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

Andrew Peller Limited

June 07, 2017 17:27 ET

Andrew Peller Limited Reports Strong Organic Growth in Fiscal 2017

Common Share Dividends Increased 10.3%

GRIMSBY, ONTARIO--(Marketwired - June 7, 2017) - (TSX:ADW.A)(TSX:ADW.B) -

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) ("APL" or the "Company") announced strong growth and increased net earnings for the three months and year ended March 31, 2017.

FISCAL 2017 HIGHLIGHTS:

  • Sales up 2.5% on broad-based organic growth and successful launch of new products and categories;
  • Gross margin rises 150 basis points on revenue increase and cost savings;
  • EBITA increases 10.3% on revenue growth and improved gross margin;
  • Net earnings rises 37.2% to $26.4 million or $0.64 per Class A share;
  • 10.3% increase in common share dividends effective June 30, 2017; and
  • New Wayne Gretzky Estate Winery and Craft Distillery opened in Niagara-on-the-Lake.

"Fiscal 2017 was another year of solid growth and strong operating performance," commented John Peller, Chief Executive Officer. "We were very pleased to announce a 10.3% increase in our common share dividends, our fifth increase in the last five years, and a reflection of our record results and confidence in the future."

"We continued to generate solid organic growth in fiscal 2017 as sales were up across the majority of our product lines and markets," added Randy Powell, President. "Looking ahead, we expect another year of growth in fiscal 2018 as we capitalize on our strong reputation for quality and innovation."

Sales for the year ended March 31, 2017 rose 2.5% to $343 million from $334 million in fiscal 2016 due to strong, broad-based organic growth across the majority of the Company's product lines and distribution channels, as well as the introduction of new products and new product categories. Sales in the fourth quarter of fiscal 2017 declined 2.5% compared to the same quarter of fiscal 2016 due primarily to seasonal factors such as the timing of the Easter holiday. Sales in fiscal 2016 also included approximately $1.5 million relating to a co-packing agreement that was discontinued in fiscal 2017.

Gross margin as a percentage of sales in fiscal 2017 improved 150 basis points to 38.3% from 36.8% in the prior year. For the three months ended March 31, 2017 gross margin strengthened to 39.2% compared to 33.9% in the same prior year period. In fiscal 2016, the Company's gross margin was reduced as a result of a one-time $1.7 million charge to cost of sales relating to quality issues in certain imported wines.

Selling and administrative expenses rose in fiscal 2017 due primarily to certain one-time costs including approximately $1.1 million in professional services fees related to a strategic acquisition that was not completed and $2.0 million (approximately $0.6 million in the fourth quarter of fiscal 2017) relating to post-retirement benefits for certain retiring executive employees and other restructuring costs. The Company is focused on ensuring selling and administrative expenses are tightly controlled.

Earnings before interest, amortization, net unrealized gains and losses on derivative financial instruments, other income (expenses), and income taxes ("EBITA") were $45.1 million for the year ended March 31, 2017 compared to $40.9 million in fiscal 2016. The increase was primarily due to the higher sales and improved gross margin in fiscal 2017. For the three months ended March 31, 2017, EBITA was $5.9 million compared to $3.6 million in the prior year's fourth quarter. EBITA in the fourth quarter of fiscal 2017 and fiscal 2016 was impacted by the one-time costs outlined above.

Interest expense decreased for the year ended fiscal 2017 compared to the prior year due to lower interest rates charged on short-term bank indebtedness and lower average long-term debt levels.

The Company recorded a net unrealized non-cash gain in fiscal 2017 and a net unrealized non-cash loss in fiscal 2016 related to mark-to-market adjustments on interest rate swaps and foreign exchange contracts. The Company has elected not to apply hedge accounting and accordingly the change in fair value of these financial instruments is reflected in the Company's statement of earnings each reporting period. These instruments are considered to be effective economic hedges and have enabled management to mitigate the volatility of changing foreign exchange and interest rates.

