Swiss Water Decaffeinated Coffee Inc.
(TSX: SWP)
(“Swiss Water” or “the Company”), a leading specialty coffee
company and premium green coffee decaffeinator, today reported
strong financial results for the three months ended March 31, 2023.
2023 First Quarter Financial and
Operational Highlights
-
First quarter revenue was $49.0 million, an increase of 28% or
$10.6 million when compared to the same period in 2022. This was a
quarterly record for Swiss Water.
-
Quarterly volumes increased by 21% compared to the same period in
2022, driven by an increased concentration of volume produced in
advance of the Burnaby facility shutdown and an upcoming short
period of reduced available capacity.
-
North American business continued its strong growth trajectory with
volumes up by 35% compared to the first quarter of 2022.
-
Production volumes were higher than normal during the first quarter
and capacity utilization across the Company’s three production
lines exceeded 80%.
-
First quarter net income was a loss of $0.7 million, compared to
net income of $1.4 million in Q1 2022, representing a
year-over-year decrease of $2.1 million. The quarterly loss was
mainly due to a $2.1 million one-time increase in depreciation
expense associated with the write down of non-salvaged assets
located at Swiss Water’s production facility in Burnaby, BC. This
legacy facility is currently being shut down as all production is
relocated to the Company’s new Delta, BC location. A $1.0 million
non-cash loss on the revaluation of the embedded option within
Swiss Water’s debenture with warrants also contributed to the
quarterly loss.
-
Adjusted EBITDA1 was up by 28%, or $1.1 million, to $5.0 million
for the first quarter. The improvement was driven mainly by the
positive impact of increased sales volume.
“We are pleased to report that the strong
performance we achieved during 2022 carried forward into the first
quarter of this year. The strong volume result during the quarter
was driven by many of our customers moving orders ahead in the year
to manage their inventory needs ahead of the transition from our
Burnaby facility to our new second production line in Delta. As a
result of our high volumes, revenues and adjusted EBITDA both hit
record levels. Quarterly revenue exceeded $49 million for the first
time, and adjusted EBITDA increased by 28% to $5.0
million,” said Frank Dennis, Swiss Water’s President and CEO.
“As we look forward into the balance of 2023, we are continuing to
see a strong order book, particularly in late Q3 and early Q4, and
are sharply focused on initiating production on our second
production line in Delta. We decaffeinated our last bag of coffee
at our Burnaby factory in late April and are now preparing the site
for return to the landlord in June. In Delta, we expect to complete
construction and commence commercial production from our second
decaffeination line there (Delta Line 2) by late Q3. This
transition marks the culmination of a decade long project to
relocate, modernize and expand the capacity of Swiss Water’s
production assets. The consolidation of all production in Delta
will provide us with a number of operational efficiencies and will
provide capacity for intermediate-term growth. This will help
enable roasters to accelerate their migration to chemical free
decaffeinated coffee. As I have previously discussed, it is
important to note that from April through August we will have
capacity limitations. This transition period is the time between
the retirement of the Burnaby assets and the full and final
commissioning of Delta Line 2. During this period we will
experience reduced sales volumes and therefore earnings. This
temporary curtailment in volume will likely lead to lower earnings
year-over-year when we report results for the full 2023 fiscal
year,” Dennis added.
Operational Highlights
The following table shows changes in trading
volumes during the three months ended March 31, 2023, compared to
the same period in 2022. It also shows volume changes for the full
2022 fiscal year compared to 2021.
Volumes |
3 months ended March 31, 2023 |
Year ended December 31, 2022 |
Change in total volumes |
+21% |
+15% |
By customer type |
|
|
Roasters |
+44% |
+28% |
Importers |
+0% |
+28% |
Specialty |
+16% |
+28% |
Commercial |
+24% |
+6% |
-
Total volumes increased by 21% for the first quarter when compared
to the same period in 2022. This was driven by inventory build-up
and processing concentration for key tolling customers in the
period before the Burnaby shutdown. Shipments to importers were
flat as a result of some consolidation within this sector.
Additionally, with importer inventories remaining generally high,
purchasers have been reluctant to add to product on-hand
coverage.
-
Swiss Water’s largest geographical market by volume in Q1 continued
to be the United States, followed by Canada, and international
market. By dollar value, 58% of the Company’s sales were to
customers in the United States, 24% were to Canadian customers, and
the remaining 18% were to international markets.
