SWP Swiss Water Decaffeinated Coffee Inc

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 year ended December 31, 2021.

Three months and year ended December 31, 2021 Financial and Operational Highlights

• Fourth quarter revenue was $35.1 million, an increase of 43% or $10.6 million when compared to the same period in 2020. Full-year revenue grew strongly and was $125.1 million, an increase of 28% or $27.5 million.
• Quarterly and annual volumes increased by 23% and 17%, respectively, compared to the same periods in 2020 reflecting new customer acquisition and organic growth with existing customers as the food service economy continues to recover.
• European business grew very strongly with volumes up by 70% compared to the year ended December 31, 2020. Annual volumes in the Asia Pacific and North American regions grew strongly at 30% and 5% respectively.
• Production volumes were high during the fourth quarter and capacity utilization across the company’s three production lines exceeded 80 percent.
• Fourth quarter Adjusted EBITDA1 was $2.1 million, compared to $1.2 million in the same quarter in 2020, representing an increase of 78%. Full-year Adjusted EBITDA grew strongly to $10.5 million compared to $7.0 million in 2020, an increase of 50%.
• Fourth quarter net income was $0.2 million, compared to a net loss of $0.3 million in the same quarter in 2020, representing an increase of $0.5 million or 175%.  Full-year net income fell to $0.5 million from $2.9 million in the same period in 2020 due to increased depreciation, a non-cash loss on the extinguishment of the convertible debenture and increased finance expenses.
• Swiss Water initiated on-site construction of a second production line in Delta, BC in July 2021. The foundation was completed in the third quarter of 2021, and above ground construction commenced during the fourth quarter. The project is currently on time and on budget.
• Inflationary pressure increased within the company’s variable cost structure during the fourth quarter and led to an increase in processing prices to enable maintenance of margins.

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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.

“We are very proud to report that our volumes, revenues and adjusted EBITDA hit record levels in 2021.   Annual revenue exceeded $100 million for the first time, and Adjusted EBITDA moved beyond $10 million for the first time in the company’s history. Our existing customers are experiencing strong growth in demand for their chemical free decaf offerings and additionally, we have started to ship products to a number of new out-of-home customers in North America. We are seeing very good evidence in the marketplace that methylene chloride decaffeination is declining in preference by roasters and consumers. Furthermore, we are excited to share that our capacity utilization rate across our three production lines exceeded 80% during the fourth quarter and that these production rates drive solid profitability”, said Frank Dennis, Swiss Water’s President and CEO. “As we look forward into 2022 we are continuing to see a strong order book and we are optimistic that, with maturing vaccination programs in most developed countries, we will continue to see favourable trading conditions in our key markets. On a more cautionary note, we are continuing to experience a marked slowdown in coffee deliveries as supply chain bottlenecks persist. Additionally, a rare double frost occurred last July in Brazil increasing coffee futures prices sharply through the fourth quarter which caused a significant increase in working capital needs. We will pay close attention to these emerging risks and increasing costs, with an increasing expectation for further pricing actions and other mitigation efforts. On a separate note, we commenced above ground construction of our second line in Delta, BC during the fourth quarter and we expect to commission this new line in 2023”, said Dennis.

Operational Highlights

The following table shows changes in volumes during the three months and year ended December 31, 2021, compared to the same periods in 2020.

Volumes	3 months ended December 31, 2021		Year ended December 31, 2021
Change in total volumes	+23%		+17%
By customer type
Roasters	-6%		+1%
Importers	+69%		+50%
Specialty	+34%		+26%
Commercial	+14%		+12%

• Total volumes in the fourth quarter and year ended 2021 improved by 23% and 17%, respectively, compared to the same periods in 2020. Across all geographical markets, many of the company’s customers are seeing strong consumer demand and are ordering in line, and in some cases, ahead of pre-pandemic levels. Furthermore, volume growth was enhanced during Q4 2021 as the company started to ship products to some new out-of-home customers within North America. Encouragingly, Swiss Water recorded 7% and 56% growth in its North America and Asia Pacific regions respectively in the fourth quarter of 2021, compared to the same periods in 2020. In Europe, volumes increased by an impressive 72% during the three months ended December 31, 2021.
• As in the past, Swiss Water’s largest geographical market by volume continues to be the United States, followed by Canada, Europe and other international markets. By dollar value, for the year ended December 31, 2021, 43% of sales were to customers in the United States, 31% were to Canada, and the remaining 26% were to other countries.
• In September 2020, Swiss Water successfully completed its first production run of commercial-grade coffee from its new Delta, BC facility. During 2021, a significant portion of production volume was transitioned to Delta, reducing some of the pressure on the company’s legacy production assets in Burnaby, BC. The Delta facility is now running smoothly on a 24/7 basis and contributed to the fourth quarter capacity utilization rate exceeding 80% across the company's three production lines.

