Andrés Wines reported strong first quarter results for fiscal 2000, reinforcing our belief that it is a fundamentally solid company. Omitting the Quebec operations, which were sold in 1999, sales rose 13.4% to $32 million from the prior year's first quarter and earnings per fully diluted share were $0.21 versus $0.17 in the comparable quarter of 1998.

The financial strength of the company has continued to improve with a significant reduction in debt and an increase in book value to $13.79 per share. Andrés, recognizing the value its company holds implemented a share buyback program in June. The company may purchase 10% or 289,289 of its Class A non-voting shares and 5% or 50,457 of its Class B voting shares.

Supporting Andrés sound fundamentals is the company's focus on its repositioning strategy. The company has identified that as baby boomers grow older they lead a more leisurely lifestyle with a higher disposable income. These changing demographics have guided Andrés strategy to focus on its premium wine products. This has proven to be successful with the results of the first quarter demonstrating higher sales and market share for the company's premium wines across Canada.

As a sidepoint, it is very interesting to note that in early 1998 Andrés traded at $25 with comparable earnings per share. Yet, over the past two years the company having improved its balance sheet, increased its book value and initiated a significant share repurchase plan, the stock at its current $12, is trading at half of its early 1998 market valuation.

With Andrés low valuation of 0.9 times book value, a 5.3% dividend yield, its improving financials and strong management team, we feel that Andrés has all the attributes to exhibit long-term growth and ultimately significant share price appreciation.

November 24, 2000

Andrés Wines continues to contend with the stiff pricing competition that the import wines have introduced into the Canadian marketplace. As a result, Andrés second quarter earnings per share of $0.12 were significantly weaker than the $0.23 reported in the same quarter of 1999. We were pleased to see Andrés' volume growth exceed the average of the Canadian market. But the low priced import wines sold by the LCBO and tough export restrictions, along with poor summer weather contributed to Andrés relatively flat quarterly sales growth.

On a more positive note, Andrés balance sheet remains strong with debt declining and a book value of $13.75. The potential catalysts that could turn Andrés stock price around are more favourable import/export laws or even a takeover.

April 27, 2001

Although Andrés Wines endured a particularly challenging third quarter, there is some light at the end of the tunnel. A major roadblock has been cleared with the recent removal of importation barriers on Canadian ice wine into Europe. President and CEO, John Peller estimates that this has opened up a market worth about $25 million a year. This news is particularly refreshing as Andrés Wines' first quarter results were once again negatively impacted by the increased market share of low-priced, subsidized imported wines into Canada.

Despite lackluster performance last quarter, Andrés managed to increase its book value to $14.06. We find the newfound potential to expand into Europe with its ice wine products to be very encouraging. Positive industry trends such as this and its focus on higher margin goods will strengthen Andrés business and potentially be the catalyst its stock price needs to move forward.

August 22, 2001

Andrés Wines is entering its fortieth year in the business and, despite continued competitive pressures, has managed to maintain profitability. The company reported first quarter 2002 earnings per share (before the proceeds from the sale of its Quebec joint venture) of $0.29 versus $0.22 in the same quarter of 2001. While sales for the quarter were down slightly, the continued emphasis on production efficiencies and the increased sales of its higher margin premium and ultra-premium VQA wines contributed to its better than comparable earnings.

Moreover, Andrés financial position remains strong. Since fiscal 2000, working capital has increased to $20.5 million from $14.8 million, long term debt to equity was reduced to 24.8% from 26.4% and its book value has increased to $14.30. While largely ignored by analysts due to its small float, we feel, nonetheless, that Andrés will eventually reap the benefits of its improving fundamentals, cost cutting initiatives and a more favourable Canadian wine market in the future.

December 14, 2001

Looking ahead, Andrés Wines holds a bright and promising future. Its second quarter results were indicative of this. Sales rose 4.2%, which transpired into earnings per share of $0.18, a 46.8% improvement over its comparable quarter. Andrés improved profitability was primarily generated from the 19.7% increase in its high margin premium and ultra-premium VQA wines.

Admittedly, Andrés has not achieved these results without difficulty. However, the wine industry continues to grow domestically and globally in accordance with favourable demographics, lifestyle changes and health choices. In turn, it has become an increasingly competitive global market. Consequently, Andrés was forced to become aggressive and innovative with its sales and marketing strategies.

Andrés has managed to augment its market presence through penetrating multiple trade channels, building two award-winning estate wineries and increasing export sales. Additionally, the company has built a strong presence in two growing markets within the industry, the refreshment category and the home wine kits.

