ANDREW PELLER LIMITED ANDREW PELLER LIMITÉE ANNUAL INFORMATION FORM

Transcription

1 ANDREW PELLER LIMITED ANDREW PELLER LIMITÉE ANNUAL INFORMATION FORM JUNE 7, 2017

2 TABLE OF CONTENTS Item # Item Page 1 FORWARD-LOOKING INFORMATION 1 2 CORPORATE STRUCTURE 1 3 GENERAL DEVELOPMENT OF THE BUSINESS 2 4 NARRATIVE DESCRIPTION OF THE BUSINESS 3 5 DIVIDEND POLICY 13 6 DESCRIPTION OF CAPITAL STRUCTURE 13 7 MARKET FOR SECURITIES 14 8 DIRECTORS AND OFFICERS 15 9 TRANSFER AGENT AND REGISTRAR INTEREST OF EXPERTS REPORT OF THE AUDIT COMMITTEE ADDITIONAL INFORMATION SCHEDULE A 18

3 FORWARD-LOOKING INFORMATION Certain statements in this Annual Infrmatin Frm ( AIF ) may cntain frward-lking statements within the meaning f applicable securities laws, including the safe harbur prvisins f the Securities Act (Ontari) with respect t Andrew Peller Limited ( APL r the Cmpany ) and its subsidiaries. Such statements include, but are nt limited t, statements abut the grwth f the business in light f the Cmpany s acquisitins; its launch f new premium wines and spirits, sales trends in freign markets; its supply f dmestically grwn grapes, and current ecnmic cnditins. These statements are subject t certain risks, assumptins and uncertainties that culd cause actual results t differ materially frm thse included in the frward-lking statements. The wrds believe, plan, intend, estimate, expect r anticipate and similar expressins, as well as future r cnditinal verbs such as will, shuld, wuld and culd and similar verbs ften identify frwardlking statements. We have based these frward-lking statements n ur current views with respect t future events and financial perfrmance. With respect t frward-lking statements cntained in this AIF, APL has made assumptins and applied certain factrs regarding, amng ther things: future grape and wine, grain and spirits and glass bttle prices and the Cmpany s ability t btain these raw materials; fluctuatins in the U.S./Canadian, Eur/Canadian, and Australian/Canadian dllar exchange rates; its ability t market prducts successfully t its anticipated custmers; the trade balance within the dmestic Canadian wine market; market trends; reliance n key persnnel; prtectin f the Cmpany s intellectual prperty rights; the ecnmic envirnment; the regulatry requirements regarding prducing, marketing, advertising and labelling its prducts; the regulatin f liqur distributin and retailing in Ontari; and the impact f increasing cmpetitin. These frward-lking statements are als subject t the risks and uncertainties discussed in the Risks and Uncertainties sectin and elsewhere in this AIF and ther risks detailed frm time t time in the publicly filed disclsure dcuments f APL which are available at Frward-lking statements are nt guarantees f future perfrmance and invlve risks, uncertainties and assumptins which culd cause actual results t differ materially frm thse cnclusins, frecasts r prjectins anticipated in these frward-lking statements. Because f these risks, uncertainties and assumptins, yu shuld nt place undue reliance n these frward-lking statements. The Cmpany s frward-lking statements are made nly as f the date f this AIF, and except as required by applicable law, APL undertakes n bligatin t update r revise these frwardlking statements t reflect new infrmatin, future events r circumstances, r therwise. All infrmatin cntained in this dcument is given as at March 31, 2017 unless therwise indicated. CORPORATE STRUCTURE Incrpratin Andrew Peller Limited was incrprated under the laws f Canada by Letters Patent dated the 7th day f April, 1965 and as amended frm time t time by Supplementary Letters Patent. The Cmpany was cntinued under a Certificate f Cntinuance dated the 30th day f Octber, 1978, pursuant t Sectins 181 and 261 f the Canada Business Crpratins Act. On June 30, 1994, the Cmpany amalgamated with Hillebrand Estates Winery Limited under Sectin 185 f the Canada Business Crpratins Act. On April 1, 2003 the Cmpany amalgamated with Andrés Wines (B.C.) Ltd. and Andrés Wines Atlantic Ltd. under Sectin 185 f the Canada Business Crpratins Act. On April 1, 2006, the Cmpany amalgamated with its whllywned subsidiary, Cascadia Brands Inc. ( Cascadia ), and Cascadia s whlly-wned subsidiaries Calna Wines Limited, Canada Ltd. (frmerly, Internatinal Ptter Distilling Crpratin), and Canada Inc. (frmerly, Arctica Distilling Crpratin) under Sectin 185 f the Canada Business Crpratins Act under the name Andrés Wines Ltd./Les Vins Andrés Ltée. On April 1, 2007, the Cmpany amalgamated with its whlly-wned subsidiaries, Canada Inc. (frmerly, Ontari Inc.), Grady Wine Marketing Inc., and Frbes Fraser Wines Ltd. under Sectin 185 f the Canada Business Crpratins Act. On April 1, 2007, Winexpert Inc., Canada Inc. (frmerly, Wine Nt Inc.), and Vinec Internatinal Prducts Ltd., amalgamated under Sectin 185 f the Canada Business Crpratins Act t frm Canada Inc., a new whlly-wned subsidiary f the Cmpany. On March 31, 2009, Canada Inc. changed its name t Glbal Vintners Inc. On April 1, 2012, the Cmpany amalgamated with Rcky Ridge Vineyards Inc. under Sectin 185 f the Canada Business Crpratins Act. On March 18, 2014, Wine Kitz Franchise Inc. purchased Wine Kitz Atlantic Limited, which perated a Wine Kitz master franchise in Atlantic Canada. Wine Kitz Atlantic Limited is a drmant cmpany that will be amalgamated with Wine Kitz Franchise Inc. in fiscal The Cmpany perates under the name Andrew Peller Limited/Andrew Peller Limitée. The authrized capital f the Cmpany cnsists f an unlimited number f Preference Shares, issuable in ne r mre series, f which 33,315 are designated as Preference Shares, Series A, an unlimited number f Class A Shares (nn-vting) and an unlimited number f Class B Shares (vting). The Cmpany s head and registered ffice is lcated at 697 Suth Service Rad, Grimsby, Ontari, L3M 4E8. 1

