Andres Wines Ltd.
TSX : ADW.B
TSX : ADW.NV.A

Andres Wines Ltd.

November 03, 2005 16:03 ET

Andres Wines Announces Second Quarter Fiscal 2006 Results

GRIMSBY, ONTARIO--(CCNMatthews - Nov. 3, 2005) - Andres Wines Ltd. (TSX:ADW.NV.A)(TSX:ADW.B) -

Recent Acquisitions Generate 33% Increase in Quarterly Sales

Andres Wines Ltd. announced today its results for the three and six months ended September 30, 2005. Sales for the second quarter of fiscal 2006 rose 33.4% to $57.1 million from $42.8 million last year. For the six months ended September 30, 2005 sales increased 25.1% to $103.9 million from $83.0 million last year. The increase is due primarily to the contributions made by Cascadia Brands Inc. ("Cascadia Brands") and Thirty Bench Winery ("Thirty Bench"), acquired on May 25, 2005 and May 2, 2005 respectively and to the Company's successful initiatives to grow sales of its premium and ultra-premium wines. The sales increase resulted in a 42.2% rise in EBITA (defined as earnings before interest, taxes, amortization and unusual items) to $6.6 million for the three months ended September 30, 2005. For the first six months of fiscal 2006 EBITA increased 30.8% to $12.2 million.

Gross margin as a percentage of sales declined marginally in the second quarter and first six months of fiscal 2006 compared to the prior year periods due primarily to increases in the price of wines purchased on international markets. In addition, Canadian generally accepted accounting principles ("GAAP") requires the Company to record inventory of acquired companies at fair market value which reduced the gross profit earned by Cascadia Brands during the period. Once this inventory has been sold, it is expected that gross profit related to these product lines would return to normal levels. Selling, general and administration expenses have risen in fiscal 2006 as a result of the acquisitions completed this year. However, as a percentage of sales, selling and administrative expenses improved to 29.7% in the second quarter and first six months of fiscal 2006 compared to 32.3% and 31.6% respectively last year.

The Company previously announced that it was closing its facility in Port Moody, B.C. and moving production into its winery in Kelowna, B.C. The Port Moody facility will close in early January 2006 with full production in Kelowna beginning on April 1, 2006. Costs related to the closure of the Company's Port Moody facility and to certain integration expenses are being expensed as incurred, and resulted in unusual charges to income of $635,000 in the second quarter. Management expects that the total cost related to this initiative will amount to between $2.0 million and $2.5 million once completed on or before the end of March 2007. Including these unusual items, net income for the three and six months ended September 30, 2005 was $1.8 million or $0.37 per Class A share and $3.8 million or $0.79 per Class A share respectively. Excluding the unusual items, net earnings would have increased to $2.2 million or $0.45 per Class A share for the second quarter and $4.2 million or $0.87 per Class A share for the first six months of fiscal 2006.

"The integration of our British Columbia facilities is proceeding smoothly, and we expect to realize substantial operating and financial benefits once the rationalization is complete," commented John Peller, President and Chief Executive Officer.

The changes to the Company's balance sheet compared to the end of fiscal 2005 are primarily due to the acquisitions completed so far this year. Working capital was $41.4 million at September 30, 2005 compared to $29.8 million at March 31, 2005. The increase in bank indebtedness and long-term debt at the end of the second quarter of fiscal 2006 compared to the prior year-end was due primarily to the two acquisitions completed during the period. Shareholders' equity at September 30, 2005 rose to $89.4 million or $18.05 per share from $87.2 million or $17.59 per share as at March 31, 2005.

Cash from operating activities for the six months ended September 30, 2005, after changes in non-cash working capital items, was $7.6 million compared to $8.4 million last year. The change is due principally to higher earnings during the period, offset by increased working capital requirements.

Andres continues to pay an annual dividend of $0.644 per Class A share and $0.560 per Class B share.

Subsequent to the end of the second quarter, Andres announced that it had acquired the Red Rooster winery ("Red Rooster") located on the Naramata Bench near Penticton, British Columbia. Red Rooster is a well-recognized producer of premium VQA wines situated in the heart of Canada's Okanagan Valley, a region well known for its niche premium brands. The acquisition enhances the Company's presence in the growing British Columbia wine industry, and will add to its sales of premium and ultra-premium wines across the country.

"Our recent acquisitions have made a strong contribution to our second quarter performance. Combined with our highly successful sales and marketing initiatives, we expect growth will continue going forward," Mr. Peller concluded.



Financial Highlights (complete statements follow)
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Period Ended September 30, Three Months Six Months
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(in $,000 except per share amounts) 2005 2004 2005 2004
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Sales 57,056 42,758 103,887 83,014
EBITA 6,572 4,623 12,251 9,364
Earnings before unusual items 3,551 2,861 6,797 5,825
Unusual items (635) - (635) -
Net earnings 1,815 1,783 3,827 3,642
Net earnings per share
(Basic per Class A share) $0.37 $0.37 $0.79 $0.76
Cash from operations
(after changes in non-cash
working capital items) 5,354 5,591 7,584 8,359
Working capital 41,372 31,043
Shareholders' equity per share $18.05 $16.91
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Andres Wines Ltd. 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 Valley and vineyards around the world. The Company's award-winning premium and ultra-premium brands include Peller Estates, Trius, Hillebrand Estates, Thirty Bench, Sandhill, Copper Moon and Calona Vineyards Artist Series 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 and spirits under International Potters Distillers. With a focus on serving the needs of all wine consumers, the Company produces and markets consumer-made wine kit products through Winexpert Inc. and Vineco International. In addition, the Company owns and operates Vineyards Estate Wines and WineCountry Vintners, an independent wine retailer in Ontario with more than 100 well-positioned retail locations. Andres common shares trade on the Toronto Stock Exchange (symbols ADW.NV.A and ADW.B).