Adjusted earnings, defined as net earnings not including net unrealized gains and losses on derivative financial instruments, other income (expenses), non-recurring, non-operating (gains) and losses and the related income tax effect, were $23.6 million for the year ended March 31, 2017, up 16.1% from fiscal 2016. For the fourth quarter of fiscal 2017 the Company had adjusted earnings of $1.9 million compared to $0.2 million in the fourth quarter of fiscal 2016. Adjusted earnings in the fourth quarter of fiscal 2017 and fiscal 2016 were impacted by the one-time charges outlined above.

Net earnings for the year ended March 31, 2017 increased 37.2% to $26.4 million or $0.64 per Class A Share from $19.2 million or $0.46 per Class A Share in fiscal 2016. For the fourth quarter of fiscal 2017 net earnings were $2.0 million or $0.05 per Class A share compared to a net loss of $1.7 million or a net loss of $0.04 per Class A share in last year's fourth quarter. During the third quarter of fiscal 2017 the Company received a tax refund of approximately $1.2 million relating to the acceptance of a prior-year's tax filing by the Canada Revenue Agency. This has resulted in a lower effective tax rate than noted for prior periods.

Strong Financial Position

Working capital at March 31, 2017 increased to $78.8 million from $71.7 million at March 31, 2016. In December 2016, the Company borrowed $3.0 million under its capital facility related to investments made in the development of the new Wayne Gretzky Estate Winery and Craft Distillery, which opened on June 7, 2017, and operational improvements at the Company's two major production facilities. The increase in bank debt was partially offset by strong earnings in fiscal 2017, the positive impact of working capital management, and regularly scheduled debt repayments. Despite the increase in overall bank debt as at March 31, 2017, the Company's debt to equity ratio strengthened to 0.49:1 compared to 0.55:1 at March 31, 2016.

On December 30, 2016, the Company amended its debt facilities to extend the maturity date to July 31, 2021, revise certain financial covenants and update the applicable margin based on the Company's leverage, as defined by the amended credit agreement. The Company believes these amendments will provide the ability to accelerate production efficiencies and continued investment in expansion of its core business.

Shareholders' equity as at March 31, 2017 increased to $177.3 million or $4.16 per common share, up from $157.7 million or $3.70 per common share at March 31, 2016. The increase in shareholders' equity is due to the strong net earnings partially offset by the payment of dividends and net actuarial losses on post-employment benefit plans.

The Company generated cash from operating activities in fiscal 2017, after changes in non-cash working capital items, of $25.6 million compared to $21.8 million in the prior year. Investing activities of $20.5 million were made in fiscal 2017 compared to $10.4 million in the prior year. Capital expenditures in fiscal 2017 consist of normal expenditures to sustain operations and the replanting of certain of the Company's vineyards, as well as costs incurred related to the development of the new Wayne Gretzky Estate Winery and Craft Distillery, which officially opened on June 7, 2017.

Increase in Common Share Dividends

On June 7, 2017 the Company's Board of Directors approved a 10.3% increase in common share dividends for shareholders of record on June 30, 2017 payable on July 7, 2017. The annual dividend on Class A Shares was increased to $0.1800 per share and the annual dividend on Class B Shares was increased to $0.1565 per share. The Company has consistently paid common share dividends since 1979 and has increased dividends every year for the past five years.

New Wayne Gretzky Estate Winery and Craft Distillery Opens

On June 7, 2017 the Company officially opened its new Wayne Gretzky Estate Winery and Craft Distillery in Niagara-on-the-Lake, Ontario. Located on land adjacent to the Company's Trius Winery, the 15,000 square foot facility includes a winery, craft distillery, barrel aging cellars, tasting rooms, retail and hospitality facilities, all surrounded by attractive landscaping and vineyards. The Company established its strategic alliance with the Wayne Gretzky Estate Winery in 2011, and has generated significant growth in their brands to where their wines are now among the top-ten VQA best sellers across Canada.

