SWISS WATER DECAFFEINATED COFFEE INC.
2023 ANNUAL REPORT
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
MANAGEMENT DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) of Swiss Water Decaffeinated Coffee Inc. (“Swiss
Water” or the “Company”), dated as of March 13, 2024, provides a review of the financial results for the
quarter and year ended December 31, 2023 relative to the comparable periods of 2022. The quarter period
represents the fourth quarter (“Q4”) of our 2023 fiscal year. This MD&A should be read in conjunction with
Swiss Water’s audited consolidated financial statements for the year ended December 31, 2023, and in
conjunction with the Annual Information Form (“AIF”), which are available on www.sedar.com.
All financial information is presented in Canadian dollars, unless otherwise specified.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements, including statements regarding the future success of our
business and market opportunities. Forward-looking statements typically contain words such as “believes”,
“expects”, “anticipates”, “continue”, “could”, “indicates”, “plans”, “will”, “intend”, “may”, “projects”,
“schedule”, “would” or similar expressions suggesting future outcomes or events, although not all forward-
looking statements contain these identifying words. Examples of such statements include, but are not limited
to, statements concerning: (i) expectations regarding Swiss Water’s future success in various geographic
markets; (ii) future financial results, including anticipated future sales and processing volumes; (iii) future
dividends; (iv) the expected actions of the third parties described herein; (v) factors affecting the coffee
market including supplies and commodity pricing; (vi) the expected cost to complete upgrades to production
lines; and (vii) the business and financial outlook of Swiss Water. In addition, this MD&A contains financial
outlook information that is intended to provide general guidance for readers based on our current estimates,
which are based on numerous assumptions and may prove to be incorrect. Therefore, such financial outlook
information should not be relied upon by readers. These statements are neither promises nor guarantees but
involve known and unknown risks and uncertainties that may cause our actual results, level of activity,
performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed in or implied by these statements. These risks include but are not
limited to, risks related to processing volumes and sales growth, operating results, supply of coffee, supply of
utilities, general industry conditions, commodity price risks, technology, competition, foreign exchange rates,
interest rate risks, any new equipment upgrades timing, inflation, costs and financing of capital projects,
general economic conditions and those factors described herein under the heading ‘Risks & Uncertainties’.
The forward-looking statements contained herein are also based on assumptions that we believe are current
and reasonable, including but not limited to, assumptions regarding: (i) trends in certain market segments
and the economic climate generally; (ii) the financial strength of our customers; (iii) the value of the Canadian
dollar versus the US dollar (“US$”); (iv) the expected financial and operating performance of Swiss Water
going forward; (v) the availability and expected terms and conditions of debt facilities; (vi) the expected level
of dividends payable to shareholders; (vii) the potential impact of pandemics (viii) the potential impact of any
war and terrorist activity (ix) the potential impact on any labour union disputes (x) potential impact of
environmental changes or unexpected acts of God. We cannot assure readers that the actual results will be
consistent with the statements contained in this MD&A. The forward-looking statements and financial
outlook information contained herein are made as of the date of this MD&A and are expressly qualified in
their entirety by this cautionary statement. Except to the extent required by applicable securities law, Swiss
Water undertakes no obligation to publicly update or revise any such statements to reflect any change in our
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.
1 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
EXECUTIVE SUMMARY
The following selected information, other than Adjusted EBITDA was derived from the financial statements
for the year ended December 31, 2023, prepared in accordance with IFRS. For the definition of Adjusted
EBITDA, refer to the Non-IFRS Measures section of this MD&A.
In $000s except per share amounts
(unaudited)
Revenue
Gross Profit
Operating income
Net income (loss)
Adjusted EBITDA1
Net income (loss) per share – basic2
Net income (loss) per share – diluted2
3 months ended December 31,
2022
43,998
2023
41,237 $
$
Year ended December 31,
2022
176,935
2023
166,277 $
6,916
3,372
961
5,008
0.10 $
0.10 $
5,759
2,792
(254)
3,087
18,798
5,630
(528)
13,354
(0.03)
(0.03)
$
$
(0.06) $
(0.06) $
26,088
13,381
2,387
16,659
0.26
0.26
$
$
$
1 Adjusted EBITDA is defined in the ‘Non-IFRS Measures’ section of this MD&A and is a “Non-GAAP Financial Measure” as defined by CSA Staff Notice
52-306.
2 Per-share calculations are based on the weighted average number of shares outstanding during the periods. Diluted earnings per share take into
account shares that may be issued upon the exercise of warrants and RSUs.
Operational highlights
During late Q3, commercial decaffeination on the second line in Delta, BC started for the first time. This
marked the completion of the consolidation of production activities into one site, and the end of the
transition away from our legacy production assets in Burnaby, BC. Production volumes and quality metrics
on the new line increased during the three months ended December 31, 2023, and enabled the delivery
of a very strong fourth quarter.
As expected, total sales volume for the three months ended December 31, 2023 increased by 17%
compared to the fourth quarter of 2022. The consolidation of production in Delta was completed during
the third quarter, and as a result, we are no longer capacity constrained. This enabled us to maximize
organic growth opportunities and clear a small backlog of orders with existing customers during the fourth
quarter. For the full year, volume decreased by 7%, primarily due to anticipated capacity limitations
realized during the second and third quarters of 2023.
In anticipation of the consolidation of production in Delta, BC, and the temporary reduction in capacity
driven by this change, we proactively communicated with customers and suppliers regarding the
availability of decaffeinated coffee. As a result, many of our customers moved orders ahead into the first
half of the year, or delayed deliveries into the fourth quarter. These decisions necessitated some higher
than normal working capital investments during the first half of the year, and yielded some higher than
normal reductions in working capital during the fourth quarter. The proactive communication of the
transition successfully minimized disruption to our customers and to our business.
Full-year sales volumes in each of our major geographic markets were down from the 2022 level due to
the temporary capacity constraints we experienced during the transition out of our legacy Burnaby facility.
Although sales volumes delivered to North America and International markets decreased during the first
three quarters of the year, this was not unexpected. During the fourth quarter, North American sales
volumes recovered and grew by 11%, compared to Q4 of 2022. In Europe, acute inflationary pressures,
2 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
together with concerns regarding the conflicts in Ukraine and the Middle East, contributed to reduced
coffee consumption in 2023. It is difficult to forecast how these factors will affect European demand
patterns in 2024.
Our largest geographical market by volume in 2023 was the United States, followed by Canada and
international markets. By dollar value, 50% of our sales were to customers in the United States, 29% were
to Canadian customers, and the remaining 21% were to international customers. Overall, we recorded
sales of $166.3 million for the full year, which represents a $10.7 million, or 6%, decrease from the 2022
level.
Regarding customer mix, full-year commercial and specialty roaster volumes decreased 1% and 15%
respectively, when compared to 2022. During 2023, some of our specialty customers proactively managed
their order flows as they tried to reduce inventory levels in response to rising interest rates, falling coffee
quality differentials, and uncertainty around coffee consumption patterns. The temporary capacity
constraint we managed through during our transition from Burnaby also had a negative impact on annual
volumes delivered to all customer categories. However, during the fourth quarter, our commercial and
roaster volumes returned to growth, increasing by 26% and 8% respectively when compared to the fourth
quarter of 2022.
As expected, our inventory levels fell during the second half of 2023 due to the consumption of the coffee
inventories we built up to bridge the production constraints we experienced during the transition from
Burnaby and the consolidation of all processing in Delta. We remained focused on optimizing inventory
levels and our year-end volumes on hand were rebalanced at levels not recorded since the first quarter
of 2021. Moving forward, we are well positioned with green coffee inventory and can react to short-term
demand increases in most coffee origins. Although we saw a marked reduction in the disruption to green
coffee deliveries and supply chain bottlenecks during the year, some shipping delays and increased freight
rates persist. As a recent example, the port strike in July 2023 affected more than 30 ports across BC,
including the Port of Vancouver. We are cautiously optimistic that any current and future disruptions will
not have a material impact on our operations as we move into 2024.
Looking back, the NY’C’ coffee commodity price for Arabica coffee increased rapidly beginning in the third
quarter of 2021 and remained exceptionally high until the third quarter of 2022. During this period, the
tight availability of exportable coffee due to crop shortages and logistical backlogs kept the pressure on
the futures market and we saw spot availability of coffees fall substantially. Although the NY’C’ came
down, beginning in the fourth quarter of 2022, coffee prices remain relatively high. The effects of this
elevated coffee market continued to be felt throughout 2023, and its impact moving forward will depend
on the futures market remaining at, or below, the current level for a sustained period.
Throughout 2023, we continued to feel inflationary pressures within other components of our variable
cost structure. These persist and include: higher costs for natural gas, carbon, packaging, shipping, and
labour. To help maintain margins, we last increased our process price rates toward the end of the fourth
quarter of 2021. Since then, we have worked diligently to maximize efficiencies across our value chain to
limit the need for further price increases.
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SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Financial highlights
Revenue for the quarter and year ended December 31, 2023, was $41.2 million and $166.3 million
respectively. This represents a $2.8 million decrease in Q4 and a $10.7 million decrease for the full year,
when compared to the 2022 result. The drop in full-year revenue was an expected result of the temporary
reduction in capacity we experienced during the second and third quarters as we transitioned production
out of Burnaby. Higher than normal volumes shipped in the first and fourth quarters helped mitigate the
impact of the capacity constraint. A decline in the NY‘C’ also contributed to the year-over-year drop in
revenue.
Effective January 1, 2023, Swiss Water reduced the estimated useful life of the non-salvaged assets at our
legacy production facility in Burnaby, by 12 years. The useful life of these assets was re-aligned against
the final production date at the site, which was in April 2023. At the time of the change in estimate, these
assets had a carrying value of approximately $3.0 million. As such, these non-salvaged assets were fully
depreciated and an expense of $3.0 million is reflected within the $6.8 million of total depreciation
expenses for the 2023 fiscal year. The financial impact of the change in estimate was a one-time
incremental depreciation expense of $2.5 million for the year. There was no such change in estimate
during the comparative period in 2022.
Gross profit for the fourth quarter was $6.9 million, an increase of $1.2 million from Q4 of 2022. For the
full year, gross profit of $18.8 million was down by $7.3 million from the 2022 level. The fourth quarter
increase in gross profit was primarily due to higher volumes and efficiencies of scale leveraged from within
our production process. During Q4, the consolidation of all Swiss Water production into a single facility
also started to generate savings from reduced building maintenance, utilities consumption, staffing, and
transportation between locations. As anticipated, the year-over-year drop in gross profit was due to the
temporary production constraint described above, as well as materially lower green coffee differential
margins and the one-time incremental depreciation expense of $2.5 million. In addition, we experienced
inflationary pressures on variable production costs, including natural gas, carbon and labour, as well as
freight and storage costs.
Net income of $1.0 million for the fourth quarter was up by $1.2 million from 2022. For the full year, we
recorded a net loss of $0.5 million, down by $2.9 million from net income of $2.4 million in 2022. The
differences in net income for both periods were driven by the same factors influencing gross profit, as
described above, as well as a material increase in finance expenses due to higher borrowings. These
negative factors were partially offset by gains on risk management activities, higher finance income,
reduced losses on foreign exchange, and lower income tax expense.
Fourth quarter adjusted EBITDA1 was $5.0 million, an increase of $1.9 million over Q4 of 2022. For the full
year, adjusted EBITDA was $13.4 million down by $3.3 million, when compared to 2022. The fourth
quarter increase is reflective of high production volumes and scale efficiencies, while the decrease in
annual adjusted EBITDA was primarily driven by lower volume due to the capacity constraint during the
third quarter transition from Burnaby, and reduced green coffee differential margins as noted above.
During the first half of 2023, we increased inventory levels significantly, primarily to address anticipated
capacity gaps and uphold high levels of customer service. The commissioning of our second production
line in Delta led to an acceleration in raw materials usage and increased shipments of finished goods
1 Adjusted EBITDA is defined in the ‘Non-IFRS Measures’ section of the MD&A and is a “Non-IFRS Financial Measure” as defined by CSA
Staff Notice 52-306.
4 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
during the third and fourth quarters of the year. As a result, inventories closed 2023 at their lowest levels
since Q1 of 2021 and generated a material release of working capital back into the business. By the end
of the fourth quarter, the value of our inventory on hand had dropped to $30.3 million from $60.2 million
at December 31, 2022. This provided an opportunity for us to pay down debt while leaving adequate
inventory on hand to support our operations and near-term growth.
NON-IFRS MEASURES
Adjusted EBITDA
Adjusted EBITDA is a Non-GAAP measure that is often used by publicly traded companies as a measure of
cash from operations, as it excludes financing costs, taxation, and non-cash items. We believe that disclosing
this Non-IFRS measure provides readers of this MD&A with important information regarding Swiss Water’s
financial performance and our ability to pay distributions to stakeholders. By considering Adjusted EBITDA in
combination with IFRS, we believe that readers are provided with additional and more useful information
about Swiss Water than readers would have if they simply considered IFRS measures alone. Reported
Adjusted EBITDA is intended to assist readers with their own financial analysis. However, since this measure
does not have a standardized meaning prescribed by IFRS, it is unlikely to be comparable to similar measures
presented by other entities.
We define Adjusted EBITDA as net income before interest, depreciation, amortization, impairments, share-
based compensation, gains/losses on foreign exchange, gains/losses on disposal of property and equipment,
fair value adjustments on embedded options, gains/losses on extinguishment of debt, adjustment for the
impact of IFRS 16 – Leases, other gains/loss related to asset retirement obligation and provision for income
taxes. Our definition of Adjusted EBITDA also excludes unrealized gains and losses on the undesignated
portion of foreign exchange forward contracts.
Adjusted EBITDA for the quarter and year ended December 31, 2023, was $5.0 million and $13.4 million
respectively, compared to $3.1 million and $16.7 million for the same periods in 2022. The decrease in
Adjusted EBITDA was primarily driven by temporary constraints on production capacity and a reduction in
green coffee differential margin.
To help readers better understand our financial results, the following table provides a reconciliation between
Adjusted EBITDA and operating income, the most comparable IFRS measure for the periods as indicated:
In $000s
(unaudited)
Operating income
Depreciation and amortization
Share-based compensation
(Gain) loss on risk management activities
Unrealized (gain) loss on foreign exchange forwards
Impact of IFRS 16 Leases
Adjusted EBITDA
$
$
$
3 months ended December 31,
2022
2,792
1,686
173
(65)
(796)
2023
3,372
1,752
130
356
38
$
Year ended December 31,
2022
13,381
7,018
552
(1,560)
44
2023
5,630 $
9,188
597
457
127
(640)
5,008
$
(703)
3,087
$
(2,645)
13,354 $
(2,776)
16,659
5 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
The reconciliation of net income, an IFRS measure, to Adjusted EBITDA is as follows:
In $000s
(unaudited)
3 months ended December 31,
2022
2023
Year ended December 31,
2022
2023
Net income (loss) for the period
Income tax expense (recovery)
Income (loss) before tax
(Gain) loss on the embedded option
(Gain) on the extinguishment of debt
Other gains
Finance income
Finance expense
Impairment of plant and equipment
Loss on foreign exchange
Depreciation and amortization
Unrealized loss (gain) on foreign exchange forwards
Share-based compensation
Impact of IFRS 16 Leases
Adjusted EBITDA
OUTLOOK
$
$
$
961
430
1,391
126
-
-
(492)
2,326
-
377
1,752
38
130
(640)
5,008
$
$
$
$
$
(254)
(130)
(384)
(513)
(583)
-
(174)
1,577
2,470
334
1,686
(796)
173
(703)
3,087 $
(528) $
(4)
(532) $
(76)
-
(175)
(1,629)
8,265
-
234
9,188
127
597
(2,645)
13,354 $
2,387
819
3,206
(513)
(583)
-
(509)
5,567
2,470
2,183
7,018
44
552
(2,776)
16,659
The 12 months ended December 31, 2023, was a transformational period for Swiss Water. During the third
quarter we completed construction of our new second production line in Delta, BC and shortly thereafter
successfully decaffeinated our first batch of commercial coffee on the new line. These milestone events were
the culmination of a decade-long project to relocate, modernize and expand the capacity of our state-of-the-
art production assets from Burnaby. It also signaled the end of a temporary period of restricted capacity that
we managed with our customers during the second and third quarters of the year as we demolished the
Burnaby site and commissioned the new line.
Although Swiss Water’s volume growth in 2023 was limited by restricted capacity, we continued to see strong
demand for our chemical free decaffeinated coffee offerings. Our sales and logistics teams managed our
customers’ needs and volume allocations remarkably well throughout 2023. This enabled the delivery of
strong volume growth and financial results during Q4, following the consolidation of production in Delta, BC.
All order backlogs built up over the summer were processed and shipped during the final three months of the
year.
Looking ahead into 2024, Swiss Water is well positioned with two modern processing lines, including our newly
installed second production line, enabling us to optimize our operational processes and produce premium
decaffeinated coffee of consistently high quality. The performance of all our Delta production assets has been
good and we are optimistic that we can utilize what we’ve learned from operating Line 1 to unlock further
efficiency gains on our new Line 2. Furthermore, we will take advantage of the larger processing capacity on
our newest line to establish base lines on longer runs and enable future quality improvements.
Operationally, Swiss Water has been running at very high utilization rates over the last two years. The
consolidation of operations in Delta, BC has released this pressure somewhat, and medium-term growth is
not expected to be constrained by available capacity. Furthermore, the consolidation of production in one
location has unlocked some value creation efficiencies that will be fully realized in 2024.
6 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Current production rate and capacity utilization metrics at our consolidated production facility indicate, that
with some modest targeted investment, we have adequate capacity to satisfy our anticipated medium-term
growth needs.
Volatility in the coffee futures market persisted throughout 2023 as roasters reset their inventories following
a prolonged period of logistical challenges. Looking forward into 2024 we are cautiously optimistic that the
reset of the coffee supply chain is materially complete, and we don’t anticipate that further supply chain
disruptions will effect our 2024 performance materially.
Despite the underlying strength of our business, uncertainty persists. Inflationary pressures and interest rates
remain high. Furthermore, geo-political tension across the world increased during 2023 and looks set to
persist throughout 2024. We cannot reliably predict the ultimate effect these factors will have on global
supply chains and customer demand. However, our chemical-free decaffeination services remain highly
valued by our customers and are becoming increasingly relevant to health conscious coffee consumers across
the globe. With this in mind, and carrying momentum from a strong final quarter of 2023, we are optimistic
that we will deliver volume growth and improved profitability in 2024.
During the second half of 2023, we made good progress in reducing inventory levels and subsequently
reducing working capital investments. These movements enabled us to start reducing borrowings during the
fourth quarter of 2023. We anticipate that this trend will continue as we move through 2024. In Q4 2024
Swiss Water is scheduled to fully repay a Debenture with Warrants, held by Mill Road Capital (MRC). This
repayment will further reduce overall debt. We anticipate the repayment of this debt will primarily be funded
using, but not limited to, available cash reserves and proceeds from operations, supplemented by incremental
borrowings on our existing debt facilities, as needed.
BUSINESS OVERVIEW
Swiss Water Decaffeinated Coffee Inc. is a premium green coffee decaffeinator located in Delta, British
Columbia. We employ the proprietary Swiss Water® Process1 to decaffeinate green coffee without the use of
chemical solvents, leveraging science-based systems and controls to produce coffee that is 99.9% caffeine
free. Our process is certified organic by the Organic Crop Improvement Association and is the world’s only
consumer-branded decaffeination process. Decaffeinating premium green coffee without the use of harmful
chemical solvents is our primary business.
Our Seaforth subsidiary provides a complete range of green coffee logistics services including devanning
coffee received from their origin; inspecting, weighing, and sampling coffees; and storing, handling, and
preparing green coffee for outbound shipments. Seaforth provides all of Swiss Water’s local green coffee
handling and storage services. In addition, Seaforth handles and stores coffees for several other coffee
importers and brokers and is the main green coffee handling and storage company in Metro Vancouver.
Seaforth is organically certified by Ecocert Canada.
Swiss Water shares trade on the Toronto Stock Exchange under the symbol ‘SWP’. As at the date of this report,
9,212,955 shares were issued and outstanding.
1 The Company is a registered owner of this trademark.
7 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Swiss Water Decaffeinated Coffee’s Business
We carry an inventory of premium-grade Arabica and Robusta coffees that we purchase from the specialty
green coffee trade, decaffeinate and then sell to our customers (our “Regular” or “Non-Toll” business).
Revenue from our Regular business includes both processing revenue and green coffee cost recovery revenue.
