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

Andrew Peller Limited

November 10, 2010 17:34 ET

Andrew Peller Limited Announces Continuing Strong Second Quarter Fiscal 2011 Results

GRIMSBY, ONTARIO--(Marketwire - Nov. 10, 2010) -

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.

Andrew Peller Limited (TSX:ADW.A)(TSX:ADW.B) (the "Company") announced today strong results for the three and six months ended September 30, 2010.

SECOND QUARTER HIGHLIGHTS:

  • Sales up 3.1% on solid performance through majority of trade channels
  • Increased sales, improved margins and cost control initiatives result in improved profitability
  • Gross profit margin improves to 39.4% of sales from 37.1% last year
  • EBITA up 32.3% to $8.9 million
  • Balance sheet continues to strengthen on reduced debt levels
  • Cash flow from operating activities increases to $13.6 million
  • Working capital rises to $34.6 million

Sales for the second quarter of fiscal 2011 rose 3.1% to $69.0 million from $67.0 million in the prior year period. For the first six months of fiscal 2011 sales were $133.5 million, up from $131.9 million in fiscal 2010. Ongoing initiatives to grow sales of the Company's blended varietal table and premium wines through provincial liquor boards, the introduction of new products and improved performance at the Company's estate wineries were partially offset by additional taxation levied by the Province of Ontario on sales of cellared in Canada wine sold through the Company's retail stores, the negative impact of the global economic slowdown on export sales and lower than anticipated sales of personal winemaking products.

Gross profit as a percentage of sales improved to 39.4% for the three months ended September 30, 2010 from 37.1% in the same period last year. For the first six months of fiscal 2011 gross margin rose to 39.6% compared to 36.9% for the same period in the prior fiscal year. The increase in gross margin in fiscal 2011 is due to the decreased cost to the Company of purchasing United States dollars and Euros and the Company's successful cost control initiatives which served to reduce operating and packaging expenses during the current period. Management remains focused on efforts to enhance production efficiency and productivity to further improve overall profitability.

"The Canadian wine market continues to strengthen as the economy recovers and consumers return to the positive experience offered by our high quality wines," commented John Peller, President and CEO. "We are also pleased to see our profitability continue to grow due to increased sales of our higher margin wines and the positive impact of our cost control initiatives."

Selling and administrative expenses were stable in the second quarter of fiscal 2011, and as a percentage of sales were 26.4%, down from 27.0% in the same quarter last year. For the six months ended September 30, 2010 selling and administrative expenses were 26.3% as a percentage of sales compared to 25.7% for the same period last year. The increase in expenses is primarily the result of higher sales and marketing investments in the current fiscal year compared with the prior year.

Interest expense in the second quarter and first six months of fiscal 2011 declined compared to the same periods last year due primarily to the reduction in debt from the proceeds of sale of the Company's beer business, proceeds from the sale of certain non-core vineyards during the first quarter of fiscal 2011 and lower interest rates on short and long-term debt. The Company expects to benefit from lower interest costs going forward.

The Company incurred non-cash losses for the three and six months ended September 30, 2010 of $1.2 million and $0.5 million respectively on losses related to mark-to-market adjustments on an interest rate swap and foreign exchange contracts. The Company recorded non-cash gains of $0.2 million and $1.3 million respectively in the comparable prior year periods. Under CICA accounting standards, these financial instruments must be reflected in the Company's financial statements at fair value each reporting period. These instruments are considered to be effective economic hedges and have enabled management to mitigate the volatility of changing costs and interest rates during the year.

Other expenses incurred in the second quarter and first six months of fiscal 2011 relate to one-time costs on a pre- tax write-down of approximately $1.3 million (net of recovery from insurance) in the value of a BC vineyard where vines were damaged by an early and severe frost in the fall of 2009. The extent of the damage to the vines was not determined until the second quarter of the fiscal year. The Company also incurred costs through the year in maintaining the Company's Port Moody facility which was closed effective December 31, 2005. These costs were partially offset by other income of $0.3 million related to the gain on the sale of the Okanagan vineyard in the first quarter of fiscal 2011.

