Sepp's Gourmet Foods Ltd.

Sepp's Gourmet Foods Ltd.

December 15, 2006 19:00 ET

Sepp's Q1 2007 Results

SURREY, BRITISH COLUMBIA--(CCNMatthews - Dec. 15, 2006) - Sepp's Gourmet Foods Ltd. (TSX:SGO) ("Sepp's" or the "Company") announces results for the first quarter 2007. Detailed information is available by visiting the Company's page on the SEDAR website at and reviewing the MD&A and Financial Statements.

- Sales for the three months ending October 31, 2006 were $6.8 million, up 4% from the $6.5 million in the comparable period 2006. The higher sales resulted from increased sales to existing customers and shipments to new customers.

- The gross profit of the Company was $873,000 in the first quarter compared to $1,073,000 last year. The lower gross profit was due primarily to higher freight and energy costs. Selling, general and administration expenses were $828,000 up from the $782,000 last year, but at 12.3% percent of sales were about the same as last year.

- Operating earnings before interest, taxes, depreciation and amortization and stock-based compensation (Operating EBITDAS) was $317,000 for the three months ending October 31, 2006 compared to $518,000 in the similar period in 2006 (see chart below).

- Loss for the period was $192,000 compared to net earnings of $98,000 in the same period last year.

- In the three months ending October 31, 2006 the Company had positive cash flow from operating activities of $708,000 compared to $911,000 in the similar period last year. The reduced cash flow was due to lower operating results.

- The Company reduced its operating line from $1.7 million at July 31, 2006 to $1.4 million at October 31, 2006. Over the same period, the senior long-term debt was reduced by $118,000.

- As previously reported, under the terms of a new long-term bank loan the lender has the ability to demand repayment of the facility and under GAAP is classified as a demand loan and is required to be shown on the balance sheet as a current liability. Consequently the full $2.4 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 October 31, 2006 the same as at July 31, 2006. 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.

- During the quarter a shareholder agreed to provide the Company with a standby line of credit for up to $500,000. The line of credit is repayable by December 31, 2007 and is secured by a charge over the Company's assets, subordinated to all existing debt. Additionally, 476,190 share purchase warrants were issued as consideration for providing the line of credit. Funds from the line of credit were used to fund the Company's capital requirements under the previously announced joint venture and for general working capital purposes.

Mr. Tom Poole, President and CEO, stated: "Improving operating efficiency to offset increasing cost pressures and less favorable foreign exchange rates remains the Company's greatest challenge. Significant investments have been made in new equipment. A new pancake line has been commissioned in the Ontario plant. The 50% owned joint venture, located in Oklahoma, commenced waffle production in late September and pancake production is expected to begin in December. Sepp's share of production from this plant will supply customers throughout the southern US states, reducing freight costs and exposure to currency risk."

He went on to say, "In addition, the Company continues to lever one of its core strengths by emphasizing production of higher margin organic, natural and niche products and over the past 18 months has increased prices for certain of its products. We are now well established as a stable and reliable private label manufacturer and we continue to make progress in expanding our customer base and introducing new products to existing and new customers. Untimely, these initiatives and our daily commitment to quality and service will deliver positive financial results."

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 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 three months ended October 31, 2006 compared
to the three months ended October 31, 2005 (except for balance sheet
information which is compared to July 31, 2006)

($000's) except per share data October 31, 2006 Comparable Period
Sales 6,800 6,533
Cost of Sales 5,927 5,460
Gross Profit 873 1,073
Expenses 1,062 1,002
Operating EBITDAS (1) 317 518
(Loss) Net Earnings (192) 98
Working Capital (2,328) (2,299)
Property Plant and Equipment
(including deposits) 6,950 6,785
Total Assets 11,613 11,251
Total interest bearing debt (2) 4,052 4,184
Shareholder's Equity 2,479 2,667
Cash flows from operating activities 708 911
Earnings per share (basic) (0.01) 0.01
Shares Outstanding (Basic
Weighted Average) 16,017,971 16,017,971

Notes: (1) Operating EBITDAS is calculated as earnings before tax plus
interest plus depreciation and amortization plus accretion of convertible
debt plus stock based compensation (2) not including the convertible

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
    (604) 535-5457
    Sepp's Gourmet Foods Ltd.
    Jim Pratt
    Chief Financial Officer
    (604) 574-2166