Spot Coffee (Canada) Ltd.
TSX VENTURE : SPP

Spot Coffee (Canada) Ltd.

November 14, 2011 09:29 ET

SPoT Coffee Continues New Cafe Expansion and Reaffirms Expansion Goals

TORONTO, ONTARIO--(Marketwire - Nov. 14, 2011) - SPOT COFFEE (CANADA) LTD. (TSX VENTURE:SPP) ("SPoT" or the "Company") is pleased to announce the official opening on November 11 th of the Company's seventh operating café, SPoT Hertel, centrally located in the historic North Buffalo community on Hertel Avenue, a vibrant commercial and residential strip. This new café is approximately 3,250 square feet of indoor space with a large outdoor patio. SPoT Hertel represents the Company's first third-party operating partnership and is being used by SPoT as the business model to create a framework to selectively finance future cafés. SPoT has a 60% majority shareholding in SPoT Hertel with a private investor, Mr. Sean McGirr, holding the remaining 40% shareholding. While the partnership is operated on a 60% / 40% basis, both SPoT and Mr. McGirr equally funded the upfront café development and construction costs. Mr. McGirr is the former Vice Chairman of Cliffstar Corporation, North America's largest bottler of store brand juices and drinks.

Construction Update on SPoT's Eighth and Ninth Cafés

As previously announced, SPoT's eighth wholly-owned café is SPoT Park Place located in the new urban development of Concord Park Place in north Toronto and highlights SPoT's exclusive relationship with Concord Adex, a well-known real estate developer, as their café of choice for their future multi-condo urban development projects. The design by well-known Toronto architect, John Chandler, is complete and building permit submissions are in progress. Construction will commence during January 2012 with the opening expected during mid-spring 2012. SPoT Park Place will be centrally and exclusively located in this new urban neighborhood development which is estimated to have a residential population to exceed 290,000.

SPoT's ninth wholly-owned café, SPoT Transit Road, is located in Western New York along the highly trafficked Transit Road, optimally located in the crossroads between the affluent neighborhoods of Clarence and Amherst, New York. Similar to SPoT Park Place, this café will be a newly built building designed specifically for SPoT. At this stage most of the exterior design and site plan has been completed. SPoT expects the new building to be made available to SPoT in late January 2012 at which time construction will commence. This café is expected to open late spring 2012.

SPoT's Immediate Expansion Goals

The senior management and board of directors of SPoT are highly focused and committed to the ongoing growth and expansion of the SPoT Coffee brand in both North America and select overseas markets, including the Middle East. The Company believes time invested in optimizing the operating performance of the portfolio of existing cafés has formed a strong and systematic platform to fuel and effectively manage continued growth.

While SPoT's long term objective is to create an internationally recognized brand, the Company feels it is appropriate, at this stage, to outline its very short term expansion goals. Focusing just on the next two full calendar years to the end of 2013, SPoT anticipates growth targets of average annual sales growth to exceed 35% per annum with total portfolio-wide café EBITDA (i.e. SPoT's measurement of free cash flow generation out of the portfolio of cafés prior to funding any central overhead costs) to grow at a rate to exceed 45% per annum.

To achieve this, SPoT anticipates opening at a minimum three to four new cafés over the course of 2012 and four to five new cafés for 2013. In addition to SPoT Park Place and SPoT Transit Road opening during 2012, new café locations will leverage SPoT's existing geographic footprint of Southern Ontario, Western New York and now heading east in New York State as SPoT directly benefits from increasing economies of scale from new café development and ongoing operation cost synergies that are created as a result. SPoT is actively identifying new locations consistent with SPoT's location and demographic criteria and SPoT believes ample opportunities exist that may facilitate accelerated growth ahead of this schedule. Over the next two years and subject to operating conditions remaining stable to favorable for SPoT, SPoT may equally open new locations outside of its geographic footprint on an opportunistic basis and when the Company determines an appropriate return on incremental invested capital can be achieved in excess of 20%.

