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Swiss Water Decaffeinated Coffee Inc
Symbol C : SWP
Shares Issued 9,061,210
Close 2018-11-08 C$ 5.00
Recent Sedar Documents

Swiss Water earns $1.82-million in Q3

2018-11-08 17:15 ET - News Release

Mr. Frank Dennis reports

SWISS WATER REPORTS THIRD QUARTER AND YEAR-TO-DATE RESULTS

Swiss Water Decaffeinated Coffee Inc. has released its financial results for the third quarter and first nine months of 2018. Swiss Water is a leading specialty coffee company and premium green coffee decaffeinator, which employs the proprietary Swiss Water process to decaffeinate green coffee without the use of chemicals.

During the third quarter of 2018, the company continued to gain market share against its competitors, increased its existing production capacities and improved operational efficiencies while remaining focused on producing high-quality premium decaffeinated coffee. To drive future growth, the company plans to expand its presence in Europe and increase awareness of the Swiss Water brand by targeting specific customer groups in North America.

"In the first nine months of this year, we saw growth in volumes shipped to roasters, importers, specialty and commercial accounts," said Frank Dennis, Swiss Water's president and chief executive officer. "This reflects the fact that we have won business with new roasters and increased business with existing customers who have grown their distribution, added to their locations or expanded their product offerings. Some of our new business is from roasters who previously obtained their decaffeinated coffees from a decommissioned [carbon dioxide] plant in Europe, while other account wins are related to the recent closure of a CO2 plant in Houston, Tex. Looking ahead, we believe [that] these plant closures have tightened the chemical-free decaffeination coffee market and that the resulting drop in available decaffeination services will allow us to more rapidly utilize the additional production capacity we have coming on line in 2019."

A summary of Swiss Water's operational and financial results is provided herein.

Operational highlights

The attached operating highlights table shows changes in volumes shipped during the third quarter and first nine months of 2018, compared with the same periods last year.

                                          OPERATING HIGHLIGHTS

                                    Three months ended Sept. 30, 2018      Nine months ended Sept. 30, 2018

Change in total volumes shipped                                   +12%                                  +12%
By customer type
Roasters                                                             -                                  +11%
Importers                                                         +43%                                  +14%
Specialty                                                         +15%                                  +14%
Commercial                                                        +10%                                  +10%

During the third quarter of 2018, management continued to focus on attracting customer attention to the Swiss Water brand. As a result, the company gained new business and won more business with existing customers. As discussed herein, some of this year's volume growth also reflects gains in market share, due to the recent shutdown of two decaffeination plants operated by competitors.

                         FINANCIAL HIGHLIGHTS
                 (in $000s except per-share amounts)

                                  Three months ended       Nine months ended 
                                       Sept. 30,               Sept. 30,
                                    2018        2017        2018        2017

Sales                            $23,087     $21,955     $66,960     $63,093
Gross profit                       4,439       3,014      11,235       9,413
Operating income                   1,927       1,117       4,013       3,856
Net income                         1,828       1,385       3,612       4,541
EBITDA (1)                         2,717       1,678       5,695       5,593
Net income -- basic (2)             0.20        0.15        0.40        0.50
Net income -- diluted (2)           0.18        0.15        0.31        0.41

(1) EBITDA is calculated as net income before interest, depreciation, 
amortization, impairments, share-based compensation, gains/losses on 
foreign exchange, gains/losses on disposal of capital equipment, fair 
value adjustments on the embedded option and provision for income 
taxes. EBITDA also excludes unrealized gains and losses on the 
undesignated foreign exchange forward contracts. EBITDA is defined in 
the non-international financial reporting standard measures section 
of management's discussion and analysis, and is a non-GAAP financial 
measure as defined by Canadian Securities Administrators' staff 
Notice 52-306.
(2) Per-share calculations are based on the weighted-average number 
of shares outstanding during the period.

