Ten Peaks Coffee Company Inc. Reports Third Quarter and Year-to-Date Results for 2013

T.TPK

Volumes, Gross Profit, Net Income, EBITDA and Cash from Operations All Up Over 2012 Ten Peaks Coffee Company Inc. will hold a conference call to discuss its financial results for the three and nine months ended September 30, 2013 on Friday, November 8, 2013 at 8:00 am Pacific Time (11:00 am Eastern Time). To participate, please dial 1-866-226-1793 (toll free) or 416-340-2218 (GTA and international) approximately five minutes before the call and provide the company name or Conference ID: 4171782. A replay will be available through November 22, 2013 at 1- 800-408-3053 (toll free) or 905-694-9451 (GTA and international) passcode: 3473544.

Marketwire

Volumes, Gross Profit, Net Income, EBITDA and Cash from Operations All Up Over 2012 Ten Peaks Coffee Company Inc. will hold a conference call to discuss its financial results for the three and nine months ended September 30, 2013 on Friday, November 8, 2013 at 8:00 am Pacific Time (11:00 am Eastern Time). To participate, please dial 1-866-226-1793 (toll free) or 416-340-2218 (GTA and international) approximately five minutes before the call and provide the company name or Conference ID: 4171782. A replay will be available through November 22, 2013 at 1- 800-408-3053 (toll free) or 905-694-9451 (GTA and international) passcode: 3473544.

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 7, 2013) - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") (TSX:TPK) today reported financial results for the three and nine months ended September 30, 2013. Ten Peaks is a leading specialty coffee company doing business through two wholly owned subsidiaries, Swiss Water Decaffeinated Coffee Company, Inc. ("SWDCC") and Seaforth Supply Chain Solutions Inc. ("Seaforth"), the company's green coffee handling and storage subsidiary. SWDCC is a premium green coffee decaffeinator located in Burnaby, BC. It is the company's primary business, and the results reported here reflect SWDCC's operating performance.

Ten Peaks posted a solid performance during the first nine months of 2013, with processing volumes, gross profit, net income, and EBITDA all up over the same period last year. In addition, cash from operations rose by 68%, allowing the company to reduce its bank indebtedness and strengthen its balance sheet. Ten Peaks also paid $1.3 million in dividends to shareholders in the first nine months of the year.

"We are very pleased with our performance year-to-date," said Frank Dennis, President and CEO of Ten Peaks. "Our efforts to win new business and gain market share are paying off in higher volumes. We have now generated double-digit growth in volumes to our specialty regional accounts for three years in a row. In addition, our national account business has been steadily recovering lost ground over the past nine months. Net, our volumes are up year-over-year, and our financial results have improved across the board."

Operating Results

In $000s except per share amounts
(unaudited)
3 Months Ended 
September 30
  9 Months Ended 
September 30
  2013   2012   2013   2012
               
Sales $ 13,217   $ 13,983   $ 38,079   $ 44,994
Gross profit   1,354     1,151     4,263     3,167
EBITDA(1)   1,067     529     3,010     2,122
Net income   561     363     1,311     914
Per share amounts:                      
EBITDA per share   0.16     0.08     0.45     0.32
Net income per share   0.08     0.05     0.20     0.14
  1. EBITDA is defined in the company's Management's Discussion and Analysis, which will be posted on SEDAR on or before November 8, 2013.

During the third quarter of 2013, SWDCC's consolidated processing volumes increased by 11% over the same period last year. Volumes to specialty regional accounts grew by 31% during the period, while volumes to the company's national accounts rose by 5%. For the year-to-date, consolidated processing volumes were up by a total of 2%, with the gains driven by a 20% volume increase to specialty regional accounts. National account volumes for the nine-month period were down by 4% from the 2012 level. This was largely due to the shutdown of one customer's Canadian operations and the temporary slowdown of business with another customer during the first six months of this year. Sales to SWDCC's other national accounts were strong during the first half, with increases recorded across the balance of the segment.

During the first three quarters of this year, the coffee futures market, or "NY'C'", continued to decline from the historical highs reached in 2011. In Q3 2013, the average NY'C' was US$1.18 per lb, down by 31% from US$1.72 per lb in the third quarter of 2012. For the first nine months of 2013, the average NY'C' was US$1.31 per lb, down by 28% from US$1.82 per lb during the same period last year. As a result, SWDCC's green coffee cost recovery revenue (the base amount it charges customers for green coffee) also fell, decreasing by 13% and 22% in the three- and nine-month periods, respectively. Process revenue increased in both periods, due to the higher processing volumes. Distribution revenue (the amount Ten Peaks charges its customers for shipping, handling and warehousing) increased by 47% in Q3 2013 and by 34% for the year-to-date, due to increased transportation rates and growth in Seaforth's business. Overall, sales for the third quarter and first nine months of 2013 totaled $13.2 million and $38.1 million, respectively. This compares to $14.0 million and $45.0 million for the same periods last year.

