Ten Peaks Coffee Company Inc. Reports Third Quarter and Year-to-Date Results
Higher Q3 Processing Volumes Boost Nine-Month Sales and Net Income
Ten Peaks Coffee Company Inc. will hold a conference call to discuss its financial results for the three and nine months ended September 30, 2012 on Friday, November 9, 2012 at 8:00 am Pacific Time (11:00 am Eastern Time). To participate, please dial 1-888-231-8191 (toll free) or 647-427-7450 (GTA and international) approximately five minutes before the call and provide the company name. A replay will be available through November 23, 2012 at 1-855-859-2056 (toll free) or 416-849-0833 (GTA and international) passcode: 55969968. In addition, a live and archived webcast can be accessed at: http://www.investorcalendar.com/IC/CEPage.asp?ID=170064 or on Ten Peaks' website at www.tenpeakscoffee.ca
TRADING SYMBOL: The Toronto Stock Exchange - TPK
VANCOUVER, Nov. 8, 2012 /CNW/ - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported its financial results for the three and nine months ended September 30, 2012. 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 and the results reported here reflect SWDCC's operating performance.
Ten Peaks' results for the first three quarters of 2012 were positive, with SWDCC recording improved nine-month processing volumes, sales and net income.
"We are pleased with our performance for the first three quarters of 2012," said Frank Dennis, President and CEO of Ten Peaks. "We have grown our business in spite of a volatile commodity market, and successfully managed our costs and our working capital. This enabled us to reduce our net debt position by $1.5 million, while also paying out $1.3 million in dividends.
"Additionally, in keeping with our established growth strategy, we have been working to build volume among specialty regional accounts and international customers. Our efforts have paid off, with processing volumes to both customer groups growing by 10% since the start of this year. As the North American decaffeinated coffee market as a whole is flat or declining, this reflects solid growth in our market share."
During the nine months ended September 30, 2012, SWDCC's processing volumes rose by 4% year-over-year, pushing up revenues for the period by 5%. Gross profit for the year-to-date was down due to a sharp decline in the coffee commodity price, or NY'C', which caused the company to sell some coffee at a reduced margin when compared to the first three quarters of last year. EBITDA also fell, due to lower gross profit and reduced gains on foreign exchange forward contracts. These effects were partially offset by lower operating expenses and increased gains on commodity futures contracts. Overall, Ten Peaks recorded net income of $0.9 million for the year-to-date. This is up from $0.3 million in the first nine months of 2011, as net gains on derivative instruments and expense reductions more than offset this year's lower gross profit.
|In $000s except per share amounts||3 Months Ended||9 Months Ended|
|(Unaudited)||September 30||September 30|
|Per share amounts:|
|EBITDA per share||0.079||0.194||0.318||0.489|
|Net income per share||0.054||(0.001)||0.137||0.051|
EBITDA is a non-IFRS measure defined in the company's Management's
Discussion and Analysis,
which will be posted on SEDAR on or before November 9, 2012.
During the three months ended September 30, 2012, SWDCC's processing volumes grew by 10% on a year-over-year basis. The increase was driven by much stronger orders from the company's large national accounts, which responded positively to a sharp decline in the NY'C'. During the third quarter, the coffee commodity price averaged US$1.72, which was down 33% from US$2.56 in Q3 last year. The price drop enabled SWDCC's national customers to reduce coffee prices at the consumer level, as well as to increase their promotional activities in the grocery channel. This stimulated demand for their products and helped drive up SWDCC's quarterly processing volumes to these accounts by 17% over Q3 2011. The jump in third quarter national account volumes more than offset sales declines recorded during the first half of the year, bringing year-to-date volumes to national accounts up by 1%.
Demand from SWDCC's higher margin specialty regional accounts continues to be strong. For more than two years, the company has focused on building market share with these quality oriented accounts, which are committed to providing their own customers with premium, chemical free decaffeinated coffee. SWDCC's strategy has proven successful, enabling it to steadily grow its business with existing customers and to win new accounts from key competitors. As a result, its nine-month volumes to specialty regional accounts were up by 10% over 2011.
Third quarter sales revenue totaled $14.0 million, which is unchanged from Q3 2011. Process revenue for the period rose with the higher processing volumes, growing by 7% over the same period last year. Green coffee cost recovery revenue ("green revenue"), which is the base amount that SWDCC charges its customers for green coffee, fell by 4% during the quarter, due to the lower NY'C'. Nine-month revenue was $45.0 million, up by 5% over the same period last year. Green revenue rose by 5%, with the increase driven by a rise in regular sales. Nine-month revenue also benefited from volume growth to SWDCC's specialty regional accounts and a slightly stronger US dollar, which together increased process revenue by 4% over the 2011 level.
Cost of sales for the three months ended September 30, 2012 totaled $12.8 million, which is in line with the same period last year. Cost of sales for the year-to-date was $41.8 million, up by 11% over the first three quarters of 2011. The growth was primarily due to higher green coffee costs (which reflect the NY'C' at the time the coffee was purchased and not the current NY'C').
Third quarter gross profit was $1.2 million, a decrease of $0.1 million, or 8%, over Q3 2011. Gross profit for the year-to-date totaled $3.2 million, down by $2.0 million, or 38%, over the first three quarters of 2011. In both periods, the difference is related to the rapid decline in the NY'C'. Unless a customer contracts to purchase coffee over a set period of time at a fixed price, decaffeinated green coffee is sold at the then-current commodity price plus a processing fee. This means that when the NY'C' falls rapidly, as it did during the first nine months of 2012, SWDCC may have to sell coffee at a lower commodity price than it paid.