We also decaffeinate coffee owned by our customers for a processing fee under toll arrangements (our “toll”
business). The value of the coffee processed under toll arrangements does not form part of our inventory,
our revenue, or our cost of sales. Revenue from toll arrangements consists entirely of processing revenue.
Our cost of sales is comprised primarily of the cost of green coffee purchased for our regular business, plant
labour and other processing costs directly associated with our production facility. This incorporates an
allocation of fixed overhead costs, which includes depreciation of our production equipment and amortization
of our proprietary process technology. For our regular business, we work with coffee importers to source
premium-grade green coffees from coffee-producing countries located in Central and South America, Africa,
and Asia. The purchase price is based on the NY’C’ coffee futures price on the Intercontinental Exchange, plus
a quality differential. The NY’C’ component typically makes up more than 80% of the total cost of green coffee,
while the quality differential typically accounts for less than 20%. Both the NY’C’ price and the quality
differential fluctuate in response to fundamental commodity factors that affect supply and demand.
CAPACITY TO DELIVER RESULTS
The following resources allow us to deliver on our business strategy:
Chemical Free Production Lines – We have two production lines that produce chemical free decaffeinated
coffee. Both lines are located in Delta, BC. The first line (Line 1) was commissioned in Q3 2020, and the
second line (Line 2) was completed and started to produce coffee in Q3 2023. Our production assets
provide opportunities to easily flex production capacity rates against fluctuations in demand. This
flexibility allows us to optimize variable costs as demand for our services changes.
Production Capacity – Our production assets are able to satisfy current demand and provide enough
unused capacity to support our medium term growth ambitions.
Branding – Our Consumer Branding as the Premium, 100% Chemical Free Method of Decaffeinating Green
Coffee has proven to be a success. We've effectively positioned our brand as a leading, chemical-free
processor of green decaffeinated coffee. The awareness among consumers and participants in the coffee
trade regarding the value of the chemical-free Swiss Water® Process has been steadily growing, reinforced
by its exceptional quality and taste. We are confident in the significant potential to further broaden
consumer awareness, emphasizing the inherent benefits of the Swiss Water® Process.
Established Customer Base – The Swiss Water® Process has an established customer base across North
America and in many international markets. Our customers include some of North America’s largest
roasters, roaster-retailers and leading coffee brands.
Broad Distribution Channels – Green coffee decaffeinated using the Swiss Water® Process is sold through
the coffee market’s key distribution channels: roaster retailers, commercial roasters and coffee importers.
This diversity ensures that we access all key segments of the specialty coffee trade and consumer coffee
markets.
Working Capital and Expansion Capital – Between 2015 and 2022 we raised capital, which was used to
fund the construction of our two production lines in Delta. The first production line in Delta was
8 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
commissioned in 2020, and the second production line was commissioned during the third quarter of
2023. We expect future working capital investments to be financed by a combination of internally
generated funds and external capital sources.
Management Expertise – Swiss Water is highly regarded in the coffee industry for our senior management
team’s substantial experience, our close attention to consumer trends in the specialty coffee market, and
our in-depth knowledge of green and roasted coffee. In particular, our intense focus on premium product
quality and commitment to science-driven insight is well recognized. To maximize these strengths, we
continue to invest resources to enhance our team’s industry-related skills and talents. Going forward, we
intend to leverage our exceptional experience with and knowledge of, the specialty coffee industry to
continue to build our business.
SELECTED ANNUAL INFORMATION
In $000s except per share amounts
(unaudited)
Balance Sheet
Total assets
Total non-current liabilities
Income Statement
Revenue
Net income (loss)
Adjusted EBITDA1
Dividends paid
Per share, basic 2
Net income
Adjusted EBITDA1
Dividends declared
Per share, diluted 2
Net income
Adjusted EBITDA 1
December 31,
2023
December 31,
2022
December 31,
2021
200,335
108,098
166,277
(528)
13,354
-
(0.06)
1.45
-
(0.06)
1.45
219,039
123,405
176,935
2,387
16,659
-
0.26
1.82
-
0.26
1.82
168,245
70,783
125,076
496
10,533
-
0.05
1.15
-
0.05
1.15
1 Adjusted EBITDA is defined in the ‘Non-IFRS Measures’ section of this MD&A and is a “Non-GAAP Financial Measure” as defined by CSA Staff Notice
52-306.
2 Per-share calculations are based on the weighted average number of shares outstanding during the periods.
Our total assets and our total long-term liabilities increased in each of the last three years as we were
building our new facility and the two production lines in Delta, BC.
KEY PERFORMANCE DRIVERS
The following key performance drivers are critical to the successful implementation of our strategy and ability
to improve profitability and cash from operations:
Internal Factors
Processing Volumes – Our decaffeination facility incurs fixed operating costs regardless of the volume of
coffee processed. Accordingly, our profitability and cash flow from operations will increase as process
volumes increase. Process volume is a key performance indicator ("KPI") that we monitor and track.
Process Consistency – We manage our operations in order to reduce variability in production and drive
continuous improvement. Production consistency results in improved product quality. We have
developed a number of KPIs designed to monitor process consistency and have set targets for continuous
process improvement.
9 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Product Quality – Quality control is a key part of our operations. We operate under the Food Safety
Systems Certification (FSSC) 22000, which manages our food safety, as well as HACCP (Hazard Analysis
Critical Control Points) and quality assurance programs. All green coffees delivered to our processing
facility are weighed and inspected and are subject to rigorous internal quality-control evaluations. Each
lot of green coffee processed is monitored throughout the decaffeination process, and a certificate of
analysis is prepared for each lot. A sample from each production lot is also roasted, brewed and cupped
to ensure quality. In addition, our focus on reducing the size of production lots and increasing inventory
turnover results in fresher coffee being provided to our customers. Production batch size and inventory
turnover are two other KPIs that we monitor regularly.
Order Fulfillment – Our integrated supply chain management strategy includes maintaining inventories of
finished goods at various coffee warehouses throughout North America, and of raw goods for improved
inventory replenishment times. Our order fulfillment rates are monitored regularly. An improved order
fulfillment rate contributes to our volume growth and improved customer service levels.
Employee Safety – We are focused on operating our business in a safe manner, and reducing the likelihood
that employees will be injured at work. We track employee safety metrics by department, and our safety
committee proactively seeks ways to reduce the risks inherent in our operating environment. While we
cannot completely eliminate the risk of workplace incidents or accidents, we have significantly reduced
the number of safety-related incidents over the past few years. We believe that ensuring employee safety
leads to improved employee retention and morale, increased efficiency, and lower operating costs.
Sustainability and Environmental Responsibility – The Swiss Water® Process, a 100% chemical-free
decaffeination method, enables us to deliver premium-quality decaffeinated coffee to our customers. Our
sustainability efforts focus on providing a fully chemical solvent free decaffeination method and facility,
while also enhancing and innovating this process for greater efficiency and responsibly managing
resources in a safe and environmentally conscious manner. In addition to optimizing our operations, we
procure sustainably certified and organic coffees to ensure a sustainable coffee supply. We also engage
in social sustainability initiatives, such as supporting programs like Grounds for Health, which promotes
the well-being of women and their families in coffee-growing communities, and contributing to research-
based approaches for advancing coffee cultivation through organizations like World Coffee Research.
External Factors
Coffee Futures Prices – We buy and sell coffees based on the NY’C’ plus the quality differentials for specified
coffees, both of which rise and fall in response to changes in supply and demand. We manage our exposure
to changes in the NY’C’ futures price on the value of our inventories through a commodity hedging program
(discussed under ‘Hedge Accounting’ section) but cannot hedge our exposure to changes in quality
differentials. In addition to the price risks associated with holding coffee inventories, our revenue and cost of
sales are affected by changes in the underlying commodity price. Commodity price increases (decreases) raise
(lower) the green coffee cost recovery revenue generated through our non-toll business, as well as the costs
of green coffee sold to customers to generate sales.
Changes in the NY’C’ also affect our statement of financial position and the amount of working capital we use
in our business. When coffee prices rise (fall), our inventory values gradually increase (decrease) as we replace
coffee at higher prices. Our accounts receivable and our accounts payable also rise and fall with the NY’C’.
Finally, there is no open market to hedge the quality differential component of our green coffee cost. We sell
coffee at replacement quality differentials, and as such, in a period of falling (rising) differentials, we will
10 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
generate differential cost recovery losses (gains), as green coffee revenues will be less than (exceed) green
coffee costs.
The chart below shows the movement in the NY’C’ for the last eight quarters:
In Q4 2023, the NY’C’ averaged US$1.74/lb compared to an average of US$1.77/lb in Q4 2022. Throughout
2023, the NY’C’ averaged US$1.72/lb compared to an average of US$2.13/lb in 2022. The rise and fall of the
NY’C’ affects our volume of shipments, our revenues, our cost of sales, and our working capital requirements.
In an upward trending market, our customers tend to consume their inventories rather than build them.
When the NY’C’ declines over a sustained period, our customers tend to add to their inventories.
US$/C$ Exchange Rates – The majority of our (“C$”) revenues are generated in US dollars (“US$”), while a
significant portion of our costs are paid in Canadian dollars. We, therefore, have exposure to changes in the
US$/C$ exchange rates. This is managed, in part, through derivative financial instruments. All other factors
being equal, our profitability and cash from operations will be higher when the US dollar appreciates relative
to the Canadian dollar. A long-term depreciation of the Canadian dollar will improve our long-term
profitability and cash generation.
11 | P a g e o f t h e M D & A
$0.80$1.00$1.20$1.40$1.60$1.80$2.00$2.20$2.40$2.6031-Dec-2131-Jan-2228-Feb-2231-Mar-2230-Apr-2231-May-2230-Jun-2231-Jul-2231-Aug-2230-Sep-2231-Oct-2230-Nov-2231-Dec-2231-Jan-2328-Feb-2331-Mar-2330-Apr-2331-May-2330-Jun-2331-Jul-2331-Aug-2330-Sep-2331-Oct-2330-Nov-2331-Dec-23NY'C Close (US$/lb)Intercontinental ExchangeDecember 31, 2021 to December 31, 2023
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
The chart below shows the US$ to C$ exchange rates for the last eight quarters:
In Q4 2023, the US$ averaged C$1.36 compared to an average of C$1.36 in Q4 2022. In 2023, the US$ averaged
C$1.35 compared to an average of C$1.30 in 2022. When the US$ depreciates (appreciates), it decreases
(increases) our gross profit on green coffee revenues.
OPERATING RESULTS
Revenue
We categorize our customers by the nature of their business: either coffee importers or roasters. Coffee
importers act like grocery stores to roasters, sourcing and importing green coffee from various origins and
carrying a selection of different origins and quality levels for roasters to choose from. Importers buy from us
to resell our coffees to roasters when and where they need them. Roasters are in the business of roasting and
packaging coffee for sale to consumers in their own coffee shops, or for home or office use. Roasters either
buy directly from Swiss Water, or they buy from an importer. Roasters generally carry lower inventories, as
they tend to take delivery of green coffee shortly before roasting it. As such, when comparing period to period,
shipments to roasters are more stable when compared to shipments to importers.
We also monitor and report our revenue in three categories. “Process revenue” represents the amount we
charge our customers for decaffeinating green coffee, and it generally increases as our processing volumes
increase. “Green coffee cost recovery revenue”, or “Green revenue”, is the amount we charge our customers
for the green coffee we purchase for decaffeination. “Distribution revenue” consists of shipping, handling,
12 | P a g e o f t h e M D & A
$1.20$1.22$1.24$1.26$1.28$1.30$1.32$1.34$1.36$1.38$1.4031-Dec-2131-Jan-2228-Feb-2231-Mar-2230-Apr-2231-May-2230-Jun-2231-Jul-2231-Aug-2230-Sep-2231-Oct-2230-Nov-2231-Dec-2231-Jan-2328-Feb-2331-Mar-2330-Apr-2331-May-2330-Jun-2331-Jul-2331-Aug-2330-Sep-2331-Oct-2330-Nov-2331-Dec-23US Dollars to Canadian Dollars Bank of Canada Noon RatesDecember 31, 2021 to December 31, 2023
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
and warehousing charges billed to our customers. It typically rises with our processing volumes and with the
growth of Seaforth’s business. Our revenue by category for the indicated period was:
(In $000s)
(unaudited)
Process revenue
Green revenue
Distribution revenue
Total revenue
3 months ended December 31,
2022
2023
Year ended December 31,
2022
2023
$
$
10,211 $
28,003
3,023
41,237 $
8,405
32,248
3,345
$
35,425 $
119,051
11,801
43,998
$
166,277 $
36,952
128,039
11,944
176,935
For the quarter and year ended December 31, 2023, sales totaled $41.2 million and $166.3 million
respectively, a decrease of $2.8 million or 6% and $10.7 million or 6% compared to the same periods in 2022.
The decrease for the full year was the result of an expected period of reduced production capacity associated
with the exit from the Burnaby site and the completion of the second production line at Delta, compounded
by a material decline in coffee differentials and the NY’C’. However, this year to date decline was mitigated
with an increased volume demand from customers in Q1, when we proactively managed our customer’s
coffee in anticipation of the transition to Delta, growth in volumes in Q4, and the appreciation of the US dollar
compared to the same period in 2022.
In Q4 2023, both of our new production lines were fully operational, and our volumes increased by 17% when
compared to the same period last year. The upswing in growth partially relates to customers moving volumes
out of Q3 into Q4. Encouragingly, the balance of the increase relates to growth from new and existing
customers.
Our sales for the quarter and year ended December 31, 2023, by revenue category, are as follows:
Process revenue increased $1.8 million or 21% in Q4 and decreased $1.5 million or 4% year to date. The
decrease reflects the expected period of reduced production capacity during Q2 and Q3, largely offset by
increased volume processed in Q1 and Q4.
Green revenue decreased $4.2 million or 13% in Q4 and $9.0 million or 7% year to date. The decrease is
reflective of reduced production capacity, lower NY’C’, and sustained erosion of coffee differentials during
2023. Year to date, this was partially offset by increased demand from customers in Q1 and Q4 of 2023,
and the appreciation of the US dollar since the second quarter of 2022. Our Q4 green revenue also
declined due to a higher mix of sales from toll business versus regular business. Our toll business
decaffeinates customer owned coffee without the use of our green coffee, as such, we bill for the process
and distribution services without the green coffee sales, whereas regular business generates revenue
from green coffee, process, and distribution revenue.
Distribution revenue decreased by $0.3 million or 10% in Q4 and $0.1 million or 1% for the full year. The
decrease for the year and for the fourth quarter of 2023 primarily reflects the impact of a reduction of
volumes stored and handled at our warehouse during the transition to our Delta location. The year to
date results were partially offset by increased volume demand from customers in Q1 and Q4 2023, and
inflationary price adjustments on freight rates.
Our sales volumes for the year ended December 31, 2023, by geographical segment, are as follows:
Sales volume in North America for the year decreased by 5% and increased in Q4 by 11%;
Sales volume in Asia-Pacific decreased for the year by 11% and increased in Q4 by 128%.
13 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Cost of Sales
Cost of sales includes the cost of green coffee purchased for our regular business, plant labour, and other
processing costs directly associated with our production facility. It also incorporates customer specific hedges
and commodity hedges. The cost of sales includes an allocation of fixed overhead costs, incorporating
depreciation of our production equipment and amortization of our proprietary process technology. In
addition, cost of sales includes the costs of operating Seaforth’s warehouse.
For the quarter and year ended December 31, 2023, cost of sales totaled $34.3 million and $147.5 million
respectively. A decrease of $3.9 million or 10% and $3.4 million or 2%, compared to the same periods in 2022.
These year over year movements were primarily driven by reduced process volumes due to a temporary
production capacity limitation, green coffee costs, and less freight activity. This was partially offset by a one-
time incremental depreciation expense of $2.5 million booked during the first half of 2023 due to the
retirement of production assets located in Burnaby.
Gross Profit
For the quarter and year ended December 31, 2023, gross profit totalled $6.9 million and $18.8 million
respectively, an increase of $1.2 million or 20% and a decrease of $7.3 million or 28%, compared to the same
periods in 2022.
The decrease in year to date gross profit for 2023 was primarily driven by reduced volumes due to the
temporary production capacity limitation during the transition out of Burnaby, as previously described. Also,
we experienced materially bearish green coffee differential margins and a one-time incremental depreciation
expense of $2.5 million. Moreover, inflationary pressures on variable production costs, such as natural gas,
carbon, and labor, as well as freight and warehousing costs, further negatively impacted our gross profit.
These inflationary pressures were partially mitigated by operating efficiencies stemming from the
consolidation of operations into one location, and a reduction in inbound and outbound transportation costs
associated with decreased inventory on hand during the latter part of the year.
In Q4, our gross profit increased primarily due to high volumes and scale efficiencies leveraged from within
our production process. The consolidation of our production into a single facility has also started to generate
savings. Specifically reduced building maintenance, utilities consumption, staffing efficiencies, and lower local
freight costs.
Administration Expenses
Administration includes general management, inbound and outbound logistics, finance and accounting,
quality control and assurance, engineering, research and development, and other administrative or support
functions. Administration expenses include compensation expenses, travel and other personnel-related
expenses for administrative staff, director fees, investor relations expenses, professional fees, depreciation
of office-related equipment, and amortization of the brand asset.
For the quarter and year ended December 31, 2023, administration expenses totaled $2.3 million and $9.1
million, an increase of $0.6 million and $0.2 million, compared to the same periods in 2022. the primary
drivers of the overall increase were general inflationary pressure, and increased headcount and salaries.
These increases were partially offset by lower administrative costs following the consolidation of operations
on one site during the second half of 2023, including year on year savings on depreciation and rental expenses.
14 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Sales and Marketing Expenses
Sales and marketing expenses include compensation and other personnel-related expenses for sales and
marketing staff, consumer initiatives, trade advertising and promotion costs, as well as related travel
expenses. We invest in research regarding the behavior of decaffeinated coffee consumers. These insights
enable us to create effective consumer advertising programs, and they form the foundation of the
consultative services we provide to our customers. We also aim to grow brand awareness with both the coffee
trade and consumers. We employ a range of marketing activities to achieve this, including digital and print
advertising, social media communications, sponsorship and exhibiting at key industry events.
For the quarter and year ended December 31, 2023, sales and marketing expenses totaled $1.2 million and
$4.1 million respectively, an increase of $0.3 million or 8% for the year and no material change for the quarter,
compared to the same periods in 2022. The main driver of the year over year change was increased travel
and trade show activity.
Gains and Losses on Risk Management Activities
Under hedge accounting, gains or losses on designated hedges are included in either revenue or cost of sales,
held on the balance sheet, or included in other comprehensive income for future transactions (see ‘Hedge
Accounting’ section). Thus, any gain or loss on risk management activities includes only those gains and losses
on derivative financial instruments or portions of such instruments that are not designated as hedging
instruments.
For the quarter and year ended December 31, 2023, we recorded a gains on risk management activities of
$0.4 million and $0.5 million respectively, an improvement of $0.4 million and $2.0 million, compared to the
same periods in 2022. The main drivers of the movements were unrealized gains due to fluctuations in the
Canadian versus US dollar and fluctuations in NY’C’.
Finance Income and Finance Expenses
Finance income reflects the charges we bill to customers for financing coffee inventories and interest earned
on cash balances. Finance expenses include interest costs on credit facilities and bank debt, other borrowings,
the accretion expense on our asset retirement obligation, interest expense on a debenture with warrants and
interest expense on finance leases.
For the quarter and year ended December 31, 2023, net finance expense totaled $1.8 million and $6.6 million
respectively, an increase of $0.4 million or 31% and $1.6 million or 31%, compared to the same periods in
2022. The overall increase primarily relates to a higher outstanding balance on our construction loans and
credit facility, higher variable interest rates, and full year impact of higher interest rates on our debenture
with warrants. Also, since Q3 2023, with the utilization of the second production line, we no longer capitalize
interest related to construction to property, plant, and equipment.
Gains and Losses on Foreign Exchange
We realize gains and losses on transactions denominated in foreign currencies when they occur and on assets
and liabilities denominated in foreign currencies when they are translated into Canadian dollars as at the
financial statement date.
For the quarter and year ended December 31, 2023, we recorded a loss on foreign exchange of $0.3 million
and $0.2 million respectively, with no variance from last quarter and a reduced loss of $1.9 million compared
15 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
to 2022. The large year over year swing in foreign exchange is due to fluctuation in the Canadian versus US
dollar as the exchange rate averaged C$1.35 in 2023, compared to C$1.30 in 2022.