Net and comprehensive earnings from continuing operations, excluding the gains on derivative financial instruments and other expenses for the three and six months ended September 30, 2010, were $3.5 million and $6.9 million, respectively, compared to $1.6 million and $4.2 million, respectively, for the comparable prior year periods. Net and comprehensive earnings were $1.7 million ($0.12 per Class A Share) and $5.7 million ($0.40 per Class A Share) for the three and six months ended September 30, 2010, respectively, compared to $2.2 million ($0.16 per Class A Share) and $5.5 million ($0.38 per Class A Share) for the same comparable periods in fiscal 2010. Operating results for the Company's beer business have been classified as a discontinued item.

Strengthened Financial Position

Working capital was $34.6 million as at September 30, 2010 compared to $30.0 million at March 31, 2010 and $27.0 million at September 30, 2009. As at September 30, 2010, total bank indebtedness and long-term debt decreased compared to March 31, 2010 and September 30, 2009 due primarily to proceeds received from the sale of the Company's beer business effective October 1, 2009, increased cash flow from operating activities due to higher net earnings and lower levels of working capital. On May 25, 2010 the Company sold approximately six acres of vineyard in the Okanagan Valley. The proceeds of approximately $0.8 million were used to reduce bank indebtedness.

With the decrease in bank debt, the Company's debt to equity ratio improved to 0.78:1 compared to 0.90:1 at the end of fiscal 2010 and 1.28:1 at the end of the prior year's second quarter. Shareholders' equity at September 30, 2010 rose to $117.0 million or $7.86 per common share compared to $113.7 million or $7.63 per common share at March 31, 2010 and $99.9 million or $6.71 per common share at September 30, 2009. The increase in shareholders' equity is due primarily to the net gain on the sale of the Company's beer business and higher net earnings over the last twelve months.

"Our strong balance sheet and financial position provides a solid foundation for the Company, and we look forward to continued stable and sustainable growth in the quarters and years ahead," Mr. Peller concluded.

Conference Call

A conference call hosted by John Peller, President and Chief Executive Officer and Peter Patchet, Chief Financial Officer, will be held Thursday, November 11, 2010 at 10.30 am ET. The telephone numbers for the conference call are: Local Toronto: (416) 340-2218 or North American Toll Free: (866) 226-1793.

The telephone numbers to listen to the call after it is completed (Instant Replay) are local (416) 695-5800 or toll free (800) 408-3053. The Passcode for the Instant Replay is 4802885#. The Instant Replay will be available until midnight, November 18, 2010.

Financial Highlights (Unaudited)        
(Complete consolidated financial statements to follow)        
(in $000 except as otherwise stated)   Three Months     Six Months  
For the Period Ended September 30,   2010     2009     2010     2009  
Sales   69,031     66,961     133,497     131,911  
Gross profit   27,183     24,816     52,807     48,613  
Gross profit (% of sales)   39.4 %   37.1 %   39.6 %   36.9 %
Selling general and administrative expenses   18,253     18,066     35,095     33,915  
Earnings before interest, taxes, amortization, unrealized loss (gain)                        
and other expenses   8,930     6,750     17,712     14,698  
Unrealized loss (gain) on derivative financial instruments   1,162     (213 )   516     (1,340 )
Other expenses   1,330     -     1,038     -  
Net and comprehensive earnings from continuing operations   1,702     1,762     5,742     5,100  
Net and comprehensive earnings from a discontinued operation   -     482     -     395  
Net and comprehensive earnings   1,702     2,244     5,742     5,495  
Earnings per share from continuing
operations - Class A
$ 0.12   $ 0.12   $ 0.40   $ 0.35  
Earnings per share – basic and diluted - Class A $ 0.12   $ 0.16   $ 0.40   $ 0.38  
Dividend per share – Class A (annual) $ 0.330   $ 0.330   $ 0.330   $ 0.330  
Dividend per share – Class B (annual) $ 0.288   $ 0.288   $ 0.288   $ 0.288  
Cash provided by operations                        
(after changes in non-cash working capital items)   13,552     11,159     16,175     8,422  
Working capital               34,631     27,010  
Shareholders' equity per share             $ 7.86   $ 6.71  