Financial Highlights

In $000s except per share amounts	3 months ended December 31						Year ended December 31
(unaudited)	2021			2020			2021			2020
Sales	$	35,129		$	24,512		$	125,076		$	97,571
Gross profit		4,389			2,861			17,611			15,652
Operating income		1,517			126			6,686			5,137
Net income (loss)		241			(320	)		496			2,949
Adjusted EBITDA1		2,111			1,186			10,533			7,042
Net income per share – basic2	$	0.03		$	(0.04	)	$	0.05		$	0.32
Net income per share – diluted2	$	0.03		$	(0.04	)	$	0.05		$	0.25

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 conversion of convertible debenture (until July 20, 2021), the exercise of warrants, and RSUs as well as the impact on earnings from changes in the fair market value of the embedded option in the convertible debenture (until July 20, 2021) and conversion of RSUs and the exercise of warrants.

• Fourth quarter revenue increased by 43% over Q4 2020 to $35.1 million, and 12 month revenue increased by 28% to $125.1 million as a result of increased volume growth in the periods and the effect of higher green coffee prices, compared to the same periods in 2020.
• Adjusted EBITDA for the three months and year ended December 31, 2021 was $2.1 million and $10.5 million respectively, representing increases of 78% and 50%, compared to the same periods in 2020. Operationally, the increase in Adjusted EBITDA was driven by volume growth, efficiency gains due to higher capacity utilization rates, and an increased financial contribution from Seaforth. These gains were somewhat offset by an increase in green coffee costs and incremental labour and production expenses associated with operating at two stand-alone facilities.  The costs associated with running two plants will cease when the company exits its Burnaby facility, expected to occur at the end of June 2023.
• Net Income declined during the 2021 fiscal year, despite the significant increase in Adjusted EBITDA, to $0.5 million from $2.9 million in 2020. The change was driven primarily by the $2.1 million increase in depreciation and amortization resulting from operating at two facilities, the non-cash loss of $1.4 million on the extinguishment of the convertible debenture, and a $1.3 million increase in finance expense due to the higher debt needed to finance the construction of the second production line in Delta, as well as working capital investments driven by increasing coffee prices.

NON-IFRS MEASURES

Adjusted EBITDA

We define 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. Our definition of Adjusted EBITDA also excludes unrealized gains and losses on the undesignated portion of foreign exchange forward contracts.

To help readers better understand our financial results, the following table provides a reconciliation of net income, an IFRS measure, to Adjusted EBITDA is as follows:

(In $000s)	3 months ended December 31,						Year ended December 31,
(unaudited)	2021			2020			2021			2020
Income (loss) for the period	$	241		$	(320)		$	496		$	2,949
Income taxes expense (recovery)		128			(323)			509			1,058
Income (loss) before tax	$	369		$	(643)		$	1005		$	4,007
Finance income		(72)			(118)			(442)			(488)
Finance expenses		1,189			1,061			4,364			3,087
Loss on extinguishment of debt		(4)			-			1,381			-
Depreciation & amortization		1,095			1,653			6,208			4,677
Unrealized (gain) loss on foreign exchange forwards		(183)			(371)			80			(48)
Fair value loss (gain) on the embedded option		-			72			48			(1,328)
(Gain) loss on foreign exchange		214			43			7			(19)
Share-based compensation expense (recovery)		205			192			690			(129)
Impact of IFRS 16 - Leases		(702)			(700)			(2,808)			(2,717)
Adjusted EBITDA	$	2,111		$	1,189		$	10,533		$	7,042

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 March 31, 2022 at 10:00 am Pacific Time (1:00 pm Eastern Time). To access the conference call, please dial 1-888-506-0062 (toll free) or 1-973-528-0011 (international); passcode: 624705. A replay will be available through April 14, 2022 at 1-877-481-4010 (toll free) or 1-919-882-2331 (international); passcode: 44930.

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 the company’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, 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 pandemic, 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.