4 Subsidiaries The fllwing is APL s structure, including its significant subsidiaries as f the fiscal year ended March 31, 2017 and their jurisdictin f incrpratin. All subsidiaries are whlly wned. Andrew Peller Limited (Canada) Canrim Packaging Ltd. (Canada) Sandhill Vineyards Ltd. (Canada) Glbal Vintners Inc. (Ontari) The Small Winemakers Cllectin Inc. (Ontari) Wine Kitz Franchise Inc. (Ontari) GENERAL DEVELOPMENT OF THE BUSINESS The Cmpany is engaged in the prductin, bttling and marketing f wines and spirits in Canada. The Cmpany imprts bttled premium wines frm arund the wrld and markets them thrugh Andrew Peller Imprt Agency ( API ), and The Small Winemakers Cllectin Inc. ( SWM ). Vinec Internatinal Prducts, Winexpert, and Wine Kitz divisins f Glbal Vintners Inc. ( GVI ) are prducers f wine kits and related accessries fr the hme winemaking market. Canada has jined ther leading wine prducing cuntries in the develpment f a bdy f regulatins and standards fr 100% Canadian cntent wines knwn as the Vintners Quality Alliance ( VQA ) system. The VQA system versees the regulatin f the premium wine industry in Canada and has becme recgnized thrughut the wrld as the appellatin system fr Canadian wines that meet strict standards f excellence. The market fr wine in Canada has cntinued t grw due t increased cnsumptin by yung cnsumers wh have mre recently adpted wine as their beverage f chice, the widely reprted health benefits f mderate wine cnsumptin and a mvement twards an increased cnsumptin f wine made by an aging ppulatin wh favur the mre sphisticated experience that wine ffers. These events have precipitated significant change in the Canadian wine industry. In rder t succeed in this new envirnment, the Cmpany has undertaken strategic grwth initiatives t emerge as a leading participant in the Canadian wine market. Over the past three years, certain events have influenced the general develpment f APL s business. The Cmpany cntinuusly reviews its blended, premium, and ultra-premium prtfli f wines t ensure its brands are well psitined fr grwth in the grwing Canadian wine industry. T meet this gal the Cmpany invests in imprvements in the quality f grapes and wines, its winemaking capabilities, sales and marketing initiatives, and its quality management prgrams. The Cmpany cntinues t expand and strengthen its distributin thrugh prvincial liqur bards, the Ontari independent retail lcatins under The Wine Shp, Wine Cuntry Vintners, and Wine Cuntry Merchants stre names, estate wineries, restaurants, and ther licensed establishments. This distributin netwrk is supprted by enhanced sales, marketing, and prmtinal prgrams. Frm time t time the Cmpany als evaluates the ptential fr acquisitins and partnerships, bth in Canada and internatinally, t further cmplement its prduct prtfli and market presence. In 2016, the Cmpany launched its new Wayne Gretzky N. 99 Red Cask Canadian Whisky and in June 2017, held its grand pening f the Wayne Gretzky Estate Winery and Craft Distillery in Niagara-n-the-Lake, Ontari. The 15,000 square ft facility includes a winery, craft distillery, barrel aging cellars, tasting rms, retail and hspitality facilities, all surrunded by landscaping and vineyards. 2

5 NARRATIVE DESCRIPTION OF THE BUSINESS General As at March 31, 2017, the Cmpany is Canada s secnd largest prducer and marketer f wines, with leading brands in all segments f the market in Canada. With wineries in British Clumbia ( BC ), Ontari, and Nva Sctia, the Cmpany markets wines prduced frm grapes grwn in Ontari s Niagara Peninsula, BC s Okanagan and Similkameen Valleys, and frm vineyards arund the wrld. The Cmpany s award-winning premium and ultra-premium VQA brands include Peller Estates, Trius, Thirty Bench, Wayne Gretzky, Sandhill, Cnvictin and Red Rster. Cmplementing these premium brands are a number f ppularly priced varietal brands including Peller Estates French Crss in Eastern Canada, Peller Estates Prprietrs Reserve in Western Canada, Cpper Mn, Black Cellar, and XOXO. Hchtaler, Dmaine D Or, Schlss Laderheim, Ryal, and Smmet are ur key value priced brands. The Cmpany imprts wines frm majr wine regins arund the wrld t blend with dmestic wine t craft these ppularly priced and value priced brands. The Cmpany als prduces wine based liqueurs and ccktails under the brand Panama Jack and a new craft cider called N Bats n Sunday. In Octber 2016, the Cmpany launched its new Wayne Gretzky N. 99 Red Cask Canadian Whisky in certain markets acrss Canada and will be cntinuing t launch new fferings frm the Wayne Gretzky Estate Winery and Craft Distillery in the cming year. With a fcus n serving the needs f all wine cnsumers, the Cmpany prduces and markets premium persnal winemaking prducts thrugh its whlly-wned subsidiary, GVI, the recgnized leader in persnal winemaking prducts. GVI distributes prducts thrugh ver 170 Winexpert and Wine Kitz authrized retailers and mre than 600 independent retailers acrss Canada, the United States, the United Kingdm, New Zealand, Australia, and China. GVI s award-winning premium and ultra-premium winemaking brands include Selectin, Vintners Reserve, Island Mist, KenRidge, Cheeky Mnkey, Traditinal Vintage and Cellar Craft. The Cmpany wns and perates 101 well-psitined independent retail lcatins in Ontari under The Wine Shp, Wine Cuntry Vintners, and Wine Cuntry Merchants stre names. The Cmpany als perates API, based in Vancuver, and SWM, based in Ontari. Bth f these wine agencies are imprters f premium wines frm arund the wrld and are marketing agents fr these fine wines. The Cmpany s prducts are sld predminantly in Canada with a fcus n exprt sales fr its icewine and persnal winemaking prducts. Thirty Bench vineyard and winery is a small estate winery that prduces VQA wines under the Benchmark and Reserve brands. Red Rster winery is a small estate winery that prduces brands under the Red Rster label. Business Strategy The Cmpany is cmmitted t a strategy f grwth that fcuses n the expansin f its cre business as a prducer and marketer f quality wines thrugh cncentrating n and develping leading brands that meet the needs f its custmers. This strategy is supprted by sphisticated sales, marketing, prmtinal, and distributin prgrams, as well as by an n-ging review f pprtunities in the market t launch new brands that meet the needs f custmers. The Cmpany will cntinue t explre pprtunities in internatinal markets t distribute its wines. In additin, the Cmpany cntinues t seek ut ptential acquisitins that supprt its strategic directin and meet its grwth and investment return criteria. Sales The Cmpany s net sales fr the year ended March 31, 2017 were $342.6 millin. The Cmpany s net sales vlume is seasnal with highest vlumes in the third quarter. Net sales and percentage f sales by quarter were as fllws: Quarter $ millins % $ millins % First Secnd Third Furth Ttal Principal Prducts The Cmpany prduces prducts acrss many segments f the wine market. Fr the value priced end f the market, the Cmpany surces bulk internatinal wine and blends it with lwer priced dmestic wine, where the viticulture and harvesting f the grapes is managed at a lwer cst than fr the dmestic premium VQA wine prtfli. Wine brands are ffered in each f the three different value wine segments; value red/white/rse blended table wine (<$8/750ml bttle), value sparkling and frtified wine (<$8/750ml bttle) and value varietal wine ($8- $12/750ml bttle). The Cmpany makes ne premium priced wine brand ($18/750ml bttle) that is a blend f higher priced internatinal and dmestic wine called The Diplmat that is sld in the Cmpany s wned retail stres in Ontari. The Cmpany als makes a wide range f premium priced VQA wines made frm 3

