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

Andrew Peller Limited

February 08, 2012 15:17 ET

Andrew Peller Limited Reports Continued Strong Growth in Third Quarter of Fiscal 2012

GRIMSBY, ONTARIO--(Marketwire - Feb. 8, 2012) -

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 its results for the three and nine months ended December 31, 2011. Effective April 1, 2011 the Company began reporting its results under International Financial Reporting Standards ("IFRS"). For more information relating to the impact of the transition to IFRS on the Company's reported financial position, financial performance and cash flows, please refer to the Company's Management Discussion and Analysis ("MD&A") for the three and nine months ended December 31, 2011 available on the Company's web site or at www.sedar.com.

NINE MONTH HIGHLIGHTS:

  • Sales up 3.6% on solid performance in majority of trade channels
  • Gross margin increases due to strong dollar and benefit from cost reduction initiatives
  • EBITA up 9.2% to $30.1 million
  • Net earnings up 25.9% to $13.6 million or $0.98 per Class A share

"We continue to capitalize on strong market demand and our high quality product offering to generate solid growth in both sales and profitability," commented John Peller, President and CEO. "Looking ahead, we are confident we will see further solid performance through the majority of our trade channels."

Sales for the third quarter of fiscal 2012 rose 2.1% to $76.6 million from $75.0 million in the prior year. For the nine months ended December 31, 2011 sales rose 3.6% to $216.0 million from $208.5 million in the same period last year. Ongoing initiatives to grow sales of the Company's blended varietal table and premium wines through provincial liquor boards, the successful introduction of new products and solid performance from the Company's estate wineries and export sales were partially offset by the impact of the discriminatory levy introduced by the Province of Ontario on July 1, 2010 on sales of International and Canadian Blended ("ICB") wines sold through the Company's retail stores and weaker sales of consumer-made wines.

Gross margin was 40.1% of sales for the three months ended December 31, 2011 compared to 38.1% last year. For the first nine months of fiscal 2012 gross margin was 39.5% of sales compared to 38.9% in the same prior-year period. Increased sales of higher margin products, the continued strength of the Canadian dollar on world currency markets, favourable overhead absorption variances, increased production from company vineyards and the Company's successful efforts to control costs and generate production efficiencies were partially offset by the impact of the above-mentioned discriminatory levy introduced by the Province of Ontario, higher pricing on wine purchased from international markets, and increased distribution costs. The impact on EBITA of the Ontario levy amounted to approximately $1.9 million in the first nine months of fiscal 2012. Management remains focused on efforts to enhance production efficiency and productivity to further improve overall profitability.

Selling and administrative expenses rose in the third quarter and first nine months of fiscal 2012 due primarily to increased sales and marketing expenses compared with the prior year. Selling and administration expenses as a percentage of sales were consistent or reduced in the third quarter and first nine months of fiscal 2012 to 24.6% and 25.5% respectively compared to 24.6% and 25.7% in the comparable prior year periods. Management expects the level of sales and administrative expenses will remain at slightly higher levels in fiscal 2012 due to the one-time costs associated with the Company's 50th Anniversary celebrations.

Interest expense during the third quarter and first nine months of fiscal 2012 declined compared to last year due to a decrease in short and long-term interest rates partially offset by higher levels of short-term borrowings.

The Company incurred a non-cash gain in the third quarter of fiscal 2012 related to mark-to-market adjustments on an interest rate swap and foreign exchange contracts aggregating $0.1 million compared to $0.3 million in the prior year. For the first nine months of fiscal 2012, the Company incurred a non-cash loss of $0.3 million compared to $0.2 million last year. The Company has elected not to apply hedge accounting and accordingly these financial instruments are 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.

Other expenses incurred in fiscal 2012 relate to a $0.6 million fair value adjustment to vines and $0.1 million in ongoing maintenance related to the Company's Port Moody facility which was closed effective December 31, 2005. In the first nine months of the prior year, a fair value adjustment to vines of $1.1 million was recorded, partially offset by other income of $0.3 million related to a gain on the sale of a portion of an Okanagan vineyard.

Earnings before interest, taxes, amortization, other expenses and gains or losses on the above mentioned derivative financial instruments ("EBITA") were $11.9 million for the three months ended December 31, 2011 compared to $10.2 for the comparable prior year period. For the nine months ended December 31, 2011 EBITA was $30.1 million compared to $27.6 million last year. Net earnings excluding gains (losses) on derivative financial instruments and other expenses for the three months ended December 31, 2011 were $6.3 million compared to $4.7 million in the prior year, and $14.3 million for the first nine months of fiscal 2012 compared to $11.6 million last year. Net earnings for the third quarter of fiscal 2012 were $6.3 million or $0.46 per Class A Share compared to $4.9 million or $0.34 per Class A Share last year. Net earnings for the nine months ended December 31, 2011 were $13.6 million or $0.98 per Class A Share compared to $10.8 million or $0.75 per Class A Share in the comparable prior year period. The third quarter of the Company's fiscal year is typically the strongest in terms of sales, gross margin, and net earnings due to higher sales volumes during the holiday season.