Andrés has worked hard to establish a secure position in the wine industry. As a result Andrés balance sheet is strong with a debt to equity ratio of 28%. Also, its book value has increased to $14.32 per share and with its $0.644 dividend, Andrés shares provide a 4.2% yield. This Value Favourite continues to show promise, as such we expect its share price to improve in the future.

May 31, 2002

Andrés Wines reported improved third quarter results to December 31, 2001.  This was primarily due to increased sales of its premium and ultra-premium Peller Estates and Hillebrand Estates brands.

Gross margin as a percentage of sales increased to 39.6% from 38.1% with net earnings for the quarter improving to $2.8 million or 60˘ a share from $2.2 million or 46˘ per share.  Andrés continued to strengthen its balance sheet in the third quarter with working capital increasing to $27.7 million versus $20.2 million a year earlier.  Shareholders equity also advanced to almost $70.0 million or $14.77 per share versus $66.1 million or $14.06 per share the previous year.

With the Company's strategy of focusing on higher-margin premium and ultra-premium wines, Andrés is able to increase its profitability.  This, we believe, will enhance its investment visibility and ultimately its share price.

October 25, 2002

On October 22, 2002 Andres Wines Limited announced results for the second quarter of fiscal 2002. Sales grew 8.3% to $36.6 million in the second quarter and 6.7% to $70.7 million in the first half of 2002. Profit growth was even more impressive, as net earnings per Class A share increased 21% to $0.23 in the most recent quarter from $0.19 in the comparable period last year. Year to date, earnings grew 15.5%, excluding last year's unusual gain from the sale of the Company's interest in a Quebec winery, to $0.56 per share. John Peller, President and CEO, indicated on the conference call that all segments of the business made a positive contribution to the good financial performance.

We were pleased to see that revenue growth did not come at the expense of profitability. In fact, management's strategic focus on higher-margin Peller Estates, Hillebrand Estates and Trius brands, combined with falling grape prices, led to an increase in the gross margin from 37.4% to 39.4%. Further, the Company refinanced $25 million of long-debt with a lower cost term facility, which will reduce interest costs going forward.

Andres' financial position remains solid, with a ratio of long-term debt to equity of 0.34 to 1 and a book value of $15.09 per share. The Company continues to pay a dividend of $0.644, which yields approximately 3.75% at current price levels. Andres Wines' improving profitability and solid balance sheet did not go unnoticed by the market and the stock appreciated almost 6% following the earnings announcement.

May 30, 2003

Andres Wines' focus on premium wines has produced "premium" results for the company once again. Sales in the third quarter of fiscal 2003 rose 9% to $44.2 million compared to $40.6 million last year. This sales growth translated into a 34% increase in net earnings of $0.83 per share compared to $0.62 per share.

On the company's third quarter results, John Peller, President and CEO commented, "Over the past ten years, our sales have grown at a compound rate of over 15%, with more than half of this increase coming from our innovative sales and marketing programs." It is evident that the company's creative selling techniques have been a crucial part of its success while operating in a very challenging marketplace, which has been plagued with foreign competition as well as other external factors.

With this in mind, it seems that the Ontario wine industry is going to have to clear yet another hurdle, the extreme winter weather that the province suffered this season past. It has been reported that Ontario vineyards will produce much less wine this year due to the coldest winter in nine years. In fact, it can take up to two years for a vineyard to recover from a damaged grape crop.

Nevertheless, Andres remains a solid value play, trading at 1.2 times its $15.33 book value and yields 3.6%. The company is expected to report its year-end results in June.

June 11, 2004

Yesterday, Andres Wines Limited reported results for fiscal 2004, ended March 31, 2004. Revenue grew to $155.9 million from $147.9 million, an increase of 5.4%. Growth was attributed to the premium and ultra-premium segments of the market, as sales of Peller Estates wines rose 12% for the year. Although exports of ice wines and wine kits are a small percentage of sales, volumes were up 20% for the year. Management guided to “similar strong growth in fiscal 2005” through the expansion of various sales channels and the launch of new wines.

The success of the Company’s higher margin brands, such as Peller Estates, Trius and Hillebrand Estates, resulted in the twelfth consecutive quarter of gross margin improvement. For the full year gross profits were 41.8% of sales compared to 40.4% in fiscal 2003. Selling and administrative expenses as a percentage of sales increased to 29.3% from 27.8% as the Company stepped up its marketing and promotional activities. This translated into market share growth, for the first time in ten or twelve years, to 31.5% from 31%. At the bottom line earnings came in at $1.65 per share compared to $1.50 per share for fiscal 2003.