6 100% dmestic high quality grapes grwn in bth Ontari and BC. The Cmpany cmpetes in all key premium wine price segments with entry level VQA wine ($12-15/ 750ml bttle), premium VQA wine ($15-25/ 750ml bttle) and super-premium VQA wine (+$25/750ml bttle). The super-premium VQA segment includes high end table wine, icewine and traditinal methd sparkling wine. The Cmpany als prduces tw wine brands where the wine is 100% frm a cuntry utside f Canada with n dmestic wine blended in and bttled in the Cmpany s facilities in Canada. Franciscan is a value priced Califrnia wine that is listed in Western Canada and VIVO is a mainstream priced Chilean wine which is listed in Atlantic Canada and in BC. The cmpany will shrtly be launching a premium priced Australian brand in the LCBO. Table wine frm a vlume standpint grew 2.2% ver year ag in English Canada and market reprts indicate that the Nrth American market is grwing apprximately 1% higher in dllars versus vlume as the market cntinues t premiumize. The Cmpany s largest wine brand is Peller Estates. The Peller Estates prtfli is the mst expansive within the Cmpany s line-up f brands with wine fferings ranging frm value priced blended table wine right thrugh t super premium VQA table wine. The brand als ffers fr sale the wrld s mst sught after icewine, as well as tw premium sparkling wines that are finished with a dsage f icewine. The Peller Estates winery ffered many new experiences this past year including The Big Cheese Thery, which tk guests int the wine library, where in a mad scientist type setting, they experimented with infusing smke int cheese and learned hw t brulée cheese, all while sampling wine t understand the principles f cheese and wine pairing. Originally ffered nce per day, this experience was s ppular that it is nw ffered 2-3 times per day. It is als very ppular with private grups. In additin, The Barrel Huse Grill was the place t be fr pati time in Niagara-n-the-Lake last summer! Chef Parsns casual cuisine hit the spt with turists and lcals alike, especially n Friday nights when live music was featured. Cpper Mn, the largest brand in the Western Canadian market, is the Cmpany s 2nd largest brand. The brand was supprted with many creative instre cntests during the year including a prgram where cnsumers had a chance t win a pair f Beats Headphnes in each stre. Cpper Mn Shiraz was als listed acrss the cuntry in Bstn Pizza utlets. The Black Cellar brand, nw 3 and a half years ld, maintained its place as the Cmpany s 5th largest brand. The brand is psitined at a slightly higher price pint than Peller Estates French Crss/Prprietrs Reserve Varietals and Cpper Mn and ffers a sweeter taste prfile t appeal t the yunger cnsumer. A digital marketing Yu Tube test was executed in Ontari. Cnsumers wh were expsed t the Black Cellar vides n scial media purchased 3% mre prduct than the cnsumers that lived in the regins where the vides were nt available t be viewed. XOXO, the Cmpany s 10th largest brand and listed nly in Eastern Canada, has cntinued t significantly utperfrm the market. On the heels f imprved packaging that was launched just ver a year ag, bth the bttled business perfrmed slidly as well as the 4L bag-in-bx extensin which was hugely successful in its first full year in the market. Line extensins f the brand int sparkling and sangria are expected t cntinue t drive brand grwth in the upcming year. Rebellin was launched in select sales channels in the West this year t prvide anther ffering t cmpete in the highly cmpetitive value priced varietal segment. Legacy brands Dmaine D'r, and Hchtaler cmpete in the value blended segment and bth fall within the Cmpany s tp 10 brand list. A new package design fr Dmaine D r will be n shelf early in fiscal 2018 t help supprt Dmaine D r s perfrmance while an update fr the Hchtaler label is scheduled fr early fiscal In rder t appeal t the yunger cnsumer in this value blended segment, the brand Unreserved was launched just ver a year ag. The Cmpany cntinued t invest in grwing its VQA prtfli. In additin t Peller Estates VQA, the Cmpany has fur ther VQA brands in its tp 10 brand list: Trius, Wayne Gretzky, Sandhill and Red Rster, all f which are supprted by estate wineries fllwing the pening f the Wayne Gretzky winery in June The Cmpany s Estate Winery destinatins enjyed strng revenue grwth in fiscal 2017 as a result f driving higher spend per visitr and cntinued grwth in winery traffic. In the East the fcus was n evlving winery experiences t ensure the event revenue stream grew faster in fiscal The Winery restaurants at Peller Estates and Trius bth cntinued t receive extremely favurable cnsumer reviews. In fiscal 2017, the Cmpany s sales f wine club memberships grew as a result f investments in training and management fcus as well as increased visitatin t ur Estate wineries. In fiscal 2018 the Cmpany anticipates cntinued strng member acquisitin and will be refining several aspects f the membership prgrams t imprve prfitability. Trius, a well-respected premium Ontari VQA brand and the Cmpany s third largest brand, had its secnd straight year f flat perfrmance due t back t back shrt crps in Ontari. The flagship ffering within the prtfli, Trius Red, cntinued t experience strng grwth in the LCBO. An increased investment in digital media dubled the number f scial media fllwers fr the brand ver year ag and helped increase awareness f the brand psitining that Trius wines will help make yur everyday experiences feel extrardinary. A vide featuring Craig McDnald, the Trius winemaker, and the stry f the making 4

7 f the 25th vintage f Trius Red, frm harvest t bttle, was pushed ut t LCBO cnsumers during August Trius Rck was back fr a secnd summer at the winery and featured classic rck tribute bands such as Fleetwd Mac and The Eagles while engaging a fantastic age range f guests that enjyed the live shw. Mnday Night Date Nights at Trius winery restaurant in January/February were als a big success with up t 100 cvers n a Mnday night cmpared t less than 10 the previus year. The special dining package brught in many lcals wh had never dined at Trius befre, and they have since returned. The brand s partnership with Air Miles cntinued t grw, with Air Miles hsting many exclusive dinners at bth Trius and Peller Estates as Air Miles card hlders culd redeem their pints fr special events at bth prperties. Wayne Gretzky, the Cmpany s 4th largest brand, will likely surpass Trius next year in size due t the pening f the Wayne Gretzky Winery & Distillery and the first full year f the Gretzky Red Cask whisky sales. The Cmpany entered the craft spirts market with the launch f Wayne Gretzky Red Cask Whisky in the LCBO and Alberta