Swiss Water Decaffeinated Coffee Income Fund Reports 2010 First Quarter

Processing Volumes, Revenue, EBITDA and Net Income Up Over Q1 2009

TRADING SYMBOL: The Toronto Stock Exchange - SWS.UN

VANCOUVER, May 11 /CNW/ - Swiss Water Decaffeinated Coffee Income Fund ("the Fund") today reported financial results for the three months ended March 31, 2010, which represents the first quarter of its 2010 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
                                                               March 31
                                                           2010       2009
                                                        ---------- ----------
    Sales                                                $  7,776   $  7,304
    Gross profit                                            1,320      1,453
    EBITDA(1)                                               1,250        578
    Net income (loss)                                         665        (69)
    Adjusted distributable cash(1)                          1,580      1,080
    Distributions paid                                        601      1,502
    Per unit amounts:
    Net income (loss) per unit                              0.100     (0.010)
    Adjusted distributable cash generated per unit(1)       0.237      0.162
    Distributions paid per unit                             0.090      0.225

    (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 May 11, 2010.

During the three months ended March 31, 2010, SWDCC's coffee processing volumes were up by 6% over the first quarter of last year, with gains recorded in all areas of its business and across all geographic markets. The company's sales of decaffeinated coffee from inventory (its "non-toll" business) grew by more than its toll business, increasing the amount of green coffee sales included in revenue. As a result of increased volumes and higher non-toll sales, first quarter revenues increased by 7%, growing from $7.3 million in 2009 to $7.8 million this year.

Partially offsetting these gains was a comparatively weak US dollar. During the first quarter of 2010, approximately 79% of the company's sales were generated in US dollars, up from 66% in Q1 2009. As the US-Canadian exchange rate was lower throughout the quarter than in the same period last year, this had a negative impact on the company's revenue.

First quarter gross profit totaled $1.3 million, compared to $1.4 million in Q1 2009. The slight decrease reflects higher cost of goods sold for the period, which rose to $6.5 million from $5.9 million in 2009. This increase was due to an 18% jump in the company's green coffee costs as a result of the relative strength of its non-toll business. This was partially offset by measures the company took to reduce production costs.

SWDCC recorded first quarter net income of $0.7 million, compared to a net loss of $0.1 million in 2009. EBITDA for the period rose by 116% to $1.3 million, up from $0.6 million. In both cases, the improvement was mainly related to lower consumer promotion and advertising expenses, which fell to $0.1 million compared to $1.0 million in Q1 2009.

In recent years, SWDCC has increased its strategic investment in consumer advertising, launching a multi-media campaign in a regional market in 2008, then extending the campaign into a market roughly three times larger in Q1 2009. No similar campaign was launched in the first three months of 2010, reducing consumer advertising and promotion expenses. To date, the company's brand-building initiatives have generated solid sales growth in the initial target market, with positive results expected in both markets through the balance of 2010 and beyond.

First quarter net income was also positively affected by net gains on derivative instruments, which the company employs to help manage the effect of changes in commodity coffee prices and US-Canadian exchange rates. During Q1 2010, SWDCC recorded a net gain on derivative instruments of $0.4 million, compared to a loss of $0.4 million for the same period in 2009.

During the first quarter, the Fund generated adjusted distributable cash of $1.6 million and paid $0.6 million in distributions to unitholders, resulting in a payout ratio of 38%. This is a significant change from the same period last year, when the Fund generated adjusted distributable cash of $1.1 million and paid unitholders $1.5 million, for a payout ratio of 139%.

The lower payout ratio was mainly the result of the Fund's Q2 2009 decision to reduce monthly distributions to $0.03 per unit ($0.36 annually) from the previous level of $0.075 per unit ($0.90 annually). The decision was made in response to SWDCC's decreased production volumes and increased investment in consumer advertising during 2009. The reduction has allowed the Fund to maintain a conservative capital structure.

"We are encouraged by our first quarter results," said Frank Dennis, President and CEO of SWDCC and a Trustee of the Fund. "For the first time in more than a year, we recorded volume growth in all our markets. While we believe this is largely related to improving economic conditions, we also think our strategic investments in building consumer awareness of the SWISS WATER(R) Process are making a positive contribution to our bottom line.

"At the same time, we are seeing shortages of high-quality Arabica coffees in the market, largely driven by lower crop sizes and quality issues in Colombia. This is increasing coffee commodity prices, which in turn can be expected to reduce demand in the near-term as customers postpone coffee purchases. These industry-wide issues may limit our ability to grow our processing volumes in 2010. As such, our outlook for the balance of 2010 is cautiously optimistic."

A more detailed discussion of the Fund's financial results can be found in its Q1 2010 Management's Discussion and Analysis, which will be posted with the Fund's unaudited consolidated financial statements on SEDAR ( on or before May 11, 2010.

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.

Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking" statements which 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, supply of coffee, general industry conditions, commodity price risks, technology, competition, foreign exchange rates, 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, the Fund 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.

%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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