Ten Peaks Coffee Company Inc. Declares Quarterly Dividend and Reports Fourth Quarter and 12-Month Results for 2012

Annual Processing Volumes Rise for Third Year in a Row, Net Income Up 83% Over 2011

Ten Peaks Coffee Company Inc. will hold a conference call to discuss its financial results for the three months and year ended December 31, 2012 on Thursday, March 21, 2013 at 8:00 am Pacific Time (11:00 am Eastern Time). To participate, please dial 1-888-390-0605 (toll free) or 416-764-8609 (GTA and international) approximately five minutes before the call and provide the company name or Conference ID: 46150512.  A replay will be available through April 4, 2013 at 1-888-390-0541 (toll free) or 416-764-8677 (GTA and international) passcode: 461505.  In addition, a live and archived webcast can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=170636 or on Ten Peaks' website at www.tenpeakscoffee.ca.

TRADING SYMBOL: The Toronto Stock Exchange - TPK

VANCOUVER, March 20, 2013 /CNW/ - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported its financial results for the three months and year ended December 31, 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. Accordingly, the results reported here are based on SWDCC's operating performance.

The company posted a solid performance for 2012, with annual processing volumes growing by 5% and net income increasing by 83% on a year-over-year basis. In addition, cash from operations more than doubled, allowing Ten Peaks to reduce its bank indebtedness and improve its balance sheet. The company also paid $1.7 million in dividends to shareholders, through quarterly dividend payments of $0.0625 per share. As expected, EBITDA declined, owing to reduced gains on foreign exchange forward contracts compared to 2011.

"We are pleased with the past year's results and especially with the ongoing growth of our processing volumes," said Frank Dennis, President and CEO of Ten Peaks. "Our volumes have risen every year for the past three years, growing by a total of 16%. In the US market, our volumes have increased 35% over the same three-year period. In sharp contrast, industry-wide sales volumes of decaffeinated coffee in US grocery stores declined by 15% during this period. Accordingly, we can confidently say that we are gaining market share in the US."

Operating Results

                       
In $000s except per share amounts   3 Months Ended     12 Months Ended 
    December 31     December 31
    2012     2011     2012     2011
                       
Sales  $ 14,718    $ 17,904    $ 59,713    $ 60,671
Gross profit   1,496     1,456     4,663     6,615
EBITDA(1)   1,271     822     3,393     4,083
Net income   590     480     1,504     823
Per share amounts:                      
EBITDA per share   0.19     0.12     0.51     0.61
Net income per share   0.09     0.07     0.23     0.12

 

(1) EBITDA is defined in the company's Management's Discussion and Analysis, which will be posted on SEDAR on or before March 21, 2013.

During the three and 12 months ended December 31, 2012, SWDCC's processing volumes rose by 9% and 5% respectively.  In both cases, the growth was driven by ongoing gains with the company's specialty regional accounts. Over the past three years, SWDCC has actively targeted these customers, who place a high value on the superior, science-driven quality of its chemical free decaffeinated coffees, as well as its excellent customer service. This strategy has proven successful, with volumes to these higher margin accounts rising by 18% in 2012. This extends the gains achieved by SWDCC in 2011, when volumes with its specialty regional accounts grew by 29%. In addition to driving up SWDCC's overall volumes, winning new specialty regional accounts has enabled Ten Peaks to further diversify its customer base.

Volumes delivered to SWDCC's large national accounts were in line with 2011. This reflects the ongoing challenges these customers faced due to historically high coffee prices in grocery stores. In 2011, the coffee commodity price (or "NY'C'") rose to a 13-year high of more than $3.00 per lb., due to a series of climatic and agricultural issues in a number of coffee-producing regions. Eventually, higher coffee prices were passed along to consumers, dampening demand at the retail level. During 2012, the NY'C' reversed its steep climb, falling by 37%. However, as large national roaster-retailers tend to make their coffee purchase commitments several quarters in advance, they have only recently benefited from a lower NY'C', and started to pass the price reductions onto consumers.  During the second half of 2012, management observed increased promotional feature activity around coffee in the grocery channel, together with somewhat lower coffee prices at retail.  This corresponded with increased orders from SWDCC's national accounts, with volume growth of 7% in the second half of 2012 offsetting the declines recorded with this segment during the first half of the year.

Sales revenue for the three months and year ended December 31, 2012 fell year-over-year, decreasing by 18% and 2%, respectively. In both periods, the decrease was due to a lower average NY'C', which pushed down green coffee cost recovery revenue ("green revenue"). Unless a customer commits to buy coffee at a fixed price in the future, Ten Peaks sells its coffee at the then-current coffee commodity price, and not the price it paid for it. In a declining commodity price market, this will lower revenues and gross profit on green coffee sales. Lower green revenue was partially offset by increases in other revenue categories. Process revenue was unchanged in the fourth quarter, but up 3% for the full year. Distribution revenue (the amount Ten Peaks charges its customers for shipping, handling and warehousing) increased for both the fourth quarter and the full year, due to higher processing volumes, increased transportation charges and the addition of revenue from Seaforth Supply Chain Solutions Inc. ("Seaforth").

