TRADING SYMBOL: The Toronto Stock Exchange - TPK
Ten Peaks Coffee Company Inc. will hold a conference call to discuss its financial results for the three months ended March 31, 2012 on Friday, May 11, 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 May 25, 2012 at 1-855-859-2056 (toll free) or 416-849-0833 (GTA and international) passcode: 80165443. In addition, a live and archived webcast can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=168534 or on Ten Peaks' website at www.tenpeakscoffee.ca
VANCOUVER, May 10, 2012 /CNW/ - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported its financial results for the three months ended March 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 and the results reported here reflect SWDCC's operating performance.
The company's first quarter performance was mixed, with revenue and net income up over the same period last year, and processing volumes, gross profit and EBITDA down. The declines to gross profit and EBITDA were offset by gains on commodity hedges, which also boosted net income for the quarter.
|In $000s except per share amounts||3 Months Ended|
|Sales||$ 14,939||$ 13,966|
|Net income (loss)||400||(71)|
|Per share amounts:|
|EBITDA per share||0.004||0.153|
|Net income (loss) per share||0.060||(0.011)|
|(1)||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 May 11, 2012.|
Volatility in the New York 'C' ("NY'C") coffee commodity prices continued to impact Ten Peaks' operating performance during the first quarter of 2012. Between January 3, 2012 and March 31, 2012, the NY'C' dropped by 20%, extending a downward trend which began during the second half of 2011. The rapid drop spurred SWDCC's customers to temporarily postpone purchases in anticipation that the NY'C' would decline further. In addition, SWDCC's large national accounts continued to be heavily impacted by ongoing weakness in the grocery channel, as lower commodity prices have not yet been translated into lower retail prices. As a result, SWDCC's first quarter processing volumes fell by 12% compared to the same period last year.
More positively, the decreased volume from SWDCC's national accounts was partially offset by volume increases and new business from its specialty regional accounts. During the past year, SWDCC has made solid gains with these customers, who are committed to selling excellent decaffeinated coffees to their own customers. This trend continued during the three months ended March 31, 2012, with volumes to this market segment growing by 19% compared to Q1 2011.
Sales revenue for the three months ended March 31, 2012 totaled $14.9 million, up by 7% over the same period last year. The growth was driven by a 12% increase in the company's "green coffee cost recovery revenue", which is the base amount SWDCC charges its customers for green coffee. Although the NY'C' was lower in the first quarter of 2012 than during Q1 2011, some of SWDCC's customers had committed to buying decaffeinated coffee at prices that had been fixed several months earlier.
Revenue also grew with a slightly stronger US dollar ("US$"). During the three months ended March 31, 2012, Ten Peaks generated 61% of its sales in US dollars, compared to 56% in the same period last year. As the US$ averaged $1.00 during Q1 2012, compared to $0.99 during the first quarter of 2011, this had a positive effect on Ten Peaks' sales revenue.
Ten Peaks' cost of sales for the three months ended March 31, 2012 totaled $14.3 million, an increase of $2.3 million, or 19%, over the same period last year. The growth was primarily due to higher green coffee costs (which reflect the company's historical costs and not the current NY'C').
Gross profit for the three months ended March 31, 2012 was $0.7 million. This represents a decrease of 65% over Q1 2011, with the difference arising from 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 in Q1 2012, SWDCC may have to sell coffee at a lower commodity price than it was purchased for. While this is offset by the commodity hedges that SWDCC enters into, the offsetting hedge gain is not recorded in the company's revenue or its costs of sales. As a result, gross profit was unusually low.
In order to mitigate the impact of changing commodity prices and exchange rates on its cash flows, SWDCC enters into coffee futures and foreign exchange forward contracts. However, as it does not use hedge accounting, the current market value of its hedge position must be recognized at each balance sheet date, even though the underlying value of these derivative instruments may change before the contracts mature.
During the first quarter of 2012, Ten Peaks realized $1.2 million in gains on derivative financial instruments, compared to realized losses on derivatives of $0.1 million for the same period last year. The company also recorded $0.3 million in unrealized losses on derivatives, compared to unrealized losses of $0.5 million for Q1 2011. Foreign exchange gains totaled $46 thousand, compared to losses of $0.1 million during the first quarter of 2011.
First quarter operating expenses were lower in 2012 than in 2011. This was due to a decline in sales and marketing expenses, which fell with reduced staffing and staff-related expenditures. Administration expenses totaled $0.7 million for the first three months of 2012, which is unchanged from Q1 2011.
Overall, Ten Peaks' net income for Q1 2012 was $0.4 million, compared to a net loss of $0.1 million in Q1 2011.
In Q1 2012, EBITDA was $28 thousand, compared to $1.0 million in the same period in 2011. Once again, the change was due to the rapid decline in coffee commodity prices, which pushed gross profit down. Although this was offset by realized gains on commodity futures, gains and losses on derivative instruments are not included in the EBITDA calculation. As a result, the company's first quarter EBITDA was unusually low.
As reported previously, Ten Peaks continued to advance its growth strategy during the first quarter. 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 which will initially focus on meeting the green coffee handling needs of SWDCC. Over time, Seaforth will gradually expand its customer base to include coffee importers and other Metro Vancouver coffee companies.
"We expect that operating our own green coffee handling and storage business will enable SWDCC to realize modest cost savings in 2012," said Frank Dennis, President and CEO of Ten Peaks. "Over the longer term, it will also help grow Ten Peaks' revenues, extending our reach along the coffee value chain and providing us with a new profit centre beyond the decaffeination business."
Moving forward, management believes that demand for SWDCC's premium decaffeinated coffees will return to historic levels as lower coffee commodity prices are translated into lower retail prices at Canadian grocery stores.
"While we are continuing to win new business and grow volumes with our higher margin specialty regional accounts, we expect softness from our existing large Canadian accounts to continue for the next several months," said Frank Dennis. "It will take some time for the now lower NY'C' levels to be reflected on the grocery shelves. Once that happens, consumer demand should return to more normal levels, spurring renewed activity and demand across the entire coffee category."
Payment of Quarterly Dividend
On March 20, 2012, Ten Peaks' board of directors declared a cash dividend of $0.0625 per share for the quarter ended March 31, 2011. The dividend was paid on April 16, 2012, to shareholders of record at the close of business on March 30, 2012.
On January 1, 2011, the Swiss Water Decaffeinated Coffee Income Fund (the "Fund") converted to a corporation by way of a Plan of Arrangement. Pursuant to the Plan of Arrangement, all of the Fund's outstanding units were exchanged, on a one-for-one basis, for common shares of Ten Peaks. Additionally, the Fund was wound up into Ten Peaks, and SWDCC became a wholly owned subsidiary of Ten Peaks.
A more detailed discussion of Ten Peaks' first quarter 2012 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, 2012. This document, along with Ten Peaks' condensed consolidated interim financial statements for the period, will be posted on SEDAR (www.sedar.com) on or before May 11, 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 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.
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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