in Octber It was an instant success, significantly ver delivering against initial estimates. Cmpared t ther new entries in the market, the nly ther new whisky sku that had higher sales than Gretzky Red Cask was Crwn Ryal Vanilla Whisky but this Crwn Ryal line extensin had a natinal launch acrss English Canada while Gretzky Red Cask was nly listed in Ontari and Alberta. New whisky skus that Gretzky Red Cask ut sld ver the last year included Gibsn s Finest Bld 8 year ld, JP Wiser s Duble Still Rye, Liqurmen s Whisky, Drake s Virginia Black, Crwn Ryal Nrthern Harvest, Jim Beam Apple, Wiser s Apple Whisky, Rangeland Canadian Rye Whisky and Lt N. 40 Whisky. The Wayne Gretzky Winery and Distillery pened in June 2017 and it is cnveniently lcated beside the Cmpany s Trius winery. On the distillery side, it sells the Wayne Gretzky Red Cask Whisky as well as tw mre premium whisky fferings: Ice Cask Whisky and 99 Prf Whisky. The winery side fcuses n selling high priced table wine, higher alchl spirited wine in unique 375ml bttles, icewine, as well as the N. 99 Icn - a red wine blend which sells fr $99 a bttle. In preparatin fr the winery/distillery pening, the N. 99 Wine & Ccktail Club was launched in Nvember 2016 and saw almst 500 fans sign up befre January 26, 2017 (Wayne Gretzky s birthday) t becme Funding Members with the first shipment arriving at cnsumer s hmes at the end f March Fr $55 per mnth, members receive 2 bttles f wine per mnth fr 9 mnths f the year, and 1 bttle f whisky/spirits in a ccktail kit fr 3 mnths f the year. In additin, a Wine & Whisky dinner was ffered t Trius Wine Club members t learn mre abut the new Wayne Gretzky Winery & Distillery. The dinner sld ut in a matter f days and sparked great interest in paring fd and whisky. It was hsted by APL s Master Distiller Jshua Beach wh enthralled and entertained the guests. In the retail marketplace, Gretzky VQA wine cntinued t grw and is ne f the largest VQA wine brands in English Canada with fferings frm bth Ontari and the Okanagan. The highly successful Fantasy Camp cntest was repeated again this year in Alberta where ne lucky winner attended Wayne Gretzky s Fantasy Camp in Las Vegas fr a week. The cntest earned new pints f distributin fr the brand and supprted highly impactful displays. Sandhill is the Cmpany s eighth largest brand and prduces premium apprachable VQA wines with a 20 year award winning histry. The mre premium Sandhill Small Lts wines in the prtfli are all frm single vineyards. A scial media campaign t celebrate the 20th anniversary f the brand will be launched shrtly t help educate and entice bth existing and new cnsumers. The Sandhill winery was the Cmpany s fastest grwing Estate Winery last year. Cnsumers were encuraged t cme hang ut in the urban lunge after wrk r after a day f wine turing t enjy $5 glasses f award winning Sandhill wine paired with $5 appetizers prepared by a different chef each week. Red Rster is the Cmpany s ninth largest brand. During the fiscal year, bth in stre prgramming and strng scial media supprt psitined the brand as the serius wine that is nt afraid t have fun. Starting January 2017, marketing prgrams were executed t leverage The Year f the Rster with the Chinese cmmunity in Vancuver. Bth the Sandhill and Red Rster wine clubs switched t mnthly distributin this past year and benefitted with strng grwth ver year ag. Thirty Bench Winemakers, a smaller Ontari VQA brand, frm a butique winery n the Beamsville Bench, prvides winecnfidence t cnsumers lking fr a higher end wine by cntinuusly building a best in class reputatin and delivering exceptinal, hand-crafted prducts that are strng award winners. At the Thirty Bench winery, the tasting bar was remved this past year and replaced with an elegant tasting rm where guests can relax at a seated tasting. By slwing dwn the pace f the tasting, the guests learned mre abut ur wines, the vineyards they cme frm and what makes Thirty Bench unique, all while enjying the spectacular view. Tw f the Cmpany s newer VQA brands, Raven Cnspiracy, with bth a Niagara and an Okanagan ffering, and Cnvictin, with an Okanagan ffering, bth cntinued t perfrm well. Raven Cnspiracy has sweeter style red and white fferings. Red and white blends cntinue t be the fastest grwing style f wine in VQA. Raven Cnspiracy executed prgrams t wn Hallween in the natinal liqur bards, using either Hallween themed POS t drive large impactful displays r Hallween themed chclate n-pack ffers where branded POS was nt allwed in the stre. Trade tastings were als executed acrss Canada in the mnth f Octber. 5

8 The Calna Vineyards wine brand in BC is ver 75 years ld and the Calna Vineyards VQA Artist Series brand was replaced by Cnvictin ne and a half years ag in the retail envirnment, with the licensee restaurants maintaining the Calna Vineyards Artist Series ffering. The brand name Cnvictin pays tribute t the riginal funders f Calna Wines; an industrialist, a priest and a financier, wh shared a cnvictin fr creating an extrardinary VQA wine frm the Okanagan. The Cmpany als sells a wine based cream liqueur brand called Panama Jack and a new craft cider called N Bats n Sunday. Tw years ag the Panama Jack brand was expanded t ffer Panama Jack wine-based Ccktails. These ccktail fferings are nly available fr sale in the Cmpany s wned retail stres in Ontari and were prduced t ffer The Wine Shp cnsumer mre chice in beverage alchl. The fcus n the brand mving frward will be the cream liqueur part f the business and a new label will call ut the benefit that the cream is lcally surced. A price increase will als help the margin n this brand. The new N Bats n Sunday cider brand was launched as a test in the Cmpany s wned retail stres in Ontari as well as in Atlantic Canada. Cnsumers quickly adpted this brand with N Bats becming the tp selling cider in Nva Sctia, ahead f ppular cider imprt brands Smersby and Strngbw as well as utperfrming lcal Nva Sctia cider favurites Bulwark and Shipbuilders. N Bats als sld ut several times in The Wine Shps and cnsumers were actively psting the brand t their scial media accunts bth in Ontari and the Atlantic. N Bats was the fficial cider f the Cavendish music festival in PEI last summer with the venue struggling t maintain a supply f cups fr the cnsumers t enjy this tasty cider in. VQA brands in Eastern Canada received a ttal f 171 awards in fiscal 2017 (up frm 142 awards a year ag), including: 36 Gld, 82 Silver, 35 Brnze and 3 Lieutenant Gvernr Awards. The mst prestigius acclade received was the Winemaker f the Year award wn by Craig McDnald, Vice President f Winemaking and head Winemaker at Trius, at the 2016 Ontari Wine Awards. Key wine awards during the 2016 Ontari Wine Awards included a duble gld award