Gains and Losses on Fair Value of Embedded Option
The fair value of the embedded option relates to the valuation of warrants embedded in our debenture with
Mill Road Capital, which was amended effective November 22, 2022. Under IFRS, the warrants are deemed
to contain an embedded option that is revalued at each balance sheet date. The fair value of the derivative
liability was determined using the Black-Scholes Option Pricing Model. The variables and assumptions used in
computing the fair value are based on our best estimate at each balance sheet date.
The revaluation of this embedded option resulted in a loss of $0.1 million and a gain of $0.1 million for the
three months and the year ended December 31, 2023. The fluctuations are due to movements in Swiss
Water’s share price and the risk-free interest rate that are used as inputs in the Black Scholes model. Refer to
Note 13.2 in the consolidated financial statements for more details.
Gain on Extinguishment of Debt
Gains on extinguishment of debt relate to debt renegotiations, including professional fees and the release of
gains and losses related to the embedded option within a debenture. In 2022 the gain relates to the
amendment of the Mill Road debenture with warrants where-by the amendment introduced a cashless
exercise option that no longer limited an exchange of a fixed amount of cash for a fixed amount of common
shares. During the years ended December 31, 2023 and 2022, there were no such gains or losses on the
extinguishment of debt.
Other gains
Other gains are an adjustment to the asset retirement obligation estimate following the conclusion of our
lease for the Burnaby location in June 2023. The actual cost of fulfilling our contractual obligations and
restoring the property, as per the lease terms, was $1.3 million, compared to an asset retirement obligation
estimate of $1.5 million. As a result, during the year ended December 31, 2023, Swiss Water recognized other
gains totalling $0.2 million. No such gain was recorded during the previous year, 2022.
Impairment of Plant and Equipment
Impairment of plant and equipment relates to legacy machines that were decommissioned in 2023. Last year,
in 2022, Swiss Water performed an assessment of the salvageable assets in the Burnaby location in advance
of the expiry of the lease on these facilities, in June 2023. In accordance with IAS 36, Impairment of Assets,
we identified indicators of impairment at the Burnaby location. While reviewing plans to dismantle the plant
and equipment, we considered the cost and benefit and related cash flows to salvage equipment from the
Burnaby location. It was determined that only a portion of the equipment should be salvaged for future use.
We also quantified the recoverable amount of the cash-generating unit’s fair value less the cost of disposal
using the “value-in-use” method. It was determined that a $2.5 million impairment of plant and equipment
was required. There was no such impairment this year, in 2023.
Income Before Taxes and Net Income
Net income consists of income before tax less deferred and current income taxes. Swiss Water and our
subsidiaries are subject to tax in Canada, the USA, and France. The current income tax expense arises as a
reflection of increases and decreases in net income before taxes, adjusted for non-tax items. The deferred
income tax arises from temporary differences between the depreciation and amortization expenses deducted
16 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
for accounting purposes and related capital cost allowances deducted for tax purposes, timing differences on
the deductibility of derivatives, accruals such as asset retirement obligation, cash liabilities of the DSU and
RSU, bond value warrants, leases, as well as changes in corporate income tax rates as adjusted for
substantively enacted higher future tax rates. The latter is offset by the tax benefit of tax loss carry forwards.
For the quarter and year ended December 31, 2023, we recorded a net income before taxes of $ 1.4 million
and net loss before tax of $0.5 million respectively, compared to a net loss before taxes of $0.4 million and
net income of $3.2 million for the same periods in 2022.
Overall, we recorded net income of $1.0 million and a net loss of $0.5 million for the quarter and year ended
December 31, 2023, respectively, compared to a net loss of $0.3 million and net income of $2.4 million for
the same periods in 2022.
Other Comprehensive Income
Gains or losses on our designated revenue hedges that will mature in future periods are recorded in other
comprehensive income, net of income tax expense. Other comprehensive income or loss, net of tax, for the
quarter and year ended December 31, 2023, was income of $1.4 million and $1.1 million respectively,
compared to a loss of $2.0 million and $1.5 million for the same periods in 2022. Increases and decreases are
related to fluctuations in the value of the Canadian dollar versus the US dollar.
Basic and Diluted Earnings per Share
Basic earnings per share are calculated by dividing net income by the basic weighted average number of
shares outstanding during the period. Similarly, diluted earnings per share are calculated by dividing net
income adjusted for the effects of all dilutive potential common shares, by the diluted weighted average
number of shares outstanding. For the purposes of the calculation, under IFRS we are required to assume that
the maximum number of shares issuable under the warrant agreement will be issued.
For the quarter and year ended December 31, 2023 and 2022, all potential common shares issuable under the
RSU Plan and debenture with warrants were anti-dilutive and excluded from the dilution calculation.
The calculations of basic and diluted earnings per share are shown in the following table:
In 000s except for shares and per share data
(unaudited)
Basic and diluted earnings per share
Net income (loss) attributable to shareholders
Weighted average number of shares
3 months ended December 31,
2022
2023
Year ended December 31,
2022
2023
$
$
961 $
(254) $
(528) $
9,212,955
9,165,815
9,206,368
2,387
9,158,161
0.10 $
(0.03) $
(0.06) $
0.26
QUARTERLY INFORMATION / SEASONALITY
There is an element of seasonality in our business, in that the second half of the year tends to have higher
volumes and revenues. The transition out of our Burnaby production facilities during the second quarter
impacted the typical seasonality pattern in 2023.
17 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
The following table summarizes results for each of the eight most recently completed fiscal quarters. For
comparative purposes, we have also provided the averages for the previous 8-quarter period:
In $000s except for per share
amounts (unaudited)
Revenue
Gross Profit
Operating income
Adjusted EBITDA1
Net income (loss)
Per Share2
Net income (loss) - basic
Net income (loss) - diluted
8 Quarter
Average
42,902
5,611
2,376
3,751
232
Q4
2023
41,237
6,916
3,372
5,008
961
Q3
2023
32,627
3,576
758
1,539
(417)
Q2
2023
43,368
3,412
76
1,825
(371)
Q1
2023
49,045
4,894
1,424
4,982
(701)
Q4
2022
43,998
5,759
2,792
3,087
(254)
Q3
2022
46,154
6,614
3,293
4,346
(204)
Q2
2022
48,368
7,952
4,416
5,335
1,460
Q1
2022
38,415
5,763
2,880
3,882
1,385
(0.05)
(0.05)
1 Adjusted EBITDA is defined in the ‘Non-IFRS Measures’ section of this MD&A and is a “Non-GAAP Financial Measure” as defined by CSA Staff Notice
(0.02)
(0.02)
(0.03)
(0.03)
(0.04)
(0.06)
(0.08)
(0.08)
0.10
0.10
0.02
0.02
0.16
0.16
0.15
0.15
52-306.
2 Per-share calculations are based on the weighted average number of shares outstanding during the periods.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
For the quarter and year ended December 31, 2023, net cash proceeds from operating activities amounted to
$9.3 million and $30.5 million respectively, marking a significant improvement from the net cash used of $0.7
million and $1.0 million recorded for the same periods in 2022. In 2022, cash inflows from operations were
largely offset by cash outflows required for increased green inventory purchases. This temporarily increased
inventory was made in advance of our move from Burnaby to Delta. This strategic decision was proactively
planned with our customers to minimize disruption of deliveries during a short period of capacity limitation
in 2023. Following the successful consolidation of production in Delta inventory levels dropped sharply as we
processed and shipped our excess inventory. Consequently, during Q3 and Q4 of 2023, positive cash inflows
from working capital were generated.
Investing Activities
For the quarter and year ended December 31, 2023, net cash used in investing activities was $2.0 million and
$19.6 million respectively, compared to net cash used of $7.3 million and $24.6 million for the same periods
in 2022. In both years, this was driven by capital expenditures associated with the construction of the second
production line in Delta. During 2023, we recovered $0.4 million in cash from vendor reimbursements, which
was related to equipment on the first production line in Delta (2022: $1.4 million). These proceeds were
recorded as a reduction in plant and equipment.
Financing Activities
For the quarter and year ended December 31, 2023, net cash used in financing activities was $2.9 million and
$3.7 million respectively, compared to net cash generated of $8.9 million and $25.2 million for the same
periods in 2022. In both years, this was driven by proceeds, net of repayment, from our credit facility and
construction loans. In 2023, less green coffee was purchased which released working capital back into the
business during the third and fourth quarters. The excess cash generated was used to repay borrowings from
our credit facilities. These repayments were largely offset by an expansion of borrowings drawn against our
construction loan to fund the completion of the second production line in Delta, BC. In 2022, cash outflows
for green coffee purchases were higher in order to support customer commitments during our period away
from our Burnaby factory. This investment in inventories during the prior year was funded using drawdowns
from our credit facilities.
18 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
During the year 2022, we renegotiated Swiss Water’s credit facilities, construction loan, and debenture with
warrants with the purpose of expanding on available funding for capital expansions in Delta, BC and to support
growth and operations. Swiss Water successfully completed the expansion of our credit facilities with our
existing senior lenders, resulting in $33.25 million of incremental capital availability, consisting of $21.25
million of expanded revolving credit capacity and $12.0 million of incremental senior term financing. Swiss
Water incurred financing expenditures in the amount of $0.8 million of which $0.4 million was paid by
December 31, 2022. There were no such transactions in 2023.
Inventory
Our inventory decreased by $29.9 million or 50% between December 31, 2022, and December 31, 2023. The
decrease reflects a reduced volume of coffee inventory on hand partially offset by the impact of a higher
NY’C’. Inventory consists of coffee, hedges related to NY’C’, and foreign exchange, as well as carbon used in
production, and packaging.
Under hedge accounting, gains and losses on derivative instruments for coffee to be sold in future periods
are recorded in inventory. The hedge accounting component of inventory as at December 31, 2023, was an
increase of $8.2 million to a total of $0.8 million as at December 31, 2023.
Accounts Receivable
Our accounts receivable decreased by $1.3 million or 8% between December 31, 2022, and December 31,
2023. In total 86% of Swiss Water accounts receivable was current as at December 31, 2023. The majority of
past due amounts were collected shortly after the year end. Accounts receivable consist of receivables from
customers.
Credit Facilities
We have two credit facilities, one with a major Canadian bank and the other with Export Development Canada
(“EDC”). These facilities are secured by general security agreements over all of Swiss Water's assets and a
floating hypothecation agreement over cash balances. As of December 31, 2023, the outstanding balance on
the credit facility with the Canadian bank is $26.9 million, Swiss Water incurred $2.5 million in interest
expense in 2023 (compared to an outstanding balance of $38.4 million and $1.4 million in interest expense,
in 2022). No funds were drawn from the EDC credit facility. The material decrease in borrowings on our credit
facilities in 2023 was primarily driven by using cash generated from reduced working capital investments and
strengthening cashflows from operating activities generated during the fourth quarter. This year over year
movement is reflective of our commitment to reduce debt levels.
We have certain bank covenants that relate to the maintenance of specified financial ratios, and as of
December 31, 2023, we were in compliance with all covenants.
Credit Facility with Canadian Bank
In 2019, Swiss Water entered into a revolving credit facility agreement (“Credit Facility”), with a major
Canadian bank, for borrowings up to the lower of the Borrowing Base (defined below) and $30.0 million.
Effective November 22, 2022, the available credit was increased from $30.0 million to $45.0 million with the
purpose of supporting operations and growth. In tandem, this Credit facility provided additional lending of up
to $6.25 million credit facility through EDC. The maturity date of October 18, 2022, was extended to the earlier
of October 19, 2025, or an event triggering default.
19 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Swiss Water is not required to repay the Credit Facility, as long as the outstanding balance is not in excess of
the Borrowing Base.
The Credit Facility’s Borrowing Base margins Swiss Water’s eligible inventories and accounts receivable,
commodity hedging account equity margin plus our market-to-market gains, which are netted against any
losses in the commodity account and foreign exchange contract facility. Amounts can be drawn in either
Canadian or in US dollars and can be borrowed, repaid, and re-borrowed to fund operations, capital
expansions, letters of credit, a security lien bond, and for general corporate purposes.
The Credit Facility has multiple interest rate options that are based on the Canadian Prime Rate, Base Rate,
LIBO Rate, Bankers’ Acceptance Rate plus an acceptance fee, in addition to an Applicable Margin for each of
these rates. Fees apply to outstanding letters of credit and the unused portion of the credit.
As part of the Credit Facility, Swiss Water has a US$8.0 million foreign exchange and commodity futures
contract facility, which allows Swiss Water to enter into spot, forward and other foreign exchange rate
transactions and commodity futures transactions with the bank with a maximum term of up to 60 months.
Credit Facility with EDC
EDC offers two services, a credit facility of up to $6.25 million and a $6.0 million foreign exchange guarantee.
Effective November 22, 2022, Swiss Water entered into a revolving credit facility agreement with EDC (the
“EDC Credit”) for borrowings of up to $6.25 million. The EDC Credit is to be used for the purpose of providing
additional liquidity to finance Swiss Water’s operations, should it be needed. The lender of the
abovementioned Credit Facility with a Canadian bank is the administrative agent for the EDC Credit and all
security and guarantees held by the lender of the Credit Facility as security for the Credit Facility are also held
as security for the EDC Credit. Amounts drawn on the EDC Credit bear interest at the Canadian Prime Rate
plus 1.5% per annum. The EDC Credit is subject to certain fees. The EDC Credit facility will terminate on the
earliest of: (i) demand by the lender of the Credit Facility for repayment, (ii) the second anniversary of the
effective date of November 22, 2024, and (iii) the maturity date under the Credit Facility. Bank may in its sole
discretion, renew the EDC Credit for a maximum of five successive one-year periods after the first anniversary
of the effective date. As at December 31, 2023 and 2022, no amounts were drawn on EDC Credit.
On June 1, 2020, Swiss Water entered into a foreign exchange facility guarantee with EDC to cover margin
requirements in relation to the foreign exchange facility. On August 4, 2020, Swiss Water’s Credit Facility
Lender amended the credit agreement to recognize the foreign exchange facility guarantee provided by the
third party. The facility guarantees a maximum aggregate liability of up to $6.0 million and it is valid until May
31, 2024. This guarantee provides additional borrowing capacity within the referenced credit facility.
Construction Loan with BDC and FCC
In Q4 2018, we completed a transaction with the Business Development Bank of Canada (“BDC”) for a term
loan facility (“Term Loan”) of up to $20.0 million. The purpose of the Term Loan was to assist in the financing
of new equipment for the first production line built in Delta, British Columbia. The interest rate for the Term
Loan was 4.95% per annum over 12 years. Principal repayment was scheduled to begin on July 1, 2021 and
matures on June 1, 2033.
On June 3, 2021, we completed a financing transaction by increasing the existing term to $45.0 million from
the existing $20.0 million to provide funding for the planned construction of a second production line at the
Delta location. The financing was provided by Business Development Canada (“BDC”) and Farm Credit Canada
(“FCC”) in a Pari Passu structure. Each lender will fund 50% of the $45.0 million total loan value. The original
20 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
borrowing with BDC will increase from $20.0 million to $22.5 million (“BDC Amended Term Loan”) and FCC
will also fund $22.5 million (“FCC Term Loan”). Upon closing of the transaction, Swiss Water’s outstanding
debt to each party, FCC and BDC, was $10 million. FCC paid $10.0 million to BDC on Swiss Water’s behalf to
ensure that existing borrowings were restructured on a Pari Passu basis.
Only interest will be paid on the outstanding balance on a monthly basis prior to July 1, 2024, for both the
BDC Amended Term Loan and FCC Term Loan. Principal repayments for both loans commence on July 1, 2024,
and will be repaid in monthly installments until both loans mature on June 1, 2034.
The FCC Term Loan consists of a fixed term loan and a variable loan. Until maturity, the fixed term loan bears
an interest rate of 4.38% and the variable loan bears an interest rate of a variable rate minus 0.75%.
The BDC Amended Term Loan bears an interest rate of 4.45% until maturity. The new terms in the BDC
Amended Term Loan supersede the terms on the previous agreement.
Both loans are secured by a general security agreement and a first security interest on all existing equipment
and machinery plus new equipment and machinery financed with the BDC and FCC construction loans.
Seaforth has provided a guarantee for construction loans to FCC and BDC.
Effective November 22, 2022, Swiss Water entered into an amendment (the “Amended Senior Facility”) to
the 2021 senior debt facility with our two lenders, BDC and FCC, which provided an additional $12.0 million
of senior debt financing at a favourable payment, interest rate and amortization schedule by increasing the
senior debt facility from $45.0 million to $57.0 million. The incremental funds available under the Amended
Senior Facility, together with our existing available credit and internally generated cash flow were sufficient
to fund the completion of the second production line in Delta. Each lender funded 50% of available funds. As
of December 31, 2023, the construction loan principal amount outstanding was $57.0 million plus one month
of accrued interest of $0.3 million (2022: $44.6 million of principal and accrued interest).
We have certain bank and creditor covenants that relate to the maintenance of specified financial ratios, and
as of December 31, 2023, we were in compliance with all covenants.
Debenture with Warrants / Convertible Debenture with Mill Road Capital
On July 20, 2021, Swiss Water amended the $15.0 million convertible debenture agreement with Mill Road
to a $15.0 million debenture with warrants. Under the new terms of the agreement, the maturity date was
extended by one year from October 11, 2023, to October 31, 2024. The other amended terms were: (i) the
interest rate increased from a maximum of 7.85% to 9%, (ii) a 1.5% additional interest “payment in kind” was
added, (iii) the debt to shares conversion feature was amended, and (iv) the senior debt covenant was
increased from $45.0 million to $60.0 million. The debt to shares conversion was amended by (a) cancelling
the existing conversion feature and (b) replacing the existing conversion feature with warrants to allow Mill
Road to purchase up to 2.25 million common shares at a price of $3.33 per share.
Effective November 22, 2022, Swiss Water amended the debenture with warrants agreement to (i) expand
on the Senior Debt restricted covenant; (ii) allow Swiss Water a right to prepay the principal, and (iii) add
secondary security on the debenture (iv) increase the senior debt limit to $123.25 million. The original
principal of $15.0 million and the maturity date of October 31, 2024, remain the same. Also, the interest on
the debenture remains unchanged, at 9% paid quarterly plus 1.5% interest in kind accrued quarterly.
Meanwhile, the warrants agreement to issue 2.25 million warrants, with an exercise price of $3.33 was
amended (i) to extend the maturity date from October 31, 2024, to April 30, 2026; and (ii) to add a cashless
exercise option whereby Mill Road may elect to receive, upon exercise, such number of shares that is equal
21 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
to the difference between the $3.33 exercise price and the fair market value of the shares at the time of
exercise.
Following the negotiations in 2022, Swiss Water extinguished the 2021 debenture with warrants with Mill
Road. Given that amendments included a cashless exercise option where the agreement no longer limits an
exchange of a fixed amount of cash for a fixed amount of common shares (subject to terms, the option allows
a variable number of shares being issued), this debenture with warrants restructuring transaction was
accounted for using the extinguishment method of accounting for debt reconstruction.
During the year ended December 31, 2022, Swiss Water recognized a $0.6 million gain on the extinguishment
of debt in net income and it includes financing transaction costs in the amount of $0.2 million.
The option for cashless exercise of warrants embedded in the debenture with warrants was recognized as a
derivative financial liability “Borrowings embedded option” on the Consolidated Statements of Financial
Position and it is valued at $1.4 million as at December 31, 2023, using the Black Scholes model (2022: $1.4
million).
We have certain bank and creditor covenants that relate to the maintenance of specified financial ratios, and
as of December 31, 2023, we were in compliance with all covenants.
Share Capital
On May 9, 2022, at the Annual and Special Meeting of Shareholders, the Shareholders approved the
amendment to the Articles of Amalgamation of the Company to create two new classes of shares, Class A
Preferred Shares and Class B Preferred Shares. As at December 31, 2023 and 2022, there were no preferred
shares issued and outstanding.
Also, on May 9, 2022, at the Annual and Special Meeting of Shareholders, the Shareholders approved the
amendment to the 2011 RSU Plan as previously amended in 2019. Under the 2022 amendment, the aggregate
number of common shares that may be issuable pursuant to the plan shall not exceed 1,115,509 common
shares. This represents an additional 300,000 RSU units.