The Company utilizes EBITA (defined as earnings before interest, incomes taxes, depreciation, amortization and unusual items) and EBUI (defined as earnings before income taxes and unusual items) to measure its financial performance. EBITA and EBUI are not recognized measures under GAAP. Management believes that EBITA and EBUI are useful supplemental measures to net earnings (loss), 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 and EBUI should not be construed as alternatives to net earnings (loss) 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 and EBUI may differ from the methods used by other companies and, accordingly, may not be comparable to measures used by other companies.



ANDRES WINES LTD.
Consolidated Statements of Earnings and Retained Earnings
(IN $,000 EXCEPT PER SHARE AMOUNTS)
These financial statements have not been reviewed by our auditors

For the Three Months For the Six Months
Ended Ended
September 30 September 30
2005 2004 2005 2004
$ $ $ $
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Sales 57,056 42,758 103,887 83,014
Cost of goods sold,
excluding amortization 33,511 24,336 60,807 47,408
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Gross profit 23,545 18,422 43,080 35,606
Selling and administration 16,973 13,799 30,829 26,242
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Earnings before interest
and amortization 6,572 4,623 12,251 9,364
Interest 1,184 462 2,048 967
Amortization of plant,
equipment and intangibles 1,837 1,300 3,406 2,572
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Earnings before unusual items 3,551 2,861 6,797 5,825
Unusual items (635) - (635) 0
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Earnings before income taxes 2,916 2,861 6,162 5,825
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Provision for income taxes
Current 1,029 1,023 2,195 2,070
Future 72 55 140 113
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1,101 1,078 2,335 2,183
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Net earnings for the period 1,815 1,783 3,827 3,642

Retained earnings
- Beginning of period 81,159 75,576 79,924 74,494
Dividends:
Class A and Class B 777 777 1,554 1,554
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Retained earnings
- End of period 82,197 76,582 82,197 76,582
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Net earnings per share
Basic and Diluted
Class A shares 0.37 0.37 0.79 0.76
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Class B shares 0.33 0.32 0.69 0.66
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ANDRES WINES LTD.
Consolidated Statements of Cash Flows
(IN $,000 EXCEPT PER SHARE AMOUNTS)
These financial statements have not been reviewed by our auditors

For the Three Months For the Six Months
Ended Ended
September 30 September 30
2005 2004 2005 2004
$ $ $ $
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Cash provided by (used in)

Operating activities
Net earnings for the period 1,815 1,783 3,827 3,642

Items not affecting cash:
Amortization of plant,
equipment and intangibles 1,837 1,300 3,406 2,572
Future income taxes 72 55 140 113

Amortization of deferred
financing costs 32 17 49 34
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3,756 3,155 7,422 6,361
Changes in non-cash working
capital items related to
operations, net of
acquisitions: 1,598 2,436 162 1,998
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5,354 5,591 7,584 8,359
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Investing activities

Acquisition of Thirty Bench - - (4,510) -

Acquisition of Cascadia,
net of cash acquired 188 - (33,360) -
Purchase of property
and equipment (1,172) (1,629) (2,400) (2,950)
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(984) (1,629) (40,270) (2,950)
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Financing activities

Increase in deferred
financing costs (312) - (312) -
Increase in other assets (71) - (71) -
Repayment of long-term debt (1,312) (607) (14,051) (1,215)
Increase in long-term debt - - 50,000 -
Increase in (repayment of)
bank indebtedness (1,898) (2,578) (1,326) (3,075)
Issue of Class A shares - - - 430
Dividends paid (777) (777) (1,554) (1,549)
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(4,370) (3,962) 32,686 (5,409)
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Cash at beginning and
end of period - - - -
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ANDRES WINES LTD.
CONSOLIDATED BALANCE SHEETS
(IN $,000 EXCEPT PER SHARE AMOUNTS)

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Unaudited Audited
Sept. 30 2005 March 31 2005
$ $
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Assets
Current Assets

Accounts receivable 19,595 14,132
Inventories 78,801 62,045
Prepaid expenses 3,948 2,531
Income taxes recoverable - 693
--------------------------------
102,344 79,401
Property, plant and equipment 80,912 55,897
Goodwill 28,342 23,759

Other assets 12,841 3,762
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224,439 162,819
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Liabilities
Current Liabilities

Bank indebtedness 30,430 31,756
Accounts payable and accrued
liabilities 24,493 14,795
Dividends payable 777 777
Income taxes payable 22 -
Current portion of long - term debt 5,250 2,250
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60,972 49,578

Long-term debt 62,438 17,313
Future income taxes 11,588 8,760
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134,998 75,651
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Shareholders' Equity

Capital Stock 7,244 7,244
Retained Earnings 82,197 79,924
--------------------------------
89,441 87,168
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224,439 162,819
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