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. Seaforth also positions Ten Peaks to increase customer satisfaction levels, as it can now better manage the decaffeination process from start to finish.

Cost of sales for the three months ended December 31, 2012 totaled $13.2 million. This is down by 20% from the same period in 2011, with the decrease related to lower green coffee prices. For the full year, Ten Peaks cost of sales was $55.1 million, an increase of $1.0 million, or 2%, over 2011.  The growth was driven by higher processing volumes, as well as increased green coffee costs in the first half of 2012. Ten Peaks' green coffee costs reflect the historical cost of its inventories and not the current commodity price.

Gross profit for the three months ended December 31, 2012 totaled $1.5 million, which is unchanged from the same period in 2011. Gross profit for the full year declined by $1.9 million, or 29%, to $4.7 million. Although Ten Peaks hedges its green coffee inventories to protect itself against changes in the NY'C', the company does not use hedge accounting. Accordingly, the offsetting changes in its derivative instruments are not reflected in its gross profit, but rather under 'Gains/Losses on Derivative Financial Instruments'.

During 2012, Ten Peaks realized a $1.5 million net gain on coffee commodity futures, which largely offset its reduced gross profit. By comparison, the company realized no net gain or loss on commodity futures contracts in 2011. However, Ten Peaks also realized no gain or loss on its foreign exchange forward contracts in 2012, compared to a realized gain of $0.9 million in 2011.

Operating expenses for the three months and year ended December 31, 2012 both fell on a year-over-year basis. The declines reflected reduced market research, as well as decreased staffing in sales and marketing.

For 2012, Ten Peaks recorded income before taxes of $2.0 million, compared to $1.1 million in 2011. The 2012 income was reduced by deferred income taxes of $0.5 million, resulting in net income of $1.5 million for the year. This is up by 83% from 2011, when the company recorded net income of $0.8 million.

Outlook

During 2013, Ten Peaks will continue to leverage its strengths and execute against its proven growth strategy.

"Over the past three years, we have clearly demonstrated that we can grow our decaffeination business by focusing on winning higher margin specialty regional accounts," said Dennis. "These quality-oriented customers are dedicated to providing premium coffees to their own customers and appreciate SWDCC's commitment to consistently deliver premium quality chemical free decaffeinated coffees backed by excellent, value-added customer service. As such, we are confident we can continue to grow our volumes to these accounts in the year ahead."

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.

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

Lower coffee commodity prices are also expected to help boost Ten Peaks' results. The recent decline in the NY'C' has enabled SWDCC's larger national accounts to renew their promotional activities and reduce pricing at the retail level. This should drive modest volume growth to these customers in 2013. More generally, a lower NY'C' is expected to allow Ten Peaks to capture new business at higher margins. When coffee commodity prices rise, as they did in 2010 and 2011, considerable pressure is exerted on coffee retailers' margins due to their limited ability to pass price increases onto consumers. When prices fall in a sustained manner, this pressure eases, allowing all participants in the coffee value chain to modestly expand their operating margins.

Ten Peaks will also continue working to extend its geographic reach during 2013. Over the past two years, management has made a concerted effort to increase SWDCC's presence beyond North America, as it believes there are many growth opportunities for caffeine-reduced coffees in international markets. During 2012, SWDCC's processing volumes delivered to its international accounts grew by 7% and this positive trend is expected to continue.

The test marketing of Ten Peaks own branded coffee, a premium roast and ground coffee which comes in four different caffeine levels, is also showing promise. The product has now been available to consumers in the Minneapolis area for more than a year, allowing Ten Peaks to test different price points and marketing strategies over an extended period of time. Currently, management is assessing the results of this product trial to determine next steps.

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. Seaforth also recently gained organic certification, thereby enhancing the appeal of its service offering.

Payment of Quarterly Dividend

In December 2012, Ten Peaks' board of directors declared a cash dividend of $0.0625 per share for the quarter ended December 31, 2012. It was paid on January 15, 2013 to shareholders of record at the close of business on December 31, 2012.

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

Additional Information

A more detailed discussion of Ten Peaks' fourth quarter and 2012 financial results and management's outlook can be found in the company's Management's Discussion and Analysis ("MD&A") for the 12 months ended December 31, 2012. This document, along with Ten Peaks' audited consolidated financial statements and accompanying notes, will be posted on SEDAR (www.sedar.com) on or before March 21, 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 or the former Fund. 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

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.

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 locally and across North America. 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.


SOURCE: Ten Peaks Coffee Company Inc.

For further information:

Sherry Tryssenaar, Chief Financial Officer
Ten Peaks Coffee Company Inc.
Phone: 604.444.8780    Fax: 604.420.8711
Email: sherry.tryssenaar@tenpeakscoffee.ca
Website: www.tenpeakscoffee.ca

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