Contractual Obligations
The following table sets forth our contractual obligations and commitments as at December 31, 2023:
In $000s
(unaudited)
Long-term debt1
Financing leases2
Credit facility3
Purchase obligations4
Total contractual obligations
Total
Less than 1 year
2-3 years
4-5 years
$
$
72,849
10,488
26,858
44,917
$
155,112
$
18,309
2,558
26,858
44,917
92,642
$
11,400
5,163
$
$
11,400
2,718
-
-
-
-
$
16,563
$
14,118
$
31,789
Over 5
years
31,740
49
-
-
1 Long-term debt represents the principal amounts of the debenture with warrants and construction loans.
2 Minimum obligations for our finance leases.
3 Credit facility matures in 2024, where the maturity date can be extended subject to lenders’ approval.
4 Purchase obligations represent outstanding capital, and coffee and purchase commitments.
Swiss Water leases the following offices, warehouses, and equipment:
On August 26, 2016, we signed a lease agreement for a build-to-suit production facility in Delta. From the
lease commencement date, the lease has an initial term of five years and can be renewed at our option in
22 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
five-year increments up to a total of 30 years. The lease commencement date was in July 2018. Under the
lease, Swiss Water has multiple options to buy out the lease starting at the end of the second five-year term.
The buy-out value will be equal to the fair market value of the property as determined by an appraisal process,
subject to specified maximum and minimum values. During 2022 we exercised the first option to renew Swiss
Water’s lease in Delta for another five years until July 2028.
Seaforth leases a warehouse in Delta and the lease expires in June 2027. We have two options to renew the
lease for an additional term of five years each.
Swiss Water leases a sales office in France which expires in October 2027.
Seaforth leases a truck. The lease expires in February 2028.
Swiss Water leases various office equipment with expiring dates of October 2024 and January 2025.
Two leases expired in 2023. Swiss Water’s facility in Burnaby expired in June 2023, and Seaforth’s truck lease
expired in April 2023. Only the Seaforth truck lease was renewed.
OFF-BALANCE SHEET ARRANGEMENTS
Swiss Water has no off-balance sheet arrangements.
RELATED PARTY TRANSACTIONS
We provide toll decaffeination services and/or sell finished goods to and purchase raw material inventory
from a company that is related to one of Swiss Water’s Directors, Roland Veit.
The following table summarizes related party sales and purchases during the periods:
In $000s
(unaudited)
Sales
Purchases of raw materials
Year ended December 31,
2022
2023
1,078 $
6,705 $
1,728
9,007
$
$
All transactions were in the normal course of operations and were measured at the fair value of the
consideration received or receivable, which was established and agreed to by the related parties. As at
December 31, 2023, our accounts receivable balance with this company was nil while our accounts payable
balance with this company was $1.1 million (2022: nil and $2.2 million respectively).
On October 26, 2021, the Company and a member of key management entered into a promissory note in the
amount of $0.07 million. For as long as the borrower remains an employee, the obligation to repay the
principal is forgiven against current and future awards under the RSU plan, by forfeiture of awards. The loan
is interest free other than in the event of default, in which case the promissory note would bear simple
interest at a rate of 10% per annum. As at December 31, 2023, the loan balance of $0.01 million was included
in other current receivables (2022: $0.04 million in non-current receivables).
Mill Road, is a shareholder of Swiss Water, and under the terms of the debenture with warrants agreement,
Mill Road added a senior executive to Swiss Water’s board of directors. Also, as a holder of the debenture
with warrants, Mill Road has the right to a cashless exercise of warrants to obtain an additional 2.25 million
shares of Swiss Water. As such Mill Road is considered a related party. Refer to Note 13.2 in the audited
consolidated financial statements for more details on the amended debt agreement with Mill Road.
23 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
RISKS AND UNCERTAINTIES
Cash from operations may fluctuate with the performance of the business, which can be susceptible to a
number of risks. These risks may include, but are not limited to, foreign exchange fluctuations, labour
relations, coffee prices (notwithstanding hedging programs, as exact hedging correlation is not attainable),
the availability of coffee, competition from existing chemical and other natural or chemical free coffee
decaffeinators, competition from new entrants with alternate processing methods or agricultural
technologies, regulatory risks, terms of credit agreements, customer concentration, commodity futures
losses, ability to maintain organic certification, adequacy of insurance, risks related to information technology
and cyber crime, dependence on key personnel, product liability, uncollectable debts, liquidity risk, timing
and costs of capital projects, Swiss Water’s ability to raise funds through either debt or equity, availability of
labour force, equipment and supplies, global environmental change and climate effects on our products and
supply chain, geopolitical risks, inflation, changes in interest rates, global pandemics, and general economic
downturns. These risks and how Swiss Water manages them are described in the AIF. The future effects of
these risks and uncertainties cannot be quantified or predicted.
Following the emergence of conflict in Ukraine in late February 2022, many countries enacted sanctions
against Russia. The supply of some commodities from Russia, such as natural gas, has been interrupted.
Potential consequences of these sanctions and commodity interruptions that could impact our business are
not limited to: 1) demand for our products 2) delays in transportation to customers within Europe, 3) increase
of costs in fertilizers or supply components, thus increasing the costs of our coffee inventory, 4) decaffeinating
coffee in Europe may become more expensive if traditional fuel sources are curtailed. Some North American
customers, currently sourcing from European suppliers, may consider switching to Swiss Water as it can be
sourced closer to their market, and 5) overall supply chain interruptions. At this time there is uncertainty over
the full impact of the conflict in Europe, as such, we cannot provide assurance that this conflict will not affect
our business and further expansions into the European market.
Swiss Water’s operations may be negatively impacted in the event of a local or global outbreak of disease.
A pandemic may impact demand for our products and services and the capability of our supply chains. It may
also impact expected credit losses on our amounts due from customers and whether the entity continues to
meet the criteria for hedge accounting. For example, if a hedged forecast transaction is no longer highly
probable to occur, hedge accounting would be discontinued.
Risks are also discussed in detail in the ‘Financial Risk Management’ note in our audited consolidated financial
statements. Furthermore, in this management discussion and analysis, we discuss risk under the headings
‘Hedge Accounting’ and ‘Financial Instruments’.
ENVIRONMENTAL RISKS
The Canadian Securities Administrators (“CSA”) identifies five categories of risks: litigation, physical,
regulatory, reputational and business model, for which issuers are asked to identify material risks and if they
are reasonably likely to affect financial statements in the future.
Environmental matters relate to a broad range of issues, including those related to air, water, waste and land.
As a small company with limited human and financial resources, we focus on only those risks that we believe
could have a materially adverse impact on our operations and/or financial results within our planning horizon,
rather than seeking to identify all possible future risks. Risk assessment involves judegment, uncertainty and
estimates, which can provide only reasonable, rather than an absolute, assurance that all the applicable risks
and their expected impacts on Swiss Water are considered.
24 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
The most pervasive environmental risks that we face relate to the fact that we buy, sell and store an
agricultural commodity. The supply of green coffee can be impacted by numerous environmental conditions
such as frosts, drought, plant disease and insect damage, which can impact the quality and size of the coffee
crop. In addition, certain environmental conditions, such as excessive rains, can hamper crop harvesting. A
shortage of coffee can impact our processing volumes and revenues. We seek to mitigate the risks of coffee
shortages by maintaining an extensive list of coffee suppliers; by dealing with importers who themselves have
multiple suppliers rather than contracting directly with farmers or coffee co-operative organizations; by
maintaining up to three months of coffee inventories at any time; by developing and modifying coffee blends
that take into consideration coffee availability and cost from various coffee origins; and, by entering into
purchase contracts with suppliers for future delivery of coffee (rather than relying on ‘spot’ deliveries). In
addition, the coffee commodity price is closely tied to available supplies of coffee globally. We mitigate the
commodity price risk through our commodity price risk management policy.
Our leased facilities are located in the Metro Vancouver area of British Columbia. Vancouver is considered to
be at high risk of a major earthquake and flooding. Any significant earthquake in the vicinity could have a
material impact on our operations for a period of time, depending on the extent of the damage to the
facilities, our equipment, and the transportation infrastructure in the region. In short, a major earthquake
could have a material adverse impact on our revenues. We carry property and business interruption
insurance, including earthquake coverage, which would help offset the cash flow impact of such an event. In
addition, we keep some finished goods inventory in third-party coffee warehouses in other regions, and we
would be able to sell these finished goods even if our production and distribution of coffee were temporarily
interrupted by an earthquake. Nevertheless, the financial and operational impact of a major earthquake
cannot be reasonably predicted.
We are subject to a number of environmental laws and regulations related to our facilities in British Columbia,
which mandate, among other things, the maintenance of air and water quality. We routinely monitor our
compliance with these standards. Based on our compliance record and our maintenance programs, as well
as currently enacted laws and regulations, we do not believe that these regulatory risks are material. In
addition, there are risks associated with global regulatory changes and their related impact on demand and
competition, which we routinely monitor for compliance.
We expect to incur increased costs for energy and water consumption over time. If we cannot pass on such
increased costs to our customers, our profitability may be adversely impacted.
We believe that all known environmental obligations and provisions have been appropriately reflected in our
financial statements. We have not identified any material litigation, reputational, or business model risks
related to environmental matters. Nevertheless, we may be subject to potential unknown or unforeseeable
environmental impacts arising from, or related to, our business. Costs associated with such issues could be
material.
We believe that the trend toward increased environmental awareness and social consciousness creates an
opportunity for us to grow our business, as consumers and coffee industry participants place greater emphasis
on reducing their impact on the environment, and living healthier lifestyles. As one of the few chemical free
decaffeinators in the world, we believe that an increased focus on environmental matters and health will
allow us to win more business from decaffeinators that use chemicals such as methylene chloride to
decaffeinate coffee.
25 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
Measurement of Uncertainty
The preparation of financial statements in accordance with IFRS requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the
date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Estimates are used when accounting for useful lives of depreciable assets, provision for asset
retirement obligations, share-based compensation, debenture with warrants with embedded derivatives,
lease liabilities and right-of-use assets, and income taxes. Actual results may be different from these
estimates.
An accounting estimate is deemed critical only if it requires us to make assumptions about matters that are
highly uncertain at the time the accounting estimate is made, and different estimates that we could have used
in the current period would have a material impact on our financial condition or results of operations.
Property, Plant, Equipment and Intangible Asset
Property, plant and equipment, and intangible assets with finite lives that are subject to depreciation or
amortization are tested for impairment indicators at the end of each reporting period. If any such indicator
exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment
loss. In 2022, Swiss Water performed an assessment of the salvageable assets associated with the Burnaby
location ahead of the expiry of the lease, in June 2023. In accordance with IAS 36, Impairment of Assets, Swiss
Water identified qualitative and quantitative indicators of impairment and it was determined that a $2.5
million impairment of plant and equipment was required, as shown in the non-operating section of the
Consolidated Statements of Income.
After recognizing the impairment, the amortization of the remaining salvaged assets was adjusted in future
periods to allocate the assets’ revised carrying amount on a systematic basis over its remaining useful life.
Those assets were fully depreciated in 2023 and salvaged assets were subsequently put to use. During 2023,
there was no such impairment to property plant and equipment.
Useful lives of depreciable assets – change in accounting estimates
In 2022, Swiss Water reduced the estimated useful life of our abovementioned production line machinery and
equipment at the Burnaby location from 10 years to the expiry of the lease term, in June 2023. This change
in accounting estimate was accounted for prospectively and resulted from the decision to cease the two
production lines in Burnaby, BC, when we exited the lease in June 2023. Those Burnaby assets were fully
depreciated in 2023 and salvaged assets were subsequently put to use at the Delta location. During 2023,
there was no such changes to accounting estimates for depreciable assets.
Provision for Asset Retirement Obligation
Analysis and estimates are performed by Swiss Water in order to determine the amount of restoration costs
to be recognized as a provision in our consolidated financial statements. The estimates consider the contract
language in the lease, the expected useful lives of Swiss Water’s equipment, inflation rates, discount rates,
and the expected costs that would be paid to a third party to remove property and equipment.
The amount that we recognized as a provision in asset retirement obligation is the best estimate of the
consideration required to settle the present obligation at the end of the reporting period, taking into account
26 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
the risks and uncertainties surrounding the obligation. When the final determination of such obligation
amounts differs from the recognized provisions, Swiss Water’s financial statements will be impacted.
The present value of future cash flows for asset retirement obligation with respect to our leased
decaffeination facility in Delta is estimated at $3.8 million. This estimate assumes that we restore the current
location upon the expiry of the lease for the two lines in Delta, BC at an estimated undiscounted cash flow of
$6.0 million. Further, the estimate reflects the expected costs of vacating the leased facility in 2038 having
regard for the contract language in the lease, the expected useful lives of our plant and equipment, and the
expected costs that would be paid to a third party to remove the equipment.
Income Taxes
We compute income taxes using the liability method, under which deferred income taxes are provided for
the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities.
Deferred tax assets and liabilities are measured using the enacted and substantively enacted income tax rates
that are expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled.
Deferred tax assets also reflect estimates of the recoverability of non-capital loss carry forwards. We have
recognized the benefit of loss carry forwards to the extent that it is probable that taxable income will be
available in the future against which our non-capital loss carry forwards can be utilized. As at December 31,
2023, Swiss Water and its subsidiaries had combined non-capital tax loss carryforwards totalling $69.8 million,
which can be used to reduce income taxes payable in future years.
The financial reporting bases of our assets reflect the useful lives of depreciable assets, as well as the carrying
amounts of assets with indefinite useful lives. Accordingly, management estimates that impact the carrying
amounts of depreciable and non-depreciable assets also have an impact on deferred income tax assets and
liabilities.
Leases and Right-of-Use Assets
The preparation of consolidated financial statements requires that Swiss Water’s management make
assumptions and estimates on its finance leases. Certain estimates and assumptions need to be made and
applied, which include but are not limited to, the determination of the expected lease term and minimum
lease payments, the assessment of the likelihood of exercising options, and the estimation of the fair value of
the leased properties at lease inception.
Debenture with Warrants with Embedded Option
Effective November 22, 2022, the amended debenture with warrants contains an embedded cashless option
feature. This embedded option is a financial liability and was recognized initially at $1.9 million effective on
November 22, 2022, and is subsequently revaluated at each reporting date. As at December 31, 2023, Swiss
Water recognized the fair value of the embedded option in the debenture with warrants in the amount of
$1.4 million and recorded a gain of $0.1 million (2022: $1.4 million and $0.5 million respectively).
At initial recognition, in the calculation of the fair value of the liability portion of the Debenture with warrants,
management estimated the interest rate on a similar instrument of comparable credit status providing for
substantially the same cash flows, on the same terms, but without the warrants exercise option. We estimate
the fair values of the borrowings embedded option liability related to the debenture with warrants at initial
recognition and at the end of each reporting period using the Black-Scholes option pricing model which
requires management estimates. Pricing models require the input of highly subjective assumptions including
27 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
the expected share price volatility. Changes in the subjective input assumptions can materially affect the fair
value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the
fair value of the Company’s warrants.
The fair value of the embedded option in the debenture with warrants was determined using the Black Scholes
option pricing model. The variables and assumptions used in computing the fair value are based on
management’s best estimate, as discussed the audited consolidated financial statements.
Share price
Exercise price
Option life
Volatility
Risk-free interest rate
Dividend yield
$
$
$
December 31, 2023
December 31, 2022
2.78
3.33
2.33 years
42%
3.91%
0.00%
$
$
2.31
3.33
3.33 years
49%
4.07%
0.00%
CHANGES IN ACCOUNTING STANDARDS
The following amendments to accounting standards became effective for annual periods beginning on or after
January 1, 2023. The adoption of these revised standards by Swiss Water did not have a material impact on
our consolidated financial statements.
IFRS 1 First–time adoption of IFRS was amended to require companies to recognize deferred tax on
particular transactions that, on initial recognition, give rise to equal amounts of taxable and
deductible temporary differences. The consequential amendment to IFRS 1 is to add an exception to
retrospective application.
IAS 1 Presentation of Financial Statements contains changes to accounting policy disclosures in
changes in estimates vs accounting policies also IAS 1 replaced the requirement to disclose
‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies.
IAS 8 Accounting policies, changes in accounting estimates and errors contains a narrow scope of
amendments to improve accounting policy disclosures and to distinguish changes in accounting
estimates from changes in accounting policies.
IAS 12 Income taxes was amended by IASB to require companies to recognize deferred tax on
transactions that, on initial recognition, give rise to equal amounts of taxable and deductible
temporary differences.
The following standards are effective for periods beginning after January 1, 2024, and Swiss Water does not
anticipate a material impact on our financial statements:
IAS 7 Statement of Cash flows and IFRS 7 Financial instruments disclosures contain amendments that
require disclosures of the effects of supplier finance arrangements on an entity’s liabilities and cash
flows, as well as liquidity risk and risk management, effective after January 1, 2024.
IFRS 10 Consolidated financial statements and IAS 28 Investments in associates and joint ventures
relate to the sale or contribution of assets between an investor and its associate or joint venture,
and the amendments clarify the accounting for a subsidiary when a parent company loses control of
the subsidiary. IAS 28 amended equity method procedures. The amendments’ effective date is not
yet determined, early adoption is permitted.
28 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
IFRS 16 Leases has amended guidance over accounting for lease liability in a sale and leaseback
transaction, effective after January 1, 2024.
IAS 1 Presentation of financial statements was amended to clarify the classification of non-current
liabilities with covenants, depending on the rights that exist at the end of the reporting period.
Liabilities should be classified as non-current if a company has a substantive right to defer
settlement for at least 12 months at the end of the reporting period. This standard defers the
effective date of previous amendments to IAS 1 to years beginning after January 1, 2024, with early
adoption permitted. Retrospective application is required on adoption.
IAS 21 The effects of changes in foreign exchange rates was amended to specify how to determine
whether a currency is exchangeable into another currency and how to determine the spot exchange
rate when a currency lacks exchangeability, effective after January 1, 2025.
HEDGE ACCOUNTING
There are risks related to unpredictability over coffee commodity prices and foreign exchange rates. To
minimize these risks, we follow our risk management program, which is carried out under two policies
approved by the Board of Directors: The Foreign Exchange Risk Management Policy and the Commodity Price
Risk Management Policy. With the use of derivative financial instruments, we hedge potential adverse effects
on our financial performance and cash flows. Under the risk management program, we enter into three types
of hedges and each type is discussed below:
1) Commodity price risk hedges on coffee purchase commitments and coffee inventory (“commodity
hedges”);
2) Currency risk hedges related to US$ denominated future process revenues (“revenue hedges”);
3) Currency risk hedges related to US$ denominated purchases of green coffee (“purchase hedges”);
4) Currency risk hedges related to US$ denominated purchases of property, plant and equipment
(“purchase hedges”).
Commodity Hedges
When we enter into a purchase commitment to buy green coffee, the contract specifies that the purchase
price will be based, in part, on the future (to-be-determined) coffee futures price, or NY’C’. We agree on or
‘fix’ the NY’C’ price with the vendor on or before receiving the coffee into inventory. When we bear the
economic risk of a change in the commodity price, we offset this risk by selling short a futures contract on the
Intercontinental Exchange. When we later sell such coffee at a fixed price to a customer, we cover our short
by going long on a futures contract on the Intercontinental Exchange.
At each period-end, commodity hedges are re-measured to their fair value. Under hedge accounting, gains
/losses for hedged coffee purchase commitments and inventory are recorded in the statement of financial
position until such coffee is sold at which time the gains/losses on our commodity hedges are recognized in
cost of sales. In this way, gains/losses on our commodity hedges are matched to our sales in the period.
Revenue Hedges
We enter into forward contracts to sell US$ at future dates to hedge the foreign exchange cash flow variability
of expected US$ processing fee revenue up to 60 months in advance. The hedged process revenue includes
both process revenue from tolling arrangements (processing of customer-owned coffee) as well as the US$
processing fee layer of inventory sales agreements. This enables us to more reliably predict how much
29 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
Canadian currency we will receive for our US$ process revenue. Cash flows in the immediate 12-month period
are hedged at a higher percentage of expected future revenues than those farther out, reflecting greater
uncertainty in the 13 to 60-month period.
At each period end, revenue hedges are re-measured to their fair value. Under hedge accounting, unrealized
gains/losses for open revenue hedges are recorded in other comprehensive income. When a revenue hedge
matures, the realized gain/loss on that contract is reclassified from accumulated other comprehensive income
to process revenue.
Purchase Hedges
We enter into forward contracts to buy US$ for green coffee inventory which, once decaffeinated, will be sold
at a fixed C$ price pursuant to a customer-specific contract. Similarly, on occasions, we enter into forward
contracts to buy US$ to be used to pay for purchases of equipment. To mitigate the exposure to margin
changes on these transactions arising from fluctuations in the US$/C$ exchange rate, we enter into US$
forward purchase contracts which economically lock in the US$/C$ exchange rate, and effectively locks in the
C$ cost of inventory to be sold at the fixed C$ amount.
