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

06-AUG-2009

VANCOUVER, BC, August 6, 2009/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 June 30                     6 Months Ended June 30  
   2009  2008        2009          2008             
Sales $ 7,692 $ 7,785 $  14,996 $  15,934
Gross profit    1,500    1,822      2,957     4,092 
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 cashe 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® 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® 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 facility.
 
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 (www.sedar.com) 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® Process is a proprietary 100% chemical free decaffeination process that does not use methylene chloride or ethyl acetate. The SWISS WATER® Process is the world’s only consumer branded decaffeination process and the company supports the brand through ongoing consumer research and focused consumer advertising.
 
 
For more information, please contact:
Sherry Tryssenaar, Chief Financial Officer
Swiss Water Decaffeinated Coffee Company Inc.,
Phone: 604.444.8780    Fax: 604.420.8711
Email: stryssenaar@swisswater.com
Website: www.swisswater.com

 

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