Mar. 14, 2011 (Canada NewsWire Group) --
/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/
TRADING SYMBOL: The Toronto Stock Exchange - TPK
Processing Volumes, Revenue, Gross Profit, Normalized Net Income and Adjusted Distributable Cash All Up Over 2009
Ten Peaks Coffee Company Inc. will hold a conference call to discuss 2010 annual financial results of Swiss Water Decaffeinated Coffee Income Fund, as well as other corporate developments, on Tuesday, March 15, 2011 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. A replay will be available through March 28, 2011 at 1-800-642-1687 (toll free) or 416-849-0833 (GTA and international) passcode: 50508530.
VANCOUVER, March 14 /CNW/ - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported financial results for its predecessor entity, Swiss Water Decaffeinated Coffee Income Fund ("the Fund") for the three months and year ended December 31, 2010. During these periods, the Fund held all of the outstanding securities of Swiss Water Decaffeinated Coffee Company, Inc. ("SWDCC"), a premium green coffee decaffeinator located in Burnaby, BC. The results reported here are based on SWDCC's operating performance.
Subsequent to the year-end, and as announced on January 4, 2011, the Fund was wound up into Ten Peaks, a newly formed company which was created to effect the Fund's conversion from an income trust to a corporation. Concurrently, SWDCC, which will continue to conduct the SWISS WATER® Process decaffeination business as before, became a wholly owned subsidiary of Ten Peaks. (Please refer to Conversion of the Fund to Ten Peaks, below, for more information.)
The conversion was realized by way of a Plan of Arrangement (the "Arrangement"). The Arrangement is being accounted for as a "continuity of interests", as if Ten Peaks always carried on the business of the Fund prior to January 1, 2011. Accordingly, all references to "the company" contained in this press release refer to the business entity that was previously known as the Swiss Water Decaffeinated Coffee Income Fund, and is now known as Ten Peaks Coffee Company Inc.
|In $000s except per unit amounts||3 Months Ended||Year Ended|
|December 31||December 31|
|Sales||$ 12,465||$ 8,635||$ 36,732||$ 31,160|
|Net (loss) income||(12,584)||324||(12,385)||2,668|
|Normalized net income(1)||598||515||2,164||1,044|
|Adjusted distributable cash(1)||127||1,089||4,028||2,930|
|Per unit amounts:|
|Net (loss) income per unit||(1.885)||0.049||(1.856)||0.400|
|Normalized earnings per unit(1)||0.090||0.077||0.324||0.156|
|Adjusted distributable cash generated per unit(1)||0.019||0.163||0.603||0.439|
|Distributions paid per unit||0.090||0.090||0.360||0.630|
(1) EBITDA, normalized net income, adjusted distributable cash, normalized earnings per unit and adjusted distributable cash per unit are non-GAAP financial measures that are defined in the Management's Discussion and Analysis to be posted on SEDAR on or before March 15, 2011.
On the whole, the company reported solid financial results for 2010, with processing volumes, revenue, gross profit, normalized net income and adjusted distributable cash all up over 2009. Additionally, SWDCC won several new accounts, and successfully expanded its business with many existing customers.
"We are pleased with the turnaround made during 2010," said Frank Dennis, President and CEO of Ten Peaks. "The success of our business-building efforts was widespread, with volume increases recorded in all geographic markets that we serve."
For the three and 12 months ended December 31, 2010, SWDCC's coffee processing volumes rose by 1% and 7%, respectively. These gains were achieved despite a series of market challenges, including an ongoing supply shortage of high-quality Arabica coffees, which delayed certain orders, and a rapid and dramatic increase in the commodity price of coffee, which rose by 70% during the second half of 2010.
The rise in SWDCC's processing volumes also reflects the diversity and strength of its customer base. Orders from several large national accounts more than offset reduced volumes to smaller specialty accounts, which tended to be more negatively affected by high coffee commodity prices and reduced coffee availability.
Fourth quarter revenues totaled $12.5 million, an increase of $3.8 million, or 44%, from the same period in 2009. For the full year, revenues totaled $36.7 million, an increase of $5.6 million, or 18%, over 2009 levels. The sales growth resulted from SWDCC's higher processing volumes, as well as a proportionate rise in its "non-toll" business and the significant increase in the commodity cost of green coffee.
SWDCC generates revenue in two ways. First, it decaffeinates customer-owned coffees, including organically certified coffees, for a fee - its "toll" business. Secondly, it purchases high-quality green coffees, decaffeinates them and markets them to the green coffee trade - its "non-toll" business. Revenue from its toll arrangements consists entirely of processing revenue, while revenue from its non-toll business includes both processing revenue and green coffee cost recovery revenue. Accordingly, growth in SWDCC's non-toll business will drive up the company's revenues, as well as its cost of goods sold.
During 2010, SWDCC's non-toll business comprised 51% of its total processing volumes, up from 45% in 2009. SWDCC's non-toll business has been growing as a percentage of its total sales for the past few years, and this trend is expected to continue as more customers seek to reduce their working capital commitments.
In addition to the shift in SWDCC's business mix, the company's fourth quarter and annual revenues were affected by a decline in foreign exchange. During 2010, 69% of SWDCC's revenues were generated in US dollars, compared to 73% in 2009. As the US dollar was weaker in each quarter of 2010 than in the comparative 2009 periods, the value of these sales decreased upon conversion. On the cost side, the stronger Canadian dollar helped to partially offset an increase in SWDCC's green coffee costs, as coffee commodity prices are quoted in US dollars.
