Ten Peaks Coffee Company Inc
TSX : TPK

May 08, 2013 17:00 ET

Ten Peaks Coffee Company Inc. Reports First Quarter Results Processing Volumes, Gross Profit and Cash from Operations Up Over Q1 2012

VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 8, 2013) - Ten Peaks Coffee Company Inc. (TSX:TPK) will hold a conference call to discuss its financial results for the three months ended March 31, 2013 on Thursday, May 9, 2013 at 8:00 am Pacific Time (11:00 am Eastern Time). To participate, please dial 1-800-768-4046 (toll free) or 416-981-9037 (GTA and international) approximately five minutes before the call and provide the company name or Conference ID: 21656904. A replay will be available through May 23, 2013 at 1-800-558-5253 (toll free) or 416-626-4100 (GTA and international) passcode: 21656904.

Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported its financial results for the three months ended March 31, 2013. Ten Peaks holds all of the outstanding securities of Swiss Water Decaffeinated Coffee Company, Inc. ("SWDCC"), a premium green coffee decaffeinator located in Burnaby, BC. Accordingly, the results reported here are based on SWDCC's operating performance.

The company posted a solid performance during the period, with quarterly processing volumes growing by 4% and gross profit increasing by 72% on a year-over-year basis. In addition, cash from operations rose by 141%, allowing Ten Peaks to reduce its bank indebtedness and improve its balance sheet. The company also paid $0.4 million in dividends to shareholders, through a quarterly dividend payment of $0.0625 per share.

"We are pleased with our first quarter results," said Frank Dennis, President and CEO of Ten Peaks. "We made terrific gains with our specialty regional customers, with new business wins and sales increases to established accounts helping to drive up volumes in this segment by nearly 50% over the first quarter of 2012. The growth enabled us to record solid increases in our total processing volumes, gross profit and cash from operations, which we consider to be three of the key performance indicators for our business."

Operating Results

In $000s except per share amounts 3 Months Ended
(unaudited) March 31
2013 2012
Sales $ 12,043 $ 14,939
Gross profit 1,170 680
EBITDA(1) 577 796
Net income 106 400
Per share amounts:
EBITDA per share 0.09 0.12
Net income per share 0.02 0.06
  1. EBITDA is defined in the company's Management's Discussion and Analysis, which will be posted on SEDAR on or before May 9, 2013.

During the three months ended March 31, 2013, SWDCC's consolidated processing volumes were up by 4% over Q1 2012 levels. The growth was driven by the company's specialty regional segment, which recorded volume increases of 46% over the same period last year. Over the past three years, SWDCC has actively targeted regional roasters, who place a high value on the superior, science-based quality of its chemical free decaffeinated coffees, as well as its excellent customer service. This has proven to be a sound growth strategy, with volumes to specialty regional accounts rising by a total of 29% in 2011 and an additional 18% in 2012. The significant gains made with these customers during the first quarter of this year helped offset a 10% decline in business from SWDCC's large national accounts, which was due to reduced orders from two customers. Sales to SWDCC's other national accounts were strong, with increases recorded across the balance of the segment.

The coffee futures market, or "NY'C'", continued to decline in the first three months of this year, falling from an average of US$2.05 per lb in the first quarter of 2012 to an average of US$1.44 for Q1 2013. As a result, SWDCC's green coffee cost recovery revenue (the base amount it charges customers for green coffee) also fell, dropping by $3.2 million or 27% over Q1 2012. Lower green revenue was partially offset by increases in other revenue categories. Increased volumes drove up process revenue by 5% in the first quarter, while distribution revenue (the amount Ten Peaks charges its customers for shipping, handling and warehousing) increased by 64% due to the higher processing volumes, increased transportation charges and the addition of revenue from Seaforth Supply Chain Solutions Inc. ("Seaforth"). Overall, first quarter sales totaled $12.0 million, compared to $14.9 million in the same period last year.

In addition to growing its base decaffeination business, Ten Peaks is working to diversify its revenues through measured expansion into related specialty coffee businesses. In early 2012, Seaforth, the company's green coffee handling and storage subsidiary, commenced operations. Initially established to help SWDCC gain more control over its supply chain and reduce its coffee handling and storage costs, Seaforth has performed better than expected. In addition to meeting SWDCC's local green coffee handling and storage needs, Seaforth established relationships with a number of third-party customers during 2012, contributing $0.1 million to Ten Peaks' EBITDA for the year. During the first quarter, Seaforth gained organic certification, which enables it to handle organic coffees that are not necessarily destined for SWDCC. As many coffee importers and roasters in Western Canada focus on organic coffees, Seaforth's enhanced status leaves the company well positioned to grow its business.

Cost of sales for the three months ended March 31, 2013 totaled $10.9 million. This is down by 24% from the same period in 2012 due to the lower NY'C'.

First quarter gross profit totaled $1.2 million, which is up by 72% from the same period last year. The increase reflects higher process and distribution revenues, as well as the substantial decline in the NY'C'.

Sales and marketing expenses rose by 19% compared to the first quarter of 2012, reflecting higher staffing and travel costs.