Andres Wines currently trades at only 1.3 times its book value of $16.52 and 13 times fiscal 2004 earnings. The Company pays a quarterly dividend of $0.161 or $0.644 per Class A share on an annualized basis, which yields almost 3%. With the Company’s focus on the premium and ultra-premium segments of a recovering global wine industry, we expect that the stock will continue to reward patient investors.

January 7, 2005

Our last update on Andres Wines covered the Company’s year-end results, ended March 31, 2004. Since then Andres has reported solid growth in each of the first two quarters of fiscal 2005. In the first quarter, sales rose 12.6% to $40.3 million from $35.8 million the previous year. Earnings per Class A share increased to $0.39 from $0.36 in the year ago period. In the second quarter, sales rose 8.9% to $42.8 million from $39.2 million in the comparable period a year ago. Earnings per Class A share increased to $0.37 from $0.30 in the second quarter of fiscal 2004. The balance sheet remains clean, with over $30 million in working capital; book value has grown to $16.91 per share. The Company continues to pay an annual dividend $0.644, which yields 2.3% at current price levels.

Andres Wines’ shares have strengthened over 25% since the release of the second quarter results on November 2, 2004. Investors seem to finally recognize that the shift in consumer tastes toward premium and ultra-premium wines mean better margins for the Company. The gross margin has improved consistently over the past three years and for the first six months of fiscal 2005 reached 42.9% compared to 40.4% in the same period last year. Better margins on higher quality wines lead in turn to greater cash flow. Year to date, cash from operations has increased 75% to $8.4 million. Either a dividend increase or another acquisition, similar to the Winexpert purchase, would continue the positive momentum into 2005.

June 9, 2006

We have not updated our Andres Wines commentary for some time and we thought it appropriate that we do so.

Over the past year Andres made a few acquisitions to bolster its positioning as a premium and ultra-premium wine maker. Thirty Bench Winery, including 70 acres of vineyards, gives the Company a solid presence in the Niagara-on-the-Lake wine region. Red Rooster Winery, situated in the Okanagan Valley, bolsters the Company’s operations in British Columbia. Finally, Cascadia, a producer of premium wines, craft beers and spirits, allows the Company to consolidate its operations into one facility in Kelowna. Andres subsequently sold the assets and brands of Cascadia’s spirits division for $5.8 million.

Andres Wines reported decent results for the first nine months of its current fiscal year, ended December 31. The Company reported revenue of $163.3 million compared to $130.7 million in the comparable period a year ago. Gross profit totaled $67.9 million compared to $56.3 million, but the gross margin in the current period declined slightly to 41.6% from 43.0% in the first nine months of the previous fiscal year. Basic and diluted earnings per Class A share were $1.51 versus $1.69. The Company suggested that the decline in earnings was related to increases in the cost of grapes and other raw materials. Selling and administrative expenses also increased due to the acquisitions mentioned above.

Even after the acquisitions Andres has a solid balance sheet with working capital of $40 million and a debt to equity ratio of 1 to 1. Over the first nine months of the current fiscal year, the Company generated $11.9 million of cash flow from operations. This is sufficient to fulfill debt obligations and make dividend payments. The stock pays $0.644 per Class A share, which yields 2.45% at current price levels.

On a final note, it has come to light that a former non-executive employee allegedly misappropriated funds, estimated to be in the range of $3 to $7 million, over several years. The Company stated that the alleged misappropriation will not have any material impact on the Company’s financial position or results. In addition, it is expected that insurance policies will cover a portion of any loss. Although unfortunate, we don’t believe there will be any lingering impact on the stock and controls are in place to prevent it from happening again.

June 15, 2007

Investors may have noticed a few key developments since our last update on Andres Wines. At the annual meeting, held on September 20, 2006, shareholders approved a three for one stock split of both the Company’s Class A and Class B shares in an effort to improve the liquidity of the stock. Shareholders also approved a resolution to change the name of the Company to Andrew Peller Limited to “honour the entrepreneurial spirit of the Company’s founder, Andrew Peller”. The name also creates a direct link to the Company’s well-recognized Peller Estates family of wines, including the Andrew Peller Signature Series, the Private Reserve Series, the Limited Edition Founder’s Series and several others.

