Sepp's Gourmet Foods Ltd.
TSX : SGO

Sepp's Gourmet Foods Ltd.

October 31, 2006 11:11 ET

Sepp's Fiscal Year 2006 Results

SURREY, BRITISH COLUMBIA--(CCNMatthews - Oct. 31, 2006) - Sepp's Gourmet Foods Ltd. (TSX:SGO) ("Sepp's" or the "Company") announces results for the fiscal year ending July 31, 2006. Detailed information is available by visiting the Company's site on the SEDAR website at www.sedar.com and reviewing the MD&A and Financial Statements.

Fiscal Year 2006

- Sales for the fiscal year 2006 were $24.6 million, up 13% from the $21.7 million in the comparable period 2005 (see chart below). Sales were higher due to gaining new customers in the US for existing products and introducing new products to existing customers.

- Operating earnings before interest, taxes, depreciation and amortization (Operating EBITDAS) from the continuing operations was $1.0 million compared to $1.2 million in 2005. EBITDAS is a non-GAAP measure and its calculation may not be consistent from company to company. Please see the MD&A for an explanation of the calculation. The loss for the year was $854,000 compared to a loss of $917,000 in the comparable period last year.

- The Company had cash flow from operations of $604,000 in 2006, compared to $567,000 in 2005.

- In May 2006, the Company changed banks in order to have its operating debt and long-term debt held by one bank. The change would help the Company administratively and offer a slightly better cost structure. Under the terms of the new long-term bank loan the lender has the ability to demand repayment of the facility and therefore under generally accepted accounting principles (EIC 122) it is classified as a demand loan and is required to be shown on the balance sheet as a current liability. Consequently the full $2.43 of the long-term debt million is included in current liabilities resulting in the Company having a working capital deficit of $2.3 million at July 31, 2006, up from a $279,000 working capital deficit at July 31, 2005. The working capital ratio is below the bank required 1.1:1. As well, the company's debt coverage ratio was 1.23:1, slightly below the bank required 1.25:1. The Company's bank is aware of these financial ratios. Due to the demand nature of the loan, and the requirement under EIC Abstract 122 that it be brought into current liabilities in its entirety, the Company has not requested a waiver letter.

- The Company's total debt increased during fiscal year 2006 from $4.0 million to $5.9 million. The increase in the total debt was primarily due to purchasing manufacturing equipment. Property plant and equipment (including deposits) increased from $6.3 million to $6.8 million at July 31, 2006.

Fourth Quarter

- Sales for the fourth quarter 2006 were $5.9 million, up from the $5.3 million in the comparable period 2005. Sales were higher due to gaining new customers in the US for existing products and introducing new products to existing customers.

- The loss for the fourth quarter 2006 was $270,000 compared to a loss for the fourth quarter 2005 of $743,000 while the loss before income taxes and discontinued operations for the fourth quarter 2006 was $307,000 compared to a loss before income taxes and discontinued operations of $195,000 in the fourth quarter 2005.

Mr. Tom Poole, President and CEO, stated: "During the past year the Company concentrated its efforts on addressing the two major issues responsible for falling margins: (i) the weakening U.S. dollar versus the Canadian dollar, and (ii) increasing input costs, especially energy costs. Several steps have been taken to improve margins: two price increases in the breakfast category have been introduced in the past 18 months; non-core divisions have been shut down; significant investments have been made in new equipment to help improve production efficiencies; an emphasis has been placed on higher margin organic, natural and niche products; and a joint venture was entered into in Oklahoma to reduce freight costs to customers throughout the southern U.S. and reduce the Company's exposure to currency risk.

In addition to these initiatives, Sepp's continues to make progress in securing new customers for existing products and introducing new products to both existing and new customers. The success of this strategy is reflected in the 13% growth in sales year over year. The steps taken this past year have already begun to show a return. Over the next year, we expect further improvements. "

Sepp's Gourmet Foods Ltd. is a producer and marketer of specialty prepared foods for the retail grocery and food service sectors in North and South America, and Southeast Asia. Sepp's is a publicly traded company traded on The TSX under the symbol SGO.

This release may contain forward-looking statements. Various factors could cause actual results to differ materially from those projected in forward-looking statements. Although the Company believes that the forward-looking statements contained herein are reasonable, it can give no assurance that the Company's expectations are correct. All forward-looking statements are expressly qualified in their entirety by this cautionary statement.



Comparative figures for the fiscal year ended July 31, 2006 compared to
the fiscal year ended July 31, 2005

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(CDN $000's except per share data) 2006 2005
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Sales 24,574 21,717
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Gross Profit 3,122 3,220
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Operating EBITDAS from continuing ops (1) 999 1,164
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Loss from continuing operations before tax (891) (309)
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Loss per share from continuing operations before tax (0.06) (0.02)
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Loss for the year before discontinued ops (854) (61)
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Loss from discontinued operations - (856)
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Loss for the year (854) (917)
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Loss per share (0.05) (0.06)
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Working Capital (2) (2,299) (279)
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Property, plant and equipment (incl. deposits) 6,785 6,344
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Total Assets 11,251 11,363
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Total interest bearing debt 5,880 4,039
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Operating Cash Flow from continuing operations 604 567
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Shareholder's Equity 2,667 3,445
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Shares Outstanding (Basic Weighted Average) 16,017,971 16,017,971
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Notes: (1) EBITDAS is a non-GAAP measure and its calculation may not be consistent from company to company. The above EBITDAS figures are calculated as: earnings/(loss) before income taxes and discontinued operations , interest expense, depreciation, accretion of convertible debentures, amortization of deferred financing fees and stock based compensation. (2) In May 2006, the Company switched banks. Under the terms of the long-term debt arrangement with its new banker, and in accordance with generally accepted accounting principles (specifically EIC Abstract 122), the entire long-term debt with HSBC Bank Canada is classified as current despite its five year amortization period. Consequently the entire $2.43 million of long-term bank debt is included in current liabilities.

The Toronto Stock Exchange has not reviewed nor has accepted the responsibility for the accuracy and adequacy of this news release.

Contact Information

  • Sepp's Gourmet Foods Ltd.
    Tom Poole
    President
    (604) 535-5457
    or
    Sepp's Gourmet Foods Ltd.
    Jim Pratt
    Chief Financial Officer
    (604) 574-2166
    Website: www.seppsfoods.com