-
During the first quarter, Swiss Water continued construction of a
second production line at its facility in Delta, BC. The
preliminary cost estimate for this project was approximately $45.0
million, plus commissioning costs of approximately $2.0 million.
During the second half of 2022, the impacts of global macroeconomic
pressures, including inflation, building trades disruptions, and
supply chain issues, became more acute in terms of project budget
and schedule. Given the impact of these factors, the Company
currently projects a $53.0 million final cost as the project
approaches substantial completion. This revised cost estimate takes
into account the vast majority of inflationary factors realized or
projected to date, and there is no change to the $2.0 million
commissioning budget.
-
Inflationary pressure within Swiss Water’s variable cost structure
also remains intense and is being 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 March 31, |
(unaudited) |
|
2023 |
|
|
2022 |
Revenue |
$ |
49,045 |
|
$ |
38,415 |
Gross profit |
|
4,894 |
|
|
5,763 |
Operating income |
|
1,424 |
|
|
2,880 |
Net (loss) income |
|
(701 |
) |
|
1,385 |
Adjusted EBITDA1 |
|
4,982 |
|
|
3,882 |
Net (loss) income per share – basic2 |
$ |
(0.08 |
) |
$ |
0.15 |
Net (loss) income per share – diluted2 |
$ |
(0.08 |
) |
$ |
0.15 |
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.
-
First quarter revenue of $49.0 million, was up by 28% over Q1 2022.
The improvement was driven by a combination of volume growth and
appreciation of the US dollar compared to the same period in
2022.
-
Gross profit was $4.9 million during the quarter, a decrease of
$0.9 million from Q1 2022. The decrease was primarily driven by the
$2.1 million increase in one-time depreciation expenses associated
with the non-salvaged assets at Swiss Water’s soon to be vacated
Burnaby production facility, and to a much lesser extent,
inflationary pressure on the Company’s variable production and
freight costs.
-
During the first quarter, Swiss Water recorded a net loss of $0.7
million, representing a year-over-year decrease of $2.1 million in
net income. The decrease was mainly due to the $2.1 million
one-time increase in depreciation expense, associated with the
write-down of non-salvaged assets located at our production
facility in Burnaby, as well as the $1.0 million non-cash loss on
the revaluation of the embedded option within the Company’s
debenture with warrants.
-
Adjusted EBITDA for the quarter was $5.0 million, representing
an increase of $1.1 million or 28% compared to 2022. Operationally,
the increase in Adjusted EBITDA was driven by strong volume growth.
These gains were somewhat offset by inflationary pressure.
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. 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 March 31, |
|
(unaudited) |
|
2023 |
|
|
2022 |
|
Net (loss) income for the period |
$ |
(701 |
) |
$ |
1,385 |
|
Income tax (recovery) expense |
|
(216 |
) |
|
529 |
|
(Loss) income before tax |
$ |
(917 |
) |
$ |
1,914 |
|
Finance income |
|
(437 |
) |
|
(71 |
) |
Finance expenses |
|
1,837 |
|
|
1,209 |
|
Depreciation & amortization |
|
3,582 |
|
|
1,553 |
|
Unrealized loss (gain) on foreign exchange forward contracts |
|
74 |
|
|
(9 |
) |
Loss on fair value of embedded option |
|
968 |
|
|
- |
|
Loss (gain) on foreign exchange |
|
84 |
|
|
(206 |
) |
Share-based compensation |
|
493 |
|
|
189 |
|
Impact of IFRS 16 leases |
|
(702 |
) |
|
(697 |
) |
Adjusted EBITDA |
$ |
4,982 |
|
$ |
3,882 |
|
|
|
|
|
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 cities of Burnaby and Delta, British Columbia,
Canada.
Additional Information
A conference call to discuss Swiss Water’s
recent financial results will be held on May 11, 2023, at
10:00 am Pacific (1:00 pm Eastern). To access the
conference call, please dial:
-
1-888-506-0062 (toll-free) or
-
1-973-528-0011 (international); participant access
code: 515157.
A replay will be available through May 25, 2023,
at 1-877-481-4010 (toll-free) or 1-919-882-2331 (international);
passcode: 48420.
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
(www.sedar.com) 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” 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, 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.
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.
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