Ten Peaks Coffee Company Inc

August 08, 2013 17:00 ET

Ten Peaks Coffee Company Inc. Reports Second Quarter and First Half Results for 2013

Gross Profit, Net Income, EBITDA and Cash from Operations All Up Over 2012

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 8, 2013) - Ten Peaks Coffee Company Inc. (TSX:TPK) will hold a conference call to discuss its financial results for the three and six months ended June 30, 2013 on Friday, August 9, 2013 at 8:00 am Pacific Time (11:00 am Eastern Time). To participate, please dial 1-866-226-1793 (toll free) or 416-340-2218 (GTA and international) approximately five minutes before the call and provide the company name or Conference ID: 4166386. A replay will be available through August 23, 2013 at 1-800-408-3053 (toll free) or 905-694-9451 (GTA and international) passcode: 3473544.

Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported its financial results for the three and six months ended June 30, 2013. Ten Peaks is a leading specialty coffee company doing business through two wholly owned subsidiaries, Swiss Water Decaffeinated Coffee Company, Inc. ("SWDCC") and Seaforth Supply Chain Solutions Inc. ("Seaforth"). SWDCC is a premium green coffee decaffeinator located in Burnaby, BC. It is the company's primary business, and the results reported here reflect SWDCC's operating performance.

Ten Peaks posted a solid performance during the first half of 2013, with gross profit, net income, and EBITDA all up over the same period last year. In addition, cash from operations rose by 26%, allowing it to reduce its bank indebtedness and strengthen its balance sheet. The company also paid $0.8 million in dividends to shareholders in the first six months of the year.

"We are pleased with this year's first-half performance," said Frank Dennis, President and CEO of Ten Peaks. "We continued to benefit from declining coffee commodity prices, which led to a drop in our revenues but an even larger decrease in our cost of sales. As a result, our gross profit rose significantly, which positively affected our other financial metrics."

Operating Results

In $000s except per share amounts 3 Months Ended 6 Months Ended
(unaudited) June 30 June 30
2013 2012 2013 2012
Sales $ 12,819 $ 16,072 $ 24,862 $ 31,011
Gross profit 1,739 1,335 2,909 2,016
EBITDA(1) 1,365 797 1,943 1,593
Net income 644 151 750 551
Per share amounts:
EBITDA per share 0.20 0.12 0.29 0.24
Net income per share 0.10 0.02 0.11 0.08
  1. EBITDA is defined in the company's Management's Discussion and Analysis, which will be posted on SEDAR on or before August 9, 2013.

Processing volumes for the three and six months ended June 30, 2013 were down by 8% and 3% respectively, on a year-over-year basis. During the second quarter, volumes to both the company's specialty regional accounts and national accounts were down from 2012 levels. However, management believes the decreases were related to timing differences in customer orders and not to a general decline in the business. For the first half of 2013, volumes to specialty regional customers were up by 15% over the same period last year. Over the past three years, SWDCC has actively targeted these customers, who place a high value on the superior 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 29% in 2011 and an additional 18% in 2012.

SWDCC's national volumes were negatively affected by lower sales orders from two accounts during the first six months of 2013. As reported in the first quarter of this year, one customer has been rebalancing its inventories, while another recently closed its operations in Canada. At present, SWDCC's national business appears to be recovering, with second quarter volumes up over the first three months of the year. Additionally, sales to SWDCC's other national accounts were strong, with increases recorded across the balance of the segment.

During the first half of this year, the coffee futures market, or "NY'C'", continued to decline from the historical highs reached in 2011. In Q2 2013, the average NY'C' was US$1.32 per lb, down by 22% from US$1.70 per lb in the second quarter of 2012. For the first six months of 2013, the average NY'C' was $1.38 per lb, down by 26% from $1.88 per lb during the same period last year. As a result, SWDCC's green coffee cost recovery revenue (the base amount it charges customers for green coffee) also fell, decreasing by 24% and 25% in the three and six-month periods, respectively. Process revenue declined in both periods as well, due to the lower processing volumes. Distribution revenue (the amount Ten Peaks charges its customers for shipping, handling and warehousing) increased 5% in Q2 2013 and by 27% for the year-to-date, due to increased transportation rates and growth in Seaforth's business. Overall, sales for the second quarter and first half of 2013 totaled $12.8 million and $24.9 million, respectively. This compares to $16.1 million and $31.0 million for the same periods last year.