In addition to these corporate developments, financial results for the fourth quarter and fiscal 2007 (ended March 31, 2007), were released late last week. Sales increased 7.8% to $228.2 million from $211.8 million in 2006. Earnings before interest, taxes, and amortization (EBITA) increased 20.8% to $27.7 million in fiscal 2007 compared to $22.9 million in fiscal 2006. If we adjust for an accounting charge in fiscal 2006, EBITA increased a still-meaningful 8.8% for the year. Net earnings for the year were $9.5 million or $0.65 per Class A share, an increase of 7.3% from fiscal 2006, once the above mentioned charge is excluded. On the back of the solid financial results, the Company increased its common share dividend for the second year in a row. The annual dividend on the Class A shares was increased 19% to $0.30, which yields approximately 2.7% at current price levels.

Although the stock is trading at a premium to the Company’s book value of $6.41, we think the shares are still an attractive investment. Replicating this business would require purchasing offices, distribution warehouses, retail locations, wineries and, most importantly, vineyards. You would then have to spend years building brand awareness with customers. In fact, it would probably be easier to purchase the entire Company than build the business from scratch. Investors may recall Constellation Brands’ $1.5 billion takeover of Vincor International. The all-cash transaction valued Vincor at 13 times EBITDA. We recognize that applying this multiple to Andrew Peller is perhaps aggressive since it is a much smaller company and, as far as we know, is not up for sale. However, this metric would imply a value of $17.00 per share compared to today’s trading price of $11.10.

October 17, 2008

In times of tremendous uncertainty, investors tend to seek safety in dividend-paying, comfort stocks.  We think that Andrew Peller Limited fits the bill quite nicely.  If anything, the outlook for reasonably priced wines should be pretty good given the natural, emotional response to stock market volatility.

On June 5 of this year, Andrew Peller reported financial results for its fiscal year ended March 31, 2008.  Sales increased 3.9% to $237.1 million compared to $228.2 million the previous year.  Gross profit increased to 43.3% of sales or $102.7 million compared to 41.7% of sales or $95.1 million.  Net earnings increased to $11.4 million or $0.78 per Class A shares compared to $9.5 million or $0.65 per Class A share.  As a result of the strong operating performance, the Company’s Board of Directors announced a 10% dividend increase from $0.30 to $0.33 per Class A common share.  Management appears to be making inroads with its initiatives to promote its brands and introduce new products.   

Even in a more difficult economic environment, we expect that sales will remain good.  The multi-channel distribution network of wineries, retail locations, the liquor control boards, restaurants and other licensed establishments provides ample opportunity to target the broadest range of customers possible.  Sales growth should also come from two recent acquisitions.  In the first quarter of fiscal 2009, Andrew Peller acquired the remaining 50% interest in Rocky Ridge Vineyards, based in Similkameen Valley in British Columbia, for $4 million.  The Company also acquired 100% of World Vintners Inc., a producer and seller of high quality, consumer-made wine kits for $9 million.  This adds 75 franchised Wine Kitz wine-on-premise and retail outlets to the distribution channel.

Shares of Andrew Peller had traded in the $9 to 10 per share range throughout most of this year.  Unfortunately, in October the stock broke down along with the rest of the market and declined to approximately $7 per share.  At current levels, the shares are trading right around book value of $6.89, at only 9 times last year’s earnings and yield about 4.75%.  We think this represents good value for a Company with a reasonably stable outlook, especially in uncertain times.  John Peller, President and Chief Executive Officer, apparently agrees as he has been buying in the open market in the $6.80 to $7.60 range.

March 27, 2009

Andrew Peller Limited has recently announced its third quarter results for fiscal 2009. Sales for the three months ended December 31, 2008 increased 10.4% to $72.9 million from $66.1 million in the prior year. Gross profit as a percentage of sales declined to 41.3% or $30.1 million compared to 43.5% or $28.7 million in the similar period last year. The margin pressure stemmed from an increase in the cost of domestic grapes, the decline in the value of the Canadian dollar and higher packaging costs. The Company took two non-cash charges of $7.1 million and $6.2 million after tax related to mark-to-market adjustments on interest rate swaps and currency hedges. Including these charges, the Company reported a net loss of $2.0 million or $0.13 per share in the third quarter of fiscal 2009 compared to net earnings of $5.0 million or $0.35 per share in the three months ended December 31, 2007. Year to date, Andrew Peller has reported net earnings of $3.1 million or $0.22 per share compared to $10.6 million or $0.73 per share in the first nine months of 2007.

