Swiss Water Decaffeinated Coffee Income Fund Reports 2009 Second Quarter and First Half Results

    TRADING SYMBOL: The Toronto Stock Exchange - SWS.UN

    VANCOUVER, Aug. 6 /CNW/ - Swiss Water Decaffeinated Coffee Income Fund
("the Fund") today reported financial results for the three and six months
ended June 30, 2009. The three-month period represents the second quarter of
its 2009 fiscal year. The Fund holds all of the outstanding securities of
Swiss Water Decaffeinated Coffee Company, Inc. ("SWDCC" or "the company") and
its results are dependent on the operating results of SWDCC.

    Operating Results
    In $000's except per unit amounts

                                     3 Months Ended         6 Months Ended
                                         June 30                June 30
                                      2009        2008       2009       2008
    Sales                         $  7,692    $  7,785   $ 14,996   $ 15,934
    Gross profit                     1,500       1,822      2,957      4,069
    EBITDA(1)                          994       1,479      1,572      3,662
    Net income                       1,207         131      1,138      1,780
    Adjusted distributable cash(1)     633       2,069      1,458      4,223
    Distributions paid               1,502       1,502      3,004      3,004
    Per unit amounts:
    Net income per unit              0.181       0.020      0.170      0.267
    Adjusted distributable cash
     generated per unit(1)           0.095       0.310      0.218      0.633
    Distributions paid per unit(1)   0.225       0.225      0.450      0.450

    (1) EBITDA, adjusted distributable cash and adjusted distributable cash
        per unit are non-GAAP financial measures that are defined in the
        Management's Discussion and Analysis to be posted on SEDAR on or
        before August 7, 2009.

    SWDCC's processing volumes decreased during the three and six months
ended June 30, 2009, falling by 19% and 22%, respectively. In both cases, the
declines were related to several factors, including:

    -   sharp increases in commodity coffee prices which resulted in a
        temporary delay in sales orders, as SWDCC's customers worked to
        reduce their exposure to the higher cost coffees;
    -   delays in receiving coffee from Colombia, which reduced SWDCC's toll
        processing volumes; and
    -   a much weaker economic environment, which affected significant
        segments of SWDCC's customer base.