Andrew Peller Limited ('APL' or the 'Company') 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 from vineyards around the world. The Company's award-winning premium and ultra-premium VQA brands include Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Calona Vineyards Artist Series and Red Rooster. Complementing these premium brands are a number of popularly priced varietal wine brands including Peller Estates French Cross in the East, Peller Estates Proprietors Reserve in the West, Copper Moon, XOXO and Croc Crossing. Hochtaler, Domaine D'Or, Schloss Laderheim, Royal and Sommet are our key value priced wine blends. The Company imports wines from major wine regions around the world to blend with domestic wine to craft these popularly priced and value priced wine brands. 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 world leader in personal winemaking products. Global Vintners distributes products through over 250 Winexpert and Wine Kitz authorized retailers and franchisees and more than 600 independent retailers across Canada, United States, United Kingdom, New Zealand and Australia. Global Vintners award-winning premium and ultra-premium winemaking brands include Selection, Vintners Reserve, Island Mist, Kenridge, Cheeky Monkey, Ultimate Estate Reserve, Traditional Vintage and Artful Winemaker. The Company owns and operates more than 100 well-positioned independent retail locations in Ontario under the Vineyards Estate Wines, Aisle 43 and WineCountry Vintners store names. The Company also owns Grady Wine Marketing Inc. based in Vancouver, and The Small Winemaker's Collection Inc. based in Ontario; both of these wine agencies are importers of premium wines from around the world and are marketing agents for these fine wines. The Company's products are sold predominantly in Canada with a focus on export sales for our icewine products.

Net earnings from continuing operations is defined as net earnings before the net unrealized gain on financial instruments, other expenses and net earnings from a discontinued operation, all adjusted by income tax rates as calculated below:

(in $000) Three Months   Six Months  
Period ended September 30, 2010   2009   2010   2009  
Net and comprehensive earnings 1,702   2,244   5,742   5,495  
Unrealized loss (gain) on financial instruments 1,162   (213 ) 516   (1,340 )
Other expenses 1,330   -   1,038   -  
Income tax effect on the above (696 ) 68   (367 ) 426  
Net income from a discontinued operation -   (482 ) -   (395 )
Net earnings from continuing operations before other expenses 3,498   1,617   6,929   4,186  

The Company utilizes EBITA (defined as earnings before interest, amortization, unrealized derivative gains, other expenses, income taxes and net loss from a discontinued operation). 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.

Andrew Peller Limited common shares trade on the Toronto Stock Exchange (symbols ADW.A and ADW.B).

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         
These financial statements have not been reviewed by our auditors        
         
    September 30   March 31   September 30
    2010   2010   2009
    $   $   $
Assets            
Current Assets            
             
Accounts receivable   26,413   22,902   21,907
Inventories   90,657   89,693   95,320
Prepaid expenses and other assets   2,688   2,429   1,970
Income taxes recoverable   323   1,327   3,664
Discontinued operation   -   -   5,627
    120,081   116,351   128,488
Property, plant and equipment   92,779   95,728   97,755
Goodwill   37,473   37,473   35,684
Intangibles and other assets   13,841   14,164   14,496
Discontinued operation - long-term assets   -   -   9,746
    264,174   263,716   286,169
             
Liabilities            
Current Liabilities            
             
Bank indebtedness   40,731   48,877   53,401
Accounts payable and accrued liabilities   36,780   28,229   33,545
Dividends payable   1,197   1,197   1,197
Current derivative financial instruments   1,409   1,922   2,806
Current portion of long-term debt   5,333   6,158   6,158
Discontinued operation   -   -   4,371
    85,450   86,383   101,478
             
Long-term debt   45,336   47,633   68,082
Long-term derivative financial instruments   2,790   1,667   3,040
Employee future benefits   4,296   4,530   2,371
Future income taxes   9,289   9,838   11,000
Discontinued operation - long-term liabilities   -   -   306
    147,161   150,051   186,277
Shareholders' Equity            
             
Capital Stock   7,375   7,375   7,375
Retained Earnings   109,638   106,290   92,517
    117,013   113,665   99,892
             
    264,174   263,716   286,169
             
The accompanying notes are an integral part of these interim consolidated financial statements    
   
ANDREW PELLER LIMITED  
Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings  
These financial statements have not been reviewed by our auditors  
   
    For the Three Months Ended     For the Six Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    $     $     $     $  
                         