Despite the non-cash losses on derivatives, Andrew Peller is still in reasonable financial health.  Working capital was $36.3 million at the end of the calendar year and the Company was able to successfully refinance its long-term debt to April 30, 2015 and fixed the rate at 5.64%. Book value now totals $6.79 per share, where the shares seem to have found trading support. After the recent dividend hike, the stock yields approximately 4.8%. We are comfortable continuing the hold the stock and will collect our dividends until some form of catalyst materializes.

July 17, 2009

Andrew Peller Limited has recently reported results for fiscal 2009, ended March 31, 2009.  Sales for the year increased 9.8% to $268.2 million compared to $244.3 million in fiscal 2008.  Excluding acquisitions, sales grew organically by 5.7% to $258.2 million.  In addition to the acquisitions of World Vintners Inc. and Small Winemakers Collection Inc., management pointed to two reasons for the sales growth.  Essentially, initiatives to grow sales of the Company’s blended table and premium wines and the introduction of new products were able to boost sales despite the recession.

Unfortunately, the Company’s profitability was impacted by several items, most of which are non-recurring in nature.  The drop in the value of the Canadian dollar over the last six months of the year coupled with the increase in the cost of grapes and wine, both domestically and internationally, squeezed margins.  Management believes that the input costs have now stabilized and they are “taking a number of aggressive steps to reduce our costs and enhance production and operating efficiencies”.  The Company also recorded non-cash charges of $9.5 million related to mark-to-market adjustments on interest rate swaps and foreign exchange contracts.  Management considers these hedges to be essential for managing the day to day operations of their business.  Because they are intended to be held to maturity, no actual gain or loss will ultimately be recognized.  Including the net unrealized loss on derivatives, the net loss for fiscal 2009 was $0.1 million or ($0.03) per share compared to earnings of $11.4 million or $0.78 per share in fiscal 2008.

Because of the non-cash nature of the charges, Andrew Peller Limited’s balance sheet remains relatively clean.  Working capital was $29.2 million at year end compared to $25.4 million at March 31, 2008.  Cash from operations (after changes in non-cash working capital items) improved to $13.7 million from $10.0 million the previous year.  The Board therefore maintained the current dividend of $0.33 per Class A share for the upcoming fiscal year.  Management was clear that they expect improved operating and financial performance in fiscal 2010.  Given the volatility of the past year, it is good to own a relatively stable stock that offers a nice 4.5% dividend yield.

February 19, 2010

Andrew Peller Limited recently released results for the three and six months ended September 30, 2009.  After a difficult fiscal 2009, characterized by squeezed margins and non-cash charges related to derivative hedges, the Company has reported some better numbers to start fiscal 2010.

For the first six months of the year, sales increased 7.2% to $131.9 million on organic growth and recent acquisitions.  John Peller, President and CEO, commented on the results by saying, “we are beginning to see an improvement in sales at our estate wineries and expect improved performance through the balance of the fiscal year and going forward.”  The increase in the cost of domestic grapes and wine purchased internationally continued to impact the results and the gross profit margin for the first six months declined to 36.9% from 40.2% for the same period last year.  However, management suggested that gross profit margins have stabilized.  Further, we were pleased to see selling and administrative expenses for the first six months of the year decline to 25.7% of sales from 28.7% last year.  Looking at the bottom line, net earnings from continuing operations increased to $0.35 per share compared to $0.30 per share for the first six months of fiscal 2010 and fiscal 2009 respectively.

In other news, management announced their intention to sell its ownership in Granville Island Brewing Company and Mainland Beverage Distribution Limited.  The transaction is expected to be completed in early 2010 and proceeds from the sale will be used to reduce long-term bank debt and short-term bank indebtedness.  The beer business only did $10.5 million in revenue and $395,000 in earnings for the first six months of the year, so we agree with the decision to seize the opportunity to reduce the Company’s debt load.

We expect that the financial results will continue to stabilize over the course of fiscal 2010.  With the stock trading at less than twelve times annualized earnings and 1.2 times book value, we believe that the shares are reasonably priced.  In the current low interest rate environment, Andrew Peller’s 4% dividend yield is particularly attractive for patient investors.

June 10, 2011

In March 2011, ABC Funds liquidated its remaining position in Andrew Peller Ltd. (ADW). In doing so, we realized a return that was more than 100% of our initial investment. While we believe ADW is a quality company with a strong management team, given that its shares are closely held by the Peller family, we felt it was appropriate to crystallize our profit at this time as we seek more liquid investments. Our investment and subsequent profit in Andrew Peller exemplifies ABC Funds’ long-term, patient investment style as our initial purchase of ADW shares was made over a decade ago.