news - financials - better sales, but higher debt?
MAGNOTTA WINERY CORPORATION - SHAREHOLDERS REPORT,
INTERIM FINANCIAL STATEMENTS
VAUGHAN, ONTARIO--
President's Report to Shareholders of Magnotta Winery Corporation
Six Months Ended July 31, 1998
We are once again pleased to release record breaking results of our
operations for the six month period ended July 31, 1998. Gross
sales increased by 10.4% ( July 31, 1998 - $7,213,158, July 31,
1997 - $6,536,257 ), net sales by 16.1% ( July 31, 1998 -
$5,419,494, July 31, 1997 - $4,667,919 ) and net earnings by 24.8%
( July 31, 1998 - $619,770, July 31, 1997 - $496,727) compared to
the corresponding six month period ended July 31, 1997. The sales
increase has been facilitated through increased volumes and a
general price increase during the second quarter. The gross margin
percentage has increased to 55.7% compared to 54.6% at July 31,
1997. Basic earnings per share and fully diluted earnings per share
have each increased 20% to $0.06 from $0.05 respectively at July
31, 1997; increasing shareholder value.
The increase in amortization is due to an increase in capital asset
purchases during the past year and a half, and the increase in
interest costs is due to increased debt to finance capital asset
purchases during this same period. Selling, general and
administrative expenses have decreased due to the Company becoming
more efficient once it moved into its new head office facility in
Vaughan, Ontario.
On August 20, 1998, Magnotta completed a refinancing with a
syndication made up of the Credit Union Central of Ontario Limited,
Pace Savings & Credit Union Limited, Woodslee Credit Union Limited
and Farm Credit Corporation. The refinancing was for $6,000,000
(amortized over 20 years, at a 5 year fixed interest rate term of
approximately 7.7%) and the proceeds were used to discharge
approximately $4,450,000 in existing variable and fixed rate debt
at various lengths of amortization and maturities. The balance -
$1,550,000 reduced the Company's bank indebtedness. This
refinancing allowed the Company to better match its debt to its
assets, obtain excess capital for expansion and working capital
purposes, increase yearly cash-flow and fix a low interest rate.
We continue to be Canada's most award winning winery - winning
awards and medals for our products from around the globe.
Currently, the Company has over 800 medals and awards!!
The 1998 Ontario harvest from our various Niagara vineyards started
in September 1998 just after Labour Day. The 1998 Ontario harvest
is presently continuing. The preliminary results are very promising
as the harvest is expected to yield high quality wines.
In September 1998, Magnotta launched its "Icewine Celebration"
campaign. Gold medal award winning 1996 Vidal Limited Edition
Icewine was reduced from $27.95 to $19.95 for 375ml and from $17.95
to $12.95 for 200ml bottle while supplies last. The response from
this campaign was overwhelming at all our locations - even
surpassing our expectations!! In 10 days alone, the Company sold
approximately 13,000 bottles of Icewine!! This has greatly helped
to increase Magnotta's presence as many new customers have
discovered Magnotta and purchased various Magnotta products over
and above our Icewine. As a result, the remaining two quarters for
fiscal 1999 are expected to show strong growth and profitability
for Magnotta.
Once again, we wish to extend a sincere "thank you" to our
customers, shareholders, suppliers and staff for your continued
dedication and support.
(signed)
Gabe Magnotta
President and Chief Executive Officer
MAGNOTTA WINERY CORPORATION
Consolidated Balance Sheets
As At July 31, 1998 With Comparative Figures For
January 31, 1998 and July 31, 1997
---------------------------------------------------------------
July 31 January 31 July 31
1998 1998 1997
(Unaudited) (Audited) (Unaudited)
---------------------------------------------------------------
Assets
Current assets:
Accounts receivable $ 1,085,177 $ 1,531,809 $ 812,591
Inventories 7,966,262 7,450,371 5,899,226
Prepaid expenses and
deposits 460,096 438,429 669,123
---------------------------------------
9,511,535 9,420,609 7,380,940
Capital assets and winery
licences 18,188,314 17,109,161 14,898,923
Deferred income taxes - - 21,900
----------------------------------------
$ 27,699,849 $ 26,529,770 $ 22,301,763
----------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 3,421,336 $ 2,708,067 $ 2,828,831
Accounts payable and
accrued liabilities 1,234,522 1,415,727 1,265,842
Income taxes payable 664,551 562,769 283,646
Current portion of
long-term debt 1,212,147 1,548,343 1,414,763
Current portion of
redeemable preference
shares 800,000 - -
----------------------------------------
7,332,556 6,234,906 5,793,082
Long-term debt 9,324,613 9,184,050 8,759,617
Deferred income taxes 161,383 161,383 -
Redeemable preference
shares 1,416,954 2,183,908 2,156,615
Shareholders' equity:
Share capital 4,649,293 4,570,243 2,332,483
Other paid in capital 210,000 210,000 210,000
Retained earnings 4,605,050 3,985,280 3,049,966
--------------------------------------
9,464,343 8,765,523 5,592,449
----------------------------------------
$ 27,699,849 $ 26,529,770 $ 22,301,763
-----------------------------------------------------------------
MAGNOTTA WINERY CORPORATION
Consolidated Interim Statement of Earnings and Retained Earnings
Six months ended July 31, 1998, with comparative figures for July
31, 1997
July 31 July 31
1998 1997
(Unaudited) (Unaudited)
Sales $ 7,213,158 $ 6,536,257
Less product taxes levied 1,793,664 1,868,338
---------------------------
Net sales 5,419,494 4,667,919
Cost of sales 2,397,594 2,116,287
---------------------------
3,021,900 2,551,632
Expenses:
Selling, general and administrative 935,887 996,871
Amortization 486,242 318,060
Interest 125,135 112,435
Interest - long-term debt 421,820 268,739
Interest - redeemable preference
shares 33,046 38,800
---------------------------
2,002,130 1,734,905
---------------------------
Earnings before income taxes 1,019,770 816,727
Income tax 400,000 320,000
---------------------------
Net earnings for the period 619,770 496,727
Retained earnings, beginning of period 3,985,280 2,553,239
---------------------------
Retained earnings, end of period $ 4,605,050 $ 3,049,966
---------------------------------------------------------------
Earnings per share :
Basic $ 0.06 $ 0.05
Fully diluted $ 0.06 $ 0.05
MAGNOTTA WINERY CORPORATION
Consolidated Interim Statement of Changes in Financial Position
Six months ended July 31, 1998, with comparative figures for July
31, 1997
---------------------------------------------------------------
July 31 July 31
1998 1997
(Unaudited) (Unaudited)
---------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings $ 619,770 $ 496,727
Items not involving cash:
Amortization 486,242 318,060
Interest - redeemable preference
shares 33,046 38,800
Changes in non-cash operating
working capital (170,349) (418,965)
--------------------------
968,709 434,622
Financing:
Increase (decrease) in long-term debt (195,633) 2,211,440
Increase in share capital 79,050 933
-------------------------
(116,583) 2,212,373
Investments:
Purchase of capital assets and
winery licenses (1,565,395) (3,399,946)
--------------------------
Decrease (increase) in bank
indebtedness (713,269) (752,951)
Bank indebtedness, beginning of
period (2,708,067) (2,075,880)
---------------------------
Bank indebtedness, end of
period $ (3,421,336) $ (2,828,831)
---------------------------------------------------------------
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