In addition to growth from new café openings, SPoT believes it can begin to materially grow the Company's commercial account program. This is the wholesale distribution of SPoT's award-winning gourmet coffee (handcrafted blends, prized regional and limited edition estate coffees) and our SPoT-branded drinkware to specialty shops, restaurants, full service coffee bars, corporate and university customers. Currently the commercial account program accounts for approximately 5% of the Company's gross sales and the board believes with the investment of incremental resources, which is now being undertaken, this aspect of the Company's operations has strong potential for significant growth and for the direct retail distribution of SPoT's gourmet coffee.

New Central Kitchen and Roasting Operating Facilities

To support the Company's immediate new café and commercial account expansion goals, SPoT is actively expanding the Company's roasting, supply and operating facilities. To support the growing number of cafés in the Western New York State region, SPoT will re-locate its central kitchen facilities effective mid-January 2012 (currently part of the Company's SPoT Delaware location) to a brand-new, custom designed, state-of-the-art open concept central kitchen operating facility with square footage of approximately 2,250 square feet. The new central kitchen facility will be located behind the Company's new SPoT Hertel location and benefits from a more cost-effective lease rate for this space.

With the movement of the central kitchen facility outside of Downtown Buffalo, this available space located in our prime SPoT Delaware location will be used to showcase our expanded gourmet roasting facilities to service the growing number of SPoT cafés and expanding commercial account program. The expanded roastery, with increased operating capacity, is expected to open during February 2012. The roastery is designed in a manner that will enable SPoT Delaware patrons to view the roasting operations firsthand through wide glass windows in the common wall between the roasting facilities and café and will feature a hand painted mural by a local artist illustrating the coffee growing and roasting process.

Financing Strategy

SPoT anticipates being able to fund its expansionary capital requirements through a combination of re-invested free cash flow, equity private placements, operating partnerships for select cafés, as well as potential availability of credit facilities as operations continue to strengthen and support moderate leverage. Factors that influence the board's determination of any financing include prevailing market conditions, cost, timing, and the board's view of the optimal risk versus return award for our shareholders. Although SPoT anticipates the need to raise incremental expansionary capital may decrease overtime as operating leverage increases in the café portfolio and the Company is better able to re-invest more free cash flow, SPoT will opportunistically evaluate opportunities to accelerate new café growth both in North America and the Middle East ahead of the board's operating plan. These opportunities may require incremental expansionary capital to be raised ahead of the board's current plan.

At this stage SPoT does not give specific guidance on the dates of its quarterly earnings report. However, the Company anticipates the release of its third quarter financial statements and MD&A to be on or before November 25th.

About SPoT

SPoT (www.spotcoffee.com) designs, builds and operates community-oriented cafés that provide its customers from every lifestyle and culture with the highest quality service, signature light meals and in-house roasted gourmet coffee. The current SPoT management team and directors have been successfully operating company-owned cafés since 2004.

Each SPoT café is a popular and friendly gathering place for its community where specialty coffee, upscale beverages, fresh baked goods, signature sandwiches, soups, salads and gourmet pizza, cakes, pastries and home baked goods are offered and enjoyed by its patrons in a warm, friendly and home-like environment.

The Company currently operates seven cafés that range in size from 2,000 to in excess of 4,000 sq. ft. with two more cafés currently under development. Spot is currently evaluating several locations as part of its North American expansion.

Unlike other conventional gourmet coffee houses and quick service restaurants that are built on uniformity of product and style, each SPoT café maintains several unique and key features, including:

  • Dedication to create a friendly environment that nourishes and intensifies a sense of gathering and of community;

  • In-house roasting and blending SPoT's own award-winning premium Arabica coffee;

  • Unwavering commitment to offer the customers of the Company the highest quality products and services;

  • Innovative and varying café designs that consider both the culture and flavor of the specific communities of each café;

  • Choice of corner locations for each SPoT café at the center of their neighborhoods;

  • Ability to offer intimate and warm ambiances in each café to suit the social and private moods of SPoT's patrons; and

  • Trained and dynamic service staff that are proud to call themselves "Spotters" who enjoy serving their customers and make them feel at home.

Forward Looking Statements

Except for statements of historical fact relating to the Corporation, certain information contained herein constitutes forward-looking statements. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Except as required by applicable securities requirements, the Corporation undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of the release.

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