Investor Conference Call

An investor conference call hosted by John Peller, Chief Executive Officer, Randy Powell, President, and Brian Athaide, CFO, will be held Thursday, June 8, 2017 at 9:00 a.m. ET. The telephone numbers for the conference call are Local/International: (416) 340-2216, North American Toll Free: (866) 223-7781. The telephone numbers to listen to the call after it is completed (Instant Replay) are local/international (905) 694-9451 or North American toll free (800) 408-3053. The Passcode for the Instant Replay is 7374811#. The Instant Replay will be available until midnight, June 16, 2017. The call will also be archived on the Company's website at www.andrewpeller.com.

Annual Meeting of Shareholders

The Fiscal 2017 Annual Shareholders' Meeting will be held at 3 pm ET on Wednesday, September 13, 2017 at the Trius Winery at Hillebrand located in Niagara-on-the-Lake, Ontario.

Financial Highlights

For the three months and year ended March 31, Three Months Year
(in $000) 2017 2016 2017 2016
Sales 72,295 74,170 342,606 334,263
Gross margin 28,326 25,160 131,155 122,964
Gross margin (% of sales) 39.2 % 33.9 % 38.3 % 36.8 %
Selling and administrative expenses 22,461 21,546 86,018 82,048
EBITA 5,865 3,614 45,137 40,916
Net unrealized (gain) loss on derivative financial instruments (189 ) 2,479 (2,232 ) 1,558
Other expenses (income) (15 ) 21 120 (40 )
Adjusted net earnings 1,859 191 23,599 20,322
Net earnings (loss) 2,010 (1,659 ) 26,350 19,199
Earnings (loss) per share - Class A $0.05 $(0.04 ) $0.64 $0.46
Earnings (loss) per share - Class B $0.04 $(0.04 ) $0.55 $0.40
Dividend per share - Class A (annual) $0.1632 $0.1500
Dividend per share - Class B (annual) $0.1420 $0.1304
Cash provided by operations (after changes in non-cash working capital items) 25,564 21,793
Working capital 78,825 71,665
Shareholders' equity per share $4.16 $3.70

About Andrew Peller Limited

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 from vineyards around the world. The Company's award-winning premium and ultra-premium VQA brands include Peller Estates, Trius, Thirty Bench, Wayne Gretzky, Sandhill, Conviction and Red Rooster. Complementing these premium brands are a number of popularly priced varietal brands including Peller Estates French Cross in the East, Peller Estates Proprietors Reserve in the West, Copper Moon, Black Cellar, and XOXO. Hochtaler, Domaine D'Or, Schloss Laderheim, Royal, and Sommet are our key value priced brands. The Company imports wines from major wine regions around the world to blend with domestic wine to craft these popularly priced and value priced brands. The Company also produces wine based liqueurs and cocktails under the brand Panama Jack and a new craft cider called No Boats on Sunday. In October 2016, the Company also launched its new Wayne Gretzky No. 99 Red Cask Canadian Whisky in certain markets across Canada and will be continuing to launch new offerings from the Wayne Gretzky Estate Winery and Craft Distillery in the coming year. 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 170 Winexpert authorized retailers and more than 600 independent retailers across Canada, the United States, the United Kingdom, New Zealand, Australia, and China. Global Vintners award-winning premium and ultra-premium winemaking brands include Selection, Vintners Reserve, Island Mist, KenRidge, Cheeky Monkey, Traditional Vintage, and Cellar Craft. The Company owns and operates 101 well-positioned independent retail locations in Ontario under The Wine Shop, Wine Country Vintners, and Wine Country Merchants store names. The Company also operates Andrew Peller Import Agency and The Small Winemaker's Collection Inc.; 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 its icewine and personal winemaking products. More information about the Company can be found at www.andrewpeller.com.

The Company utilizes EBITA (defined as earnings before interest, amortization, net unrealized gains and losses on derivative financial instruments, other (income) expenses, and income taxes) to measure its financial performance. 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) and adjusted earnings as defined above. The Company's method of calculating EBITA, gross margin, and adjusted earnings 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 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 and spirits; 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 and spirits 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 labeling 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 "Risks and Uncertainties" 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.

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