Ten Peaks Coffee Company Inc. Reports First Quarter Results
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 - 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
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
In $000s except per share amounts
3 Months Ended
Net income (loss)
Per share amounts:
EBITDA per share
Net income (loss) per share
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 $14.9
million , up by 7% over the same period last year. The growth was driven
by a 12% increase in the company's "green coffee cost recovery
revenue", which is the base amount SWDCC charges its customers for
green coffee. Although the NY'C' was lower in the first quarter of 2012
than during Q1 2011, some of SWDCC's customers had committed to buying
decaffeinated coffee at prices that had been fixed several months
Revenue also grew with a slightly stronger US dollar ("US$"). 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
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
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
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
"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 WATERŪ Process, a
proprietary, chemical free decaffeination method. Accordingly, SWISS
WATERŪ 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
Certified organic by the Organic Crop Improvement Association, the SWISS
WATERŪ Process is the world's only branded decaffeination process and
enjoys substantial recognition in the specialty coffee trade and with
SWISS WATERŪ 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.