fr the 2014 Trius Shwcase Ghst Creek Riesling and fr the 2012 Trius Shwcase RHS Merlt while the 2014 Thirty Bench Small Lt Wd Pst Riesling was awarded a gld medal. Trius Sparkling cntinued t be a perennial award winner, with Trius Brut Rse winning three gld medals. The winners f the Lieutenant Gvernr Awards fr Excellence in Ontari Wines were the 2012 Peller Estates Signature Series Cabernet Franc, the 2014 Thirty Bench Small Lt Wd Pst Riesling and 2014 Trius Shwcase Ghst Creek Riesling. VQA brands in Western Canada wn a ttal f 186 awards in fiscal 2017 (up frm 179 medals last year). The Red Rster prtfli did exceptinally well with ver 72 awards in ttal this year. Imprtant t nte that 12 f the awards were classified as Best in Class and the 2016 Red Rster Riesling wn a Platinum award this past year, which are nly awarded t the tp 1% f wines. The mst prestigius win under the Red Rster prtfli this past year was the 2014 Red Rster Reserve Merlt which wn the 2016 Lieutenant Gvernr s Award f Excellence (this is the 6th time Red Rster winemaker Karen Gillis has wn this award). Sandhill did well with ver 53 awards fr the prtfli, 16 f these awards were Best in Class. Wayne Gretzky Okanagan was awarded 23 awards and the newly released Raven Cnspiracy White wn a duble gld and the red blend wn medals in 4 f the 6 cmpetitins it was entered int this year. Cnvictin, Calna Vineyards and Peller Estates als wn an array f awards in the past year. Sales f the Cmpany s wines cntinue t grw internatinally due t ur strng relatinships with key glbal partners, increased flights t China frm majr Canadian airprts and favurable currency exchange rates. With a fcus n Icewine, the Cmpany s wines are available in 14 cuntries arund the wrld: Red Rster Pint Gris and Cabernet Merlt can be enjyed at Canada Huse in Lndn, UK, Peller Estates Ice Cuvée can be sipped at the Fur Seasns Htel in Macau and Peller Estates Vidal Icewine can be savured in Petrus at the Island Shangri-La in Hng Kng. Sme f the wrld s finest retailers including Selfridges, Harrds and Harvey Nichls, in Lndn, England have als selected ur Peller Estates Icewines as part f their luxury prtfli. The Cmpany s wines may als be enjyed n bard cruise ships such as Celebrity, P&O, Princess and Cunard, r in-flight thrugh Air Canada Business Class as well as in Mntreal s Maple Leaf Lunge. Numerus Michelin Star restaurants have chsen Peller Estates Icewine as part f their ffering, including tp renwned culinary establishments such as Grdn Ramsay s Petrus in Lndn, UK and Le Bernardin in New Yrk City, USA. The prductin prcess t prduce each f these wines invlves the preparatin f prduct, packaging, and shipping t custmers. The nature f the prcess and the prductin inputs required vary by brand. The required liquid prductin inputs include purchased dmestic grapes frm lcal grape grwers, grapes harvested frm APL wned vineyards, and bulk wine purchased bth in Canada and n internatinal markets. The finished prduct is packaged in glass bttles and bag in bx frmat in the Grimsby, Kelwna and Trur facilities. C-packers are used t bttle wine in the tetra pak frmat and 19.5L stainless steel kegs. The majrity f the Cmpany s brand prtfli was distributed thrugh retailers f wine. Key retail sales channels included all liqur bards acrss English Canada, privately wned wine stres in BC and Alberta, 98 crprately wned retail stres in Ontari called The Wine Shp, tw crprately wned retail stres in Niagara called Wine Cuntry Vintners and ne crprately 6

9 wned stre in St. Lawrence Market in Trnt called Wine Cuntry Merchants. The Cmpany als sld wine t licensed restaurants. VQA wines were sld in their respective Estate Wineries and delivered direct t restaurants in BC and Ontari. The Cmpany sld VQA wine direct t cnsumer s hmes thrugh e-blast ffers t a database f cnsumers wh had previusly signed up fr cmmunicatin frm the brand. Cnsumers culd als visit the winery websites t place rders. Wine club memberships als distributed wines directly t cnsumers hmes fr Peller Estates, Trius, Thirty Bench, Sandhill and Red Rster. A significant investment in Omni channel digital infrastructure and expertise was made in the past year t prepare fr the grwing interest in cnsumers wanting t purchase wine nline. The Cmpany als participated in tests with the LCBO in the launch f their new nline rdering system. The Cmpany wrks with a Quebec agency which currently distributes Wayne Gretzky Okanagan Pint Grigi t the SAQ; hwever interest in ther Cmpany brands by the SAQ appears t be increasing. The Cmpany wns tw imprt agencies, Andrew Peller Imprts and the Small Winemakers Cllectin, that sell and distribute premium imprt wines frm suppliers frm arund the wrld. Bth f these agencies leverage premium imprt wines t get Cmpany wned wine brands n restaurant wine lists. Fiscal 2017 saw a majr shift in mving twards selling wine within grcery stres in English Canada. It is expected that the wine categry will be expsed t 120 millin mre peple in 2017 versus the previus year due t the aggressive expansin f wine int grcery. Quebec has had a lng standing practice f selling Quebec-bttled wine in grcery stres. Wine sales in Quebec grcery are dminated by Cnstellatin and a few ther lcal cmpanies. New this past year was the ability f cmpanies t ffer varietally designated wines in Quebec grcery. Previusly, nly the SAQ culd ffer varietal wine and grcery was limited t ffering nly white, red and rse wine. Alberta privatized liqur sales in the 1990s, but grcery stres were nt allwed t stck beer and wine inside the stre, s Alberta grcery chains pened their wn liqur stres, right next t their grcery stres. Currently RCLS has the largest share f wine sales in Alberta with 35 stres due t their pricing strategy which is mre cmpetitive than the ther chains. Sbey s/safeway is anther strng player in Alberta with 74 utlets hwever their fferings tend t be mre premium priced but they d well due t the large number f lcatins. Cstc perfrms very well with 12 utlets and ffers a private label Kirkland versin fr mst styles f wine. C-p is the ther larger player in Alberta with 27 utlets. The biggest change ver the last year has been in Saskatchewan, Ontari and New Brunswick. Saskatchewan mved frm 3 stres t 26 stres ffering wine in grcery with Sbey s cntrlling 11 f the stres and C-p cntrlling 15. S far, Ontari has assigned 34 grcery universal licenses that can sell any wine, beer r cider and 32 restricted grcery licenses that can sell any beer and cider but the wine must be Ontari VQA (and nt frm the wineries that have private licenses like APL, Cnstellatin and Cli). After 3 years, these restricted licenses will cnvert t universal licenses and the Cmpany can start selling their wine in these lcatins. In additin, 8 