Despite the positive impact, cost of goods sold increased significantly for the three and 12 months ended December 31, 2010, rising by 39% in the fourth quarter and by 19% for the full year. In both periods, the rise was related to higher coffee commodity prices, as well as increased non-toll volumes.
Fourth quarter gross profit was $2.1 million in 2010, up by $0.9 million over the same period of 2009. For the full year, gross profit totaled $6.2 million, up by 13% from the $5.5 million reported in 2009. In both periods, the rise was due to SWDCC's increased sales, partially offset by its higher costs of goods sold, as discussed above.
Net income for the three and 12 months ended December 31, 2010 was negatively affected by rising coffee commodity prices and the stronger Canadian dollar.
In order to offset the impact of changing commodity prices and exchange rates on its cash flows, the company 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 fourth quarter of 2010, the company recorded $1.5 million in unrealized losses on derivative instruments, compared to an unrealized loss on derivatives of $0.3 million for the same period in 2009. For the full year, it recorded $3.4 million in unrealized losses on derivative instruments, compared to an unrealized gain on derivatives of $2.2 million in 2009.
Net income was also adversely affected by a non-cash impairment of SWDCC's goodwill and intangible assets. Canadian generally accepted accounting principles (GAAP) requires that goodwill and indefinite life intangible assets be tested for impairment at least annually. The test uses a discounted cash flow model which relies on a number of management estimates that are updated annually. The combined impact of a stronger Canadian dollar and the higher coffee commodity price (which increased the level of bank indebtedness by year end) led to a determination that SWDCC's goodwill and proprietary process technology were impaired. As a result, management recorded a non-cash charge against earnings of $14.3 million, which was partially offset by a $2.4 million recovery against future income taxes.
Overall, principally as a result of the impairment, the company recorded a net loss of $12.6 million for the fourth quarter of 2010, compared to net income of $0.3 million for the same period of 2009. For the full year, the net loss totaled $12.4 million, compared to net income of $2.7 million in 2009.
The company uses normalized net income to measure performance on a comparable basis over time. Normalized net income is based on net income under GAAP, adjusted for items that are not reflective of performance in the period, such as unrealized gains and losses on derivatives, impairment of assets, and gains or losses on disposal of assets. Normalized income for 2010 was $2.2 million, compared to $1.0 million in 2009. A reconciliation of normalized net income to net income under GAAP is provided in Ten Peaks' Management's Discussion and Analysis for the year ended December 31, 2010.
EBITDA for the fourth quarter of 2010 was $0.1 million, down from $0.8 million for the same period in 2009. The decrease was due to higher selling and administration expenses, which included one-time costs to adopt IFRS and to convert from an income trust structure to a corporation, as well as higher overhead costs and losses on foreign exchange. For the full year, EBITDA was $3.6 million, a 5% increase over 2009. The increase was due to reduced losses on foreign exchange, together with lower administration expenses.
During 2010, the company generated adjusted distributable cash of $4.0 million, compared to $2.9 million in 2009. The 38% increase was related to a rise in realized gains on derivative financial instruments, which were $1.1 million higher in 2010 than in 2009.
The company's unitholders received $2.4 million in cash distributions during 2010, compared to $4.2 million in 2009. The decrease was due to a reduction in the monthly distribution amount, from $0.075 per unit ($0.90 per unit annually) to $0.03 per unit ($0.36 per unit annually), beginning in June 2009. Implemented in order to maintain a conservative capital structure, the lower cash distributions resulted in a payout ratio of 60% for 2010, compared to 144% in 2009.
"Looking forward, we are excited about our future growth," said Dennis. "New data shows that consumption of premium decaffeinated coffee is up in the United States. This is a key market for us and we plan to leverage our well-established strengths to build our US sales. More broadly, we also intend to actively explore other opportunities which will complement our existing business. Our long-term vision is to grow Ten Peaks into a global coffee company, and we believe 2011 will be a foundational year in achieving that goal."
The company also announced a cash dividend of $0.0625 per share for the quarter ended March 31, 2011. The dividend will be an 'eligible dividend' for Canadian income tax purposes. It will be paid on April 15, 2011 to shareholders of record at the close of business on March 31, 2011.
A more detailed discussion of the former Fund's 2010 financial results and management's outlook can be found in Ten Peaks' Management's Discussion and Analysis (MD&A) for the year ended December 31, 2010, which will be posted with the Fund's audited 2010 consolidated financial statements on SEDAR (www.sedar.com) on or before March 15, 2011.
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 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.
Conversion of the Fund to Ten Peaks
On January 1, 2011, due to changes in taxation laws which make the income fund form of business enterprise less advantageous, the Fund converted to a corporation by way of an Arrangement. Pursuant to the Arrangement, all of the Fund's outstanding units were exchanged, on a one-for-one basis, for common shares of Ten Peaks, a company incorporated under the Canada Business Corporations Act. Additionally, the Fund was wound up into Ten Peaks, and SWDCC, which continues to conduct the SWISS WATER® Process decaffeination business as before, became a wholly owned subsidiary of Ten Peaks.
Ten Peaks is listed on the Toronto Stock Exchange and trades under the symbol 'TPK'. The corporation's new name reflects management's intent to continue enhancing and growing SWDCC's existing business, while exploring related growth opportunities.
An information circular describing the conversion, as well as the Canadian tax implications, is available on SEDAR at www.sedar.com.
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. Currently, Ten Peaks' business and financial results are wholly based on the business and financial results of 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.
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.