Mr. Frank Dennis reports
SWISS WATER REPORTS STRONG SECOND QUARTER AND SIX-MONTH RESULTS
Swiss Water Decaffeinated Coffee Inc. has released strong financial results for the second quarter and first half of 2019. Swiss Water is a premium green coffee decaffeinator, which employs the proprietary Swiss Water process to decaffeinate green coffee without the use of chemicals.
A conference call to discuss Swiss Water's recent financial results will be held Aug. 8 at 9 a.m. Pacific Time (12 p.m. Eastern Time). To access the conference call, please dial 844-602-0380 (toll-free) or 862-298-0970 (international). A replay will be available through Aug. 22, 2019, at 877-481-4010 (toll-free) or 919-882-2331 (international), passcode 52230.
During the first half of 2019, Swiss Water reported a robust growth of 21 per cent in volumes delivered to customers and improved financial performance. The company continues to gain new business as more industry participants and coffee consumers migrate away from chemical decaffeination in favour of chemical-free processes. At the same time, an acceleration of underlying demand from existing customers is fuelling organic growth. Through the second quarter, the company has continued to maintain a positive trend toward improved operating margins and manufacturing efficiency, while remaining sharply focused on producing high-quality premium decaffeinated coffee.
"We are pleased that our volumes continue to grow strongly and that we are seeing new business coming from all our geographic markets and customer categories. Our strategic investments in expanding our reach in Europe and in targeting specific customer segments in the [United States] are also yielding growth. For example, since launching our new European subsidiary in January, we've seen volumes there grow by 125 per cent in second quarter and by 83 per cent year to date," said Frank Dennis, Swiss Water's president and chief executive officer.
A summary of Swiss Water's operational and financial results can be found herein.
The attached table shows changes in volumes shipped during the second quarter and the six months ended June 30, 2019.
(in $000s except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
Sales $24,392 $22,658 $48,562 $43,873
Gross profit 4,106 3,952 7,651 6,793
Operating income 1,356 1,528 2,332 2,083
Net income 1,353 1,294 1,344 1,781
EBITDA (1) 3,097 1,868 5,409 2,975
Net income -- basic (2) 0.15 0.14 0.15 0.20
Net income -- diluted (2) 0.14 0.10 0.15 0.13
(1) EBITDA is defined in the "Non-IFRS Measures" section of
management's discussion and analysis and is a non-generally
accepted accounting principle financial measure as defined
by CSA staff Notice 52-306.
(2) Per-share calculations are based on the weighted-average
number of shares outstanding during the period.
Second quarter revenue was $24.4-million, an increase of 8 per cent over second quarter of 2018. Six-month revenue was $48.6-million, an 11-per-cent year-over-year improvement. The increase in revenue in both periods was due to growth in volumes and a higher average U.S.-dollar exchange rate, partially offset by a lower coffee futures price (NY'C').
- Quarterly gross profit was $4.1-million (17-per-cent gross margin), compared with $4.0-million (17-per-cent gross margin) in second quarter 2018. Looked at sequentially, second quarter gross profit was up by $600,000 from $3.5-million (15-per-cent gross margin) in first quarter of this year. First half gross profit increased to $7.7-million (16-per-cent gross margin) from $6.8-million (15-per-cent gross margin) in the first six months of last year. The improvement in year-to-date gross profit was a result of higher volumes and supply chain efficiencies, as well as management's continuing efforts to control operating costs. These positive factors were partially offset by the impact of higher toll volumes in Swiss Water's sales mix, labour inflation and the introduction of the B.C. employer health tax this year. Six-month gross profit was also negatively impacted by a spike in natural gas costs during the first quarter due to a gas pipeline explosion in October, 2018. This significantly reduced energy supply and increased prices in British Columbia. Going forward, the company remains tightly focused on margins and continues to seek ways to manage variable and fixed costs across all of its operations, without compromising product quality.
Operating expenses were $2.8-million in second quarter and $5.3-million for the first half, an increase of 13 per cent in both periods compared with the 2018 levels. Year-to-date expenses were the result of higher full-year staffing and staff-related expenses, as well as increased research and development activity during the second quarter.
For the second quarter, Swiss Water reported net income of $1.4-million, compared with net income of $1.3-million in second quarter 2018. Year-to-date net income was $1.3-million, compared with $1.8-million in the first half of last year. This year's improved gross profit was offset by increases in both operating and non-operating expenses. The increase in non-operating expenses was partially driven by the revaluation of an embedded derivative. Higher finance expense in relation to interest on leases, as a result of the adoption of international financial reporting standard 16 (Leases), and on a construction loan, also had a negative impact.
EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter was $3.1-million, up by $1.2-million, or 66 per cent, over second quarter 2018. First half EBITDA was $5.4-million, up by $2.4-million, or 82 per cent over the same period last year. In both periods, the significant increase in EBITDA was largely due to new accounting standards related to leases. Operationally, EBITDA was enhanced by the strong growth in volumes, continuing efforts to enhance cost recovery and an increased financial contribution from Seaforth, the company's supply chain subsidiary.
Construction of Swiss Water's new decaffeination facility, which is located in Delta, B.C., is nearing completion. The new production line is expected to be commissioned in the fourth quarter of this year.
Subsequent to the end of the second quarter, on July 15, 2019, the company paid an eligible dividend in the amount of $600,000 (6.25 cents per share) to shareholders of record on June 28, 2019.
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 Seaforth Supply Chain Solutions, a green coffee handling and storage business. Both businesses are located in the cities of Burnaby and Delta, B.C.
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.
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