The hedge accounting allows for matching of US$ purchases with the associated gains/losses on the forward
contracts used to economically hedge these items. At each period-end, customer-specific hedges are re-
measured to their fair value. Under hedge accounting, the gains/losses on these hedges are deferred on the
statement of financial position until the inventory is sold, at which time the gains/losses are recorded in cost
of sales on the income statement. Similarly, hedges related to property plant and equipment are re-measured
at each period end and once the hedges mature the gains and losses on these hedges are recorded in property
plant and equipment.
FINANCIAL INSTRUMENTS
We use financial instruments to mitigate economic risks associated with our business. The three types of
hedges we enter into, and the hedging instruments used, are discussed in more detail under ‘Hedge
Accounting’ above.
We classify our financial assets and financial liabilities in the following measurement categories (i) those to
be measured subsequently at fair value (either through other comprehensive income or through profit or
loss); and (ii) those to be measured at amortized cost. We have implemented the following classifications for
financial instruments other than derivatives:
Cash and cash equivalents and short-term investments are classified as assets at fair value and any period
change in fair value is recorded through interest income in the consolidated statement of income, as
applicable.
Accounts receivable and other receivables are classified as assets at amortized cost using the effective
interest rate method. Interest income is recorded in the consolidated statement of income, as applicable.
Accounts payable, credit facilities, the debt portion of the debenture with warrants and other liabilities
are classified as other financial liabilities and are measured at amortized cost using the effective interest
rate method. Interest expense is recorded in the consolidated statement of income, as applicable.
Commodity Price Risk
Commodity price risk is the risk that the fair value of inventory will fluctuate as a result of changes in
commodity prices. Swiss Water utilizes futures contracts to manage our commodity price exposure. We buy
30 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
Management Discussion and Analysis
For the year ended December 31, 2023
and sell futures contracts for coffee on the Intercontinental Exchange in order to offset our inventory position
and fix the input cost of green coffee. As at December 31, 2023, Swiss Water had futures contracts to buy 9.3
million lbs of green coffee with a notional value of US$17.1 million, and contracts to sell 13.8 million lbs of
green coffee with a notional value of US$25.5 million. The furthest contract matures in December 2024 (2022:
buy 16.8 million lbs of green coffee with a notional value of US$27.1 million, and contracts to sell 26.8 million
lbs of green coffee with a notional value of US$43.4 million). An estimated 1% decrease in the mark-to-market
rate applied to coffee futures would have resulted in an estimated gain of $0.1 million to the net income
before tax, and vice versa.
Foreign Currency Risk
We realize a significant portion of our revenues in US$ and we purchase green coffee in US$ which is, in some
cases, sold to customers in Canadian dollars. Swiss Water enters into forward foreign currency contracts to
manage our exposure to currency rate fluctuations and to minimize the effect of exchange rate fluctuations
on business decisions.
As at December 31, 2023, Swiss Water had forward currency contracts to buy US$9.9 million and sell US$51.3
million (2022: buy US$7.1 million and sell US$54.8 million) from January 2024 through to January 2027 at
various Canadian exchange rates ranging from $1.28 to $1.38. An estimated CAD 1 cent decrease in the value
of US dollar would have resulted in an estimated gain of $0.3 million to the net income and other
comprehensive income before tax, and vice versa.
INTERNAL CONTROLS OVER FINANCIAL REPORTING & DISCLOSURE CONTROLS AND
PROCEDURES
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of Swiss Water are responsible for
establishing and maintaining adequate internal control over financial reporting (“ICFR”) to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS. Under the supervision and with the participation of management,
we conducted an evaluation of the design and effectiveness of our ICFR as of December 31, 2023, based on
the updated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO 2013”). Based on this assessment, the CEO and CFO concluded that, as of December 31, 2023, Swiss
Water’s ICFR was effective.
The CEO and CFO are also responsible for establishing and maintaining adequate disclosure controls and
procedures. Disclosure controls and procedures are controls and other procedures designed to provide
reasonable assurance that information required to be disclosed in documents filed or submitted under
securities legislation is recorded, processed, summarized and reported within the time periods specified in
securities legislation and includes controls and procedures designed to ensure that information required to
be disclosed in documents filed or submitted under securities legislation is accumulated and communicated
to Swiss Water’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.
The CEO and CFO evaluated or caused to be evaluated under supervision, the effectiveness of our disclosure
controls and procedures and based on this evaluation, the CEO and CFO concluded that, as of December 31,
2023, Swiss Water’s disclosure controls and procedures were effective. There were no changes in our ICFR
that occurred during the period beginning on January 1, 2023, and ended on December 31, 2023, that have
materially affected or are reasonably likely to materially affect, Swiss Water’s ICFR.
31 | P a g e o f t h e M D & A
SWISS WATER DECAFFEINATED COFFEE INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2023
Independent Auditor's Report
To the Shareholders of Swiss Water Decaffeinated Coffee Inc.:
Opinion
We have audited the consolidated financial statements of Swiss Water Decaffeinated Coffee Inc. and its subsidiaries (the
"Company"), which comprise the consolidated statement of financial position as at December 31, 2023, and the consolidated
statements of (loss) and income, comprehensive (loss) income, changes in equity and cash flows for the year then ended, and notes
to the consolidated financial statements, including material accounting policy information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2023, and its consolidated financial performance and its consolidated cash flows for
the year then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matter described below to be the key audit matter to be communicated in our report.
Application of hedge accounting for derivative financial instruments
Key Audit Matter Description
We draw attention to Note 3.11 - Summary of significant accounting policies - Financial instruments, Note 9 - Derivative financial
instruments, Note 25.1 - Commodity price risk hedges on purchase commitments and inventory, and Note 25.2 - Foreign exchange
currency risk hedges of the consolidated financial statements.
The Company uses derivative financial instruments to hedge the risk exposure of commodity prices and foreign currency. The
Company designates derivative financial instruments as hedging instruments; and designates the majority of forecasted sales
revenue and the change in fair value of designated coffee inventory and hedged firm commitments as hedged items to help
manage the risk of change in commodity prices and foreign exchange. Management calculates changes in fair value of hedging
instruments and hedged items.
The principal consideration for our determination that this is a key audit matter is due to its complexity; management judgment to
determine the correct treatment and presentation under hedge accounting; pervasive impact to the Company's financial
performance; and audit effort in performing audit procedures to assess the appropriateness of the Company's conclusion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Audit Response
We responded to this matter by performing procedures in relation to the application of hedge accounting for derivative financial
instruments. Our audit work in relation to this included, but was not restricted to, the following:
Obtained and reviewed most-up-to-date Commodity Risk Management and Foreign Exchange Risk Management Policies
provided by the Board of Directors.
Reviewed consolidated financial statement note disclosures related to commodity price risk hedges on purchase commitments
and inventory and foreign exchange currency risk hedges related to sale and purchase in U.S. dollars for completeness,
adequacy, and appropriateness.
On a sample basis, tested operative effectiveness of internal controls relevant to designation of derivatives as hedges and
appropriateness of classification as revenue and cost of sale items.
Engaged internal specialists to obtain an independent market-to-market rate factor used to calculate the unrealized gain or
loss as at year-end for foreign exchange hedging and used to assess reasonability of unrealized gain or loss recognized by
management as at year-end.
Obtained third-party confirmations and agreed balances recorded as at year-end in the consolidated financial statements to
the amounts confirmed.
On a sample basis, recalculated realized foreign exchange gain or loss recognized for the matured hedges during the period
and assessed amounts recognized by management for reasonability and appropriateness.
On a sample basis, recalculated realized gain or loss recognized for futures contracts to buy green coffee received by the
Company and sold during the period and assessed amounts recognized by management for reasonability and
appropriateness.
Other Matter
The consolidated financial statement for the year ended December 31, 2022, were audited by another auditor who expressed an
unmodified opinion on those statements on March 16, 2023.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Brent Wolfe.
Vancouver, British Columbia
March 13, 2024
Chartered Professional Accountants
SWISS WATER DECAFFEINATED COFFEE INC.
– The accompanying notes form an integral part of these consolidated financial statements. –
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Consolidated Statements of Financial Position as at(Tabular amounts are in thousands of Canadian dollars)AssetsNoteCurrent assetsCash and cash equivalents6$11,091 $3,761 Accounts receivable719,110 20,732 Inventories830,338 60,248 Prepaid expenses and other receivables884 1,081 Income tax receivable14.2167 - Derivative assets and hedged firm commitments9, 252,075 4,590 Total current assets63,665 90,412 Non-current assetsDeposits and other receivables 157 209 Property, plant and equipment10135,736 128,123 Intangible assets11- 110 Deferred tax assets14135 139 Derivative assets 9, 25642 46 Total non-current assets136,670 128,627 Total assets$200,335 $219,039 Liabilities and shareholders' equityCurrent liabilitiesAccounts payable and accrued liabilities12$15,189 $35,371 Borrowings1317,379 191 Asset retirement obligation 17- 1,334 Other liabilities151,141 554 Lease liabilities161,681 1,671 Derivative liabilities and hedged firm commitments9, 25988 1,607 Total current liabilities36,378 40,728 Non-current liabilitiesOther liabilities 1564 208 Borrowings1380,804 95,563 Borrowings embedded option13.21,353 1,429 Lease liabilities 1616,712 18,256 Asset retirement obligation173,839 2,846 Deferred tax liabilities145,275 4,758 Derivative liabilities 9, 2551 345 Total non-current liabilities108,098 123,405 Total liabilities144,476 164,133 Shareholders' equityShare capital18$44,318 $44,194 Share-based compensation reserve586 375 Accumulated other comprehensive (loss) income449 (697) Retained earnings10,506 11,034 Total equity55,859 54,906 Total liabilities and shareholders' equity$200,335 $219,039 Commitments (Note 26)Approved on behalf of the Board: (signed) "Alan Wallace", Director (signed) "Frank Dennis", DirectorDecember 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
– The accompanying notes form an integral part of these consolidated financial statements. –
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Consolidated Statements of (Loss) and Income for the Years Ended(Tabular amounts are in thousands of Canadian dollars, except for per share amounts)NoteRevenue19, 24$166,277 $176,935 Cost of sales(147,479) (150,847) Gross profit18,798 26,088 Operating expensesAdministration expenses(9,059) (8,900) Sales and marketing expenses(4,109) (3,807) Total operating expenses(13,168) (12,707) Operating income5,630 13,381 Non-operating or otherGain (loss) on risk management activities457 (1,560) Gain on fair value of embedded option13.276 513 Gain on extinguishment of debt13.2- 583 Other gains17175 - Finance income1,629 509 Finance expense(8,265) (5,567) Impairment of plant and equipment10- (2,470) Loss on foreign exchange(234) (2,183) Total non-operating or other(6,162) (10,175) (Loss) income before tax(532) 3,206 Income tax recovery (expense)144 (819) Net (loss) income$(528) $2,387 Earnings per shareBasic and diluted (loss) earnings per share22$(0.06) $0.26 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
– The accompanying notes form an integral part of these consolidated financial statements. –
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Consolidated Statements of Comprehensive (Loss) Income and Consolidated Statements of Changes in Equity(Tabular amounts are in thousands of Canadian dollars except for amounts of shares)Consolidated Statements of Comprehensive (Loss) IncomeNet (loss) income$(528) $2,387 Other comprehensive (loss) income, net of taxItems that may be subsequently reclassified to income:Unrealized gain (loss)Derivatives designated as cash flow hedges - currency risk hedges on US$ future revenue866 (2,283) Items reclassified to income:Realized gain recognized in incomeDerivatives designated as cash flow hedges - currency risk hedges on US$ future revenue, recognized in revenue738 150 Other comprehensive income (loss) related to hedging activities1,604 (2,133) Tax (expense) recovery on other comprehensive income relating to hedging activities(433) 566 Cumulative translation adjustment(25) 38 Other comprehensive income (loss), net of tax1,146 (1,529) Net income and other comprehensive income$618 $858 Consolidated Statements of Changes in EquityShare capitalShare-basedAccumulated other compensationcomprehensive Note SharesAmountWarrantsreserveincomeBalance at December 31, 20219,129,673 $43,992 $1,773 $351 $832 $8,647 $55,595 Shares issued for restricted share units36,142 202 - (202) - - - Settlement of loan with restricted share units- - - (37) - - (37) Share-based compensation- - - 263 - - 263 Warrants issued- - (1,773) - - - (1,773) Net income and other comprehensive loss- - - - (1,529) 2,387 858 Balance at December 31, 20229,165,815 $44,194 $- $375 $(697) $11,034 $54,906 Balance at December 31, 20229,165,815 $44,194 $- $375 $(697) $11,034 $54,906 Shares issued for restricted share units18.4 47,140 124 - (124) - - - Settlement of loan with restricted share units- - - (27) - - (27) Share-based compensation- - - 362 - - 362 Net loss and other comprehensive income- - - - 1,146 (528) 618 Balance at December 31, 20239,212,955 $44,318 $- $586 $449 $10,506 $55,859 Retained earnings Total equity December 31, 2023December 31, 2022 SWISS WATER DECAFFEINATED COFFEE INC.
– The accompanying notes form an integral part of these consolidated financial statements. –
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Consolidated Statements of Cash Flows For the Years Ended(Tabular amounts are in thousands of Canadian dollars)NoteOperating activitiesNet (loss) income$(528) $2,387 Items not affecting cash:Depreciation and amortization10, 119,188 7,018 Share-based compensation expense597 415 Unrealized loss on risk management activities127 44 Unrealized gain on fair value of embedded option 13.2(76) (513) Gain on extinguishment of debt13.2- (583) Finance income(1,629) (509) Finance expense8,265 5,567 Impairment to plant and equipment10- 2,470 Income tax (recovery) expense14(4) 819 Other325 (153) 16,265 16,962 Change in non-cash working capital relating to operating activities2318,473 (14,606) Net cash generated from operations34,738 2,356 Interest received1,526 449 Interest paid23(5,501) (3,796) Income taxes paid(218) (51) Net cash generated from (used in) operating activities30,545 (1,042) Investing activitiesAdditions to plant and equipment23(19,920) (25,966) Recovery of costs related to equipment23370 1,361 Net cash used in investing activities(19,550) (24,605) Financing activitiesPayment of lease liabilities(1,688) (1,742) Proceeds from credit facility13.33,400 15,100 Repayments of credit facility13.3(17,500) (1,500) Proceeds from construction loans13.112,542 13,690 Transaction costs related to debt financing activities23(419) (390) Net cash (used in) generated from financing activities(3,665) 25,158 Increase (decrease) in cash and cash equivalents7,330 (489) Cash and cash equivalents, beginning of the year3,761 4,250 Cash and cash equivalents, end of the year$11,091 $3,761 Supplemental cash flow information (Note 23)December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
1.
NATURE OF BUSINESS
Swiss Water Decaffeinated Coffee Inc., (“Swiss Water” or the “Company”), is an entity incorporated under
the Canada Business Corporations Act (“CBCA”). The common shares of the Company are listed on the
Toronto Stock Exchange under the symbol ‘SWP’. The Company’s head office is located at 7750 Beedie
Way, Delta, British Columbia, V4G 0A5, Canada.
Swiss Water is primarily involved in the decaffeination of green coffee without the use of chemicals by
employing the proprietary SWISS WATER® Process. The Company leverages science-based systems and
quality controls to produce coffee that is 99.9% caffeine free.
Swiss Water owns all of the interests of Seaforth Supply Chain Solutions Inc. (“Seaforth”), which is
incorporated under CBCA and operates in Delta, British Columbia, Canada; Swiss Water Decaffeinated
Coffee Company USA, Inc. (“SWUS”), an entity registered in Washington State, USA, and; Swiss Water
Decaffeinated Coffee Europe SARL (“SWEU”), an entity registered in Bordeaux, France.
Seaforth provides a complete range of green coffee handling and storage services, while SWUS and SWEU
act as marketing and sales companies and do not have significant assets.
2.
BASIS OF PREPARATION
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). IFRS
comprises IFRS’s, International Accounting Standards (“IAS”), and interpretations issued by the IFRS
Interpretations Committee (“IFRIC”) and the former Standing Interpretations Committee (“SIC”).
These consolidated financial statements for the year ended December 31, 2023, were approved for
issuance by the Company’s Directors on March 12, 2024. There were no significant non-adjusting events
that occurred between the reporting date and the date of authorization.
2.1 Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for certain
financial instruments that are measured at fair values at the end of each reporting period. Historical cost
is based on the fair value of the consideration given in exchange for assets.
2.2
Currency of presentation
These consolidated financial statements are presented in Canadian dollars. Except for per share amounts,
all amounts are expressed in thousands of Canadian dollars, unless otherwise stated. References to US$
are to United States dollars.
3.
SUMMARY OF MATERIAL ACCOUNTING POLICIES
The accounting policies used in the preparation of these consolidated financial statements are as follows:
3.1 Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned. Subsidiaries are all entities over which the Company has the power to control
the financial and operating policies generally accompanying a shareholding of more than half of the voting
rights. The existence and effect of potential voting rights that are currently exercisable, or convertible, are
considered when assessing whether the Company controls another entity. All intercompany transactions,
balances, income and expenses are eliminated on consolidation.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
3.2 New and amended standards
The following amendments to accounting standards became effective for annual periods beginning on or
after January 1, 2023. The adoption of these revised standards by the Company did not have a material
impact on its consolidated financial statements.
IFRS 1 First – time adoption of IFRS was amended to require companies to recognize deferred
tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable
and deductible temporary differences. The consequential amendment to IFRS 1 is to add an
exception to retrospective application.
IAS 1 Presentation of Financial Statements contains changes to accounting policy disclosures in
changes in estimates vs accounting policies also IAS 1 replaced the requirement to disclose
‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies.
IAS 8 Accounting policies, changes in accounting estimates and errors contains a narrow scope
of amendments to improve accounting policy disclosures and to distinguish changes in
accounting estimates from changes in accounting policies.
IAS 12 Income taxes was amended by IASB to require companies to recognize deferred tax on
transactions that, on initial recognition, give rise to equal amounts of taxable and deductible
temporary differences.
3.3 New and amended standards not yet effective
These standards are effective for periods beginning after January 1, 2024, and the Company does not
anticipate a material impact on its financial statements:
IAS 7 Statement of Cash flows and IFRS 7 Financial instruments disclosures contain amendments
that require disclosures of the effects of supplier finance arrangements on an entity’s liabilities
and cash flows, as well as liquidity risk and risk management, effective after January 1, 2024.
IFRS 10 Consolidated financial statements and IAS 28 Investments in associates and joint
ventures relate to the sale or contribution of assets between an investor and its associate or
joint venture, and the amendments clarify accounting for a subsidiary when a parent company
loses control of the subsidiary. IAS 28 amended equity method procedures. The amendments’
effective date is not yet determined, early adoption is permitted.
IFRS 16 Leases has amended guidance over accounting for lease liability in a sale and leaseback
transaction, effective after January 1, 2024.
IAS 1 Presentation of financial statements was amended to clarify the classification of non-
current liabilities with covenants, depending on the rights that exist at the end of the reporting
period. Liabilities should be classified as non-current if a company has a substantive right to
defer settlement for at least 12 months at the end of the reporting period. This standard defers
the effective date of previous amendments to IAS 1 to years beginning after January 1, 2024,
with early adoption permitted. Retrospective application is required on adoption.
IAS 21 The effects of changes in foreign exchange rates was amended to specify how to
determine whether a currency is exchangeable into another currency and how to determine the
spot exchange rate when a currency lacks exchangeability, effective after January 1, 2025.
3.4
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision makers, the Chief Executive Officer and the Chief Financial Officer. A business segment
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
is a group of assets and operations engaged in providing products or services that are subject to risks and
returns that are different from those of other business segments. A geographical segment reflects the
provision of products or services within a particular economic environment that is subject to risks and
returns that are different from those of other economic environments. The Company’s sales are primarily
generated in a single business segment of decaffeination of green coffee beans. The chief operating
decision makers examine the Company’s performance and operating activities of the single business
segment from a reported geographic perspective.
3.5
Foreign currency translation
Functional and presentation currency
Items included in the consolidated financial statements of each of the Company’s subsidiaries are
measured using the currency of the primary economic environment in which each entity operates (“the
functional currency”). The functional and presentation currency of Swiss Water is the Canadian dollar.
The functional currencies of the USA and the European subsidiaries are the United States dollar and the
Euro, respectively.
Foreign currency transactions
Foreign currency transactions and balances are translated into the respective functional currency as
follows: (i) monetary assets and liabilities denominated in foreign currencies are translated at the
exchange rate prevailing at the reporting date; (ii) non-monetary items which are measured using
historical cost in a foreign currency are translated using the exchange rate at the date of the transaction;
(iii) non-monetary items that are measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined; and (iv) foreign currency transactions are
translated into the functional currency of the entity at the exchange rates prevailing at the date of the
transaction. Foreign exchange gains and losses are recognized in net income and presented in the
consolidated statement of (loss) and income in accordance with the nature of the transactions to which
the foreign currency gains and losses relate, in the period in which they occur.