Cost of sales for the three and six months ended June 30, 2013 totaled $11.1 million and $22.0 million, respectively. This represents a year-over-year decline of 24% and 25%, respectively, due to the lower NY'C'.

Gross profit in both the three and six-month periods ended June 30, 2013 was up over last year. Second quarter gross profit was $1.7 million, an increase of 30%, while gross profit for the first half was $2.9 million, up by 44% over 2012. The gains reflect the substantial decline in the NY'C', which enabled gross profit to return to more historical levels.

Sales and marketing expenses for the second quarter were $0.4 million, which is unchanged from Q2 2012. For the first half of 2013, sales and marketing expenses rose by $0.1 million to $0.8 million, reflecting higher staffing and staff-related costs this year.

SWDCC enters into coffee futures contracts and foreign exchange forward contracts to manage the effects of changes in the NY'C' and the US-Canadian dollar exchange rate on its business. As the company does not use hedge accounting, it records realized gains and losses on these contracts when they mature, and unrealized gains and losses based on the closing market values of the NY'C' and the US-Canadian exchange rate at the end of a reporting period.

During Q2 2013, Ten Peaks recorded a $0.3 million net gain on futures contracts, compared to a net gain of $0.2 million for the same period last year. The company did not record any realized gains on foreign exchange forward contracts during the period, compared to a realized gain of $0.1 million in Q2 2012. For the year-to-date, Ten Peaks recorded a $0.6 million net gain on futures contracts, compared to a net gain of $0.9 million during the first half of 2012. The company also realized losses of $46 thousand on foreign exchange forward contracts, compared to gains of $121 thousand during the same period last year.

Second quarter EBITDA was $1.4 million, compared to $0.8 million in 2012. The increase reflects this year's higher gross profit, as well as higher net gains on futures contracts. For the six months ended June 30, 2013, EBITDA totaled $1.9 million, compared to $1.6 million for the same period last year. The 22% increase was due to the improved gross profit, partially offset by lower net gains on futures contracts.

Net income was $0.6 million for the second quarter, compared to $0.2 million in the same period last year. The increase primarily relates to this year's higher gross profit. For the year-to-date, net income totaled $0.8 million, up by $0.2 million over the first half of 2012. Higher gross profit in the first six months of this year was only partially offset by reduced gains on derivative instruments.

During the first half, cash from operations was $3.6 million, up by 26% over the same period last year. Higher earnings and lower working capital requirements (due to the lower NY'C') allowed Ten Peaks to reduce its net debt (bank indebtedness less cash) by $2.4 million in the first six months of this year. Accordingly, interest expense for the year-to-date has also declined.

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 of 2013, Seaforth gained organic certification. This 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 organic status leaves the company well positioned to further increase its business. In 2013, Seaforth has continued to secure new customers. As a result, the company is expanding its operations. In August 2013, Ten Peaks is nearly doubling Seaforth's capacity by adding a second warehouse and more staff. Although this will entail some one-time costs, it is expected that Seaforth will make modest contributions to Ten Peaks' financial results in 2013.


Management believes that demand for Ten Peaks' premium quality chemical free decaffeinated coffees will grow in the second half of 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 believe that volumes to our national accounts will build during the last half of the year, as the lower NY'C' has enabled these businesses to renew their promotional activities and reduce pricing at the retail level."

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.

Payment of Quarterly Dividend

On June 12, 2013, the company declared an eligible dividend of $0.0625 per share which was paid on July 15, 2013, to shareholders of record on June 28, 2013.

Additional Information

A more detailed discussion of Ten Peaks' second quarter and six-month financial results and management's outlook can be found in the company's Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2013. This document, along with Ten Peaks' condensed consolidated interim financial statements, will be posted on SEDAR (www.sedar.com) on or before August 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.

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.

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


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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