Sales   69,031     66,961     133,497     131,911  
Cost of goods sold, excluding amortization   41,848     42,145     80,690     83,298  
Gross profit   27,183     24,816     52,807     48,613  
Selling and administration   18,253     18,066     35,095     33,915  
Earnings before interest and amortization   8,930     6,750     17,712     14,698  
Interest   1,885     2,363     3,827     4,546  
Amortization of plant, equipment and intangible assets   2,027     2,017     4,054     4,010  
Earnings before other items   5,018     2,370     9,831     6,142  
Unrealized losses (gains) on derivative financial instruments   1,162     (213 )   516     (1,340 )
Other expenses (Note 4)   1,330     -     1,038     -  
Earnings before income taxes   2,526     2,583     8,277     7,482  
                         
Provision for (recovery of) income taxes                        
Current   1,531     691     3,084     1,839  
Future   (707 )   130     (549 )   543  
    824     821     2,535     2,382  
                         
Net and comprehensive earnings for the period from continuing operations   1,702     1,762     5,742     5,100  
                         
Net and comprehensive earnings for the period from a discontinued operation (Note 3)   -     482     -     395  
                         
Net and comprehensive earnings for the period   1,702     2,244     5,742     5,495  
Retained earnings- Beginning of period   109,133     91,470     106,290     89,416  
                         
Dividends:                        
Class A and Class B   (1,197 )   (1,197 )   (2,394 )   (2,394 )
Retained earnings - End of period   109,638     92,517     109,638     92,517  
                         
Net earnings per share from continuing operations                        
Basic and diluted                        
  Class A shares   0.12     0.12     0.40     0.35  
  Class B shares   0.10     0.11     0.34     0.31  
                         
Net earnings per share from discontinued operation                        
Basic and diluted                        
  Class A shares   0.00     0.04     0.00     0.03  
  Class B shares   0.00     0.03     0.00     0.02  
                         
Net earnings per share                        
Basic and diluted                        
  Class A shares   0.12     0.16     0.40     0.38  
  Class B shares   0.10     0.14     0.34     0.33  
                         
The accompanying notes are an integral part of these interim consolidated financial statements   
 
ANDREW PELLER LIMITED                        
Consolidated Statements of Cash Flows                        
These financial statements have not been reviewed by our auditors   For the Three Months Ended     For the Six Months Ended  
    September 30     September 30  
    2010     2009     2010     2009  
    $     $     $     $  
                         
Cash provided by (used in)                        
                         
Operating activities                        
Net earnings for the period   1,702     1,762     5,742     5,100  
                         
Items not affecting cash:                        
  Loss on disposal of property and equipment   1,018     -     678     -  
  Amortization of plant, equipment and intangibles   2,027     2,017     4,054     4,010  
  Employee future benefits   (80 )   (186 )   (234 )   (453 )
  Net unrealized loss (gain) on derivative financial instruments   1,162     (213 )   516     (1,340 )
  Future income taxes (recovery)   (707 )   130     (549 )   543  
  Amortization of deferred financing costs   185     12     370     24  
    5,307     3,522     10,577     7,884  
Changes in non-cash working capital items related to operations (Note 5):   8,245     7,637     5,598     538  
    13,552     11,159     16,175     8,422  
                         
Investing activities                        
Acquisition of businesses   -     -     (825 )   (825 )
Proceeds from disposal of property and equipment (Note 4)   -     -     766     -  
Purchase of property and equipment   (2,099 )   (1,589 )   (2,910 )   (2,957 )
    (2,099 )   (1,589 )   (2,969 )   (3,782 )
                         
Financing activities                        
(Decrease) increase in bank indebtedness   (8,923 )   (7,410 )   (8,146 )   1,209  
Repayment of long-term debt   (1,333 )   (1,333 )   (2,666 )   (2,666 )
Dividends paid   (1,197 )   (1,197 )   (2,394 )   (2,394 )
    (11,453 )   (9,940 )   (13,206 )   (3,851 )
Cash (used in) provided from continuing operations   -     (370 )   -     789  
Cash provided from (used in) discontinued operation (Note 3)   -     370     -     (789 )
                         