Strong Financial Position

Working capital was $39.7 million at December 31, 2011 compared to $27.6 million at March 31, 2011. The increase compared to March 31, 2011 was due primarily to increased accounts receivable on strong sales during fiscal 2012, higher inventories due to the recent strategic alliance with Wayne Gretzky Estate Winery and the acquisition of the inventories of Cellar Craft International, as well as anticipated future sales growth, partially offset by an increase in bank indebtedness.

The Company's debt to equity ratio was 0.87:1 at December 31, 2011 compared to 0.85:1 at March 31, 2011 and 0.83:1 at December 31, 2010. Shareholders' equity as at December 31, 2011 was $122.4 million or $8.56 per common share compared to $114.3 million or $7.99 per common share as at March 31, 2011 and $120.0 million or $8.06 per common share as at December 31, 2010. The increase in shareholders' equity is primarily due to higher net earnings for the period. There was also a decline in capital stock and retained earnings due to the cancellation of 594,412 Class A Shares in the fourth quarter of fiscal 2011 arising from the purchase of shares under the Company's normal course issuer bid.

Through the first nine months of fiscal 2012 the Company generated cash from operating activities, after changes in non-cash working capital items, of $0.7 million compared to $10.9 million in the prior year period. Cash flow from operating activities declined primarily due to the aforementioned increase in accounts receivable and inventory during the period, partially offset by the stronger earnings performance.

Recent Events

On November 8, 2011, the Company finalized a ten-year licensing agreement with Wayne Gretzky, which gives the Company the exclusive right to use certain Wayne Gretzky related brand names in the manufacturing and selling of wine products in Canada. On the same date, the Company purchased $2.7 million of inventories from Wayne Gretzky Estate Winery Limited.

On October 28, 2011 the Company completed the purchase of the inventory and intangible assets of Cellar Craft International, a consumer made wine business located in Western Canada for approximately $2.7 million. Cellar Craft is a leader in the consumer-made wine business utilizing grape skins as well as juice.

Financial Highlights (Unaudited)
(Complete consolidated financial statements to follow)
(in $000 except as otherwise stated) Three Months Nine Months
For the Period Ended December 31, 2011 2010 2011 2010
Sales 76,595 74,983 215,992 208,480
Gross margin 30,719 28,588 85,304 81,116
Gross margin (% of sales) 40.1% 38.1% 39.5% 38.9%
Selling and administrative expenses 18,861 18,415 55,159 53,517
Earnings before interest, taxes, amortization, unrealized gain (loss) and other expenses 11,858 10,173 30,145 27,599
Unrealized (gain) loss on derivative financial instruments (117 ) (342 ) 296 174
Other expenses 44 57 700 916
Net earnings 6,309 4,930 13,605 10,806
Earnings per share - Class A $0.46 $0.34 $0.98 $0.75
Earnings per share - Class B $0.39 $0.30 $0.85 $0.65
Dividend per share - Class A (annual) $0.360 $0.330
Dividend per share - Class B (annual) $0.314 $0.288
Cash provided by operations (after changes in non-cash working capital items) (9,460 ) (5,319 ) 695 10,928
Working capital 39,654 34,638
Shareholders' equity per share $8.56 $8.06

Net earnings before other expenses is defined as net earnings before the net unrealized loss (gain) on financial instruments, and other expenses, all adjusted by income tax rates as calculated below:

Unaudited (in $000) Three Months Nine Months
Period ended December 31, 2011 2010 2011 2010
Net earnings 6,309 4,930 13,605 10,806
Unrealized (gain) loss on financial instruments (117 ) (342 ) 296 174
Other expenses 44 57 700 916
Income tax effect on the above 20 77 (269 ) (294 )
Net earnings before other expenses 6,256 4,722 14,332 11,602

