Monday 28 November 2022

Aegis Brands second quarter results hampered by the third wave of Covid-19

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TORONTO, Canada – Aegis Brands Inc. (TSX: AEG) has reported financial results for the second quarter ended June 26th, 2021. Aegis entered into a strategic transaction to sell Hemisphere Cannabis Co. (“Hemisphere”). The sale of Second Cup closed on April 23rd, 2021. Aegis’ Net Loss from continuing operations for the quarter was $1,191,000, or $0.05 per share compared to $1,207,000, or the same loss per share in the second quarter of last year. Bridgehead’s Net Loss for the quarter was $23,000 compared to $494,000 in the second quarter of last year

Bridgehead

Sales at Bridgehead coffeehouses were hampered by the third wave of COVID-19 during the second quarter, with Same Store Sales (SSS) at -49.3% of 2019 results. However, revenues were bolstered by Bridgehead’s e-commerce and wholesale business that has emerged through the pandemic. The brand continues to improve the bottom line with a Net Loss of $5,000 year to date compared to $1,000,000 by the same time last year.

The leadership team at Bridgehead continues to innovate, reposition and expand as they focus on the growth of three key distribution channels: coffeehouses, online and wholesale. This includes the opening of a new location at Carleton University (August 2021). Management is focused on growing Bridgehead’s asset light e-commerce and wholesale business segments, as they have the potential to contribute as much or more profitability than the “brick and mortar” locations. Year to date the e-commerce and wholesale channels represent ~22% of the sales and produced 37% of Bridgehead’s EBITDA while requiring relatively little capital.

Hemisphere

Held for Sale and Discontinued Operations

On July 12, 2021, Aegis entered into a strategic transaction with Kiaro Holdings Corp. (“Kiaro”), a TSX-V-listed cannabis retailer and wholesale distributor, agreeing to sell Hemisphere in consideration for a substantial equity stake in Kiaro. In consideration for 100% of Hemisphere’s common shares, Kiaro will issue 61,300,000 common shares to Aegis, plus 6,700,000 common share purchase warrants. Kiaro will issue an additional 6,700,000 shares to Aegis upon the achievement of certain commercial milestones during the first year following closing.

Aegis Brands Inc.

With the sale of Second Cup and the pending sale of Hemisphere, the transformation of Aegis is well underway. As North America starts to return to pre-pandemic activities, Aegis is eager to expand its presence in the food and beverage sector through acquisitions and partnerships with great brands across North America.

Consumers are enthusiastically returning to all types of food service locations following a period of unmatched household savings, and with fewer options to choose. An estimated 10% of restaurants in Canada have closed during the COVID-19 pandemic. This series of conditions has created a very profitable environment for the great operators in the space and highlights the opportunity for Aegis to consolidate great restaurant companies and the entrepreneurs behind them.

Additionally, subject to the receipt of certain third-party consents and other customary closing conditions, the sale of Hemisphere to Kiaro is expected to close in the fall, enabling Aegis to increase its focus on the growth of its Bridgehead Coffee brand and execute its acquisition strategy. Upon completion of the transaction, it is anticipated that Aegis will hold approximately 25% of Kiaro’s common shares and will be Kiaro’s largest shareholder. Aegis’ CEO Steven Pelton intends to join the Kiaro board of directors at closing. “We know the team at Kiaro will use their cannabis industry expertise to successfully grow the business organically and through acquisitions in a highly competitive market,” said Steven Pelton, President and CEO of Aegis Brands. “This transaction with Kiaro allows us to focus our people and our resources on Aegis’ objectives in the food service space. Meanwhile, we expect Kiaro to continue to use its resources to gain the scale required to achieve its objectives in retail cannabis.”

Aegis continues to build an experienced leadership team that has created and grown some of the best hospitality brands in Canada. As previously announced, Melinda Lee will be stepping in as Chief Financial Officer on August 13th. Lee brings over 20 years of senior level experience in financial management of public companies in various industries, including hospitality. “With the sale of Second Cup and pending sale of Hemisphere, we are now fully focused on partnering with great hospitality brands, with great leadership, that we can help grow in the food and beverage space” added Pelton.

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