Swiss Water Decaffeinated Coffee Inc. (TSX – SWP) (“Swiss Water” or “the company”) today reported March 19 strong financial results for the fourth quarter and year ended December 31, 2019. With annual processing volumes up by 16%, and gross profit up 11% year-over-year, the company’s strong growth trajectory continued unabated in 2019. Swiss Water is a premium green coffee decaffeinator that employs the proprietary SWISS WATER® Process to decaffeinate green coffee without the use of chemicals.
Through 2019, the company continued to increase its market share and win new business, as more and more industry participants, and coffee consumers move away from chemical decaffeination in favor of chemical free processes. At the same time, growing demand from existing customers is fueling robust organic growth. Anticipating the need to add more production capacity sooner than previously expected, Swiss Water’s Board of Directors has suspended dividend payments in order to help fund the construction of a second production line in Delta, BC.
“We are pleased to report that the strong growth in volumes we have achieved for the past three years continued through the fourth quarter enabling us to deliver record growth for 2019”, said Frank Dennis, Swiss Water’s President and CEO. “Despite the immediate challenges presented by the COVID-19 pandemic, we are confident that demand for our proprietary SWISS WATER® Process decaffeinated coffees will continue to grow at double-digit rates well into the future adding to the longer-term pressure on our production infrastructure. The build-out of our new state-of-the-art production facility in Delta, BC is nearly completed and commissioning of the new production line is underway, and going according to plan. We should be in a position to begin shipping commercially from the new plant in the second quarter of this year.”
“In other developments, the sale of our legacy production site in Burnaby, BC to a new owner on February 14th of this year, means that expansion of our new Delta facility is likely to become necessary sooner than we had previously anticipated. While our lease on the Burnaby property, which expires in June 2023, provides for an additional five-year extension (to 2028), this is at the sole discretion of the landlord. Under the terms of the lease, the owner has until June 2021 to inform us of their intentions – just two years before we have to vacate should an extension not be granted. In assessing the impact of this change of ownership, we have concluded that the potential risk it poses to our ability to continue operations at the Burnaby site beyond 2023 is unacceptable. Accordingly, in order to provide the capacity we will need to meet future demand for our coffees, we are moving forward immediately with preparations to build a second production line in Delta with the goal of completing it before the lease in Burnaby expires. This development has prompted our Board of Directors to make the decision to suspend dividend payments to our shareholders. We believe that, by redeploying the funds we have previously paid out in dividends to help us build a second line in Delta, BC, we will be able to create superior value over the longer term,” said Dennis.
“As to the COVID-19 outbreak, we are closely monitoring its potential impact on our operations and implementing the appropriate risk management procedures. The situation is dynamic and changing day-to-day. So far, the operational impact has been restricted to inflationary pressure on outbound freight rates to Asia. This is being driven by a fall in shipping traffic across the Pacific Ocean and a resulting reduction in container availability for our exports to this region. Looking forward, we may well experience disruptions to business operations and possibly delays in the commissioning of our Delta facility. For example, if a significant number of our employees or commissioning contractors, or employees of our customers or suppliers, are quarantined and unable to work there may be significant disruptions and delays in our ongoing business or in the start-up procedures at Delta. We will continue to closely monitor the situation and work to mitigate its effects,” Dennis added. Below is a summary of Swiss Water’s operational and financial results.