  • Quarterly revenue increased by 5 per cent over third quarter 2017 to $23.1-million, and nine-month revenue improved by 6 per cent to $67.0-million. The increases were due to growth in Swiss Water's processing volumes, partially offset by a lower coffee commodity price (NY'C') and fluctuations in the U.S.-dollar exchange rate.
  • Gross profit for third quarter 2018 was $4.4-million, or a margin of 19.2 per cent. Viewed sequentially, this was a solid improvement over the previous two quarters. During first quarter of this year, the company recorded gross profit of $2.8-million, or a margin of 13.4 per cent, while during second quarter, it recorded gross profit of $4.0-million, or a margin of 17.4 per cent. Swiss Water's third quarter gross profit and margin were also up over last year, when it recorded gross profit of $3.0-million, or a margin of 13.7 per cent. The improvement in the company's third quarter gross profit and margin was due in part to its increased processing volumes, as well as management's continuing efforts to review and reduce Swiss Water's operating costs in response to the margin compression recorded during the first half of this year. Year-to-date gross profit improved to $11.2-million (or a margin of 16.8 per cent), compared with $9.4-million (or a margin of 14.9 per cent) in the same period last year. At present, management continues to pursue margin maintenance and improvement initiatives, following a recent period of inflationary cost increases. It also continues to seek ways to reduce Swiss Water's variable and fixed costs, without sacrificing the quality of the company's product.
  • Operating expenses increased by 32 per cent to $2.5-million in the third quarter and by 30 per cent to $7.2-million for the year to date, compared with the same periods last year. In both periods, the increase was due to higher staffing and staff-related expenses, as Swiss Water invests in enhancing its operational capabilities ahead of the new production capacity it has coming on line in 2019.
  • Operating income increased by $800,000, or 73 per cent, to $1.9-million in the third quarter and by $200,000, or 4 per cent, to $4.0-million for the first nine months of 2018 when compared with the same periods in 2017.
  • Third quarter net income increased to $1.8-million, compared with $1.4-million in third quarter 2017. Net income for the year to date was $3.6-million, compared with $4.5-million in 2017. The decline in nine-month net income was due to increases in operating costs (as discussed herein) and foreign exchange losses this year (as opposed to gains in 2017).
  • EBITDA (net income before interest, depreciation, amortization, impairments, share-based compensation, gains/losses on foreign exchange, gains/losses on disposal of capital equipment, fair value adjustments on the embedded option and provision for income taxes) for third quarter totalled $2.7-million, up by $1.0-million, or 62 per cent, over the same period last year. The increase related to significant efforts across the company to control costs, as well as its volume increases. Nine-month EBITDA increased marginally from $5.6-million in 2017 to $5.7-million this year, as higher costs led to a decline in Swiss Water's EBITDA for the first and second quarters of this year. To prepare for the significant growth that management sees ahead, the company continues to invest in its production infrastructure and human resources.

Outlook

Looking ahead, management continues to expect to record a double-digit, year-over-year increase in Swiss Water's annual volumes in 2018.

"Our primary focus over the near future will be to position Swiss Water for future growth by focusing on driving sales to the European Union and selective customer groups in North America," said Mr. Dennis. "While developing our European and U.S. sales teams will increase our expenses somewhat, we expect these initiatives to generate increased sales orders before the end of this year and, in the longer term, to drive major account wins. As converting large customers to Swiss Water process coffees typically takes several quarters, we believe strengthening our sales capability now is a critical part of our preparation to ramp up orders and win new business as we add significant capacity with our new facility in 2019."

Construction of Swiss Water's new decaffeination facility, which is located in Delta, B.C., is progressing well. Initially, this facility will house one new production line, although the site is large enough for expansion well into the future. The new production line is expected to be commissioned in the third quarter of 2019.

Quarterly dividends

On Oct. 15, 2018, Swiss Water paid an eligible dividend in the amount of $600,000 (6.25 cents per share) to shareholders of record on Sept. 28, 2018.

About Swiss Water Decaffeinated Coffee Inc.

Swiss Water Decaffeinated Coffee is a leading specialty coffee company and a premium green coffee decaffeinator, which employs the proprietary Swiss Water process to decaffeinate green coffee without the use of chemicals. It also owns all interest in Seaforth Supply Chain Solutions, a green coffee handling and storage business. Both businesses are located in Burnaby, B.C.

Additional information

A more detailed discussion of Swiss Water Decaffeinated Coffee's recent financial results is provided in the company's management's discussion and analysis, filed on SEDAR and on the company's website on Nov. 8, 2018.

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