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

Andrew Peller Limited

November 02, 2006 15:50 ET

Andrew Peller Limited Announces Strong Second Quarter Fiscal 2007 Results

GRIMSBY, ONTARIO--(CCNMatthews - Nov. 2, 2006) -

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 (the "Company")(TSX:ADW.A)(TSX:ADW.B) announced today its results for the three and six months ended September 30, 2006.

HIGHLIGHTS:

- Sales up 10.3% year-to-date as acquisitions make solid contributions

- Sales were up 4.1% in the second quarter; organic growth up 5.8%

- New product launches to accelerate growth

- Gross margins improve due to cost synergies and economies of scale from recent acquisitions

- Net earnings rise 41% in second quarter

Sales for the second quarter of fiscal 2007 rose 4.1% to $59.4 million from $57.1 million last year. Excluding the impact of the sale of the Cascadia spirits division in fiscal 2006, sales for the quarter increased 5.8%. For the six months ended September 30, 2006 sales increased 10.3% to $114.5 million from $103.9 million last year. The increase is due primarily to the contributions made by acquisitions completed in last year's first quarter and the Company's successful initiatives to grow sales of its premium and ultra-premium wines.

"We were pleased to generate such solid organic growth in the second quarter as our sales and marketing initiatives generated increased volumes through all of our trade channels," commented John Peller, President and CEO.

During the second quarter, the Company launched a number of new products through provincial liquor stores and its network of retail stores. In late August, four distinct varietal blends were introduced through provincial liquor board locations under the XOXO brand. Croc Crossing, a blend of Australian and domestic varietal grapes were also launched during the quarter, while Peller Estates' French Cross became Canada's first domestic wine available in the popular tetra pack format.

Gross margin as a percentage of sales improved to 42.2% in the second quarter and 41.8% in the first six months of fiscal 2007 compared to 41.3% and 41.5% respectively last year. Fiscal 2006 margins were impacted by the Company earning less margin on inventory acquired from Cascadia and Thirty Bench due to the requirement to record the purchased inventory at fair market value. As a percentage of sales, selling and administrative expenses remained consistent with prior periods.

As a result of the increased sales and improved gross margins, earnings before interest, taxes, amortization and unusual items (EBITA) increased 11.5% to $7.3 million for the three months ended September 30, 2006. For the first six months of fiscal 2007 EBITA increased 15.3% to $14.1 million.

At the Company's Annual and Special Meeting of Shareholders held on September 20, 2006, Class B shareholders approved a three for one stock split for each Class A and Class B share to shareholders of record on October 31, 2006. The impact of the share split has been applied retroactively to all share capital and per share disclosure amounts.

Net income for the three months ended September 30, 2006 increased 40.8% to $2.6 million or $0.18 per Class A share from $1.8 million or $0.13 per Class A share last year. For the six months ended September 30, 2006 net earnings rose 28.9% to $4.9 million or $0.34 per Class A share compared to $3.8 million or $0.26 per Class A share last year. During the second quarter of fiscal 2007, the Company incurred unusual charges of $0.2 million related to the closure of its Port Moody, B.C. facility compared to $0.6 million last year. For the six months ended September 30, 2006 unusual items amounted to $0.2 million compared to $0.6 million for the same period last year.

"We are beginning to see the cost savings and operating synergies being generated by the acquisitions completed last year. As we proceed with our integration initiatives, we expect these benefits will increase," Mr. Peller added.

The Company's balance sheet remained strong as at September 30, 2006. Working capital was $27.6 million at the end of the period compared to $26.8 million at March 31, 2006. Shareholders' equity at September 30, 2006 rose to $92.8 million or $6.23 per Class A share from $89.6 million or $6.02 per Class A share as at March 31, 2006.

Effective September 30, 2006 the Company increased its common share dividends. The dividend on Class A shares was increased 18% on an annualized basis to $0.253 per share. The dividend on Class B shares was also increased 18% on an annualized basis to $0.22 per share.

"We were very pleased to have increased our common share dividends this year, the result of our continued growth, strong financial performance, and our positive outlook on the future of our business and the Canadian wine industry," Mr. Peller concluded.

At the recent Tax Free World Association Exhibition in Cannes, France, the Company won a silver medal for Star Product of the Year for its Andrew Peller Signature Series Variety Icewines.

Financial Highlights (complete statements follow)



--------------------------------------------------------------------
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Period Ended September 30, Three Months Six Months
--------------------------------------------------------------------
(in $,000 except per share
amounts) 2006 2005 2006 2005
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Sales 59,413 57,056 114,548 103,887
EBITA 7,328 6,572 14,130 12,251
Earnings before unusual items 4,037 3,551 7,671 6,797
Unusual items 164 635 198 635
Net earnings 2,556 1,815 4,932 3,827
Net earnings per share
(Basic per Class A share) $0.18 $0.13 $0.34 $0.26
Cash from operations
(after changes in non-cash
working capital items) 1,870 5,283 978 7,513
Working capital 27,596 41,372
Shareholders' equity per share $6.23 $6.02
--------------------------------------------------------------------
--------------------------------------------------------------------


The impact of the share split has been applied retroactively to per share amounts.

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 Estates, Thirty Bench, 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 Inc. and Vineco International Products Inc. 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 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.