Partially offsetting the reduced nine-month gross profit was a $0.9 million gain on the company's coffee commodity futures contracts. This compares to a $0.1 million loss in the first three quarters of 2011. Ten Peaks enters into these contracts in order to offset changes in the NY'C' between the time the company purchases coffee and the time it sells decaffeinated coffee to its customers. While these contracts mitigate the impact of changing commodity prices on its cash flows, as Ten Peaks does not use hedge accounting, these gains are not reflected in gross profit.
During the nine months ended September 30, 2012, Ten Peaks did not realize any gain or loss on its foreign exchange forward contracts. This compares to $0.8 million in realized gains during the first three quarters of 2011. These "hedges" are used to mitigate the cash flow impact of converting US dollar revenue to Canadian dollars at lower exchange rates. Gains were realized in 2011 as the hedges that matured last year were entered into when the US-Canadian dollar exchange rate was more favourable.
Operating expenses for the three- and nine-month periods ended September 30, 2012 were down on a year-over-year basis. In both periods, the change was related to decreased sales and marketing expenses, which fell as a result of reduced staffing and staff-related expenditures, as well as lower brand development and market research costs. Administration expenses for the third quarter and year-to-date also declined, due to reduced professional fees.
Overall, Ten Peaks' net income for Q3 2012 was $0.4 million, compared to no net income or loss for the third quarter last year. For the year-to-date, net income totaled $0.9 million, up from $0.3 million for the first three quarters of 2011. Net income was higher in the first nine months of 2012 due to several factors, including higher volumes, net gains on derivative instruments, gains on foreign exchange and lower expenses.
For Q3 2012, the company's EBITDA was $0.5 million, compared to $1.3 million for the same period last year. The decrease was mainly due to a $0.5 million reduction in net gains on commodity futures and a $0.2 million decrease in realized gains on foreign exchange forward contracts. EBITDA for the nine months ended September 30, 2012 totaled $2.1 million, compared to $3.3 million for the first three quarters of 2011. The change was due to this year's rapid decline in coffee commodity prices, which pushed gross profit down, as well as reduced gains on foreign exchange forward contracts. These decreases were only partially offset by lower operating expenses, together with net gains on commodity futures.
Ten Peaks generated $2.9 million in cash from operating activities in the first three quarters of 2012, compared to cash usage of $0.4 million for the same period last year. Improved cash from operations and reductions in inventory driven by the lower coffee commodity price, allowed the company to reduce its net debt position (bank indebtedness less cash on hand) by $1.5 million while also paying out $1.3 million in dividends for the year-to-date. This compares to an increase in net debt of $1.9 million and payments to shareholders of $1.0 million in the first nine months of last year.
Ten Peaks continued to advance its growth strategy during the first three quarters of this year. In February 2012, the company launched a new subsidiary, Seaforth Supply Chain Solutions Inc. ("Seaforth"). Located in Metro Vancouver, Seaforth is a green coffee handling and storage business. It was established to meet the green coffee handling needs of SWDCC - services that were previously outsourced to a third-party handler. Although its largest customer is SWDCC, Seaforth also provides green coffee handling services to coffee importers and to other Metro Vancouver coffee companies. More customers are expected to be added in the coming months, allowing Ten Peaks to generate a modest income stream beyond coffee decaffeination.
Management expects volume growth to continue into the fourth quarter. The sustained decline in the NY'C' should drive steady orders from the company's larger national accounts, while processing volumes to SWDCC's higher margin specialty regional customers are expected to remain strong. The company's multi-pronged strategy to extend its market reach is also generating positive results.
"Our efforts to grow internationally have paid off, with a 10% increase in processing volumes to international customers so far this year," said Dennis. "We are also seeing good results from the test marketing of our Ten Peaks branded specialty coffee in Minneapolis. In the coming months, we expect to increase our distribution of this product in other areas of Minnesota. This should enable us to realize some cost savings, while providing a larger volume base against which to develop the brand. At the same time, Seaforth has outperformed our expectations, with the business adding several new customers in its first few months of operations. We believe that these initiatives and similar opportunities to extend our reach along the coffee value chain will contribute positively to Ten Peaks' long-term success."
Payment of Quarterly Dividend
On September 12, 2012, Ten Peaks' declared a cash dividend of $0.0625 per share for the quarter ended September 30, 2012. The dividend was paid on October 15, 2012 to shareholders of record at the close of business on September 28, 2012.
A more detailed discussion of Ten Peaks' third quarter and year-to-date 2012 financial results and management's outlook can be found in the company's Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2012. This document, along with Ten Peaks' condensed consolidated interim financial statements for the three- and nine-month periods, will be posted on SEDAR (www.sedar.com) on or before November 9, 2012. The MD&A and financial statements should be read in conjunction with Ten Peaks' audited consolidated financial statements and accompanying notes for the year ended December 31, 2011, which are also posted on SEDAR.
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.
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 warehousing business located in Metro Vancouver.
Established in 2000, SWDCC is one of the few chemical free coffee decaffeinators in the world. It employs the SWISS WATER® Process, a proprietary, chemical free decaffeination method. Accordingly, SWISS WATER® Process decaffeinated green coffees are distinct from the majority of the world's decaffeinated coffees, which are exposed to chemical solvents such as methylene chloride and ethyl acetate during decaffeination.
Certified organic by the Organic Crop Improvement Association, the SWISS WATER® Process is the world's only branded decaffeination process and enjoys substantial recognition in the specialty coffee trade and with consumers.
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.
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 locally and across North America.
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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