winery wned licenses mved frm an independent retail lcatin utside the cash t inside the main aisles f the grcery stre. In March 2017, the Cmpany relcated its first independent retail lcatin and several mre stres will be relcated during fiscal New Brunswick is transitining frm a 2 year test f selling wine in six grcery stres t a 44 stre rllut in July 2017 Prvinces that still have limited availability fr wine in grcery stres include Nva Sctia and Manitba. The Nva Sctia Liqur Crpratin ( NSLC ) pened up a few gvernment liqur stres within grcery stres 5 years ag, but there have been n recent changes. Hwever mst NSLC gvernment run liqur stres are already attached t grcery stres which is similar t the Alberta mdel. Small pilt prjects selling wine in grcery stres are still in place in Manitba and the Cmpany is participating in these pilt prjects. Glbal Vintner s Inc. is the leading manufacturer and distributr f persnal winemaking prducts. Fr ver 50 years the cmpany has distributed wine and beer making kits under the brand names Winexpert, Vinec and Wine Kitz thrugh a netwrk f independent retailers thrughut Canada, the United States, the U.K. and a number f ther cuntries. Trademarks The Cmpany uses a number f significant trademarks which are wned by the Cmpany r its subsidiaries. Significant trademarks include Andrés Wines, Andrew Peller Limited, Peller Estates, Trius, Thirty Bench, Red Rster, Sandhill, Wayne Gretzky Estates, N. 99, Wayne Gretzky Okanagan, Calna Vineyards, Raven Cnspiracy, Cnvictin, Dmaine D'Or, Hchtaler, French Crss, Ryal, Rund Petal Wines, XOXO, Black Cellar, Cpper Mn, skinnygrape, Unreserved, Rebellin, Panama Jack, N Bats n Sunday, Schlss Laderheim, Franciscan, Baby Canadian, Baby Duck, Wine Cuntry Vintners and The Wine Shp. Trademark reslutin was achieved last year with Cnstellatin Brands when the Cmpany agreed t change the name, f its Raven brand t Raven Cnspiracy, due t ptential cnfusin with Ravenswd, in rder t avid a lengthy curt battle. Trademark negtiatins are in prcess fr The Diplmat (with Diplmatic rum) and Waltzing Matilda (with a small Australian Matilda brand). Fr the kit business, key trademarks include: Vintner s Reserve, Califrnia Cnnisseur, Atmsphere, Cheeky Mnkey, KenRidge, Niagara Mist, Cellar Craft, Wrld Vineyard, Selectin, Island Mist and Legacy. Trademarks are imprtant in the marketing and sale f wine and it is the Cmpany s plicy t vigrusly prtect its trademarks. 7

10 Other Intangible Prperties The Cmpany has apprximately 250 authrized retailer agreements in place relating t the distributin f hme winemaking prducts acrss Canada. Prperties The fllwing table sets frth infrmatin regarding the Cmpany s principal prperties and wineries as at March 31, Lcatin Size Use Nature f Interest Capacity (2) Prt Mdy, British Clumbia 4.9 acres N/A Owned (1) (3) N/A Prt Cquitlam, British Clumbia 20,000 sq. ft. Wine Kit Prductin Owned (1) 85,000 Prt Cquitlam, British Clumbia 10,000 sq. ft. Warehuse, Office Leased N/A Vancuver, British Clumbia 6,700 sq. ft. Office Leased N/A Oliver, British Clumbia 124 acres Vineyard Owned (1) N/A Oliver, British Clumbia 72 acres Vineyard Leased N/A Oliver, British Clumbia 307 acres Vineyard Leased N/A Kelwna, British Clumbia 160,000 sq. ft. Winery & Office Owned (1) 185,000 Pentictn, British Clumbia 9,000 sq. ft. Winery Owned (1) 500 Cawstn, British Clumbia 75 acres Vineyard Owned (1) N/A Stney Creek, Ontari 111,852 sq. ft. Warehuse Leased N/A Grimsby, Ontari 141,000 sq. ft. n 26 acres Winery & Offices Owned (1) 190,000 Ontari 101 retail stres, varius lcatins Each retail stre ranges frm 180 sq. ft. t 1,000 sq. ft. Retail Leased N/A Beamsville, Ontari 33 acres Vineyard Leased N/A Beamsville, Ontari 4,996 sq. ft. Winery, Retail Owned (1) acres Vineyard St. Catharines, Ontari 28,000 sq. ft. Wine Kit Prductin Owned (1) 90,000 St. Catharines, Ontari 45,000 sq. ft. Warehuse Leased N/A Niagara-n-the-Lake, Ontari (Peller Estates) Niagara-n-the-Lake, Ontari (Trius Winery at Hillebrand) Niagara-n-the-Lake, Ontari (Wayne Gretzky Winery and Distillery) 40,000 sq. ft. n 40 acres 53,000 sq. ft. n 9 acres 15,000 sq. ft. n 5 acres Winery, Vineyard, Tur Centre, Retail, Offices Winery, Vineyard, Tur Centre, Retail, Offices Winery, Vineyard, Distillery, Tur Centre, Retail, Offices Owned (1) 8,000 Owned (1) 8,000 Owned (1) 2,000 Niagara-n-the-Lake, Ontari 21 acres Vineyard Owned (1) N/A Niagara-n-the-Lake, Ontari 70 acres Vineyard Owned (1) N/A Niagara-n-the-Lake, Ontari 100 acres Vineyard Owned (1) N/A (1) Cmpany wned prperties have been prvided as security fr the Cmpany s lan facilities. (2) All prductin capacities reflect hectlitres per year. (3) The Prt Mdy lcatin was clsed during December 2005 and was exprpriated by the City in fiscal 2013 fr five years as it is being used as a staging grund fr the Green Line LRT develpment. Raw Materials The Cmpany purchases its raw materials, including grapes, wine, juice, grains, spirits, cncentrate, glass bttles, and ther packaging materials frm a wide range f suppliers frm arund the wrld. In Ontari and BC, grapes are purchased frm a number f third party grwers under supply cntracts with the Cmpany. In 8

11 Ontari the Cmpany is required t purchase grape tnnage t meet minimum legal requirements. Grape prices are negtiated annually between Ontari based prducers and the Grape Grwers Marketing Bard, while in British Clumbia, grape prices are negtiated between the Cmpany and individual grwers. In BC the industry uses weighted average frm the previus vintage as the basis fr these negtiatins. Grapes purchased in Ontari and BC are used primarily fr the Ontari and BC markets, respectively. In Nvember 1997 the Cmpany purchased 213 acres f prime grape-grwing land in Niagara-n-the-Lake that has been develped with premium classical Eurpean ( vinifera ) grape varieties such as Merlt, Cabernet Sauvignn, and Cabernet Franc. In 1998 the Cmpany develped a 70 acre vineyard in Cawstn, BC. The Cmpany s acquisitin f Thirty Bench winery included 57 acres f sme f the mst highly regarded vineyards n the Beamsville Bench area f the Niagara regin. The acquisitin f Cascadia Brands in 2005 included 157 acres f vineyards alng the Black Sage Rad area in the suth Okanagan Valley in BC. This land was cmprised f 2 parcels; 84 acres wned and 67 acres f vineyards leased frm the Osys Indian Band thrugh During 2010 the Cmpany sld apprximately 6 acres f the wned vineyard t Burrwing Owl Vineyards Ltd. In Nvember 2006 the Cmpany leased 307 acres f prime grape grwing land in the Oliver area f the Okanagan Valley in BC and planted a 294 acre vineyard. The lease has a term f 30 years expiring n Octber 31, Site preparatin began during 2006 with planting ccurring during 2007 and The Cmpany s investment