Swiss Water Decaffeinated Coffee Inc.
(TSX: SWP)
(“Swiss Water” or “the Company”), a leading specialty coffee
company and premium green coffee decaffeinator, today reported
financial results for the three and nine months ended September 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, BC, 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, BC.
- Swiss Water
operated with a capacity constraint during the third quarter, and
as expected, volumes shipped to customers decreased by 31% in Q3
and by 14% for the nine months, when compared to 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, BC 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 September 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 to 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 US dollar exchange
rate this year.
- Swiss Water
recorded a net loss of $0.4 million for the third quarter and of
$1.5 million for the year-to-date representing a decline in
profitability of $0.2 million and $4.1 million respectively, when
compared to 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, BC.
- Adjusted EBITDA
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, BC. 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, BC.
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 CEO.
“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.”, Dennis added.
Operational Highlights
The following table shows changes in trading
volumes during the three and nine months ended September 30, 2023,
compared to the same periods in 2022.
Volumes |
3 months ended September 30, 2023 |
9 months ended September 30, 2023 |
Change in total volumes |
-31% |
-14% |
By customer type |
|
|
Roasters |
-33% |
-2% |
Importers |
-29% |
-27% |
Specialty |
-40% |
-22% |
Commercial |
-25% |
-8% |
-
Total volumes decreased by 31% in Q3 and by 14% for the
year-to-date, when compared to 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 proactive
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% of the Company’s
sales were to customers in the United States, 28% were to Canadian
customers, and the remaining 21% 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.
Financial Highlights
In $000s except per share amounts |
|
3 months ended September 30 |
9 months ended September 30 |
(unaudited) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue |
$ |
32,627 |
$ |
46,154 |
$ |
125,040 |
$ |
132,937 |
Gross profit |
|
3,576 |
|
6,614 |
|
11,882 |
|
20,329 |
Operating income |
|
758 |
|
3,293 |
|
2,258 |
|
10,589 |
Net (loss) income |
|
(417) |
|
(204) |
|
(1,489) |
|
2,641 |
Adjusted EBITDA1 |
|
1,539 |
|
4,346 |
|
8,346 |
|
13,572 |
Net (loss) income per share – basic2 |
$ |
(0.05) |
$ |
(0.02) |
$ |
(0.16) |
$ |
0.29 |
Net (loss) income per share – diluted2 |
$ |
(0.05) |
$ |
(0.02) |
$ |
(0.16) |
$ |
0.29 |
1 Adjusted EBITDA is defined in the ‘Non-IFRS
Measures’ section of the MD&A and is a “Non-GAAP 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 periods. Diluted earnings per share
take into account shares that may be issued upon the exercise of
warrants and RSUs.
- Third quarter revenue was $32.6 million, a decrease of $13.5
million or 29%, when compared to the same period last year.
Year-to-date revenue was $125.0 million, a decrease of $7.9 million
or 6%. 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 to 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 to 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 $0.4 million for the third
quarter and of $1.5 million for the year-to-date representing a
decline in profitability of $0.2 million and $4.1 million
respectively, when compared to 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 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.
Adjusted EBITDA
Swiss Water defines Adjusted EBITDA as net
income before interest, depreciation, amortization, impairments,
share-based compensation, gains/losses on foreign exchange,
gains/losses on disposal of property and capital equipment, fair
value adjustments on embedded options, loss on extinguishment of
debt, adjustment for the impact of IFRS 16 - Leases, and provision
for income taxes and other non-cash gains related to a
remeasurement of asset retirement obligation. The Company’s
definition of Adjusted EBITDA also excludes unrealized gains and
losses on the undesignated portion of foreign exchange forward
contracts.