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
(in thousands of dollars, except per share amounts)

------------------------------
Unaudited Audited
September 30, March 31,
2006 2006
$ $
------------------------------
Assets
Current Assets

Accounts receivable 27,687 18,444
Inventories 71,870 70,528
Prepaid expenses 3,958 2,447
Income taxes recoverable 532 911
------------------------------
104,047 92,330
Property, plant and equipment 84,863 85,597
Goodwill 36,171 35,862

Other assets 8,131 8,298
------------------------------
233,212 222,087
------------------------------
------------------------------

Liabilities
Current Liabilities

Bank indebtedness 44,080 37,295
Accounts payable and accrued liabilities 25,557 21,613
Dividends payable 917 778
Current portion of long - term debt 5,897 5,888
------------------------------
76,451 65,574

Long-term debt 47,392 50,328
Employee future benefits 4,038 4,224
Future income taxes 12,514 12,381
------------------------------
140,395 132,507
------------------------------

Shareholders' Equity

Capital Stock 7,375 7,375
Retained Earnings 85,442 82,205
------------------------------
92,817 89,580
------------------------------

233,212 222,087
------------------------------
------------------------------




ANDREW PELLER LIMITED
Consolidated Statements of Earnings and Retained Earnings
These financial statements have not been reviewed by our auditors
(in thousands of dollars, except per share amounts)

For the Three For the Six
Months Ended Months Ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
-------------------------------------------------------- ---------------
Sales 59,413 57,056 114,548 103,887
Cost of goods sold, excluding
amortization 34,369 33,511 66,674 60,807
-----------------------------
Gross profit 25,044 23,545 47,874 43,080
Selling and administration 17,716 16,973 33,744 30,829
-----------------------------

Earnings before interest and
amortization 7,328 6,572 14,130 12,251
Interest 1,383 1,184 2,658 2,048
Amortization of plant, equipment and
intangibles 1,908 1,837 3,801 3,406
-----------------------------
Earnings before unusual items 4,037 3,551 7,671 6,797

Unusual items 164 635 198 635
-----------------------------
Earnings before income taxes 3,873 2,916 7,473 6,162
-----------------------------

Provision for income taxes
Current 1,248 1,029 2,408 2,195
Future 69 72 133 140
-----------------------------
1,317 1,101 2,541 2,335
-----------------------------

Net earnings for the period 2,556 1,815 4,932 3,827

Retained earnings- Beginning of period 83,803 81,159 82,205 79,924

Dividends:
Class A and Class B 917 777 1,695 1,554
-----------------------------
Retained earnings- End of period 85,442 82,197 85,442 82,197
-----------------------------
-----------------------------

Net earnings per share
Basic and Diluted
Class A shares 0.18 0.13 0.34 0.26
-----------------------------
-----------------------------
Class B shares 0.15 0.11 0.30 0.23
-----------------------------
-----------------------------



ANDREW PELLER LIMITED
Consolidated Statements of Cash Flows
These financial statements have not been reviewed by our auditors
(in thousands of dollars, except per share amounts)

For the Three For the Six
Months Ended Months Ended
September 30 September 30
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------- -----------------

Cash provided by (used in)

Operating activities
Net earnings for the period 2,556 1,815 4,932 3,827

Items not affecting cash:
Amortization of plant, equipment
and intangibles 1,908 1,837 3,801 3,406
Employee future benefits (92) (121) (186) (71)
Future income taxes 69 72 133 140
Amortization of deferred
financing costs 37 32 71 49
-----------------------------------

4,478 3,635 8,751 7,351

Changes in non-cash working capital
items related to operations (2,608) 1,648 (7,773) 162
-----------------------------------

1,870 5,283 978 7,513
-----------------------------------

Investing activities

Acquisition of businesses - 188 (309) (37,870)
Purchase of property and equipment (1,692) (1,172) (2,944) (2,400)
-----------------------------------

(1,692) (984) (3,253) (40,270)
-----------------------------------


Financing activities

Increase in deferred financing costs (27) (312) (27) (312)
Repayment of long-term debt (1,472) (1,312) (2,928) (14,051)

Increase in long-term debt - - - 50,000

Increase in (repayment of) bank
indebtedness 2,099 (1,898) 6,786 (1,326)
Dividends paid (778) (777) (1,556) (1,554)
-----------------------------------
(178) (4,299) 2,275 32,757
-----------------------------------

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



Notes to the Interim Consolidated Financial Statements (000's)
(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 statements only presents material changes to the disclosure found in the Company's annual consolidated financial statements for the year ended March 31, 2006. These interim statements should be read in conjunction with those statements. The interim statements follow the same accounting policies as the annual audited financial statements.

2. 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 a result, as at September 30, 2006 there were 11,887,641 Class A shares issued and outstanding (2005 - 11,863,581) and 3,004,641 Class B shares issued and outstanding (2005 - 3,004,641). There were 11,887,641 weighted average Class A shares outstanding (2005 - 11,863,017) and 3,004,641 weighted average Class B shares outstanding (2005 - 3,005,205) for the six months ended September 30, 2006.

3. Stock Option Plan

The Company has a stock option plan and a stock appreciation rights plan for executives and directors. All options under this plan are for Class A shares only and are for a term of five years from the date of the grant. These options become exercisable with respect to 25% of the total number of shares subject to the option immediately and 25% on each of the three successive anniversaries of the grant. Stock options are subject to certain conditions of service. As at September 30, 2006 there were no stock options outstanding.

The impact of compensation costs for options granted subsequent to April 1, 2002 and before April 1, 2003 is insignificant. Effective April 1, 2003 the Company commenced accounting for all stock options granted on or after April 1, 2003 using a fair value based method that recognizes the compensation cost as an expense in the period. No options have been granted since April 2003.

4. Unusual Items

During fiscal 2006, the Company closed its Port Moody winery facility and transferred production to its winery operations in Kelowna, British Columbia. The resulting restructuring costs incurred during the six months ended September 30, 2006 amounted to $198 (2005 - $635).

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