Cash at beginning and end of period   -     -     -     -  
                         
Supplemental disclosure of cash flow information                        
Cash paid (received) during the period from continuing operations for                        
  Interest   1,976     2,639     3,845     4,535  
  Income taxes   1,489     (1,016 )   2,079     (812 )
Cash paid during the period from discontinued operation for                        
  Income taxes   -     590     -     723  
Cash paid (received) during the period for                        
  Interest   1,976     2,639     3,845     4,535  
  Income taxes   1,489     (426 )   2,079     (89 )
                         
The accompanying notes are an integral part of these interim consolidated financial statements            

Notes to the Interim Consolidated Financial Statements

September 30, 2010 and 2009

(in thousands of dollars)

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 years ended March 31, 2010 and 2009. 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. 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, 2010 and for the three and six-month period then ended.

  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. Discontinued operations

    During fiscal 2010, the Company entered into an agreement to dispose of its ownership interests in Granville Island Brewing Company Ltd. and Mainland Beverage Distribution Ltd. (collectively referred to as "GIBCO") effective October 1, 2009.

    In connection with the sale of GIBCO, the Company continues to manufacture product for the purchaser. In doing so, the Company incurred and was fully reimbursed for expenses in the amount of $415 and $1,461 for the three and six months ended September 30, 2010.

    Other financial information relating to the discontinued operation is as follows:

Condensed statement of net earnings from discontinued operation     
 
    For the three   For the six  
    months ended   months ended  
    September 30   September 30  
    2009   2009  
    $   $  
  Sales   5,296   10,509  
  Cost of goods sold   2,747   5,452  
  Gross profit   2,549   5,057  
  Selling and administration   1,734   4,263  
  Amortization   106   213  
  Earnings before income taxes   709   581  
  Provision for income taxes   227   186  
  Net earnings from discontinued operation   482   395  

Included in cost of goods sold is $1,008 and $2,015 for the three and six months ended September 30, 2009 respectively for costs relating to manufacturing services provided by a related company.

Condensed statement of cash flows from discontinued operation     
 
    For the three   For the six  
    months ended   months ended  
    September 30   September 30  
    2009   2009  
    $   $  
  Cash used in operating activities   370   (789 )
  Cash provided by (used in) investing activities   -   -  
  Cash provided by (used in) financing activities   -   -  
    370   (789 )

4. Other (income) expenses

During the second quarter, it became evident that approximately 98 acres of vines developed by the Company on leased land in Oliver, British Columbia were irreparably damaged. The Company wrote down vineyards included in property, plant and equipment related to this vine damage in the amount of $1,712 and inventories in the amount of $260. The Company is insured for a portion of the loss and has recorded an amount receivable of $694 based on an estimate of its entitlement under the insurance policy. The pre-tax loss recorded as a result of the damaged vines is $1,278.

Also included in other (income) expenses is a gain in the amount of $340 pre-tax related to the sale of a portion of a vineyard on May 25, 2010. The proceeds from the sale were $766.

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     For the three     For the six     For the six  
    months ended     months ended     months ended     months ended  
    September 30     September 30     September 30     September 30  
    2010     2009     2010     2009  
    $     $     $     $  
  Accounts receivable   (1,832 )   58     (2,817 )   (1,226 )
  Inventories   (4,375 )   3,062     (964 )   5,496  
  Prepaid expenses and other assets   (100 )   (261 )   (165 )   (1,467 )
  Accounts payable and accrued liabilities   14,510     3,072     8,540     (4,918 )
  Income taxes recoverable   42     1,706     1,004     2,653  
    8,245     7,637     5,598     538  
  1. Bank indebtedness and long-term debt

    On August 27, 2010, the Company modified the terms of its short-term loan facility. The modified facility matures on August 26, 2011 (previously - November 9, 2010) and incurs interest at the Royal Bank of Canada prime rate plus 2.00% (previously - plus 2.75%).

    The Company's interest rate on its term loan is currently 5.64%. The Company also pays additional interest of 0.70% based on leverage and a funding premium, to be negotiated annually, of 0.80%. Effective November 1, 2010, the additional interest rate based on leverage is reduced to 0.50%.

  2. Comparative Figures

    Certain of the prior year balances have been restated to conform with the current year's presentation.

Contact Information