 11,887,641) and 3,004,041 weighted average Class B shares outstanding (2006 - 3,004,641) for the three and six months ended September 30, 2007.

4. Financing

On October 2, 2007 the Company obtained additional financing from the Royal Bank of Canada in the form of a bulge demand facility to finance additional working capital requirements. The facility is in the amount of $10,000 and is available during the months of November to January each year and increases the Company's borrowing limit to $70,000 during this period. As at November 8, 2007, no amount was drawn on this facility.

5. Changes in non-cash working capital items

The change in non-cash working capital items is comprised of the change in the following items:



For the Three Months For the Six Months
Ended September 30 Ended September 30
2007 2006 2007 2006
---- ---- ---- ----
$ $ $ $

Accounts receivable (2,164) (6,005) (2,607) (9,242)
Inventories (1,523) (1,739) (31) (1,342)
Prepaid expenses (754) (640) (1,786) (1,511)
Income taxes recoverable (826) (1,002) (569) 378
Accounts payable and accrued
liabilities 13,355 6,778 6,534 3,944
------ ----- ----- ------
8,088 (2,608) 1,541 (7,773)
----- ------- ----- -------
----- ------- ----- -------


This news release contains forward-looking information that is based upon assumptions and is subject to risks and uncertainties as indicated in the cautionary note contained elsewhere in this news release.

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