Cost of sales for the three months ended September 30, 2013 totaled $11.9 million and $33.8 million for the year-to-date. This represents a year-over-year decline of 8% and 19%, respectively, due to the lower NY'C'. In both periods, increased utility charges, freight charges and warehousing costs partially offset the reduced green coffee costs.

Gross profit in both the three- and nine-month periods ended September 30, 2013 was up over last year. Third quarter gross profit was $1.4 million, an increase of 18%, while gross profit for the year-to-date was $4.3 million, up by 35% over 2012. The gains reflect our increased volumes, as well as the substantial decline in the NY'C', which reduced our cost of sales.

Sales and marketing expenses for the third quarter and year-to-date were $0.3 million and $1.0 million respectively. This is largely unchanged from the same periods last year. Administration expenses increased by $0.1 million in the three and nine months ended September 30, 2013, due to increased stock-based compensation expenses.

SWDCC enters into coffee futures contracts and foreign exchange forward contracts to manage the effects of changes in the NY'C' and the US-Canadian dollar exchange rate on its business. As the company does not use hedge accounting, it records realized gains and losses on these contracts when they mature, and unrealized gains and losses based on the closing market values of the NY'C' and the US-Canadian exchange rate at the end of a reporting period.

During Q3 2013, Ten Peaks recorded a $0.2 million net gain on futures contracts, compared to nil gains during the same period last year. The company also recorded realized gains of $0.1 million on foreign exchange forward contracts during the period, compared to realized losses of $0.1 million in Q3 2012. For the year-to-date, Ten Peaks recorded a $0.7 million net gain on futures contracts, compared to a net gain of $0.9 million during the first three quarters of 2012. The company also realized gains of $0.1 million on foreign exchange forward contracts, compared to no realized gains or losses during the same period last year.

Third quarter EBITDA was $1.1 million, compared to $0.5 million in 2012. The increase reflects this year's higher gross profit, realized gains on forward contracts and higher net gains on futures contracts. For the nine months ended September 30, 2013, EBITDA totaled $3.0 million, compared to $2.1 million for the same period last year. The 42% increase was due to the improved gross profit, partially offset by lower net gains on futures contracts.

Net income was $0.6 million for the third quarter, compared to $0.4 million in the same period last year. The increase primarily relates to this year's higher gross profit. For the year-to-date, net income totaled $1.3 million, up by $0.4 million over the first three quarters of last year. Higher gross profit in the first nine months of this year boosted net income, which was partially offset by increased operating costs, reduced gains on derivative instruments and lower gains on foreign exchange.

For the year-to-date, cash from operations was $4.7 million, up by 68% over the first three quarters of last year. Higher earnings and lower working capital requirements (due to the lower NY'C') allowed Ten Peaks to reduce its net debt (bank indebtedness less cash) by $3.1 million in the first nine months of this year. Accordingly, interest expense for the year-to-date has also declined.

Seaforth, the company's green coffee handling and storage subsidiary, has continued to perform well in 2013. In February, Seaforth gained organic certification, leaving it well positioned to further increase its business. Then, during the third quarter, Seaforth underwent a rapid expansion after a local competitor exited the industry. The reduced competition resulted in a significant boost in demand for Seaforth's services, which required the addition of a second warehouse and more staff in August. In September, Seaforth expanded further, securing an adjacent unit at the second warehouse. All together, the second warehouse increased Seaforth's storage capacity by 175%. The rapid growth caused Seaforth to incur some one-time expansion costs, which reduced its contribution to Ten Peaks' year-to-date results. However, Seaforth is expected to make a modest contribution to the company's financial results in the final quarter of this year.

Outlook

SWDCC's consolidated volumes are expected to grow modestly over 2012 levels. As noted above, the company's sales to national accounts are gradually recovering as the NY'C' returns to more historical levels. In addition, SWDCC's specialty regional business has recorded strong and steady growth over the past three years. These smaller, quality-focused customers are a natural fit with SWDCC, as they appreciate the company's commitment to producing excellent quality, chemical free decaffeinated coffees, as well as the value provided by its brand and outstanding customer service team. Accordingly, SWDCC expects to continue growing its market share with these accounts for the balance of the year.

Payment of Quarterly Dividend

On September 12, 2013, the company declared an eligible dividend of $0.0625 per share which was paid on October 15, 2013, to shareholders of record on September 30, 2013.

Additional Information

A more detailed discussion of Ten Peaks' third quarter and nine-month 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, 2013. This document, along with Ten Peaks' condensed consolidated interim financial statements, will be posted on SEDAR (www.sedar.com) on or before November 8, 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. 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

SWDCC employs the proprietary SWISS WATER® Process to decaffeinate green coffee without the use of chemicals, leveraging science-based systems and controls to produce coffee that is 99.9% caffeine free. The SWISS WATER® Process is certified organic by the Organic Crop Improvement Association, and is the world's only branded decaffeination process.

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

Seaforth 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. 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.

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


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