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A.L Van Houtte

Posted On: 8/25/2000

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Operators in Canada found profitable mainstream ways to employ single-cup brewers well before their colleagues in the United States did. Canada's A.L. Van Houtte Ltd. is a leader in office coffee service and single-cup programs for smaller workplaces, and is making strong progress in North American markets. At the company's recent annual and special shareholders' meeting, it announced a new corporate name - Van Houtte, Inc. , and two more single-cup brewers aimed squarely at small sites.

The new brewers are the "Caffe Mio," designed for populations of 20 to 40, and the "Piccolina," targeted at workgroups of 20 or fewer employees. Executive vice-president Gerard Geoffrion explained that both machines incorporate a primary brewing system identical to that of its other equipment (Van Houtte is the parent company of VKI, a long-time leader in single-cup brewer design), as well as an innovative "packet" complement that offers patrons a wider choice. Thus, consumers looking for a change of pace can choose from eight Van Houtte coffee blends as alternatives to the principal offering. Tea and hot chocolate also are available. The machines took the field in April.

Geoffrion pointed out that, in the last five years, 90 percent of all jobs created in the United States have been in small businesses with fewer than 20 employees. "This gives an idea of the size of the potential market we are targeting," he told the shareholders.

At the meeting, Van Houtte, Inc. reported results for its fiscal first quarter (16 weeks ended July 22). Net earnings were $5.7 million for the period, up 16.5 percent over the comparable period last year. Earnings per share grew by 17 percent, from 23 cents to 26 cents per share. Geoffrion noted that this performance exceeded the 10 to 12 percent growth target set by the company for the current fiscal year. This aggressive growth objective was set because Van Houtte is preparing to implement the resources and tools needed to insure the success of its expansion plan. That implementation entailed additional expenses of $350,000 in the first quarter (1 cent per share, after taxes), principally to reorganize the coffee service sector.

Earnings before interest, taxes, depreciation and amortization (EBIDTA) rose 15 percent, to $17.6 million, while revenues increased 12 percent, to $81 million. Van Houtte generated cash flows from operating activities of $12.4 million, or 57 cents (fully diluted) per share, a 12 percent increase over the prior year. These funds were used to finance strategic investments of $12 million, including $8l.9 million in new fixed assets, mainly for the coffee service sector. The company also invested $3 million in business acquisitions, including majority interests in two Filterfresh franchises in Ohio and Kentucky.

Notwithstanding the Coffee Service Group's structuring expenses, its EBIDTA grew by 16.6 percent. This solid performance was driven by a 21 percent increase in the number of corporate single-cup brewers since the end of the first quarter of fiscal 1999-2000, largely the result of numerous acquisitions made over the past year. Growth was especially strong in the United States, where the corporate base grew by 36 percent. At the close of the quarter, Van Houtte had a total of 32,880 coffee brewers, of which 10,649 were in the United States.

Coffee Service Group president Christian Pouliot added that, consistent with a primary strategic objective, consumption of "Van Houtte" branded coffees throughout the network grew 59 percent, notably by means of the "Caffé Mondo" program.

The company's coffee roasting and single-cup brewer manufacturing operations also performed well in the first quarter. VKI showed a distinct improvement in profitability, largely through sales of its new single-cup models; and the Coffee Group enjoyed a 19.5 percent increase in shipments.

Van Houtte is confident that it will achieve its growth objective of 10 to 12 percent in net earnings for the current fiscal year, despite expenses of about $2 million related to final implementation of its expansion plan. Paul-Andre Guillotte, president and chief executive officer, explained: "These investments are being made with a very specific goal in mind: to lead the company to higher levels of growth , accelerated, profitable and long-term growth."