CANADA: Vincor continues investment in growth

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Strong growth initiatives and strategic investments in the first quarter of fiscal 2001 resulted in a slight decline in earnings for the period, Vincor International announced today.

"During the first quarter we continued our transition into the premium wine category by investing in the acquisition of two of British Columbia's leading estate wineries, launching two new premium wines in Ontario, expanding our premium offerings in the Québec grocery distribution channel, and gearing up for the launch of a new range of premium wines in Québec," said Donald L. Triggs, Vincor President and Chief Executive Officer.

The first quarter also saw Vincor continue the expansion of its celebrated icewine into the United States and the Company received further accolades with Jackson-Triggs being named the best Canadian Winery for the second year in a row at the International Wine and Spirit Competition in London, England.

Vincor's highlights for the quarter included:

  • The acquisition of Sumac Ridge Estate Winery Ltd. and its sister winery, Hawthorne Mountain Vineyards, two of British Columbia's premier VQA wineries;

  • The launch of a number of new products notably, Ancient Coast and Travigne in Ontario, both of which were launched late in the quarter, limiting their first-quarter sales impact;

  • The expansion of the "Selection Gaston L'Heureux" product line in the Québec grocery channel;

  • The preparation for launch in the Québec grocery channel of another another premium range of wines with the SAQ quality endorsement "Vins de Qualité Certifiée."

"These initiatives forced the Company to reduce wholesale inventories in Québec and delist several popular priced products in order to make room on the shelf for these new wines," said Mr. Triggs.

As a result, sales in the first quarter 2001 declined 4% year-over-year to $57.2 million. Sales were also down in the wine kit business, as a result of the Company's strategic decision to exit the business of co-packing wine kits in order to free-up resources and focus on higher margin branded products.

Despite the decline in sales, the Company's gross margin dollars increased by 4% year over year, reflecting growth in sales for Vincor's premium products throughout Canada.

"We gained market share in Western Canada, Ontario and the Maritimes, increased our Vintners Quality Alliance sales volume by 18%, and grew our Wine Rack volumes by 5% year over year," Mr. Triggs said. The Wine Rack increases were the first year-over-year volume gains for wine store chains since the Liquor Control Board of Ontario began opening Sundays.

"During the first quarter, we also spent incrementally to launch Ancient Coast and Travigne, to expand our Selection Gaston L'Heureux offerings, and to ensure the flow through to consumers of remaining wholesale inventories of the brands we discontinued in Québec," Mr. Triggs said.

As a result of these spending initiatives, Vincor's income from operations decreased by 4%, to $6.2 million in the quarter, and net income declined by 8% to $2.2 million. Basic earnings per share were $0.15 as compared to $0.17 in fiscal 2000, and fully-diluted earnings per share were $0.15 compared to $0.16 last year. Earnings per share, exclusive of goodwill amortization, were $0.22 compared to $0.24 in the first quarter last year.

"We are encouraged by our market share gains and are excited by our new product initiatives throughout the country," Mr. Triggs said. "The initiatives and investments of the first quarter demonstrate our strategy of growing our profit by re-making our portfolio of consumer brands in the premium segments of the market."

Vincor also continued test-marketing its icewine products in the United States during the first quarter of fiscal 2001.

"We are now investing in a program to roll out icewine to key U.S. markets later this year and ensure that our icewine products achieve their full potential in the United States."

Mr. Triggs said the necessary investments in manpower and marketing will be incurred in advance of meaningful icewine sales volume and will hold back overall profit growth in the second half of this year and likely fiscal 2001.

"Despite this, we believe the long term potential is significant and fully justifies this investment," Mr. Triggs said.

Mr. Triggs said the investments of the first quarter have set the stage for future growth.

"The first quarter sales and profit declines have helped to launch products that are right strategically and to clear the way for our Québec initiatives. We will see the benefit of these investments as the year progresses."

Vincor International Inc. is Canada's largest producer and marketer of wines and related products, with leading brands in all segments of the market. The Company has wineries in British Columbia, Ontario, Québec, and New Brunswick, and markets wines produced from grapes grown in the Niagara Peninsula of Ontario, the Okanagan Valley of British Columbia, and vineyards around the world. Vincor's premium brands include Inniskillin, Jackson-Triggs, Sumac Ridge, Caballero de Chile, and Sawmill Creek, which complement its popular priced wines such as Entre-Lacs, L'Ambiance, and Notre Vin Maison.

