VANCOUVER, British Columbia, Canada – Swiss Water Decaffeinated Coffee Inc. (“Swiss Water” or “the company”) has announced financial results for the fourth quarter and year ended December 31, 2018. Swiss Water is a leading specialty coffee company and premium green coffee decaffeinator which employs the proprietary Swiss Water® Process to decaffeinate green coffee without the use of chemicals.
During the fourth quarter of 2018, the company continued to gain market share against its competitors and improved operational efficiencies while remaining focused on producing high-quality premium decaffeinated coffee.
To drive future growth, Swiss Water plans to expand its presence in Europe and target specific customer groups in North America. The company is aiming to grow brand awareness with both the coffee trade and consumers by employing a range of marketing activities.
These include digital and print advertising, social media communications, participation in trade shows and sponsorship at key coffee industry events.
Quarterly revenue increased by 11% over Q4 2017 to $23.0 million and revenue for the year improved by 7% to $89.9 million. The increases were due to growth in Swiss Water’s processing volumes, partially offset by a lower coffee commodity price (“NY’C’”) and fluctuations in the US dollar (“US$”) exchange rate.
Gross profit for Q4 2018 was $3.7 million (or a margin of 16%). This represents a gain of $0.4 million and a 1% increase in margin over the same period in 2017. Full-year gross profit improved to $14.9 million (or a margin of 17%), compared to $12.6 million (or a margin of 15%) during 2017. The improved performance was due to the higher processing volumes, as well as the success of management’s ongoing efforts to enhance recovery of operating costs. These initiatives have helped offset the margin compression Swiss Water recorded during the first half of 2018. The company remains tightly focused on margins, and continues to seek ways to reduce variable and fixed costs without impacting product quality which is paramount.
Operating expenses decreased by 7% to $2.1 million in the fourth quarter, and increased by 19% to $9.3 million for the full year, when compared to the same periods in 2017. In both periods, there were increases due to higher staffing and staff-related expenses in both periods; however, in the fourth quarter, the increase was offset by income tax credit for research and development. The investments in staffing are designed to enhance Swiss Water’s operational and marketing capabilities ahead of the new production capacity it has coming online later this year.
Operating income increased by $0.7 million, or 69%, to $1.6 million in the fourth quarter and by $0.8 million, or 17%, to $5.6 million for the full 2018 year.
Fourth quarter net income increased to $0.9 million, compared to a loss of $0.4 million in Q4 2017.
The improvement in net income resulted from increased gross profit and improved non-operating expenses related to the revaluation of an embedded derivative, as well as effective risk management activities.
This was partially offset by higher income tax expenses. Full-year net income was $4.5 million, compared to $4.2 million 2017. The increase in annual net income resulted from the $2.3 million increase in annual gross profit, offset by increased operating expenses of $1.5 million, a loss on foreign exchange of $0.3 million and an increase in income tax expense of $0.1 million
EBITDA for Q4 was $2.0 million, up by $0.7 million, or 53%, over the same period in 2017.
EBITDA for the year was $7.7 million, up by $0.8 million, or 12%, compared to $6.9 million in 2017. The increases in EBITDA resulted from higher processing volumes in addition to significant efforts across the company to enhance cost recovery. Swiss Water plans to continue investing in its production infrastructure and human resources in preparation for the significant business growth it anticipates going forward.
Looking ahead, Swiss Water expects the positive trends established in 2018 to continue with processing volumes showing strong year-over-year growth.
“Our primary focus for 2019 will be to position Swiss Water to maintain our current growth momentum and continue enhancing our operating margins, as we drive sales to the European Union and selective customer groups in North America,” said Dennis. “As converting large customers to Swiss Water® Process coffees typically takes several quarters, we believe the steps we are taking to strengthen our sales capability are critical to our success in ramping up orders and winning new business as we add significant capacity with our new facility in 2019.”
Construction of Swiss Water’s new decaffeination facility, which is located in Delta, BC, is progressing well. Initially, this facility will house one new production line, although the site is large enough for expansion well into the future. The new production line is expected to be commissioned in the fourth quarter of 2019.
On January 15, 2019, Swiss Water paid an eligible dividend in the amount of $0.6 million ($0.0625 per share) to shareholders of record on December 31, 2018.
In addition, the company has declared an eligible quarterly dividend for the first quarter of this year. Accordingly, a cash dividend of $0.0625 per share will be paid on April 15, 2019, to shareholders of record on March 29, 2019.