Ten Peaks Coffee Company Reports Excellent Results For The Second Quarter And First Half of 2014

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 13, 2014) - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported financial results for the three and six months ended June 30, 2014. The three-month period represents the second quarter of the company's 2014 fiscal year. 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"), the company's green coffee handling and storage subsidiary. SWDCC is a premium green coffee decaffeinator located in Burnaby, BC, which employs the proprietary SWISS WATER® Process to decaffeinate green coffee without the use of chemicals. It is the company's primary business, and the results reported here reflect SWDCC's operating performance.

During the three months ended June 30, 2014, SWDCC maintained the robust sales momentum it recorded in the first quarter of this year. As a result, the company achieved double-digit growth in its processing volumes for both Q2 and the first half. The substantial volume gains enabled Ten Peaks to post its best quarterly financial results in over eight years. Revenues, gross profit, net income and EBITDA all rose significantly over the same period last year.

In $000s except per share amounts	3 months ended				6 months ended
(unaudited)	June 30				June 30
	2014		2013		2014		2013
Sales	$ 15,998		$ 12,819		$ 29,480		$ 24,862
Gross profit	3,437		1,739		5,553		2,909
EBITDA(1)	2,499		1,365		2,622		1,943
Net income	1,820		644		1,147		750
Per share amounts:
EBITDA per share	0.37		0.20		0.39		0.29
Net income per share	0.27		0.10		0.17		0.11

1. EBITDA is defined in the company's Management's Discussion and Analysis, which will be posted on
   SEDAR on August 13, 2014.

During the second quarter of 2014, processing volumes rose by 18% over Q2 2013. The strong gains were driven by a 54% increase in volumes to specialty regional customers and supported by a 4% increase in volumes to SWDCC's large national accounts. During the first half of the year, the company's volumes rose by 14% compared to the same period in 2013, with shipments to specialty regional accounts up by 24% and volumes to national accounts increasing by 9%. All geographic areas saw growth, with the most significant gains being generated in the US market.

"We are extremely pleased with our results for the year-to-date," said Frank Dennis, President and CEO of Ten Peaks. "Our strategy for the past several years has been to focus on consistently delivering premium, 100% chemical free decaffeinated coffees backed by service programs that provide our customers with real value. This year, our "quality-first" strategy has enabled us to achieve significant growth in our volumes and market share even though coffee commodity prices have been relatively high and therefore a potential drag on demand."

During the first quarter of 2014, the NY'C' coffee commodity price rose rapidly, due to market concerns over future coffee supplies. A recent drought in Brazil is expected to reduce the overall quality and quantity of coffee from that country's harvest, both this year and next. As Brazil is the largest coffee-producing country in the world, this has led to considerable unease and speculation in the coffee commodity market and forced prices up. During the second quarter of 2014, the "NY'C'" averaged US$1.85, up by 40% over the same period last year. For the first half, the NY'C' averaged $1.69, an increase of 23% over 2013. In both periods, the higher NY'C' contributed to an increase in Ten Peaks' revenues and, to a lesser extent, its cost of sales.

A strong US$ also contributed to the company's revenue growth this year. During the second quarter, the US$ averaged $1.09, up by 7% from $1.02 in Q2 2013. For the first half, the US$ averaged $1.10, an increase of 8% over the same period last year. During the six months ended June 30, 2014, 72% of the company's sales were generated in US$, up from 62% for the same period last year.

Second quarter sales totaled $16.0 million, an increase of 25% over Q2 2013. Revenue for the year-to-date rose by 19% to $29.5 million. Process revenue totaled $3.9 million for the second quarter, an increase of 24%, and $7.4 million for the first half, which is a gain of 20%. In both cases, the increases were related to higher processing volumes and a stronger US$. Green revenue (the base amount customers are charged for green coffee) grew by 23% to $11.4 million during the second quarter and by 16% to $20.8 million for the first half. In this revenue category, gains were related to the higher NY'C' and increased sales volumes. Distribution revenue (the amount customers are charged for shipping, handling and warehousing) grew by 73% to $0.7 million in Q2 and by 59% to $1.3 million for the first half. Here, gains reflect the expansion of Seaforth's business, as well as the increased volumes.

Cost of sales totaled $12.6 million for the second quarter and $23.9 million for the first half of 2014. This represents a year-over-year increase of 13% and 9%, respectively. The increases were related to several factors, including higher green coffee costs, additional warehousing charges related to growth at Seaforth, and rising utilities costs. In addition, the labour dispute at the Port Metro Vancouver in March of this year increased freight and inbound coffee costs, as it held up green coffee bound for SWDCC for several weeks. In order to make up for the temporary shortfall, SWDCC had to purchase coffee from other warehouses in North America and ship it to the decaffeination facility.

