Sepp's Gourmet Foods Ltd.
TSX : SGO

Sepp's Gourmet Foods Ltd.

March 16, 2007 19:00 ET

Sepp's Q2 2007 Results

SURREY, BRITISH COLUMBIA--(CCNMatthews - March 16, 2007) - Sepp's Gourmet Foods Ltd. (TSX:SGO) ("Sepp's" or the "Company") announces results for the three and six months ending January 31, 2007. Detailed information is available by visiting the Company's page on the SEDAR website at www.sedar.com and reviewing the MD&A and Financial Statements.

Six months

- Sales for the six months ending January 31, 2007 were $13.4 million, up 6% from the $12.7 million in the comparable period last year. The increase is attributable to increased sales to existing customers and shipments to new customers (see chart below).

- Gross profit decreased to $1.5 million (11.3% of sales) in the first six months from the $1.8 million (14.5%) in the comparable period last year due primarily to higher freight and depreciation expense and higher levels of plant supervisory personnel. Selling, general and administration expenses were $1.8 million (13.1% of sales) for the six month period compared to $1.6 million (12.4%) in the same period in 2006.

- Earnings before interest, taxes, depreciation and amortization and stock based compensation (EBITDAS) for the first six months of 2007 was $354,000 down from the $658,000 in the first six months of 2006. EBITDAS is a non-GAAP measure and its calculation may not be consistent from company to company.

- During the period the Company shut down its Burnaby facility and relocated it to Delta, another suburb of Vancouver. The shut down of the old Burnaby plant, and relocation and start-up of the new facility had a negative impact on earnings during the period. Net loss for the first six months 2007 was $663,000 compared to $191,000 last year. The loss was due to higher costs associated with freight, storage and utility expenses, higher depreciation charges due to new equipment in the Ontario factory, and the shut down, relocation, and start-up of the Company's British Columbia facilities.

- During the six months ending January 31, 2007, the company generated cash flow from operating activities of $806,000 compared to $799,000 in the comparable period last year. This increase was a result of an increase in non-cash working capital.

Three months

- Sales for the three months ending January 31, 2007 were $6.6 million, up 8% from the $6.1 million in the comparable period last year. The increase is attributable to increased sales to existing customers and shipments to new customers.

- Gross profit decreased to $650,000 (9.8% of sales) in the three months from the $761,000 (12.4%) in the comparable period last year due to higher freight and depreciation expense, higher levels of plant supervisory personnel and to the shut down, relocation, and start-up of the Company's British Columbia locations. Selling, general and administration expenses were $928,000 (14% of sales) for the period compared to $788,000 (12.8%) in the same period in 2006. The dollar increase in selling, general and administrative expenses was due to higher commissions and promotional expenses.

- Earnings before interest, taxes, depreciation and amortization and stock based compensation (EBITDAS) for the first six months of 2007 was $42,000 down from the $145,000 in the first six months of 2006. EBITDAS is a non-GAAP measure and its calculation may not be consistent from company to company.

- Net loss for the three months was $471,000 compared to $289,000 last year. The loss was due to higher costs associated with freight, storage and utility expenses, and the shut down, relocation, and start-up of the Company's British Columbia facilities.

- The Company had a working capital deficit of $2.9 million at January 31, 2007 up from a working capital deficit of $2.3 million at July 31, 2006. In May 2006, the Company changed lenders such that both its operating debt and long-term debt would be held by one lender having senior security over all assets. This change helps the Company administratively and offers a better cost structure. Under the terms of lender's standard 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. Thus, the full $2.2 of the long-term debt is included in current liabilities.

- During the first six months of 2007 the Company undertook a debt financing with a major shareholder comprised of a letter of credit for $500,000 with share purchase warrants. The Company's total interest bearing debt was $6.3 million, up from the $5.9 million at July 31, 2006. Property plant and equipment (including deposits) increased from $6.8 million to $7.3 million at January 31, 2007.

- The working capital ratio was 0.60:1 at January 31, 2007 compared to 0.65:1 at July 31, 2005. The working capital ratio is below the bank required 1.1:1 due to the inclusion of all of the long-term debt in current liabilities and to the losses experienced year-to-date. The company's debt coverage ratio was 0.68:1 below the bank required 1.25:1. The Company is in compliance with the debt to tangible net worth ratio as it was 1.7:1 at January 31, 2007, below the bank required 2.5:1. 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 expects to continue to be below the working capital covenant during the remainder of fiscal 2007.

Mr. Tom Poole, President and CEO, stated: "Over the past six months, the Company has undertaken two major strategic initiatives: the relocation of its Burnaby operation into a larger, newer, more efficient plant; and the start-up of the 50% owned Willow Road waffle and pancake facility located in Oklahoma. These two initiatives give the company the added production capacity to meet increasing orders. Over that same six month period, the company launched two new categories of products - mini-waffles and French Toast Stix.

At the same time as undertaking these initiatives, working to improve operating efficiency to offset increasing cost pressures remained one of the Company's greatest operating challenges. However, with three manufacturing facilities located in the Northern, Southern and Western parts of North America, the Company is better positioned to deal with the escalating freight costs."

He went on to say: "Over the past five years Sepp's has become known as a well established, reliable private label manufacturer. In due course, the recent initiatives mentioned above, coupled with our established reputation and our day in day out commitment to quality will deliver a return to 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 period ended January 31, 2007 compared to the
period ended January 31, 2006
(except for balance sheet information which is compared to July 31, 2006)

Comparative figures for first six months of fiscal period 2006 and 2005

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Ended Comparable
($000's) except per share data January 31, 2007 period
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Sales 13,419 12,678
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Cost of Sales 11,896 10,844
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Gross Profit 1,523 1,834
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Expenses 2,255 2,048
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EBITDAS(i) 354 658
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Net Loss (663) (191)
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Cash flows from operating activities 806 799
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Working Capital (2,869) (2,299)
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Property Plant and Equipment 7,262 6,785
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Total Assets 11,716 11,251
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Total interest bearing debt 6,274 5,880
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Shareholder's Equity 2,080 2,667
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Loss per share ($0.04) ($0.01)
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Basic Shares Outstanding 16,017,971 16,017,971
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Comparative figures for three months ending January 31, 2007 and 2006

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January 31, January 31,
($000's) except per share data 2007 2006
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Sales 6,619 6,145
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Cost of Sales 5,969 5,384
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Gross Profit 650 761
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Expenses 1,192 1,046
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EBITDAS(i) 42 145
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Cash flows from operating activities 98 (112)
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Net Loss (471) (289)
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Loss per share ($0.03) ($0.02)
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Shares Outstanding 16,017,971 16,017,971
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(i) EBITDAS is calculated as earnings before tax plus interest plus
depreciation and amortization plus accretion of convertible debt plus
stock based compensation


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) 524-2540 ext 230
    or
    Sepp's Gourmet Foods Ltd.
    Jim Pratt
    Chief Financial Officer
    (604) 524-2540 ext 220