During Q1 2013, Ten Peaks recorded a $0.2 million net gain on coffee futures, compared to a net gain of $0.7 million for the same period last year. Ten Peaks also realized losses of $49 thousand on foreign exchange forward contracts, compared to a realized gain of $70 thousand in Q1 2012.

First quarter EBITDA was $0.6 million, compared to $0.8 million in 2012. The decrease reflects higher operating expenses this year, as well as the small realized loss on foreign exchange forward contracts mentioned above. Ten Peaks' US dollar revenue hedges that matured in Q1 2012 had an effective exchange rate of C$1.05 to the US dollar, boosting results for that quarter, compared to only C$1.01 in Q1 of this year.

Net income was $0.1 million for the quarter, compared to $0.4 million in Q1 last year. The drop in net income reflects the reduced gains on derivative financial instruments, higher sales and marketing expenses, and a loss on foreign exchange (compared to a gain on foreign exchange in Q1 2012).

During the first quarter, cash from operations was $2.4 million, up significantly from $1.0 million in Q1 2012. Ten Peaks also reduced its investment in capital equipment. As a result, the company's net debt (bank indebtedness less cash) fell by $1.9 million in the first three months of this year. Ten Peaks' interest expense also declined, as its bank debt has been reduced by $4.0 million over the past 12 months.

Outlook

Management believes that demand for Ten Peaks' premium quality decaffeinated coffees will continue to grow in 2013.

"Moving forward, we will continue to build on the excellent sales momentum we have generated with our specialty regional accounts," said Dennis. "We also expect volumes to our national accounts to rise modestly this year, as the lower NY'C' has enabled these businesses to renew their promotional activities and reduce pricing at the retail level. This should help offset the ongoing weakness we expect to experience from two of our national accounts during the second quarter."

Generally improved market conditions should also help drive volume growth for Ten Peaks. Demand for specialty-grade coffees is rising, as consumers continue to seek out better quality coffee, buy "better for you" food products and embrace "single-serve" coffeemakers. In 2012, sales of premium and super-premium coffees (regular and decaffeinated) in US grocery stores grew 10% by dollar value, while the mainstream and value categories declined by 2%.(1) As a provider of exceptional quality decaffeinated coffees - including to roasters who manufacture single-serve products - Ten Peaks expects to benefit from this growth in consumer demand.

Finally, Ten Peaks will continue to build on Seaforth's early success. As discussed above, Seaforth outperformed expectations during its first year of operation. Accordingly, management will be exploring additional growth opportunities for the green coffee handling and storage business in 2013.

Payment of Quarterly Dividend

On March 19, 2013, the Directors declared an eligible dividend of $0.0625 per share which was paid on April 15, 2013, to shareholders of record on April 1, 2013.

Additional Information

A more detailed discussion of Ten Peaks' first quarter financial results and management's outlook can be found in the company's Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2013. This document, along with Ten Peaks' condensed consolidated interim financial statements, will be posted on SEDAR (www.sedar.com) on or before May 9, 2013.

Readers are cautioned that the summary information contained in this press release is not a suitable source of information for readers who are unfamiliar with Ten Peaks. This press release should be considered a precursor to, and not a substitute for, reading the financial statements and MD&A, which provide more detailed information related to the company's performance and future prospects.

(1) IRI Data Coffee Category, Total US F/D/Mx, Calendar Year 2012 ending Dec 30, 2012

Company Profile

Ten Peaks is a publicly traded company that owns all of the interests of the Swiss Water Decaffeinated Coffee Company Inc. (SWDCC), a premium green coffee decaffeinator located in Burnaby, BC. It also owns and operates Seaforth Supply Chain Solutions Inc. (Seaforth), a green coffee handling and storage business located in Metro Vancouver.

About SWDCC

SWDCC is a premium green coffee decaffeinator located in Burnaby, BC. SWDCC employs the proprietary SWISS WATER® Process to decaffeinate green coffee without the use of chemicals, leveraging science-based systems and controls to produce coffee that is 99.9% caffeine free. The SWISS WATER® Process is certified organic by the Organic Crop Improvement Association, and is the world's only branded decaffeination process.

SWISS WATER® Process decaffeinated green coffees are sold to many of North America's leading specialty roaster retailers, specialty coffee importers and commercial coffee roasters. SWDCC also sells coffees internationally through regional distributors.

About Seaforth

Located in Coquitlam, BC, Seaforth commenced operations in February 2012. It provides a complete range of green coffee handling and storage services, including devanning coffee received from origin; inspecting, weighing and sampling coffees; and storing, handling and preparing green coffee for outbound shipments. Seaforth's warehouse and handling operation is certified organic by Quality Assurance International.

Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. When used in this press release, such statements may include such words as "may", "will", "expect", "believe", "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance, as well as management's current estimates, but which are based on numerous assumptions and may prove to be incorrect. These statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties, including, but not limited to, risks related to processing volumes and sales growth, operating results, supply of coffee, general industry conditions, commodity price risks, technology, competition, foreign exchange rates and general economic conditions.

The forward-looking statements and financial outlook information contained herein are made as of the date of this press release and are expressly qualified in their entirety by this cautionary statement. Except to the extent required by applicable securities law, Ten Peaks Coffee Company Inc. undertakes no obligation to publicly update or revise any such statements to reflect any change in management's expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those described herein.

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