Gross profit increased by 98% to $3.4 million for the second quarter and by 91% to $5.6 million for the year-to-date. In both periods, the growth was driven by higher sales revenue, which more than offset the increases in cost of sales.

Sales and marketing expenses for the second quarter were $0.4 million, which is the same as during Q2 2013. For the first half, sales and marketing expenses fell by $0.1 million to $0.7 million, reflecting reduced staffing this year.

Administration expenses rose by $0.1 million to $0.8 million in the quarter, due to higher stock-based compensation. For the six months ended June 30, 2014, administration expenses were $1.7 million, up by $0.3 million compared to 2013. Higher stock-based compensation and professional fees drove the increase.

SWDCC enters into coffee futures contracts to manage the effects of changes in the NY'C' between the time the company commits to buy coffee at a fixed price and the time it sells that coffee at the then-current market price. Realized gains and losses on these contracts are recorded when they mature. In addition, as Ten Peaks does not use hedge accounting, unrealized gains and losses are also recorded at the end of the reporting period, calculated using the market values of the NY'C' at quarter-end.

In the first half of this year, losses on commodity futures partially offset the higher gross profit. Most of the impact occurred during the first quarter, when the rapid rise of the NY'C' generated significant losses on the company's commodity hedges. During the second quarter, losses on coffee futures were limited, such that the increased gross profit more than offset losses on derivative instruments during the period.

Overall, Ten Peaks generated net income of $1.8 million and $1.1 million in the three and six months ended June 30, 2014, respectively, compared to $0.6 million and $0.8 million in the same periods last year.

EBITDA also rose in both periods this year, increasing by 83% to $2.5 million in Q2 and by 35% to $2.6 million in the first half. In both cases, the significant increase in gross profit drove the gains in EBITDA.

Cash from operations declined by $3.0 million in the first half of 2014. This primarily reflects increased working capital requirements for inventory, due to the higher NY'C' and the labour dispute at the Port Metro Vancouver. As a result, the company's net debt rose by $4.1 million.

During the second quarter, the company completed implementation of a new enterprise resource planning system which it has been configuring and testing for several quarters. The new software system is expected to be more scalable as the company grows, and also allow for more timely access to management information. The implementation has proceeded with very little interruption of business. The new system increased the company's first half capital expenditures, which were also up year-over-year due to leasehold improvements, and investments in additional machinery and equipment.

Outlook

Management expects to continue recording steady business growth during the balance of this year. However, the rate of growth will likely be somewhat slower than it was during the first half, as the second half of 2013 was particularly strong. Accordingly, it will be more challenging to record year-over-year gains.

SWDCC's commitment to providing its customers with 100% chemical free processing, and to preserving the unique quality of fine coffees through the decaffeination process, are recognized, valued and respected by the coffee trade. As such, the company will maintain its dedication to delivering decaffeinated coffees of the highest integrity as it moves forward.

Additionally, in order to ensure that SWDCC continues to provide the level of customer service that its customers value and appreciate, the company will be adding to its team in the second half of the year.

"Our gains over the past several years have been supported by the exceptional customer service that we provide," said Dennis. "Our continued growth requires us to invest strategically in customer service and logistics at both our head office in Burnaby, BC and our new sales office in Seattle, WA. The Seattle location gives us greater presence in the US market, where we have been generating double-digit volume growth over the past few years."

The company's coffee handling and warehousing subsidiary, Seaforth Supply Chain Solutions, saw its handling and storage volumes increase substantially in the second quarter. The labour dispute at Port Metro Vancouver, which negatively impacted results in the first quarter, was resolved at the end of March, enabling a significant increase in activity in Q2. Management believes that Seaforth will make a modest contribution to the company's financial results in 2014 and beyond.

Payment of Quarterly Dividend

On July 15, 2014, the company paid an eligible quarterly dividend of $0.0625 per share to shareholders of record on June 30, 2014.

Additional Information

A more detailed discussion of Ten Peaks' second quarter and first half 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, 2014. This document, along with Ten Peaks' condensed consolidated interim financial statements, will be posted on SEDAR (www.sedar.com) and on the company's website (http://www.tenpeakscoffee.ca) on August 13, 2014.

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.

About SWDCC

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 a 100% chemical free water process for coffee decaffeination, as well as the world's only consumer-branded decaffeination process. It is certified organic by the Organic Crop Improvement Association.

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

Seaforth provides a complete range of green coffee logistics 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 Ecocert Canada.

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.