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, Crush, 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 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, the United States, the 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 has entered into an agreement to market the Wayne Gretzky Estate Winery brands across Canada. The Company's products are sold predominantly in Canada with a focus on export sales for its icewine and personal winemaking products. 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, amortization, unrealized derivative (gain) loss, other expenses, and income taxes). EBITA is not a recognized measure under IFRS. 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 IFRS 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. The Company also utilizes gross margin (defined as sales less cost of goods sold, excluding amortization). The Company's method of calculating EBITA and gross margin 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
Unaudited
These financial statements have not been reviewed by our auditors December 31 March 31
2011 2011
(in thousands of Canadian dollars) $ $
Assets
Current Assets
Accounts receivable 29,298 23,390
Inventories 108,028 94,692
Current portion of biological assets - 759
Prepaid expenses and other assets 1,713 818
139,039 119,659
Property, plant and equipment 83,973 84,744
Biological assets 12,240 11,950
Intangibles and other assets 13,716 14,170
Goodwill 37,473 37,473
286,441 267,996
Liabilities
Current Liabilities
Bank indebtedness 58,704 48,758
Accounts payable and accrued liabilities 32,070 33,883
Dividends payable 1,252 1,148
Income taxes payable 704 1,000
Current portion of derivative financial instruments 1,289 1,894
Current portion of long-term debt 5,366 5,333
99,385 92,016
Long-term debt 42,723 42,720
Long-term derivative financial instruments 2,609 1,578
Employee future benefits 7,213 5,565
Deferred income taxes 12,064 11,820
163,994 153,699
Shareholders' Equity
Capital stock 7,026 7,026
Retained earnings 115,421 107,271
122,447 114,297
286,441 267,996
ANDREW PELLER LIMITED
Consolidated Statements of Earnings
Unaudited
These financial statements have not been reviewed by our auditors
For the three months ended For the nine months ended
December 31 December 31
2011 2010 2011 2010
(in thousands of Canadian dollars) $ $ $ $
Sales 76,595 74,983 215,992 208,480
Cost of goods sold, excluding amortization 45,876 46,395 130,688 127,364
30,719 28,588 85,304 81,116
Selling and administration 18,861 18,415 55,159 53,517
Earnings before interest and amortization 11,858 10,173 30,145 27,599
Interest 1,170 1,605 4,201 5,432
Amortization of plant, equipment and intangible assets 1,921 1,896 5,796 5,654
Earnings before other items 8,767 6,672 20,148 16,513
Net unrealized (gains) losses on derivative financial instruments (117 ) (342 ) 296 174
Other expenses 44 57 700 916
Earnings before income taxes 8,840 6,957 19,152 15,423
Provision for income taxes
Current 1,879 1,887 4,706 4,971
Deferred 652 140 841 (354 )
2,531 2,027 5,547 4,617
Net earnings for the period 6,309 4,930 13,605 10,806
Net earnings per share
Basic and diluted
Class A shares 0.46 0.34 0.98 0.75
Class B shares 0.39 0.30 0.85 0.65
ANDREW PELLER LIMITED
Consolidated Statements of Comprehensive Income
Unaudited
These financial statements have not been reviewed by our auditors
For the three months ended For the nine months ended
December 31 December 31
2011 2010 2011 2010
(in thousands of Canadian dollars) $ $ $ $
Net earnings for the period 6,309 4,930 13,605 10,806
Other comprehensive income (loss)
Net actuarial gains (losses) on employee future benefits (438 ) 1,057 (2,295 ) (1,212 )
Deferred income taxes 114 (275 ) 597 315
(324 ) 782 (1,698 ) (897 )
Net comprehensive income 5,985 5,712 11,907 9,909
ANDREW PELLER LIMITED
Consolidated Statements of Cash Flows
Unaudited
These financial statements have not been reviewed by our auditors For the nine months ended For the nine months ended
December 31, 2011 December 31, 2010
(in thousands of Canadian dollars) $ $
Cash provided by (used in)
Operating activities
Net earnings for the period 13,605 10,806
Items not affecting cash:
Loss (gain) on disposal of property, plant and equipment 158 (304 )
Amortization of plant, equipment and intangibles 5,796 5,654
Revaluation of vine biological assets net of insurance recovery 563 822
Employee future benefits (647 ) (508 )
Net unrealized (gain) loss on derivative financial instruments 296 174
Deferred income taxes 841 (354 )
Amortization of deferred financing costs 288 404
20,900 16,694
Changes in non-cash working capital items related to operations (note 5) (20,205 ) (5,766 )
695 10,928
Investing activities
Proceeds of disposal of property, plant, equipment and vine biological assets - 766
Purchase of property, equipment and vine biological assets (5,097 ) (4,669 )
Purchases of intangibles and other assets (1,039 ) (90 )
Acquisition of businesses (600 ) (825 )
(6,736 ) (4,818 )
Financing activities
Increase (decrease) in bank indebtedness 9,946 1,481
Increase in long-term debt 50,263 -
Repayment of long-term debt (49,611 ) (4,000 )
Deferred financing costs (904 ) -
Dividends paid (3,653 ) (3,591 )
6,041 (6,110 )
Increase (decrease) in cash during the period - -
Cash, beginning of period - -
Cash, end of period - -
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest 4,043 5,426
Income taxes 5,002 2,905
The above statements should be read in conjunction with the entire interim consolidated financial statements and notes.
They will be available through the Investor Relations section of http://www.andrewpeller.com/ or at http://www.sedar.com/.

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