Mr. Iain Carswell reports

SWISS WATER REPORTS THIRD QUARTER RESULTS AND LAUNCH OF SECOND LINE IN DELTA, BC

Swiss Water Decaffeinated Coffee Inc. today released its financial results for the three and nine months ended Sept. 30, 2023.

2023 third quarter and nine-month financial and operational highlights

• During the third quarter, commercial decaffeination on Swiss Water's second production line in Delta, B.C., started for the first time. This marked the completion of the consolidation of production at one site, and the end of the transition from the company's legacy production facility in Burnaby, B.C.
• Swiss Water operated with a capacity constraint during the third quarter, and as expected, volumes shipped to customers decreased by 31 per cent in Q3 and by 14 per cent for the nine months, when compared with the same periods in 2022. The drop in volumes was the result of a temporary reduction in production capacity between April and August of this year. This was the transition period between the retirement of Swiss Water's old Burnaby facility and the final commissioning of its second new decaffeination line at its Delta, B.C., location. The impact on year-to-date volumes was partially offset by customers front loading orders during the first quarter to ensure they had sufficient inventory on hand to bridge the transition.
• Revenue for the third quarter and nine months ended Sept. 30, 2023, was $32.6-million and $125.0-million respectively, representing a decrease of $13.5-million for the quarter and $7.9-million for the year to date, when compared with the same periods in 2022. The drop in revenue resulted from a material decline in the NY'C' coffee commodity price and the temporary reduction in production capacity during the transition from Burnaby to Delta. The impact of these factors on nine-month revenues was partially offset by the increased volumes shipped in Q1, and a higher United States-dollar exchange rate this year.
• Swiss Water recorded a net loss of $400,000 for the third quarter and of $1.5-million for the year to date representing a decline in profitability of $200,000 and $4.1-million, respectively, when compared with the 2022 result. The decrease was due to the lower sales volume, a reduced green coffee differential margin and higher finance expenses associated with borrowings. The company's nine-month performance was primarily impacted by one-time depreciation expenses associated with retired assets located at its vacated facility in Burnaby, B.C.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $1.5-million for Q3 and $8.3-million for the year to date, representing a decrease of $2.8-million and $5.2-million, respectively, from the 2022 result. The decrease was driven mainly by the lower sales volume due to the expected capacity constraints during the transition period, as well as a reduced green coffee differential margin.

"We are pleased to report that, during the third quarter, we successfully began high-quality decaffeination on our new second line in Delta, B.C. This marked the consolidation of Swiss Water's production activities onto one site, and the final transition away from our legacy production assets in Burnaby, B.C. Our sales and logistics teams performed admirably during the quarter and year to date as they managed the temporary reduction in capacity and the allocation of available production. The team successfully front-end loaded significant customer demand into Q1, before our Burnaby shutdown, enabling balanced customer service through Q3," said Frank Dennis, Swiss Water's president and chief executive officer. "As we look forward into the fourth quarter of 2023, we expect to see a strong recovery of volumes with the additional capacity back on line within the third quarter. Initial performance of our new line has been very good and we are optimistic that we can increase the production rate of this line over the coming months. Moving forward, this extra capacity will help enable more roasters to respond to consumer demand by accelerating their migration to chemical free decaffeinated coffee," Mr. Dennis added.

Operational highlights

The attached table shows changes in trading volumes during the three and nine months ended Sept. 30, 2023, compared with the same periods in 2022.

• Total volumes decreased by 31 per cent in Q3 and by 14 per cent for the year to date, when compared with the same periods in 2022. In anticipation of the consolidation of all production in Delta, the company was proactive in its communications with customers and suppliers regarding the production of coffee leading up to the Burnaby exit, during the estimated period of lower production capacity, and before the new line in Delta began producing a commercially viable product. As a result, many of Swiss Water's customers moved orders ahead into Q1 to ensure they would have sufficient coffee on hand to bridge the transition. This pro-active communication regarding the transition period minimized disruption to the company's business and its customers during the third quarter.
• Swiss Water's largest geographical market by volume for the year to date continued to be the United States, followed by Canada and international markets. By dollar value, 51 per cent of the company's sales were to customers in the United States, 28 per cent were to Canadian customers and the remaining 21 per cent were to international markets.
• Inflationary pressure within Swiss Water's variable cost structure also remained intense during both the quarter and year to date and was carefully managed in order to limit the impact on the company's operational effectiveness and on its trading partners.

• Third quarter revenue was $32.6-million, a decrease of $13.5-million or 29 per cent, when compared with the same period last year. Year-to-date revenue was $125.0-million, a decrease of $7.9-million or 6 per cent. The decrease is the result of the expected period of reduced sales volume due to capacity limitations caused by the exit from the Burnaby site prior to the completion of the second production line at Delta. This was partially offset by increased volume demand from customers in the first quarter. In addition, green coffee prices were materially lower when compared with the same periods in 2022.
• Gross profit was $3.6-million for the quarter and $11.9-million for the year to date, a decrease of $3.0-million and $8.4-million, respectively, compared with the same periods in 2022. The decrease was due to lower sales volume, a reduced green coffee differential margin and one-time incremental depreciation expenses of $2.5-million recorded during the nine-month period. In addition, the company experienced inflationary pressure on its variable production costs, including natural gas, carbon and labour, as well as on freight and warehousing.
• Swiss Water recorded a net loss of $400,000 for the third quarter and of $1.5-million for the year to date representing a decline in profitability of $200,000 and $4.1-million, respectively, when compared with the 2022 result. The decrease was due to the lower sales volume, a reduced green coffee differential margin and higher finance expenses associated with borrowings. These negative factors were partially offset by improvements in risk management activities, revaluation of the embedded option, higher finance income, reduced loss on foreign exchange and lower income tax expense.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $1.5-million for the third quarter and $8.3-million for the year to date, representing a decrease of $2.8-million and $5.2-million, respectively, from the 2022 result. The decrease was driven mainly by lower sales volume and a reduced green coffee differential margin.

About Swiss Water Decaffeinated Coffee Inc.

Swiss Water is a leading specialty coffee company and a premium green coffee decaffeinator that employs the proprietary Swiss Water process to decaffeinate green coffee without the use of chemicals. It also owns Seaforth Supply Chain Solutions Inc., a green coffee-handling and storage business. Both businesses are located in Delta, B.C., Canada.

Additional information

A conference call to discuss Swiss Water's recent financial results will be held on Thursday, Nov. 9, 2023, at 12 p.m. Pacific Time (3 p.m. Eastern Time). To access the conference call, please dial:

• 1-888-506-0062 (toll-free);
• 1-973-528-0011 (international);
• Participant access code: 338784.

A replay will be available through Nov. 23, 2023, at:

• 1-877-481-4010 (toll-free);
• 1-919-882-2331 (international);
• Replay pass code: 49423

A more detailed discussion of Swiss Water Decaffeinated Coffee's recent financial results is provided in the company's management discussion and analysis filed on SEDAR+ and Swiss Water's website.

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