Mr. Frank Dennis reports
SWISS WATER REPORTS STRONG THIRD QUARTER AND NINE-MONTH RESULTS
Swiss Water Decaffeinated Coffee Inc. has released strong financial results for the third quarter and first nine months 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 Nov. 7 at 9 a.m. Pacific Time (12 p.m. Eastern Time). To access the conference call, please dial 844-407-9500 (toll-free) or 862-298-0850 (international). A replay will be available through Nov. 21, 2019, at 877-481-4010 (toll-free) or 919-882-2331 (international), passcode 56429.
With volumes up 16 per cent year over year, Swiss Water has once again reported double-digit growth in the amount of coffee delivered to customers during the first nine months of 2019. In addition, the company improved its nine-month operating income by 15 per cent over the same period last year. Swiss Water continues to increase its market share and win new business, as more and more industry participants and coffee consumers move away from chemical decaffeination in favour of chemical-free processes. At the same time, growing demand from existing customers is fuelling robust growth. Swiss Water also maintained the positive trend toward improved operating margins and manufacturing efficiency established in the first half of the year, while remaining sharply focused on producing high-quality premium decaffeinated coffee.
"We are pleased to report that the strong growth in volumes we have achieved over the past several quarters continued through the third quarter and first nine months of this year. Thanks to a number of positive market trends, as well as our strategic investments in sales and marketing both in North America and overseas, we are seeing new business coming from all our geographic markets and customer categories. We are particularly proud of the fact that our business in Europe, where we launched a new subsidiary in January, is up by 56 per cent year to date," said Frank Dennis, Swiss Water's president and chief executive officer. "Going forward, we will continue to invest in our production infrastructure and human resources to prepare for the significant growth that we anticipate in the future. To this end, our new state-of-the-art production facility in Delta, B.C., is nearing completion and on track for commissioning toward the end of fourth quarter. We should be in a position to begin shipping commercially from the new plant in the first quarter of 2020."
Herein is a summary of Swiss Water's operational and financial results.
The attached table shows year-over-year changes in volumes shipped during the third quarter and nine months ended Sept. 30, 2019.
(in $000s except per-share amounts)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2019 2018 2019 2018
Sales $23,645 $23,087 $72,707 $66,960
Gross profit 4,737 4,439 12,388 11,235
Operating income 2,291 1,927 4,623 4,013
Net income 884 1,828 2,228 3,612
EBITDA (1) 3,485 2,717 8,894 5,695
Net income -- basic (2) 0.10 0.20 0.25 0.40
Net income -- diluted (2) 0.10 0.18 0.25 0.31
(1) EBITDA (earnings before interest, taxes, depreciation and amortization) 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.
Third quarter revenue was $23.6-million, an increase of 2 per cent over third quarter of 2018. Nine-month revenue was $72.2-million, an 8-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, as well as increases in green coffee sales volumes, partially offset by a lower coffee futures price (NY'C').
Quarterly gross profit was $4.7-million, compared with $4.4-million in third quarter 2018. Looked at sequentially, third quarter gross profit was up by $600,000 from $4.1-million in second quarter of this year. Gross profit for the first nine months increased to $12.4-million from $11.2-million in the same period last year. The improvement in year-to-date gross profit was a result of increased overall process volumes and a higher proportion of regular volumes in the company's sales mix, as well as improved supply chain efficiencies and management's continuing efforts to control operating costs. These positive factors were partially offset by the impact of higher labour costs. Nine-month gross profit was also negatively impacted by a spike in natural gas prices during the first quarter due to a pipeline explosion in October, 2018. This significantly reduced energy supply and increased gas prices in British Columbia last winter. Going forward, the company remains tightly focused on margin maintenance and improvement, and continues to seek ways to manage variable and fixed costs across all of its operations, while vigorously maintaining product quality.
Operating expenses decreased by 3 per cent to $2.4-million in the third quarter and increased by 8 per cent to $7.8-million for the first nine months of this year, compared with the same periods in 2018. The third quarter decrease was due to lower sales and marketing expenses during the period, while the nine-month increase was due to higher staffing and staff-related expenses, as well as an increase in research and development activity during the second quarter.
Operating income increased by $400,000, or 19 per cent, to $2.3-million in the third quarter and was up by $600,000, or 15 per cent, to $4.6-million for the first nine months, compared with the same periods last year.
For the third quarter, Swiss Water reported net income of $900,000, compared with net income of $1.8-million in third quarter 2018. Year-to-date net income was $2.2-million, compared with $3.6-million in the first three quarters of last year. This year's improved operating income was offset by increases in non-operating expenses. The increased expenses were driven by a loss on risk management activities, the revaluation of an embedded derivative and higher finance expense in relation to interest on leases as a result of the adoption of international financial reporting standard 16 (Leases).
Third quarter EBITDA (earnings before interest, taxes, depreciation and amortization) was $3.5-million, up by $800,000, or 28 per cent, over third quarter 2018. Nine-month EBITDA was $8.9-million, up by $3.2-million, or 56 per cent over the same period last year. In both periods, the significant increase in EBITDA was largely due to the adoption of 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 third quarter, on Oct. 15, 2019, the company paid an eligible dividend in the amount of $600,000 (6.25 cents per share) to shareholders of record on Sept. 30, 2019.
About Swiss Water Decaffeinated Coffee Inc.
Swiss Water Decaffeinated Coffee is a leading specialty coffee company and a premium green coffee decaffeinator, which employ 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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