Committed to serving the entire spectrum of consumers, Vincor produces and markets refreshment products including Canada Cooler, Vibe and Growers' Cider, and Vex hard lemonade as well as wine kit products from RJ Grape and Spagnol's. Vincor also owns Wine Rack, Ontario's largest independent wine retailer with more than 160 stores.


(in millions of dollars
except per share data)

For the three months
June 30
2000 1999

Net Sales $57.2 $59.6

Net Income 2.2 2.4

Earnings per share before
goodwill amortization 0.22 0.24

Basic earnings per share 0.15 0.17

Fully diluted earnings per share 0.15 0.16

Weighted Average
Common Shares
Outstanding (in thousands)
Basic 14,150 14,117
Fully Diluted 15,105 15,044

As at June 30
(in thousands of dollars) 2000 1999
Current Assets
Accounts receivable 30,582 33,011
Inventories 81,212 79,243
Prepaid expenses 1,040 831
Total current assets 112,834 113,085
Fixed assets (net) (note) 91,536 65,467
Other assets 3,766 4,013
Goodwill (note) 72,391 76,246
TOTAL ASSETS 280,527 258,811
Current liabilities
Bank indebtedness 68,080 51,664
Accounts payable and accrued liabilities 37,909 38,046
Income taxes payable 1,221 867
Future income taxes 1,306 1,267
Current portion of long-term debt 10,420 10,420
Total current liabilities 118,936 102,264
Long-term debt 20,680 31,280
Future income taxes (note) 8,104 5,739

Capital Stock 84,858 84,689
Retained earnings (note) 47,949 34,839
132,807 119,528



For the three months
(in thousands of dollars, ended June 30
except per share amounts) 2000 1999
Net Sales 57,192 59,575
Cost of goods sold and selling, general
and administrative expenses 50,970 53,085
Operating income 6,222 6,490
Interest expense 1,393 1,341
Income before income taxes & goodwill
amortization 4,829 5,149
Income taxes 1,691 1,829
Income before goodwill amortization 3,138 3,320
Goodwill amortization, net of tax 964 964
Net income 2,174 2,356
Earnings per common share before goodwill
amortization 0.22 0.24
Basic earnings per common share 0.15 0.17
Fully diluted earnings per common share 0.15 0.16
Weighted average shares outstanding
Basic 14,150 14,117
Fully diluted 15,105 15,044

For the three months
ended June 30
(in thousands of dollars) 2000 1999
Net Income 2,174 2,356
Depreciation 1,534 1,314
Amortization of goodwill & financing costs 1,039 1,062
Future income taxes 425 331
Other non-cash items - -
5,172 5,063
Change in non-cash working capital 3,614 370
Cash from (used in) operating activities 8,786 5,433

(Repayment) Issuance of term bank debt, net - -
(Repayment) Issuance of bank indebtedness,
net 18,665 821
Issuance of common shares, net - -
Cash (used in) from financing activities 18,665 821

Purchase of fixed assets (4,967) (6,265)
Acquisitions (22,450) -
Proceeds from fixed asset disposals - 11
Proceeds from other assets, net (34) -
Cash used in investing activities (27,451) (6,254)

Cash and cash equivalents, at end of --------------------------
period - -

The authorized share capital of the Company consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. Currently, the Company has issued, and outstanding, 14,149,500 common shares and options to purchase 955,000 common shares under the Company's stock option plan. There are 1,335,000 shares reserved for issuance under the stock option plan of which, 365,250 remain unissued.


Change in Accounting Policies

On April 1, 2000, the Company changed its accounting policy to adopt a new Canadian Institute of Chartered Accountants (CICA) accounting standard whereby, future income taxes are recorded based on the estimated realizable tax recovery or settlement value of the Company's assets and liabilities as at the balance sheet date. This method of accounting was adopted on a retroactive basis. As well, on April 1, 2000, the Company adopted a new CICA accounting standard for pension and other non-pension post-retirement benefits and has applied the provisions of the standard prospectively from April 1, 2000. This method of accounting requires the use of a current settlement discount rate to measure the accrued pension benefit obligation where previously, pension expense was determined using a long-term rate of return to measure accrued pension benefits. As a result, the Company has recorded an increase to retained earnings of $1,379, a decrease to goodwill of $5,803, and increase in fixed assets (net) of $530, and a decrease to the future income tax liability, formerly the deferred tax liability, of $6,652. There was no material effect due to the change in accounting policies on the Company's earnings.

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