Swiss Water Decaffeinated Coffee Income Fund Reports 2009 First Quarter Results

TRADING SYMBOL: The Toronto Stock Exchange - SWS.UN

VANCOUVER, May 7 /CNW/ - Swiss Water Decaffeinated Coffee Income Fund ("the Fund") today reported financial results for the three months ended March 31, 2009. The three-month period represents the first 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
                                                             March 31
                                                           2009     2008
                                                          ------   ------
Sales                                                     7,304    8,149
Gross profit                                              1,457    2,247
EBITDA(1)                                                   578    2,183
Net (loss) income                                           (69)   1,649
Adjusted distributable cash(1)                              825    2,154
Distributions Paid                                        1,502    1,502
Per Unit Amounts:
-----------------
Net (loss) income per unit                               (0.010)   0.247
Adjusted distributable cash(1)
 generated per unit                                       0.124    0.323
Distributions paid per unit                               0.225    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 7, 2009.

During the first quarter of 2009, SWDCC's revenues totaled $7.3 million, a
decrease of $0.8 million, or 10%, from the same period last year. The
company's processing volumes were also down, falling by 25% compared to Q1
2008. In both cases, the declines were related to several factors, including:
-   unusually strong Q1 2008 revenues and volumes, due to an order
    backlog from Q4 2007;
-   sharp increases in quality differential costs on coffee from certain
    geographic regions. This temporarily delayed ordering activity, as
    SWDCC's customers waited to see if the differential costs would
    revert to normal levels; and
-   a much weaker economic environment, which affected significant
    segments of SWDCC's customer base.

More positively, sales orders from a key regional market were up by 40% 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 first quarter revenues also benefited from more favourable foreign exchange rates. During Q1 2009, approximately 75% of the company's sales were generated in US dollars. As the US dollar was significantly stronger during the first three 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 first quarter revenue.

Gross profit for the first quarter of 2009 totaled $1.5 million. This represents a decrease of $0.8 million from the $2.2 million recorded during Q1 2008, with the decline due mainly to the drop in first quarter sales.

During the first quarter of 2009, SWDCC recorded a net loss of $0.1 million, compared to net income of $1.6 million for the same period last year. EBITDA was also down, falling to $0.6 million from $2.2 million in Q1 2008.

In both cases, the decline was primarily related to the company's lower quarterly sales, together with higher consumer promotion and advertising expenses. Based on the success of its 2008 campaign, SWDCC extended its marketing program into new and larger geographic markets during Q1 2009. While the company will continue to invest in its advertising programs throughout 2009, a disproportionate amount of the campaign's annual costs were recorded during the first quarter launch period.

Net income was also affected by changes in the unrealized losses recorded on derivative instruments. SWDCC enters into commodity futures and foreign exchange forward contracts to manage the impact of changes in commodity coffee prices and US dollar exchange rates on its business. During the three months ended March 31, 2009, the net effect of these contracts was a realized gain of $0.4 million, which positively impacted distributable cash generated for the quarter. The realized gain was offset by unrealized losses of $0.8 million, resulting in a $0.4 million loss on the company's statement of income. During Q1 2008, SWDCC recorded a realized gain of $0.1 million and an unrealized gain of $19 thousand.

The Fund's monthly cash distributions have been maintained at $0.075 per unit, or $0.90 per unit on an annualized basis, since March 2007. During the three months ended March 31, 2009, the Fund generated adjusted distributable cash of $0.8 million, and paid $1.5 million in distributions to unitholders. The difference between distributable cashed generated and distributions paid to unitholders was principally due to SWDCC's investment in advertising and marketing programs, and was funded by borrowings against the Fund's credit facility.

"Our results for the first quarter of 2009 were in line with our expectations, given a seasonally weaker quarter and the fact that we launched critical advertising and promotional programs in an important target market," said Frank Dennis, President and CEO of SWDCC and a Trustee of the Fund. "This market is approximately three times larger than the regional marketplace we focused on last year, and presents solid opportunities to significantly expand our customer base. While executing this strategy represents a substantial investment, we intend to maintain our 2009 cash distributions at current levels, based on the expectation that we will be developing new business through 2010 that will enable us to pay down our debt at that time."

A more detailed discussion of the Fund's financial results can be found in its first 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 May 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