    Second quarter revenues totaled $7.7 million, a decrease of $0.1 million,
or 1%, from the same period last year. Revenues for the year-to-date totaled
$15.0 million, a decline of $0.9 million, or 6% from the first half of 2008.
While the decreases are primarily related to lower processing volumes, SWDCC's
revenues did not decline at the same rate as its volumes because the company's
non-toll business was proportionately higher during the first two quarters of
2009 than during the first half of 2008. As a result, more green coffee cost
recovery was included in the company's sales.
    At the same time, first half 2009 sales orders from a key regional market
were up significantly compared to the same period last year, following the
targeted advertising and promotional campaign SWDCC conducted in that market
during the latter half of 2008. Disseminated by radio, in newspapers and
online, the campaign was created to better inform consumers about their
ability to choose 100% chemical free SWISS WATER(R) Process decaffeinated
coffees, as opposed to coffees decaffeinated with chemical solvents, including
methylene chloride and ethyl acetate. This strategy has proven successful,
with demand for SWISS WATER(R) Process decaffeinated coffees rising
significantly within the initial target market.
    SWDCC's three and six-month revenue also benefited from more favourable
foreign exchange rates. During the first half of 2009, approximately 74% of
the company's sales were generated in US dollars. As the US dollar was
significantly stronger during the first six months of 2009 than in the same
period last year, SWDCC realized higher foreign exchange on its US sales. This
had a positive impact on the company's revenue.
    Gross profit for the second quarter and year-to-date declined by 18% and
27%, respectively. In both cases, the decrease was related to lower sales
volumes, together with an increase in the cost of goods sold due to the
proportionally higher non-toll volumes, and therefore more green coffee cost
recovery, in the current year.
    During the second quarter of 2009, SWDCC recorded net income of $1.2
million, compared to a net income of $0.1 million for the same period last
year. For the year-to-date, net income totaled $1.1 million, compared to $1.8
million in the first half of 2008. In both periods, net income was negatively
affected by the company's lower sales, together with higher consumer promotion
and advertising costs.
    Based on the success of its 2008 campaign, SWDCC extended its marketing
program into new and larger geographic markets during Q1 2009. The campaign
continued through the second quarter, with consumer advertising and promotion
costs totaling $0.6 million, compared to $0.4 million for the same period last
year. As a significant amount of the campaign's annual costs were recorded
during the first quarter launch period, consumer promotion and advertising
expenditures for the first half of 2009 were up substantially, totaling $1.6
million, compared to $0.6 million for the same period of 2008.
    Net income was also affected by changes in the gains and losses recorded
on derivative instruments. During the second quarter, SWDCC recorded a $1.3
million net gain on derivative instruments, which more than offset the
period's lower sales, and higher selling and administrative expenses. For the
first half of 2009, the company recorded a net gain on derivative instruments
of $0.9 million, as well as a future income tax recovery of $0.6 million.
While these items increased SWDCC's net income for the period, it was not
enough to offset the increased selling and administrative costs.
    During the second quarter, the Fund generated adjusted distributable cash
of $0.6 million, and paid $1.5 million in distributions to unitholders. In the
first six months of 2009, adjusted distributable cash of $1.5 million was
generated and $3.0 million was paid to unitholders. This resulted in a payout
ratio of 237% for the second quarter and 206% for the first half. The
difference between adjusted distributable cashed generated and distributions
paid to unitholders was funded by borrowings against the Fund's credit
    On June 9, 2009, the Fund announced that monthly distributions would be
reduced from $0.075 per unit to $0.030 per unit, beginning with the
distribution paid on July 15, 2009. The decision was based on three key
factors: a significant slowdown in the global economy; a temporary decrease in
customer orders due to shipping delays and rising prices in certain coffee
producing regions; and SWDCC's considerable investment in its brand-building
programs. Together, these factors negatively influenced SWDCC's sales volumes
and adjusted distributable cash, necessitating the reduction of monthly
distributions to a more sustainable level. Looking ahead, the company expects
its investment in building consumer awareness will generate increased sales
volumes in 2010 and beyond, resulting in increased adjusted distributable cash
in future years.
    "We have faced significant market challenges in the first half of 2009
which are reflected in our financial results for the year to date," said Frank
Dennis, President and CEO of SWDCC and a Trustee of the Fund. "We believe the
recent reduction in customer ordering is temporary, however, and that our
sales will receive a boost when our customers' depleted inventory levels need
to be replenished. In addition, we continue to be encouraged by the volume and
revenue growth generated by our investment in focused regional advertising
programs. We expect to replicate the success of last year's campaign over the
coming quarters, with returns on our investment beginning to materialize in
2010 and beyond."
    A more detailed discussion of the Fund's financial results can be found
in its second quarter Management's Discussion and Analysis, which is to be
posted with the Fund's unaudited interim financial statements on SEDAR
( on or before August 7, 2009.

    Company Profile

    The Fund owns Swiss Water Decaffeinated Coffee Company Inc. (SWDCC), a
premium green coffee decaffeinator located in Burnaby, British Columbia,
Canada. SWDCC decaffeinates customer-owned coffees, including organically
certified coffees, for a fee - its "toll" business; and also purchases
high-quality green coffees, decaffeinates them and markets them to the green
coffee trade - its "non-toll" business. The SWISS WATER(R) Process is a
proprietary 100% chemical free decaffeination process that does not use
methylene chloride or ethyl acetate. The SWISS WATER(R) Process is the world's
only consumer branded decaffeination process and the company supports the
brand through ongoing consumer research and focused consumer advertising.
    %SEDAR: 00017658E

For further information:

For further information: Sherry Tryssenaar, Chief Financial Officer,
Swiss Water Decaffeinated Coffee Company Inc., Phone: (604) 444-8780, Fax:
(604) 420-8711, Email:, Website:

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