in vineyards has helped t ensure it has a high quality and cnsistent supply f grapes grwn in Canada. Niagara-n-the-Lake, the Beamsville Bench, and the Okanagan and Similkameen Valleys in BC are fur f the best lcatins in the wrld fr the prductin f premium vinifera grapes. The Cmpany has entered int a number f cntracts with ver 75 grape grwers in Ontari and BC t ensure that a cntinuus supply f grapes is available. The cntract terms vary frm ne t twelve years in duratin and mature at varying times up t and including the 2027 harvest. The cmmitments t purchase grapes grwn in Canada are apprximately $35.5 millin per year. T cmplement grapes purchased in Ontari and BC and t meet cnsumer demand in all regins f the cuntry, the Cmpany purchases wine, juice, and cncentrate frm suppliers arund the wrld, primarily in Australia, Chile, Suth Africa, Italy and Spain. The Cmpany has entered int advance purchase cntracts with freign suppliers t purchase bulk wine thrugh These cntracts t purchase wine range frm apprximately $1 millin t $4 millin per year. T supprt the launch f whisky in Ontari, the cmpany entered int annual cntracts fr ne year ld, tw year ld, three year ld and 12 year ld whisky. In additin, lnger term cntracts f unaged whisky were signed t ensure a cntinuus supply f fresh fill fr the APL barrel aging warehuse in Grimsby. Tw year cntracts were signed t prtect the Canadian supply f apple juice cntent required in cider prducts launched in Nva Sctia and Ontari. The Cmpany utilizes varius packaging materials, including glass bttles, bag in bx, barrels, tetra paks, prisms, kegs, crks, capsules, labels, and cartns in the bttling and packaging f its wines. Glass bttles represent a significant cmpnent f the ttal cst f gds sld. The Cmpany enters int annual cntracts with dmestic glass suppliers, such as O-I Canada Inc., t ensure cntinuity f supply fr high vlume brands. The Cmpany has an annual cntract with Saxc Canada C. fr premium imprted glass frm Italy and France. Supply risk is mitigated by carrying increased inventries f select bttles. The Cmpany cnsiders its surces f supply t be adequate. Other Principal Cntracts Credit Facilities On April 28, 2014 the Cmpany cmpleted a refinancing with its existing bank grup and entered int a $165.0 millin syndicated lan facility. The syndicated lan facility is cmprised f a $90.0 millin revlving perating lan, a $60.0 millin nnrevlving perating term facility and a $15.0 millin nn-revlving capital term facility. The terms f the debt facilities require mnthly principal repayments until maturity and interest is based n the ne t six-mnth CDOR rates plus an applicable margin based n the Cmpany s leverage. In December 2016, the Cmpany brrwed $3.0 millin under its capital facility due t the timing f capital investments in the develpment f the new Wayne Gretzky Estate Winery and Craft Distillery and peratinal imprvements at the Cmpany s tw majr prductin facilities. On December 30, 2016, the Cmpany amended its debt facilities t extend the maturity date t July 31, 2021, amend the financial cvenants, and update the applicable margin based n the Cmpany s leverage. 9

12 The Cmpany has entered int interest rate swaps in rder t fix the interest rate n the amunt utstanding n the perating term lan at 2.16%, plus applicable margin until April 26, 2019, and 1.65%, plus applicable margin frm April 30, 2019 until July 31, The Cmpany and its subsidiaries have prvided their assets as security fr these lans. Freign Exchange Cntracts The Cmpany uses freign exchange frward cntracts t prtect against changes in freign currency rates and as at March 31, 2017, the Cmpany has frward freign currency cntracts t buy USD$18.2 millin at rates averaging $1.33, EUR1.2 millin at rates averaging $1.44 and AUD$4.2 millin at rates averaging $0.99. These cntracts mature at varius dates t December Retail Stre Leases The Cmpany has perating leases in place fr its netwrk f 101 The Wine Shp, Wine Cuntry Vintners, and Wine Cuntry Merchants retail stre lcatins. These leases have terms that range frm ne year t six years in length. Okanagan Valley Lease On Nvember 1, 2006 the Cmpany entered int a 30 year lease with Cvert Farms Ltd. fr acres f land in the Okanagan Valley in BC. The lease expires n Octber 31, Emplyees As at March 31, 2017, the Cmpany had a ttal f 1,296 emplyees, f whm 48 full and part-time emplyees were cvered by a unin cntract and apprximately 518 were full r part-time emplyees f The Wine Shp, Wine Cuntry Vintners, and Wine Cuntry Merchants chain f retail stres. The unin cntract in Kelwna, BC is cvered by a cntract with the Brewery, Winery and Distillery Wrkers, Lcal 300. The Kelwna cntract was renegtiated n June 1, 2016 and expires n May 31, Cmpetitin The wine industry in Canada is intensely cmpetitive based n quality, price, brand recgnitin, and distributin. The Cmpany cmpetes with a large number f dmestic and internatinal wine prducers. The Cmpany s cmpetitrs range in size frm large, well established natinal and multi-natinal crpratins t small farm gate wineries that are limited t selling nly wine prduced frm vineyards that they wn r cntrl. With the launch int whisky, the Cmpany nw als cmpetes with large spirit cmpanies like Diage (Crwn Ryal), Pernd Ricard (Jamesn/ Glenlivet/ Chivas Regal), William Grant & Sn/Hiram Walker (Gibsn), Grupp Cmpari (Frty Creek), Crby s (J.P Wiser) - wh als distributes the Pernd Ricard whisky in Canada - as well as smaller craft prducers like Cllingwd and Virginia Black. The Cmpany cmpetes n the basis f prviding value thrugh a balance f quality and price, prmtin, brand recgnitin, and distributin. The Cmpany is the secnd largest winery Canada with 14.6% share f the wine market in English Canada fr the 12 mnth rlling perid ending February, 2017 and cntinued t gain share, up 0.2% ver year ag. The largest wine cmpany in Canada is Cnstellatin with a 21% share f the market and they als had a share gain f 0.2% ver year ag. Cnstellatin hwever sld the dmestic side f their business t the Ontari Teacher s Pensin during the last year. In cmparing the dmestic side f Cnstellatin t the Cmpany, the size f the tw cmpanies are fairly similar with Cnstellatin having a 38.3% f the dmestic wine business and the Cmpany having a 36.4% f the dmestic wine business in English Canada. Gall is the third largest wine cmpany in English Canada, with a share f 6.1%, but Gall fell 0.2% ver last year as the success f Apthic finally levelled ff. Treasury, the next largest wine cmpany, cntinued t lse share psting a 4.8% share f the market but dwn 0.8% frm the previus year. Mark Anthny als experienced a slight share lss with a 2.2% share f the market, dwn 0.1% frm the previus year. Regulatin The business f the Cmpany is extensively regulated by prvincial legislatin which gverns the manufacture and sale f beverage alchl. Prvincial liqur authrities issue licences fr the manufacture and sale f beverage alchl in each prvince. Prvincial regulatins gvern the pricing, packaging, labelling, advertising, prductin, and distributin f prducts manufactured by licensed wineries, breweries, and distilleries. The Cmpany is in cmpliance in all material respects with prvincial legislatin that regulates the manufacture and sale f beverage alchl. The Cmpany is als in material cmpliance with all prvincial and federal legislatin relating t envirnmental regulatins. The Cmpany is subject t envirnmental regulatin at the federal, prvincial, and municipal levels. The Cmpany is cmmitted t addressing envirnmental matters and t cntinually imprving its envirnmental perfrmance. Envirnmental highlights are presented t the Bard f Directrs twice a year and envirnmental imprvements are incrprated int the business planning cycle. 10