Foreign operations
Foreign operations are translated from their functional currencies into Canadian dollars on consolidation
as follows: (i) assets and liabilities for each statement of financial position presented are translated at the
closing rate at the date of the consolidated statement of financial position; (ii) income and expenses for
each statement of (loss) and income are translated at a quarterly average exchange rate (unless this rate
is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the dates of the transactions); (iii) share capital for
each statement of financial position presented are translated at historical rate; and (iv) all resulting
exchange differences are recognized in other comprehensive income as cumulative translation
adjustments. Exchange differences that arise relating to long-term intercompany balances that form part
of the net investment in a foreign operation are also recognized in this separate component of equity
through other comprehensive income.
3.6
Cash and cash equivalents
Cash and cash equivalents include cash on hand, other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible to known amounts of cash and which are
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within
borrowings in current liabilities on the consolidated statement of financial position.
3.7
Inventories
Raw materials are stated at the lower of cost, determined on a specific identification basis, and net
realizable value, being the estimated selling price of finished goods less the estimated cost of completion
of the finished goods.
Finished goods are stated at the lower of cost and net realizable value. The cost of finished goods includes
all expenses directly attributable to the manufacturing process like direct labour and direct materials, as
well as suitable portions of related fixed and variable production overheads, based on normal operating
capacity. Costs of ordinarily interchangeable items are assigned on a first-in first-out basis. Net realizable
value is the estimated selling price in the ordinary course of business, less applicable variable selling
expenses.
3.8
Property, plant and equipment
The Company leases facilities that house its buildings, equipment, production facilities, offices and
warehouse facilities. Property, plant and equipment are carried at acquisition cost or manufacturing cost
less depreciation and impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of property plant and
equipment. Acquisition costs and manufacturing costs may also include share-based compensation from
restricted stock units and a portion of salaries and benefits directly related to the construction of new
qualifying assets, costs related to interest on the lease liability, and depreciation of right-of-use assets
relating to leased properties during the construction phase, interest on capitalized borrowing costs
incurred during the period of time that is required to complete and prepare the asset for its intended use,
asset retirement obligations and transfers from the equity of any gains or losses on qualifying cash flow
hedges of foreign currency related to purchases of property, plant and equipment.
Additions to property plant and equipment are recognized in the asset’s carrying amount or recognized
as a separate asset, as appropriate, only when it is probable that future economic benefits associated with
the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and
maintenance expenditures are recognized in the consolidated statement of (loss) and income during the
financial period in which they are incurred.
Major renovations are depreciated over the remaining useful life of the related asset or to the date of the
next major renovation, whichever is sooner.
The costs related to the property, plant and equipment in the course of construction are classified as
construction-in-progress. Such items are transferred to the appropriate category of property, plant and
equipment when they are completed and ready for use as intended. Depreciation of these assets
commences when the asset is available for use.
Depreciation is recognized on a straight-line basis to allocate the cost or valuation of each asset to its
residual value over its estimated useful life commencing when the asset is ready for its intended use. The
estimated useful lives of property, plant and equipment are as follows:
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Right-of-use assets
Leasehold improvements
Building
Machinery and equipment
Computer equipment
Furniture and fixtures
to the expiry of the lease renewal option or lease term
to the expiry of the lease renewal option or lease term
to the expiry of the lease renewal option or lease term
5 to 35 years
5 years
5 years
The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at each reporting
date. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These
are included in the consolidated statement of (loss) and income.
For additional policies related to right-of-use assets, refer to ‘lease liabilities and right-of-use assets’.
3.9
Intangible assets
Proprietary process technology (“PPT”)
PPT represents intangible assets of Swiss Water with a finite life and is carried at cost less accumulated
amortization. Amortization is recognized on a straight-line basis to allocate the cost of PPT to its residual
value over its estimated useful life of 14 years. As of December 31, 2023, PPT was fully amortized.
Brand
Swiss Water’s brand has a finite useful life and is carried at cost less accumulated amortization.
Amortization is recognized on a straight-line basis over its estimated useful life of 14 years. As of December
31, 2023, the Company’s brand assets were fully amortized.
3.10
Impairment of assets
Property, plant and equipment, and intangible assets with finite lives, that are subject to depreciation or
amortization, are assessed for impairment indicators at the end of each reporting period. If any such
indicator exists, the recoverable amount of the asset is estimated in order to determine the extent of any
impairment loss.
An impairment loss is recognized for the amount by which the carrying amount of an asset or cash-
generating unit (“CGU”) exceeds its recoverable amount. The Company has determined that it has one
CGU. To determine the recoverable amount, management estimates either the fair value less costs to sell,
or the value-in-use based on the present value of expected future cash flows from the CGU. In estimating
the value-in-use, management must determine the appropriate discount rate in order to calculate the
present value of those cash flows, as well as make certain assumptions about future profits that relate to
future events and circumstances. Discount factors are determined individually for each asset, or CGU, and
reflect their respective risk profiles as assessed by management.
3.11 Financial instruments
Recognition and initial measurement
Financial assets and financial liabilities, including derivatives, are recognized on the consolidated
statement of financial position when the Company becomes a party to the financial instrument or
derivative contract. Financial assets and financial liabilities are initially measured at fair value plus or
minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction
costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Classification and subsequent measurement
Non-derivative financial assets
On initial recognition, the Company classifies non-derivative financial assets into one of the following
categories:
a) Amortized cost: Assets that are held for the collection of contractual cash flows where those cash
flows represent solely payments of principal and interest are measured at amortized cost. Interest
income from these financial assets is included in finance income using the effective interest rate
method. Any gain or loss arising on derecognition is recognized directly in profit or loss and
presented in other gains together with foreign exchange gains and losses. Impairment losses are
presented as a separate line item in the consolidated statement of (loss) and income. The
Company has classified accounts receivable as at amortized cost.
b) Fair value through other comprehensive income (“FVOCI”): Assets that are held for a collection of
contractual cash flows and for selling the financial assets, where the assets’ cash flows represent
solely payments of principal and interest, are measured at FVOCI. Movements in the carrying
amount are taken through other comprehensive income (“OCI”), except for the recognition of
impairment gains or losses, interest income and foreign exchange gains and losses which are
recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss
previously recognized in OCI is reclassified from equity to profit or loss and recognized in other
gains. Interest income from these financial assets is included in finance income using the effective
interest rate method. Foreign exchange gains and losses are presented in other gains and
impairment expenses are presented as a separate line item in the consolidated statement of (loss)
and income. The Company does not have any non-derivative financial assets classified as at FVOCI.
c) Fair value through profit or loss (“FVPL”): Assets that do not meet the criteria for amortized cost
or FVOCI are measured at FVPL. Gains or losses, including any interest income, are recognized in
profit or loss and are presented net within other gains in the period in which they arise. The
Company has classified cash and cash equivalents and short-term investments as at FVPL.
The Company reclassifies financial assets when and only when its business model for managing those
assets changes.
Non-derivative financial liabilities
Non-derivative financial liabilities are classified as measured at amortized cost or FVPL. A financial liability
is classified as FVPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial
recognition. Financial liabilities at FVPL are measured at fair value with net gains or losses, including any
interest income, recognized in profit or loss and presented within other gains in the period in which it
arises. Other financial liabilities are subsequently measured at amortized cost using the effective interest
rate method. Financial liabilities are not reclassified.
The Company has classified accounts payable and accrued liabilities, borrowings (including credit facilities,
the debt portion of the debenture with warrants, and construction loans) as at amortized cost.
Other liabilities related to the cash portion of DSUs and RSUs are recognized initially at fair value and are
classified as other financial liabilities and are measured at fair value. Stock based compensation expense
is recorded in the consolidated statement of (loss) and income, as applicable.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Derivative financial assets and liabilities
Derivative financial assets and liabilities pertaining to Commodity price risk hedges and Currency risk
hedges related to US$ denominated purchases are classified as FVPL, while the derivative financial assets
and liabilities pertaining to Currency risk hedges related to US$ denominated future process revenue are
classified as FVOCI. FVPL and FVOCI accounting treatments are described above. A further discussion on
designation, recognition, measurement, and re-measurement of derivative financial assets and liabilities
is below.
Derecognition
Financial assets are derecognized when the rights to receive cash flows from the financial assets have
expired or have been transferred and the Company has transferred substantially all the risks and rewards
of ownership.
Impairment
The Company assesses all information available, including on a forward-looking basis, the expected credit
losses associated with its assets carried at amortized cost and FVOCI. The impairment methodology
applied depends on whether there has been a significant increase in credit risk for the relevant financial
asset. The Company’s only financial assets at amortized cost are accounts receivable and other
receivables, for these the Company applies the simplified approach as permitted by IFRS 9 which requires
expected lifetime credit losses to be recognized from the initial recognition of the receivables.
Derivatives and hedging activities
Recognition and measurement
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at the end of each reporting period. The accounting for
subsequent changes in fair value depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged, and the type of hedge relationship designated.
The Company designates certain derivatives as either:
a) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedges),
b) hedges of a particular risk associated with the cash flows of recognized assets and liabilities and
highly probable forecast transactions (cash flow hedges), or
c) hedges of a net investment in a foreign operation (net investment hedges).
The Company documents at the inception of the hedging transaction the economic relationship between
hedging instruments and hedged items including whether the hedging instrument is expected to offset
changes in cash flows of hedged items. The Company documents its risk management objective and
strategy for undertaking various hedge transactions at the inception of each hedging relationship.
Cash flow hedges that qualify for hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
flow hedges is recognized in the cash flow hedge reserve within equity until the hedged expected future
cash flows affect profit or loss; at which time, the gains or losses are reclassified to the consolidated
statement of (loss) and income. The gain or loss relating to the ineffective portion is recognized
immediately in profit or loss. When option contracts are used to hedge forecast transactions, the Company
designates only the intrinsic value of the options as the hedging instrument.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Gains or losses relating to the effective portion of the change in the intrinsic value of the options are
recognized in the cash flow hedge reserve within equity. The changes in the time value of the options,
that relate to the hedged item (‘aligned time value’), are recognized within other comprehensive income
in the ‘derivatives designated as cash flows hedges’ within equity.
Commodity and Currency risk hedges
The Company applied hedge accounting to economic hedges entered into in accordance with its Foreign
Exchange Risk Management Policy (“FX Policy”) and the Commodity Price Risk Management Policy
(“Commodity Policy”). Economically, the specific hedging activities carried out under these policies by the
Company are as follows.
The Company designates derivative financial instruments as hedging instruments, and the change in fair
value of designated coffee inventory and hedged firm commitments as hedged items in a fair value
relationship to manage the risk of changes in benchmark commodity prices, as described under
‘Commodity price risk hedges’.
The Company designates derivative financial instruments as hedging instruments and designates highly
probable forecasted sales revenue as hedged items in a cash flow hedge relationship to manage the
foreign exchange risk associated with the cash flows of highly probable forecast transactions, as described
under ‘Currency risk hedges related to US$ denominated future process revenue’.
As well, the Company also designates derivative financial instruments as hedging instruments and the
change in fair value of designated purchase commitments as hedged items in a fair value hedge
relationship to manage the risk of changes in foreign exchange, as described under ‘Currency risk hedges
related to US$ denominated purchases’, below.
Commodity price risk hedges
Commodity price risk hedges relate to purchase commitments and inventory (“commodity hedges”).
When the Company enters into a purchase commitment to purchase green coffee and fixes the New York
‘C’ (“NY’C’”) price component (which it will later sell at a to-be-determined price based on the NY’C’), the
Company enters into an offsetting short position on the Intercontinental Exchange. The Company
monitors, on a macro basis, the amount of purchase commitments and amount of inventory on hand for
which the ultimate sale price is variable and has not yet been fixed based on the NY’C’ and compares this
to the amount of coffee covered by future net short positions to determine whether the net short position
requires adjustment.
At each period end, commodity hedges are remeasured to their fair value. Under hedge accounting, the
effective portion of the gains (losses) for price fixed hedged coffee contracts and coffee inventory will be
held on the consolidated statement of financial position until inventory for such contracts is received and
subsequently sold, at which time the gains (losses) will flow to cost of sales on the consolidated statement
of (loss) and income.
Currency risk hedges related to US$ denominated future process revenue:
The Company enters into forward contracts to sell US$ at future dates to hedge the foreign exchange cash
flow variability of expected US$ from processing fee revenue. The hedged processing revenue includes
both processing fee revenue from tolling arrangements (processing of customer owned coffee) as well as
the US$ processing fee layer of inventory sales agreements.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
At each period end, currency risk hedges on US$ future revenues are remeasured to their fair value. Under
hedge accounting, unrealized gains (losses) for US$ forward contracts are reclassified so that the impact
on the consolidated statement of (loss) and income is deferred through other comprehensive income,
until the hedge instrument matures, at which time the realized gain (loss) is reflected in revenue on the
consolidated statement of (loss) and income.
Currency risk hedges related to US$ denominated purchases:
The Company enters into forward contracts to buy US$ for significant purchase commitments
denominated in US$. Purchase commitments denominated in US$ include purchases of green coffee
inventory which, once decaffeinated, is sold at a fixed Canadian dollar (“C$”) price. To mitigate the
exposure to changing margins on these transactions arising from fluctuations in the US$/C$ exchange
rate, the Company enters into US$ forward purchase contracts which economically lock in the US$/C$
exchange rate and effectively the Company locks in the C$ cost of equipment or inventory (inventory
which is to be sold at the fixed C$ amount).
At each period end, currency risk hedges on US$ denominated purchases are remeasured to their fair
value and:
a) under hedge accounting, the effective portion of the gains (losses) will be held on the consolidated
statement of financial position (in inventory or as a part of derivative assets or derivative liabilities)
until the inventory is received and subsequently sold, at which time the gains (losses) will flow to
the cost of sales on the consolidated statement of (loss) and income, as well as
b) under hedge accounting, the effective portion of the gains (losses) will be held on the consolidated
statement of financial position (in derivative assets or derivative liabilities) until the equipment is
received at which time the gains (losses) will flow to the property plant and equipment on the
consolidated statement of financial position.
On all hedges entered into, if the hedge ratio for risk management purposes is no longer optimal but the
risk management objective remains unchanged and the hedge continues to qualify for hedge accounting,
the hedge relationship will be rebalanced by adjusting either the volume of the hedged instrument or the
volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management
purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the
hedge relationship rebalancing.
Fair value hierarchy
The Company classifies and discloses the fair value measurements of its financial instruments using a fair
value hierarchy that reflects the significance of the inputs used in making the measurements. The fair
value hierarchy has the following levels:
c) Level 1 – valuation based on quoted prices (unadjusted) in active markets for identical assets or
liabilities;
d) Level 2 – valuation techniques based on inputs other than quoted prices that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
e) Level 3 – valuation techniques using inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. The
Company classifies a financial instrument to the lowest level of the hierarchy for which a significant input
has been considered in measuring fair value.
3.12 Lease liabilities and right-of-use assets
IFRS 16 - Leases
IFRS 16 introduces a single, on-balance sheet accounting model for lessees, with limited exceptions for
short-term leases or leases of low-value assets. Lessees recognize a right-of-use asset representing its
rights to use the underlying asset and a lease liability representing its obligation to make lease payments.
Management judgement and estimates over leases
The preparation of consolidated financial statements requires that the Company’s management makes
assumptions and estimates on the classification of leases. When assessing the classification of a lease
agreement, certain estimates and assumptions need to be made and applied, which include, but are not
limited to, the determination of the expected lease term and minimum lease payments, implicit borrowing
rate, the assessment of the likelihood of exercising options, and estimation of the fair value of the leased
property at lease inception.
Lease policy
At the inception of a lease contract, the Company assesses whether the contract is or contains a lease. A
contract is, or contains, a lease if the contract conveys that right of control of the use of an identified asset
for a period of time in exchange for consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Company assesses whether: (i) the contract involves the use of
an identified asset; (ii) the Company has the right to obtain substantially all of the economic benefits from
the use of the asset throughout the period, and; (iii) the Company has the right to direct the use of the
asset. The Company has determined that contracts for its offices, production facility, warehouse facility,
and select equipment contain a lease.
At inception or on a reassessment of a contract that contains a lease component, the Company allocates
the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
However, for the leases of land and buildings, the Company has elected not to separate non-lease
components and account for the lease and non-lease components as a single lease component.
The Company presents right-of-use assets in ‘property, plant and equipment’ and related liabilities in
‘lease liabilities’.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The
right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement date, plus any initial direct costs
incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset
is subsequently depreciated using the straight-line method from the
commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the
lease term plus expected renewal options that are available to the Company. The estimated useful lives
of right-of-use assets are determined on the same basis as those of property, plant and equipment. In
addition, the right-of-use asset is reduced by impairment losses, if any are identified, and adjusted for
certain remeasurements of the lease liability.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be
readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its
incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise of (i) fixed payments; (ii)
variable lease payments that depend on an index rate, initially measured using the index as at the
commencement date; (iii) amounts expected to be payable under a residual value guarantee, and : (iv)
the exercise price under purchase option that the Company is reasonably certain to exercise, lease
payments in an optional renewal period if the Company is reasonably certain to exercise an extension
option, and penalties for early termination of a lease unless the Company is reasonably certain not to
terminate early.
A lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily
determined, the Company uses its incremental borrowing rate. The incremental borrowing rate depends
on the term, currency, and start date of the lease and is determined based on a series of inputs including
the risk-free rate based on government bond rates; a credit risk adjustment based on bond yields; and an
entity-specific adjustment when the risk profile of the entity that enters into the lease is different to that
of the Company.
It is remeasured when there is a change in future lease payments arising from a change in an index or rate,
if there is a change in the Company’s estimate of the amount expected to be payable under a residual
value guarantee, or if the Company changes its assessment of whether it will exercise a purchase,
extension or termination option. When the lease liability is remeasured in this way, a corresponding
adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced to zero.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of
machinery that have a lease term of 12 months or less and leases of low-value assets. The Company
recognizes these lease payments as an expense on a straight-line basis over the lease term.
The Company recognizes a depreciation charge for right-of-use assets and interest expense on lease
liabilities in the consolidated statement of (loss) and income.
On the consolidated statement of cash flows, the Company includes repayments of the principal portion
of the lease liabilities under financing activities. The interest portion of the lease continues to be classified
within cash flows from operating activities. Lease payments for short-term leases and lease payments for
leases of low-value assets that are not included in the measurement of the lease liability are classified as
cash flows from operating activities.
3.13 Current and deferred income taxes
Income tax expense or credit comprises current and deferred tax. Income tax expense is recognized in
the consolidated statement of (loss) and income except to the extent that it relates to items recognized
either in other comprehensive income or directly in equity. The income tax expense or credit for the period
is the tax payable on the current period’s taxable income based on the applicable income tax rate for each
jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences
and to unused tax losses.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted
at the reporting date, and any adjustments to taxes payable in respect of previous years. The Company
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
However, if the deferred income tax arises from the initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable income or loss, it is not accounted for. Deferred income tax is determined using
tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are
expected to apply when the related asset is realized, or the liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable income
will be available against which temporary differences and non-capital loss carry forwards can be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current
tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends
either to settle on a net basis or to realize the asset and settle the liability simultaneously.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items
recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in
other comprehensive income or directly in equity, respectively.
3.14 Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of
a past event, it is probable that it will lead to an outflow of economic resources from the Company and
amounts can be estimated reliably, although timing or amount of the outflow may still be uncertain.
Provisions are measured at the present value of management’s best estimate of the expenditure required
to settle the present obligation at the reporting date, including the risks and uncertainties associated with
the present obligation. The discount rate used to determine the present value reflects current market
assessments of the time value of money and the increases specific to the liability.
Any reimbursement that the Company can be virtually certain to collect from a third party with respect to
the obligation is recognized as a separate asset. However, this asset may not exceed the amount of the
related provision.
All provisions are reviewed at the end of each reporting period and adjusted or reversed to reflect
management’s current best estimate of the expenditure required to settle the present obligation at the
end of the reporting period. If it is no longer probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, the provision is reversed. Provisions are reduced by
actual expenditures for which the provision was originally recognized.
