Magnotta Winery Corporation
TSX : MGN

Magnotta Winery Corporation

April 29, 2011 16:55 ET

Magnotta Winery Corporation Announces January 31, 2011 Annual Results: New Ontario Government 10% CIC Tax Negatively Impacts Financial Results

VAUGHAN, ONTARIO--(Marketwire - April 29, 2011) -

Magnotta Winery Corporation (TSX:MGN), announces the release of its financial results for the year ended January 31, 2011.

Net sales, which are the sales retained by the Company after alcohol consumption taxes are paid, decreased by 3.9% to $23,223,804 for the year ended January 31, 2011 compared to $24,172,809 for the prior year. For the fourth quarter, net sales decreased to $3,374,150 compared to $4,538,691 in the corresponding quarter of the prior year. The decrease in net sales was due to a new 10% Cellared in Canada (CIC) consumption tax introduced by the Ontario government on July 1, 2010. It is payable only on CIC wine product sales transacted outside of the Liquor Control Board of Ontario (LCBO) in all Ontario winery retail stores. While the 10% CIC wine tax became effective on July 1, 2010, the most significant impact was felt during the fourth quarter due to the product sales mix. Fourth quarter sales were also negatively impacted by unusually poor weather conditions during January, 2011.

Net earnings increased to $2,322,082 compared to $1,590,114 for the year ended January 31, 2011. The increase in net earnings for the year was primarily due to a one time retirement allowance incurred during fiscal 2010. For the fourth quarter ended January 31, 2011 net earnings were $116,368 compared to $117,879 for the corresponding period of the prior year. The earnings for the quarter and the year ended January 31, 2011 would have been improved were it not for the new CIC tax.

Overall gross profit margin for the year decreased to 39.0% in fiscal 2011 from 40.2% for the year ended January 31, 2010. For the fourth quarter, the gross profit margin decreased to 27.5% from 34.0% in the previous year. The change in the gross profit margin is due to the Company experiencing increased cost pressures for raw inputs and the new 10% CIC tax. For the fourth quarter, the gross profit margin was also negatively impacted by the aforementioned product sales mix and soft January sales.

Selling, administration and other expenses were $4,629,071 for the year ended January 31, 2011 compared to $4,717,334 for the year ended January 31, 2010. For the fourth quarter, selling, administration and other expenses were $1,000,609 compared to $1,459,052 in the same period of the prior year. Both of these expense reductions in 2011 were impacted by reduced management bonuses.

Amortization of property, plant and equipment decreased in fiscal 2011 to $1,016,574 from $1,120,335 in fiscal 2010, and for the fourth quarter it was $168,499 compared to $231,961 in the same period the prior year. The reductions resulted as the Company has been controlling its capital expenditures in the last two years compared to higher levels of capital expenditures in prior years.

Interest expense for the year ended January 31, 2011 decreased to $419,387 compared to $500,799 during fiscal 2010. The change is primarily due to lower average debt outstanding during the period compared to the corresponding period of the previous year.

Rossana Magnotta, President and Chief Executive Officer said, "While general consumer demand for wine continues to grow and we continue to have a strong brand and balance sheet, domestic tax and regulatory policy have negatively impacted our results in fiscal 2011. I am hopeful that we can work with government in the future to create a more predictable and equitable regulatory environment for the wine business."

Additional details and information are included in the Management Discussion and Analysis and consolidated financial statements for January 31, 2011, which are electronically filed and publicly available at www.sedar.com.

The common shares of Magnotta trade on the TSX under the symbol "MGN".

Readers are cautioned that some of the statements contained in this release may be forward-looking statements, such as expectations, estimates and statements that describe the Company's future plans, objectives or goals, including words to the effect that the Company or management expects a stated condition to exist or occur. Generally, these forward-looking statements can be identified by the use of terminology such as "outlook", "anticipate", "believe", "estimate", "expect", "intend", "should", and similar expressions. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ from those currently anticipated in such statements by reason of factors such as, but not limited to, changes in general economic and market conditions. Magnotta disclaims any intention or obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or results, or otherwise.

To view the Management Discussion and Analysis, please visit the following link: http://media3.marketwire.com/docs/MDAmgn.pdf

To view the Financial Statements, please visit the following link: http://media3.marketwire.com/docs/FSmgn1.pdf

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