13 Envirnmental perfrmance is mnitred internally with a fcus n reducing waste, imprving prcesses, and surcing new recycling streams while meeting envirnmental laws and regulatin. In fiscal 2017, several sites cnducted a third party sustainability audit and actin plans are being created as part f a cntinual imprvement prcess. In fiscal 2016, third party envirnmental engineering cmpany perfrmed assessments fr prcess imprvements pertaining t water, natural gas and electricity usage and fr waste reductin pprtunities. Prjects were identified and implemented in all categries and specific reductin targets were set. In fiscal 2016, the Cmpany annunced that its GVI subsidiary had been recgnized by Clean50 as ne f its Tp 15 Prjects fr GVI s innvative apprach t envirnmental sustainability. The award-winning prject identified pprtunities t save significant amunts f water, electricity and natural gas while at the same reducing waste the equivalent f apprximately 27 hectares f vineyards. The Cmpany is als subject t lcal by-laws with respect t wastewater discharge at each f its prductin facilities and wrks in partnership with varius levels f gvernment t btain all required envirnmental permits. APL has implemented measures t reduce wastewater at the surce and is actively experimenting with innvative and sustainable ways t reduce bilgical xygen demand. The Cmpany cntinues t invest in envirnmental infrastructure related t water, air, utilities and waste t ensure that regulatins and envirnmental standards are met and that the Cmpany s targeted reductin in envirnmental impact is achieved. An additinal B.C. Wine Grape Cuncil sustainability assessment was als cmpleted during fiscal Risks and Uncertainties The Cmpany s sales f wine and spirits are affected by general ecnmic cnditins such as changes in discretinary cnsumer spending and cnsumer cnfidence, future ecnmic cnditins, tax laws, and the prices f its prducts. A steep and sustained decline in ecnmic grwth may cause a lwer demand fr the Cmpany s prducts. Such general ecnmic cnditins culd impact the Cmpany s sales thrugh the Cmpany s estate wineries and restaurants, direct sales thrugh licensed establishments, and exprt sales thrugh duty free shps. The Cmpany believes that these effects wuld likely be temprary and wuld nt have a significant impact n financial perfrmance. The Cmpany perates in a highly regulated industry with requirements regarding the prductin, distributin, marketing, advertising, and labelling f wine and spirits. These regulatry requirements may inhibit r restrict the Cmpany s ability t maintain r increase strng cnsumer supprt fr and recgnitin f its brands and may adversely affect APL s business strategies and results f peratins. Privatizatin f liqur distributin and retailing has been implemented in varying degrees acrss the cuntry. The recent regulatry changes relating t privatizatin in Ontari remains a risk t the Cmpany thrugh its impact n the Cmpany s retail peratins. In February 2016, the Gvernment f Ontari s Premier Advisry Cuncil cmpleted its review f the wine retailing and distributin system in Ontari. The recmmendatins will result in issuance f 150 new wine licenses ver the next ten years t allw fr the sale f bth imprted and dmestic wine in grcery stres. The Cmpany has cmmitted t mve sme f its 101 independent retail lcatins t inside the main aisles f the grcery stre during In March 2017, the Cmpany relcated its first independent retail lcatin and several mre stres will be relcated during fiscal These retail spaces will be clcated next t beer and will als feature ther Ontari VQA wines. The Cmpany is nt required t mve its remaining independent retail lcatins and wine licenses will nt be granted t grcery stres where the Cmpany already has a winery retail stre. This prject is still in its early stages and at this pint the Cmpany des nt anticipate a material impact n earnings as the increase in sales due t being lcated in the stres is expected t cmpensate fr ptential lst sales due t prviding shelf space t ther wineries and higher tax rates impsed n these lcatins. The Canadian wine market cntinues t be the target f lw-priced imprted wines frm regins and cuntries that subsidize wine prductin and grape grwing as well as prviding sizeable exprt subsidies. Many f these cuntries and regins prhibit r restrict the sale f imprted wine in their wn dmestic markets. The Cmpany, alng with ther members f the Canadian wine industry, are wrking with the Canadian gvernment t imprve supprt fr the dmestic industry. The Cmpany perates in a highly cmpetitive industry and the dllar amunt and unit vlume f sales culd be negatively impacted by its inability t maintain r increase prices, changes in gegraphic r prduct mix, a general decline in beverage alchl cnsumptin, r the decisin f retailers r cnsumers t purchase cmpetitive prducts instead f the Cmpany s prducts. Retailer and cnsumer purchasing decisins are influenced by, amng ther things, the perceived abslute r relative verall value f the Cmpany s prducts including their quality r pricing cmpared t cmpetitive prducts. Unit vlume and dllar sales culd als be affected by purchasing, financing, peratinal, advertising, r prmtinal decisins made by prvincial agencies and retailers which culd affect supply f r cnsumer demand fr, the Cmpany s prducts. APL culd als experience higher than expected selling and administrative expenses if it finds it necessary t increase the number f its persnnel, advertising, r prmtinal expenditures t maintain its cmpetitive psitin. APL expects t increase the sales f its premium wines in Canada principally thrugh the sale f VQA wines, and as a result, is dependent n the quality and supply f dmestically grwn premium quality grapes. If any f the Cmpany s vineyards r the 11