Higher Q2 Processing Volumes Boost Six-Month Sales and Net Income
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 and six months ended June 30, 2012 on Friday, August 10, 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 August 24, 2012 at 1-855-859-2056 (toll free) or 416-849-0833 (GTA and international) passcode: 14196438. In addition, a live and archived webcast can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=169251 or on Ten Peaks' website at www.tenpeakscoffee.ca
VANCOUVER, Aug. 9, 2012 /CNW/ - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported its financial results for the three and six months ended June 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.
During the three months ended June 30, 2012, SWDCC's processing volumes rose by 12% compared to the same period last year. This offset the year-over-year volume declines recorded during the first quarter of 2012, enabling the company to generate higher six-month revenue and net income than in 2011. However, gross profit and EBITDA for the year-to-date were down compared to the first half of 2011. This was mainly due to a sharp decline in the coffee commodity price, or NY'C', which caused Ten Peaks to sell some coffee at a reduced margin.
|In $000s except per share amounts||3 Months Ended||6 Months Ended|
|(Unaudited)||June 30||June 30|
|Per share amounts:|
|EBITDA per share||0.119||0.185||0.239||0.295|
|Net income per share||0.023||0.063||0.083||0.053|
(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 August 10, 2012.
SWDCC's processing volumes rose across both its national and specialty accounts during the second quarter. Notably, sales to national accounts increased by 9% compared to Q2 2011, reversing a 12-month trend of lower year-over-year volumes that was prompted by last year's extremely high NY'C'. During the first half of this year, the NY'C' dropped by 25%, spurring these businesses to replenish their inventories in the second quarter. SWDCC's higher margin specialty accounts also recorded year-over-year volume increases during the second quarter. The 21% quarterly sales increase extends a full year of strong, steady growth with these customers, who are committed to providing their own customers with premium, chemical free decaffeinated coffee. For the six-month period, volumes to specialty regional accounts grew by 20% over 2011 levels, largely offsetting an overall decline in six-month sales to national accounts. As a result, SWDCC's volumes for the first half of 2012 were on par with the same period last year.
Sales revenue for the three months ended June 30, 2012 totaled $16.1 million. This represents an increase of 9% over Q2 of last year, with the growth mainly due to the higher quarterly processing volumes. Process revenue increased by 18% in the second quarter of 2012, while "green coffee cost recovery revenue", which is the base amount that SWDCC charges its customers for green coffee, was up by 6%. Ten Peaks' six-month revenue was $31.0 million, an increase of 8% over 2011. The increase was largely due to a 9% gain in the company's green coffee cost recovery revenue. Although the NY'C' was lower in the first six months of 2012 than during the same period last year, some of SWDCC's customers had committed to buying decaffeinated coffee at prices that had been fixed several months earlier. Six-month revenue also benefited from the volume growth to SWDCC's specialty regional accounts and a slightly stronger US dollar, which together increased process revenue by 3% over the 2011 level.
Ten Peaks' cost of sales for the three months ended June 30, 2012 totaled $14.7 million, an increase of 15% over the same period last year. Cost of sales for the year-to-date was $29.0 million, up by 17% over the first half of 2011. In both periods, 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').
Second quarter gross profit was $1.3 million, a decrease of $0.6 million, or 30%, over Q2 2011. Gross profit for the year-to-date totaled $2.0 million, down by $1.8 million, or 48%, over the first half 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 six months of 2012, SWDCC may have to sell coffee at a lower commodity price than it paid. As a result, gross profit for both periods declined.
Partially offsetting the reduced six-month gross profit was a $0.9 million gain on the company's coffee commodity futures contracts. This compares to a $0.7 million loss in the first half 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.
In addition, Ten Peaks realized a $0.1 million gain on foreign exchange forward contracts during the first six months of 2012, compared with $0.7 million in realized gains in the first half of last year. These "hedges" are used to mitigate the cash flow impact of converting US dollar revenue to Canadian dollars at lower exchange rates. As the US dollar was stronger in the current period than in 2011, the realized gains on foreign currency derivatives were lower.
Operating expenses for the second quarter and first half were lower in 2012 than in 2011. 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 were also down in the three and six-month periods ended June 30, 2012, due to reduced professional fees and travel.
Overall, Ten Peaks' net income for Q2 2012 was $0.2 million, compared to net income of $0.4 million in the same period last year. For the year-to-date, net income totaled $0.6 million, up from $0.4 million for the first half of 2011. Net income was higher in the first six months of 2012 due to several factors, including the company's improved processing volumes with higher margin specialty accounts, net gains on derivative instruments and lower expenses.
In Q2 2012, the company's EBITDA was $0.8 million, compared to $1.2 million for the same period last year. EBITDA for the six months ended June 30, 2012 totaled $1.6 million, compared to $2.0 million for the first half of 2011. In both periods, the change was due to the rapid decline in coffee commodity prices, which pushed gross profit down. These decreases were only partially offset by lower first half operating expenses, together with the net gains on commodity futures.
Ten Peaks generated $2.9 million in cash from operating activities in the first half of 2012, compared to cash usage of $0.8 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 $1.8 million while also paying out $0.8 million in dividends in the first half. This compares to an increase in net debt of $1.5 million and payments to shareholders of $0.6 million in the first six months of last year.
Ten Peaks continued to advance its growth strategy during the first half. 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.
Demand for SWDCC's premium decaffeinated coffees is expected to continue to grow in the coming months, as the recent decline in the NY'C' is translated into lower prices at the grocery store. Ten Peaks also expects to continue building its business with higher margin specialty regional accounts.
"During the past year, we have recorded strong gains in our specialty regional business, winning new accounts and increasing our volumes with existing customers," said Frank Dennis, President and CEO of Ten Peaks. "This trend is expected to continue, as we work to promote the numerous benefits delivered by SWISS WATER® Process decaffeinated coffees. We also expect volumes to our national accounts to keep improving as lower coffee prices motivate our customers to increase their promotional activities and consumers to buy and drink more coffee."
Payment of Quarterly Dividend
On June 13, 2012, Ten Peaks' declared a cash dividend of $0.0625 per share for the quarter ended June 30, 2011. The dividend was paid on July 16, 2012, to shareholders of record at the close of business on June 29, 2012.
A more detailed discussion of Ten Peaks' second 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 six months ended June 30, 2012. This document, along with Ten Peaks' condensed consolidated interim financial statements for the periods, will be posted on SEDAR (www.sedar.com) on or before August 10, 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.