To help readers better understand Swiss Waters’
financial results, the following table provides a reconciliation of
net income, an IFRS measure, to Adjusted EBITDA as follows:
In $000s |
3 months ended September 30 |
9 months ended September 30 |
(unaudited) |
2023 |
|
2022 |
|
2023 |
|
2022 |
Net (loss) income for the period |
$ |
(417) |
$ |
(204) |
$ |
(1,489) |
$ |
2,641 |
Income tax expense (recovery) |
|
(363) |
|
(52) |
|
(434) |
|
949 |
(Loss) income before tax |
$ |
(780) |
$ |
(256) |
$ |
(1,923) |
$ |
3,590 |
Finance income |
|
(274) |
|
(124) |
|
(1,137) |
|
(335) |
Finance expenses |
|
2,027 |
|
1,321 |
|
5,939 |
|
3,990 |
Depreciation & amortization |
|
1,416 |
|
1,840 |
|
7,436 |
|
5,332 |
Unrealized loss on foreign exchange forward contracts |
|
191 |
|
699 |
|
89 |
|
840 |
Fair value gain on the embedded option |
|
(310) |
|
- |
|
(202) |
|
- |
Other gains |
|
- |
|
- |
|
(175) |
|
- |
(Gain) loss on foreign exchange |
|
(265) |
|
1,396 |
|
(143) |
|
1,849 |
Share-based compensation |
|
164 |
|
170 |
|
467 |
|
379 |
Impact of IFRS 16 - Leases |
|
(630) |
|
(700) |
|
(2,005) |
|
(2,073) |
Adjusted EBITDA |
$ |
1,539 |
$ |
4,346 |
$ |
8,346 |
$ |
13,572 |
Company Profile
Swiss Water Decaffeinated Coffee Inc. 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 solvents such as
methylene chloride. It also owns Seaforth Supply Chain Solutions
Inc., a green coffee handling and storage business. Both businesses
are located in the city of Delta, British Columbia, Canada.
Additional Information
A conference call to discuss Swiss Water’s
recent financial results will be held on Thursday, November
9, 2023, at 12:00 pm Pacific (3:00 pm Eastern). To access
the conference call, please dial:
-
1-888-506-0062 (toll-free) or
-
1-973-528-0011 (international);
-
participant access code: 338784
A replay will be available through November 23,
2023, at
-
1-877-481-4010 (toll-free) or
-
1-919-882-2331 (international);
-
replay passcode: 49423
A more detailed discussion of Swiss Water
Decaffeinated Coffee Inc.’s recent financial results is provided in
the Company’s Management Discussion and Analysis filed on SEDAR+
and Swiss Water’s website (investor.swisswater.com).
For more information, please
contact:
Iain Carswell, Chief Financial OfficerSwiss
Water Decaffeinated Coffee Inc.Phone:
604.420.4050Email: investor-relations@swisswater.comWebsite:
investor.swisswater.com
Forward-Looking Statements
Certain statements in this press release may
constitute “forward-looking” statements that involve known and
unknown risks, uncertainties and other factors which may cause the
actual results, levels of activity, performance, or achievements to
be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. When used in this press release, such
statements may include such words as “may”, “will”, “expect”,
“believe”, “plan”, “anticipate” and other similar terminology.
These statements reflect management’s current expectations
regarding future events and operating performance, as well as
management’s current estimates, but which are based on numerous
assumptions and may prove to be incorrect. These statements are
neither promises nor guarantees, but involve known and unknown
risks and uncertainties, including, but not limited to, risks
related to processing volumes and sales growth, operating results,
the supply of utilities, the supply of coffee and packaging
materials, supply of labour force, general industry conditions,
commodity price risks, technology, competition, foreign exchange
rates, construction timing, costs and financing of capital
projects, a potential impact of the COVID-19 and/or other
pandemics, global and local climate changes, changes in interest
rates, inflation, transportation availability, and general economic
conditions. The forward-looking statements and financial outlook
information contained herein are made as of the date of this press
release and are expressly qualified in their entirety by this
cautionary statement. Except to the extent required by applicable
securities law, Swiss Water undertakes no obligation to publicly
update or revise any such statements to reflect any change in
management’s expectations or in events, conditions, or
circumstances on which any such statements may be based, or that
may affect the likelihood that actual results will differ from
those described herein.
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