Where discounting has been used, the carrying amount of a provision is accreted during the period to
reflect the passage of time.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
3.15 Share capital
Common shares
Common shares are classified as equity and are recorded at the value of proceeds received. Issuance costs
directly attributable to the issuances of new common shares are deducted against the share capital
account. Repurchases are removed from equity and no gain or loss is recognized in the consolidated
statement of (loss) and income on the issue, sale, purchase, or cancellation of the Company’s shares. On
share repurchases, any excess between the purchase price and the cost per share is allocated to retained
earnings.
Warrants
The Company issues warrants subject to shareholders, regulatory body, and creditor approvals. Each
warrant allows the holder to obtain one share of Swiss Water in exchange for cash at a price per share
determined at the time the warrants are issued. Each warrant can be exercised at any time and not later
than the exercise date of the warrant. The initial fair value of the warrants is measured at the grant date
using the Black-Scholes option-pricing model.
When the warrant holder holds a warrant where a fixed amount of shares are issued for a fixed amount
of cash, the fair value of the warrants is initially recognized as a component of equity in the consolidated
statement of changes in equity and is not remeasured at each period end. If the holder of warrants decides
to exercise the warrants, the fair value of the warrants will be de-recognized from the warrants reserve
component of the equity and recognized as a part of share capital. No adjustment is made for warrants
that expire. Financing transactions directly attributed to the issuances of warrants are deducted against
the warrant's value.
When a warrant holder holds a warrant where a variable amount of shares are issued for a non-fixed
amount of cash such as a cashless option, the fair value of the warrants is initially recognized as a financial
liability in the consolidated statement of financial position and is remeasured at each period end. If the
holder of warrants decides to exercise the warrants, the fair value of the warrants will be de-recognized
from the warrant's financial liability component of the consolidated statement of financial position and
recognized as a part of share capital on the consolidated statement of changes in equity. Expired warrants
and financing transactions related to financial liabilities are accounted for in accordance with IFRS 9. Refer
to accounting policies related to financial liabilities under the section ‘Summary of material accounting
policies’, sub-heading ‘Financial instruments’.
As at each period end warrants are tested for potential dilution effect when calculating basic and diluted
earnings per share.
Dividends
Dividends to the Company’s shareholders are recognized when dividends are approved for payment.
3.16 Share-based compensation
The Company has a restricted share unit (“RSU”) plan for certain officers and employees and a deferred
share unit (“DSU”) plan for non-employee directors (collectively, “participants”).
The RSUs granted are expected to be settled using a combination of cash and equity.
The equity-settled share-based compensation is measured at the fair value of the Company’s common
shares as at the grant date using a volume weighted average share price in accordance with the terms of
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
the RSU plan. The fair value determined at the grant date is charged to profit or loss on a straight-line
basis over the vesting period, based on the estimate of the number of RSUs that will eventually vest and
be converted to common shares, with a corresponding increase in equity (share-based compensation
reserve). As necessary, the Company revises its estimate if subsequent information indicates that the
number of RSUs expected to vest differs from previous estimates. On the vesting date, the Company
revises the estimate to equal the number of equity instruments that are ultimately vested. The impact of
the revision of estimates, if any, is recognized in profit or loss such that the cumulative expense reflects
the revised estimate, with a corresponding adjustment to the share-based compensation reserve.
For cash-settled share-based compensation, a liability is recognized, measured initially at the fair value of
the liability using a volume weighted average share price. The amount of the liability is charged to income
on a straight-line basis over the vesting period, based on the estimate of the number of RSUs that will
eventually vest and be settled in cash. As necessary, the Company revises its estimate if subsequent
information indicates that the number of RSUs expected to vest differs from previous estimates. On the
vesting date, the Company revises the estimate to equal the number of RSUs that ultimately vested and
are settled in cash. The impact of the revision of estimates, if any, is recognized in profit or loss such that
the cumulative expense reflects the revised estimate, with a corresponding adjustment to the long-term
liability or current liability depends on the timing when the liability becomes due. At the end of each
reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is
remeasured using a volume weighted average share price, with any change in fair value recognized in
profit or loss for the year.
DSUs are issued to participants who elect to defer a portion of their current compensation in exchange
for DSUs. DSUs are classified as cash-settled share-based payment transactions as participants receive
cash following a redemption. The DSUs do not contain any vesting conditions or forfeiture provisions, as
they are issued in exchange for deferred compensation. The Company recognizes the expense and the
liability to pay for the eventual redemption when the DSUs are issued. Thereafter, the Company
remeasures the liability at the end of each reporting date and the date of settlement, with the difference
recognized in profit or loss for the period. The fair value of DSUs is determined in accordance with the
DSU Plan, which uses the average closing price for Swiss Water shares for the five trading days
immediately preceding the relevant date.
3.17 Revenue recognition
IFRS 15 requires revenue recognition to follow a five-step model of identifying contracts, separating
performance obligations, determining and allocating the transaction price, and recognizing the revenue
as each performance obligation is satisfied.
The Company’s primary sources of revenue are proceeds from sales of Swiss Water’s decaffeinated coffee
and from services provided to decaffeinate customers’ owned coffee.
Swiss Water’s revenue is measured based on the consideration agreed upon in contracts with customers
and is recognized when the Company transfers control over products and services to the customer either
at a point in time or over time.
For all revenue contracts, no significant judgements are made with respect to evaluating the timing of
satisfaction of performance obligations, transaction prices, and amounts allocated to performance
obligations. Consideration amounts are not variable. Warranty, returns, or refunds do not apply to the
Company.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Payment terms are typically between 30 and 60 days, apart from select customers where payment terms
are extended. For contracts with extended payment terms, the Company charges customers a financing
component, recognized separately in ‘finance income’ on the consolidated statement of (loss) and
income. As a practical expedient, the Company does not adjust the promised amount of consideration for
the effects of a significant financing component when the Company expects, at contract inception, that
the period between when the Company transfers a promised good or service to a customer and when the
customer pays for that good or service will be one year or less.
Revenue is disaggregated based on the customer’s geographic region as described in the segmented
reporting accounting policy. Also, the revenue, from contracts with customers, is disaggregated by major
products and services: decaffeinated coffee sales, decaffeination services, and distribution.
Decaffeinated coffee sales
Decaffeinated coffee sales are the amounts that are charged to customers for the sale of decaffeinated
coffee. The performance obligation is satisfied at a point in time when a customer obtains control of the
product, which is when decaffeinated coffee is picked up by or delivered to the customer.
Decaffeination services
Decaffeination services represent the amount charged to customers for the service of decaffeinating
customer-owned coffee. The performance obligation is to provide the service, which is satisfied over time.
Distribution
Distribution revenue consists of shipping, handling, and warehousing charges billed to customers. The
performance obligation is satisfied over time as services are provided, which is at the same time as these
services are consumed.
3.18 Employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave, and accumulating sick
leave, that are expected to be settled wholly within 12 months after the end of the period in which the
employees render the related services are recognized in respect of employees’ services up to the end of
the reporting period and are measured at the amounts expected to be paid when the liabilities are settled.
The liabilities are presented as current employee benefit obligations on the consolidated statement of
financial position.
The Company provides benefits to employees through a registered retirement savings plan (“RRSP”). The
Company contributes a percentage of earnings into an RRSP administered by an independent entity.
Ultimately, each employee manages his or her own RRSP within the scope of the plan provided by the
third-party administrator. The RRSP has no assurance of defined benefits to employees, and as such the
Company has no legal or constructive obligations to make further contributions.
The Company also pays contributions to government pension insurance plans. The contributions are
recognized as employee benefit expenses when they are due.
3.19 Earning per share (“EPS”)
The Company presents basic and diluted EPS for its common shares. Basic EPS is calculated by dividing
income or loss attributable to shareholders of the Company by the weighted average number of common
shares outstanding during the year. Diluted EPS is calculated by dividing income or loss attributable to
2 2 | P a g e
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
shareholders of the Company by the weighted average number of common shares outstanding, adjusted
for the effects of all dilutive potential common shares.
3.20 Related party transactions
Balances and transactions between the parent company and its subsidiaries, which are related parties,
have been eliminated on consolidation. For related party transactions incurred during the periods covered
in these financial statements, the disclosure includes the nature of a related party relationship,
information about transactions as well as outstanding balances, including commitments.
4. MANAGEMENT JUDGEMENTS AND ESTIMATION UNCERTAINTY
Judgement is used by management in selecting accounting policies, the determination of functional
currency, the identification of cash generating units (“CGUs”), and the identification of revenue streams.
In addition, judgement is often required in applying accounting policies, and with respect to items where
the choice of a specific policy, accounting estimate, or assumption to be followed could materially affect
the reported results or net asset position of the Company should it later be determined that a different
choice would be more appropriate.
Management considers the accounting estimates and assumptions discussed below to be its critical
accounting estimates and accordingly, provides an explanation of each below. Actual results could differ
from those estimates and assumptions.
4.1 Useful lives of depreciable assets
Change in accounting estimates.
At the end of 2022, the Company reduced the estimated useful life of its production line machinery and
equipment at the Burnaby location from 10 years to the expiry of the lease term, in June 2023. This change
in accounting estimate was accounted for prospectively, in 2023, and resulted from the decision to cease
the two production lines in Burnaby, BC, when the Company exited the lease in June 2023. The impact of
this change in 2022 was de minimis.
In 2023, the depreciation of the abovementioned assets in Burnaby was adjusted to allocate the assets’
revised carrying amount on a systematic basis over their remaining useful lives. Approximately $3.0 million
of those assets were fully amortized by June 2023 while $1.3 million of the salvaged assets were
repurposed and put into use in 2024 and continue to be amortized prospectively.
4.2
Provision for asset retirement obligations
Analysis and estimates are performed by the Company in order to determine the amount of restoration
costs to be recognized as a provision in the Company’s consolidated financial statements. The estimates
consider the contract language in the lease, the expected useful lives of the Company’s equipment,
inflation rates, discount rates, and the expected costs that would be paid to a third party to remove
property and equipment.
The amount recognized as a provision is the best estimate of the consideration required to settle the
present obligation at the end of the reporting period, taking into account the risks and uncertainties
surrounding the obligation. When the final determination of such obligation amounts differs from the
recognized provisions, the Company’s financial statements will be impacted.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
4.3
Income taxes
The Company computes income taxes using the liability method, under which deferred income taxes are
provided for the temporary differences between the financial reporting bases and the tax bases of the
Company’s assets and liabilities. Deferred tax assets and liabilities are measured using the enacted and
substantively enacted income tax rates that are expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Deferred tax assets also reflect estimates of the recoverability of non-capital loss carry forwards. The
Company has recognized the benefit of loss carry forwards to the extent that it is probable that taxable
income will be available in the future against which the non-capital loss carry forwards can be utilized.
The financial reporting bases of the Company’s assets reflect the useful lives of depreciable assets, as well
as the carrying amounts of assets with indefinite useful lives. Accordingly, management estimates that
impact the carrying amounts of depreciable and non-depreciable assets also have an impact on deferred
income tax assets and liabilities.
4.4
Leases and right-of-use assets
The preparation of consolidated financial statements requires that the Company’s management makes
assumptions and estimates related to leases and right-of-use assets. When assessing the recognition of a
lease and right-of-use assets, certain estimates and assumptions need to be made and applied, which
include, but are not limited to, the determination of the expected lease term and minimum lease
payments, the discount rate/implicit borrowing rate, the assessment of the likelihood of exercising
options, and estimation of the fair value of the leased property at lease inception.
4.5 Debenture with warrants
At initial recognition, in the calculation of the fair value of the liability portion of the debenture with
warrants, management estimated the interest rate on a similar instrument of comparable credit status
providing for substantially the same cash flows, on the same terms, but without the warrants exercise
option. Management estimates the fair values of the borrowings embedded option liability related to the
debenture with warrants at initial recognition and at the end of each reporting period using the Black-
Scholes option pricing model which requires management estimates. Pricing models require the input of
highly subjective assumptions including the expected share price volatility. Changes in the subjective input
assumptions can materially affect the fair value estimate, and therefore the existing models do not
necessarily provide a reliable single measure of the fair value of the Company’s warrants.
5.
CAPITAL MANAGEMENT
The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain the future development of the business. The Company manages its capital
structure and makes adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. The Company considers its capital structure to include
shareholders’ equity and indebtedness. In order to maintain or adjust the capital structure, the Company
may from time-to-time issue common shares, preferred shares, issue additional debt, adjust its capital
spending, modify its dividend policy, and/or dispose of certain assets to manage current and projected
debt levels.
The Company manages its capital in order to meet its growth objectives and payments of quarterly
dividends to its shareholders. The dividend policy of Swiss Water is subject to the discretion of the Board
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
of Directors, which reviews the level of dividends periodically on the basis of a number of factors including
Swiss Water’s financial performance, future prospects, and the capital requirements of the business.
6.
CASH AND CASH EQUIVALENTS
Cash includes cash held with banks and financial institutions. The Company has invested $6.0 million into
thirty (30) day cashable Guaranteed Investment Certificates (“GICs”) with a financial services firm, at rates
between 4.95% and 5.05%.
7.
ACCOUNTS RECEIVABLE
Accounts receivable are amounts due from customers for goods sold or services performed in the ordinary
course of business. Information about the Company’s exposure to foreign currency risk, interest rate risk,
and credit risk can be found in the Note ‘Financial risk management’. The Company monitors lifetime
expected credit losses using the simplified approach which is determined based on historic and adjusted
relevant forward-looking information. The Company’s customers have a negligible default rate and the
Company’s experience both in frequency and amount of losses are not significant. As a result, the
expected credit losses provision as at December 31, 2023, is $0.1 million (2022: $0.1 million).
8.
INVENTORIES
During the year ended December 31, 2023, the cost of inventories recognized in cost of sales was $137.0
million (2022: $143.1 million). The hedge accounting component represents the derivative adjustment
related to designated hedges for inventory on hand as at each period. As at December 31, 2023, the
inventory provision was $0.8 million (2022: $0.2 million). During the years ended December 31, 2023, and
2022 cost of sales includes a $0.6 million and $0.1 million expense related to the inventory provision.
9.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s derivative financial instruments are carried at fair value through profit or loss as follows:
The Company’s derivative financial instruments are carried at fair value through other comprehensive
income as follows:
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Raw materials$18,500 $38,177 Finished goods10,347 28,517 Carbon472 496 Packaging243 490 Hedge accounting component776 (7,432) $30,338 $60,248 December 31, 2023December 31, 2022 Net coffee futures contracts$1,273 $3,288 Net US dollar forward contracts, current(200) 455 Net US dollar forward contracts, long-term- (285) Borrowings embedded optionNote 13.2(1,353) (1,429) $(280) $2,029 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise owned and leased right-of-use assets.
10.1 Property, plant and equipment
The carrying value of property, plant and equipment is as follows:
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Net US dollar forward contracts, current$8 $(991) Net US dollar forward contracts, long-term591 (14) $599 $(1,005) December 31, 2023December 31, 2022Property, plant and equipment$120,116 $110,694 Right-of-use assets15,620 17,429 $135,736 $128,123 December 31, 2023December 31, 2022 BuildingCostJanuary 1, 2023$83,069 $13,880 $11,915 $1,224 $280 $41,779 $152,147 Additions5 - 916 - 10 15,268 16,199 Disposals(27,065) - (5,846) (683) (119) - (33,713) Transfers52,302 4,279 250 136 - (56,967) - December 31, 2023$108,311 $18,159 $7,235 $677 $171 $80 $134,633 Accumulated depreciationJanuary 1, 2023$(32,787) $(1,889) $(5,583) $(983) $(211) $- $(41,453) Depreciation(5,013) (810) (838) (92) (24) - (6,777) Disposals27,065 - 5,846 683 119 - 33,713 December 31, 2023$(10,735) $(2,699) $(575) $(392) $(116) $- $(14,517) December 31, 2023$97,576 $15,460 $6,660 $285 $55 $80 $120,116 equipmentimprovementsequipmentfixturesin progressTotalConstructionMachinery andLeaseholdComputerFurniture and BuildingCostJanuary 1, 2022$83,555 $13,880 $9,729 $1,180 $282 $15,294 $123,920 Additions- - 2,388 - 10 29,792 32,190 Disposals- - (55) (1) (14) - (70) Impairment(2,161) - (309) - - - (2,470) Vendor reimbursement(1,423) - - - - - (1,423) Transfers3,098 - 162 45 2 (3,307) - December 31, 2022$83,069 $13,880 $11,915 $1,224 $280 $41,779 $152,147 Accumulated depreciationJanuary 1, 2022$(29,652) $(1,120) $(5,044) $(873) $(195) $- $(36,884) Depreciation(3,135) (769) (591) (111) (24) - (4,630) Disposals- - 52 1 8 - 61 December 31, 2022$(32,787) $(1,889) $(5,583) $(983) $(211) $- $(41,453) December 31, 2022$50,282 $11,991 $6,332 $241 $69 $41,779 $110,694 TotalMachinery andLeaseholdComputerFurniture andConstructionequipmentimprovementequipmentfixturesin progress
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
During the year ended December 31, 2023, depreciation expense of $6.6 million (2022: $4.4 million) was
charged to cost of sales and $0.2 million (2022: $0.2 million) was included in administrative expenses. In
addition, $0.3 million of allocated depreciation was transferred from inventory to cost of sales (2022:
$0.03 million).
In 2023, the Company recognized additions in leasehold improvements in the amount of $0.9 million for
asset retirement obligations related to the production facility in Delta (2022: $2.4 million, of which $1.8
million related to the Delta location and $0.6 million related to the Burnaby location). Refer to Note 17 for
more details on asset retirement obligations.
Plant and equipment in Delta BC
During the year ended December 31, 2023, the Company added $15.3 million of additions to construction
in progress during the construction of its second production line in Delta. Additions to construction in
progress include $1.3 million of capitalized interest on construction loans (with an interest rate ranging
between 4.38% and 7.69%), $0.3 million of salaries and benefits directly related to the construction, and
$0.4 million of share-based compensation also directly related to the completion of constructed assets of
assets in Delta, BC. In the year 2022 additions to construction in progress included $0.7 million in interest
(with an interest rate ranging between 4.38% and 4.45%) and $0.3 million in salaries and benefits.
Effective September 1, 2023, Swiss Water completed the construction of this second production line and
commenced producing commercial-grade chemical free decaffeinated coffee. As such, the Company
transferred a total of $57.0 million of costs from construction in progress to machinery and equipment
and started depreciating over its useful life ranging between 10 and 35 years.
During the year ended December 31, 2023, the Company received $0.4 million in cash from vendors for
reimbursements related to the construction of its production lines in Delta. These proceeds were recorded
as a reduction in plant and equipment (2022: $1.4 million).
The Company salvaged $1.3 million in assets from the production facility in Burnaby (2022: nil). These
assets were repurposed at the Delta location and put to use subsequent to December 31, 2023, where
they are depreciated over their remaining useful lives.
Impairment to plant and equipment in Burnaby BC
The Burnaby lease expired in June 2023. During the year ended December 31, 2022, the Company
reviewed the dismantling plan and restoration obligation for the two production lines housed on the
leased property, (the CGU), including the assessment of salvageable assets.
In accordance with IAS 36, Impairment of Assets, the Company identified indicators of impairment.
Management considered both the cost and benefit, including cash proceeds from the sale of extracted
assets, cash required to salvage equipment, and the expected utilization of salvaged machinery.
Management determined the recoverable amount of the CGU using the value-in-use method. The carrying
amount exceeded the estimated recoverable amount of $2.7 million, and the Company recognized a $2.5
million impairment loss to plant and equipment, where $2.2 million was allocated to machinery and
equipment and $0.3 million was allocated to leasehold improvements. There was no such impairment in
2023.
The value-in-use estimates used assumptions drawn from both internal and external sources related to
future cash flows from the remaining life of Burnaby assets. Management did not identify any significant
assumptions.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
After recognizing the impairment, the depreciation of the remaining carrying value of Burnaby CGU was
adjusted in future periods to allocate the asset’s revised carrying amount on a systematic basis over its
remaining useful life, until June 2023 in which the Company exited the Burnaby property.
Plant and equipment at legacy location in Burnaby BC
Effective January 1, 2023, the Company reduced the estimated useful life of the non-salvaged assets
located at its production facility in Burnaby, by 12 years. The useful life of these assets was re-aligned
against the final production date at the site, which was in April 2023. At the time of the change in estimate,
these assets had a carrying value of approximately $3.0 million. As such, during the year ended December
31, 2023, these non-salvaged assets were fully depreciated and an expense of 3.0 million is reflected
within the $6.8 million total depreciation expense. The financial impact of the change in estimate was an
incremental depreciation expense of $2.5 million for the year ended December 31, 2023. There was no
such change in estimate during the comparative period in 2022.
During the year ended December 31, 2023, the Company disposed of $33.7 million of fully depreciated
non-salvaged plant and equipment which was located at the production facility in Burnaby. The net effect
of the removal of asset cost and accumulated depreciation was nil as the assets were fully depreciated by
the time the assets were decommissioned.
10.2 Right-of-use assets
For the year ended December 31, 2023, right-of-use assets depreciation expense of $1.7 million (2022:
$1.9 million) was charged to cost of sales and $0.2 million (2022: $0.2 million) was included in
administrative expenses. There was no impairment loss recognized for the years ended December 31,
2023 and 2022.
During the year ended December 31, 2023, the property lease for the production facility in Burnaby
expired. The Company disposed of the property lease and the net effect of the removal of asset cost and
accumulated depreciation was nil.
During the year ended December 31, 2023, a lease for a truck expired. The Company disposed of the
equipment lease and the net effect of the removal of asset cost and accumulated depreciation was nil.
During the year ended December 31, 2023, the Company entered into a new lease for a truck and the
Company recognized $0.1 million in new right-of-use assets for the new truck. There was no such
transaction in 2022.
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SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
The carrying value of right-of-use assets is as follows:
11.
INTANGIBLE ASSETS
For the year ended December 31, 2023, amortization expense of $0.1 million (2022: $0.2 million) relating
to PPT has been charged to cost of sales and $0.01 million (2022: $0.02 million) relating to brand was
included in administrative expenses.
As of December 31, 2023, PPT and brand were fully amortized. There was no impairment loss recognized
for the years ended December 31, 2023 and 2022.
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EquipmentCostBalance at January 1, 2023$207 $25,571 $25,778 Additions146 - 146 Remeasurement- 12 12 Disposals(110) (1,439) (1,549) Balance at December 31, 2023$243 $24,144 $24,387 Accumulated depreciationBalance at January 1, 2023$(160) $(8,178) $(8,338) Depreciation(48) (1,919) (1,967) Disposals110 1,439 1,549 Balance at December 31, 2023$(98) $(8,658) $(8,756) Foreign exchange- (11) (11) Balance at December 31, 2023$145 $15,475 $15,620 PropertyTotalEquipmentCostBalance at January 1, 2022$207 $25,737 $25,944 Disposals- (166) (166) Balance at December 31, 2022$207 $25,571 $25,778 Accumulated depreciationBalance at January 1, 2022$(114) $(6,201) $(6,315) Depreciation(46) (2,102) (2,148) Disposals- 125 125 Balance at December 31, 2022$(160) $(8,178) $(8,338) Foreign exchange- (11) (11) Balance at December 31, 2022$47 $17,382 $17,429 PropertyTotal
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are as follows:
13. BORROWINGS
As at and during the years ended December 31, 2023 and 2022, the Company was in compliance with all
banks’ and creditor’s covenants. The Company’s borrowings are as follows:
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CostBalance January 1, 2023$3,246 $1,000 $4,246 Balance December 31, 2023$3,246 $1,000 $4,246 AmortizationBalance January 1, 2023$(3,142) $(994) $(4,136) Amortization(104) (6) (110) Balance December 31, 2023$(3,246) $(1,000) $(4,246) Balance at December 31, 2023$- $- $- PPTBrandTotalCostBalance January 1, 2022$3,246 $1,000 $4,246 Balance December 31, 2022$3,246 $1,000 $4,246 AmortizationBalance January 1, 2022$(2,896) $(975) $(3,871) Amortization(246) (19) (265) Balance December 31, 2022$(3,142) $(994) $(4,136) Balance December 31, 2022$104 $6 $110 PPTBrandTotalAccounts payable$11,458 $27,043 Accrued liabilities3,731 8,186 Income tax payable- 142 $15,189 $35,371 December 31, 2023December 31, 2022Construction loans with BDC and FCC Note 13.1$56,824 $44,131 Debenture with warrants with MRCNote 13.214,631 13,477 Credit facilityNote 13.326,728 38,146 Borrowings, total$98,183 $95,754 Less current portionConstruction loans with BDC and FCC Note 13.1(2,748) (191) Debenture with warrants with MRCNote 13.2(14,631) - Borrowings, current$(17,379) $(191) Borrowings, non-current$80,804 $95,563 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
13.1 Construction loans with BDC and FCC
As of December 31, 2023 and 2022, the construction loans’ balances due to BDC and FCC are as follows:
13.1 (i) BDC/FCC - Agreements and financing transaction cost
In 2018, the Company completed a transaction with the Business Development Bank of Canada (“BDC”)
for a term loan facility (“Term Loan”) of up to $20.0 million. The purpose of the Term Loan is to assist in
the financing of new equipment for the first production line built in Delta, BC. The interest rate for the
Term Loan was 4.95% per annum over 12 years. Principal repayments were to commence on July 1, 2021
until the Term Loan maturity date of June 1, 2033.
In 2021, the Company completed a financing transaction by increasing the existing term loan to $45.0
million to fund the planned construction of a second production line at the Delta location. The financing
was provided by BDC and Farm Credit Canada (“FCC”) in a pari passu structure. Each lender would fund
50% of the $45.0 million total loan value. The existing borrowing capacity with BDC increased from $20.0
million to $22.5 million (“BDC Amended Term Loan”) and FCC would also fund $22.5 million (“FCC Term
Loan”). Upon closing of the transaction, the Company’s outstanding debt to each party, FCC and BDC, was
$10.0 million each where the fixed interest rates were 4.38% and 4.45%, respectively. FCC paid $10.0
million to BDC on the Company’s behalf to ensure that existing borrowings were restructured on a pari
passu basis.
Effective November 22, 2022, as the Company continued constructing its second production line in Delta,
BC, the Company entered into an amendment (the “Amended Senior Facility”) to the existing senior debt
facilities with BDC and FCC. Both lenders agreed to provide the Company with up to an additional $12.0
million, in total, of senior debt financing, at variable rates, funded equally between lenders.
Only interest will be paid on the outstanding balances monthly prior to July 1, 2024, for both the BDC and
FCC Term Loans. Principal repayments for both loans commence on July 1, 2024 and will be repaid in
monthly installments until both loans mature on June 1, 2034. Early principal repayment is available
subject to conditions.
The FCC Term Loans consist of a fixed term and a variable loan, where, until maturity, the fixed term loan
bears an interest rate of 4.38% and the variable loan bears an interest rate of the variable personal
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Current portionConstruction loans interest, current$288 $191 Construction loan with BDC, current, fixed 4.45%1,125 - Construction loan with FCC, current, variable 7.5%631 - Construction loan with FCC, current, fixed 4.38% 404 - Construction loan with BDC, current, variable 7.69%300 - $2,748 $191 Long term portionConstruction loan with BDC, non-current, fixed 4.45%21,375 22,173 Construction loan with FCC, non-current, variable 7.5%17,869 12,285 Construction loan with FCC, non-current, fixed 4.38% 9,596 10,000 Construction loan with BDC, non-current, variable 7.69%5,700 - Financing transaction costs(464) (518) $56,824 $44,131 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
property rate minus 0.75%. The BDC Term Loans consist of a fixed term and a variable loan, where, until
maturity, the fixed term loan bears an interest rate of 4.45%, while the variable loan bears an interest rate
of the variable BDC floating rate minus 1.5%.
The Company incurred financing transaction costs associated with the above loans. These costs are
recorded in non-current borrowings and amortized until the loan maturity date. As at December 31, 2023,
deferred financing transaction costs were $0.5 million (December 31, 2022: $0.5 million).
13.1 (ii) BDC/FCC - Borrowing capacity
After the amendments on November 22, 2022, the Company’s borrowing capacity with BDC and FCC
increased from $45.0 million to $57.0 million with the purpose of funding capital expansions in Delta. As
at December 31, 2023 and 2022, the Company’s available borrowings were as follows:
13.1 (iii) BDC/FCC - Finance expense and interest paid
For both lenders, interest is based on the outstanding loan balance and is paid monthly. Total interest
incurred on the BDC and FCC loans was $3.0 million, of which, the Company paid $2.9 million during the
year ended December 31, 2023 (2022: $0.8 million and $0.8 million). Of the incurred amount, a total of
$1.7 million was expensed and $1.3 million was capitalized in property, plant and equipment during the
construction of the second production line in Delta (2022: $0.9 million and $0.7 million). The year to date
BDC and FCC variable rate loan effective interest rates were 7.69% and 7.50% respectively (2022: nil and
4.04%). The finance costs and the effective interest rates are based on the average balance drawn on each
loan.
For the years ended December 31, 2023 and 2022 loan additions, interest charged, and interest paid were
as follows:
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Construction loan, BDC, fixed 4.45%$22,500 $22,500 Construction loan, BDC, variable BDC floating rate minus 1.5%6,000 6,000 Construction loan, FCC, fixed 4.38% 10,000 10,000 Construction loan, FCC, variable personal property minus 0.75%18,500 18,500 Gross borrowing capacity available$57,000 $57,000 Advances, from inception(57,000) (44,131) Available borrowing$- $12,869 December 31, 2023December 31, 2022Balance, open$44,131 $30,655 Additions12,542 13,690 Interest charged3,032 1,614 Interest paid(2,935) (1,532) Financing transaction costs additions- (320) Less amortization of financing transaction costs54 24 Balance, end$56,824 $44,131 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
13.1 (v) BDC/FCC - Security
The construction loans are secured by a general security agreement and a first security interest on all
existing equipment and machinery plus new equipment and machinery financed with the construction
loans for both BDC and FCC. Seaforth provided a guarantee for construction loans to both BDC and FCC.
13.2 Debenture with warrants with MRC
The debenture with warrants consists of the principal amount due to Mill Road Capital LLC (“MRC”), a
related party, and accrued interest, net of an unamortized bond discount. As at December 31, 2023 and
2022, the debenture with warrants is as follows:
13.2 (i) MRC – Agreements and financing transaction cost
In 2016, the Company issued an unsecured subordinated convertible debenture to MRC for gross proceeds
of $15.0 million. The convertible debenture maturity date was October 11, 2023. The Company paid
financing transaction cost of $0.5 million in respect of issuing the convertible debenture. Until the debt
extinguishment on July 20, 2021, the Company used the residual value method to allocate the fair value
of the convertible debenture between the liability component and the derivative liability.
In 2021, Swiss Water amended the convertible debenture agreement with MRC to a debenture with
warrants. Under the new terms of the agreement, the maturity date was extended by one year from
October 11, 2023, to October 31, 2024. The other amended terms were: (i) the interest rate increased
from a maximum of 7.85% to 9%, (ii) a 1.5% additional interest in kind was added, and (iii) the debt to
shares conversion feature was amended. The debt to shares conversion was amended by (a) cancelling
the existing conversion feature and (b) replacing the existing conversion feature with warrants to allow
MRC to purchase up to 2.25 million common shares at a price of $3.33 per share. The warrants expire on
October 31, 2024. This amendment was accounted for as an extinguishment of debt and a new debenture
with warrants was established. The Company incurred financing transaction cost of $0.2 million associated
with the amendment in 2021.
Effective November 22, 2022, Swiss Water amended the debenture with warrants agreement to (i) expand
on the Senior Debt restricted covenant, where select liabilities are considered; (ii) allow Swiss Water a
right to prepay the principal, and (iii) add security on the debenture. The original principal of $15.0 million
and the maturity date of October 31, 2024, remain the same. Also, the interest on the debenture remains
unchanged at 9% paid quarterly plus 1.5% interest in kind accrued quarterly. Meanwhile, the warrant
agreement to issue 2.25 million warrants, with an exercise price of $3.33 was amended (i) to extend the
maturity date from October 31, 2024, to April 30, 2026; and (ii) to add a cashless exercise option whereby
MRC may elect to receive, upon exercise, such number of shares that is equal to the difference between
the $3.33 exercise price and the fair market value of the shares at the time of exercise. This amendment
was accounted for as an extinguishment of debt and a new debenture with warrants was established.
3 3 | P a g e
Principal amount due to MRC, 9%+1.5%$15,000 $15,000 Unamortized bond discount(929) (1,853) Accrued interest560 330 $14,631 $13,477 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
13.2 (ii) MRC – Finance expense and interest paid
The debenture with warrants interest rate is 9% per annum, paid quarterly in arrears. The 9% is subject to
reaching a specific covenant threshold, in excess of this, the interest rate increases to 12.5 % per annum.
The Company also incurs an additional 1.5% interest in kind, which accrues quarterly and is due at the
maturity date. For the year ended December 31, 2023 and 2022, interest expensed and paid on debt due
to MRC was as follows:
13.2 (iii) MRC – Embedded option within the debenture with warrants
Effective November 22, 2022, the amended debenture with warrants contains an embedded option,
where if MRC were to elect, it would result in fewer than the maximum of 2.25 million of common shares
being issued upon the exercise of the warrants. This embedded option is a financial liability revaluated at
each reporting date. As at December 31, 2023, the Company determined the fair value of the embedded
option to be $1.4 million (December 31, 2022: $1.4 million). For the year ended December 31, 2023, this
revaluation resulted in a gain of $0.1 million (2022: $0.5 million).
The fair value of the embedded option was determined using the Black-Scholes option pricing model. The
variables and assumptions used in computing the fair value are based on management’s best estimate.
The inputs to the Black-Scholes option pricing model are as follows:
13.2 (iv) MRC – Security
Effective November 22, 2022, the debenture with warrants is secured by a secondary general security
agreement, after primary lenders ranking senior to MRC for the construction loans and credit facility, over
all Swiss Water present and newly acquired personal property and proceeds. Prior to this, the debenture
with warrants was unsecured.
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Balance, open$13,477 $12,890 Remeasurement of liability component of debenture with warrants- (307) Interest charged for debenture with warrants2,541 2,261 Interest paid on debenture with warrants(1,387) (1,367) Balance, end$14,631 $13,477 December 31, 2022December 31, 2023Share price $ 2.78 $ 2.31 Exercise price $ 3.33 $ 3.33 Option life2.33 years3.33 yearsVolatility42%49%Risk-free interest rate3.91%4.07%Dividend yield0.00%0.00%Fair value of embedded option1,353$ 1,429$ December 31, 2022December 31, 2023
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
13.2 (v) MRC – Gain on extinguishment of debt
During the year ended December 31, 2022, the Company renegotiated its debenture agreements with
MRC and recorded the following gain on the extinguishment of debt. The Company incurred financing
transaction cost of $0.2 million associated with the amendment in 2022. There was no such renegotiation
in 2023.
13.3 Credit Facility with a Canadian Bank
As at December 31, 2023 and 2022, the Credit Facility (defined below) due to a Canadian Bank comprises:
13.3 (i) Credit Facility - Agreements and financing transaction cost
In 2019, Swiss Water entered into a revolving credit facility agreement (“Credit Facility”), with a Canadian
Bank, for borrowings up to the lower of the Borrowing Base (defined below) and $30.0 million.
Effective November 22, 2022, the available credit was increased from $30.0 million to $45.0 million with
the purpose of supporting operations and growth. In tandem, this Credit Facility lending provided
additional lending of up to $6.25 million credit facility through Export Development Canada (“EDC”), as
discussed below. The maturity date of October 18, 2022, was extended to the earlier of October 19, 2025
or an event triggering default. The Company is not required to repay any balance outstanding until
maturity, as long as the outstanding balance is not in excess of the Borrowing Base.
The Company incurred deferred financing transaction cost associated with the above loan. These costs
are recorded in non-current borrowings and amortized until the loan maturity date. As at December 31,
2023 deferred financing transaction cost were $0.1 million (December 31, 2022: $0.3 million).
13.3 (ii) Credit Facility - Finance expense and interest paid
The Credit Facility has multiple interest rate options that are based on the Canadian Prime Rate, Base Rate,
LIBO Rate, Bankers’ Acceptance Rate plus an acceptance fee, in addition to an applicable margin for each
of these rates. Fees apply to outstanding letters of credit and the unused portion of the Credit Facility. The
year to date Credit Facility variable rate loan effective interest rate was 6.94% (2022: 4.37%).
3 5 | P a g e
Professional fees$- $(222) Extinguishment of equity component of debenture with warrants- 2,439 Extinguishment of liability component of debenture with warrants- (1,634) $- $583 December 31, 2022December 31, 2023Credit Facility with effective interest rate of 6.94%, 4.37%$26,858 $38,414 Less unamortized financing transaction costs(130) (268) $ 26,728$ 38,146December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
For the year ended December 31, 2023 and 2022 loan advances, repayments, and fees and interest
charged were as follows:
13.3 (iii) Credit Facility - Security
The Company has pledged substantially all of its assets, except for assets pledged to BDC and FCC, as
collateral for the Credit Facility, including a first priority security interest over all inventory, accounts
receivable, excess margin and gains on the commodity hedging account, gains in the foreign exchange
contract facility and other assets of the Company.
13.3 (iv) Credit Facility - Borrowing base
The Credit Facility’s Borrowing Base margins the Company’s eligible inventories and accounts receivable,
commodity hedging account equity margin plus its mark-to-market gains, which are netted against any
losses in the commodity hedging account and foreign exchange contract facility. Amounts can be drawn
in either Canadian or US dollars and can be borrowed, repaid, and re-borrowed to fund operations, capital
expansions, letters of credit, and for general corporate purposes.
As at December 31, 2023 and 2022, the Company’s borrowing availability is as follows:
13.3 (v) Credit Facility - Foreign exchange and commodity futures contract facilities
As part of the Credit Facility, the Company has a US$8.0 million foreign exchange and commodity futures
contract facility, which allows the Company to enter into spot, forward, and other foreign exchange rate
transactions and commodity futures transactions with the Canadian Bank with a maximum term of up to
60 months.
13.4 Credit Facility with EDC
Effective November 22, 2022, the Company entered into a revolving credit facility agreement with EDC
(the “EDC Credit”) for borrowings of up to $6.25 million. The EDC Credit is to be used for the purpose of
providing additional liquidity to finance the Company’s operations, should it be needed. The lender of the
above-mentioned Credit Facility with a Canadian Bank is the administrative agent for the EDC Credit and
3 6 | P a g e
Balance, open$38,146 $23,307 Advances3,400 15,100 Repayments(17,500) (1,500) Fees and interest charged2,544 1,402 Financing transaction costs- (268) Amortized financing transaction costs138 105 Balance, end$26,728 $38,146 December 31, 2023December 31, 2022Gross borrowing base availability$28,912 $45,000 Advances, repayments, fees and interest from inception(26,858) (38,414) Outstanding letter of credit and security lien bond(537) (837) Interests and fees accrued 180 212 $ 1,697$ 5,961December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
all security and guarantees held by the lender of the Credit Facility as security for the Credit Facility are
also held as security for the EDC Credit. Amounts drawn on the EDC Credit bear interest at the Canadian
Prime Rate plus 1.5% per annum. The EDC Credit is subject to certain fees. The EDC Credit facility will
terminate on the earliest of: (i) demand by the lender of the Credit Facility for repayment, (ii) the second
anniversary of the effective date of November 22, 2024, and (iii) the maturity date under the Credit Facility.
The lender of the Credit Facility may in its sole discretion, renew the EDC Credit for a maximum of five
successive one-year periods after the first anniversary of the effective date. As at December 31, 2023, no
amounts were drawn on EDC Credit (2022: nil).
13.5 Foreign exchange facility guarantee with EDC
On June 1, 2020, the Company entered into a foreign exchange facility guarantee with EDC to cover margin
requirements in relation to the foreign exchange contract facility. On August 4, 2020, the Company’s
Credit Facility lender amended the Credit Facility to recognize the foreign exchange facility guarantee
provided by EDC. The facility guarantees a maximum aggregate liability of up to $6.0 million and it is valid
until May 31, 2024. This guarantee provides additional borrowing capacity within the abovementioned
Credit Facility with a Canadian Bank.
14.
INCOME TAXES
14.1
Income tax recovery and expense
Swiss Water has $69.8 million non-capital tax losses carry forward, in Canada, as of the end of December
31, 2023, which will begin to expire in 2039. For the year ended December 31, 2023, tax expense on other
comprehensive income related to hedging activities was $0.4 million (2022: $0.06 million tax recovery).
The current and deferred income tax expense (recovery) is as follows:
14.2
Income tax receivable and income tax payable
As at December 31, 2023 income tax receivable was $0.2 million (2022: $0.1 million income tax payable).
In 2022, current tax payable was included within ‘Accounts payable and accrued liabilities’ on the
Statement of Financial Position.
14.3 Reconciliation
Income tax expense for the year can be reconciled to the accounting profit as follows:
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Current income tax (recovery) expense $(92) $36 Deferred tax expense88 783 Income tax (recovery) expense $(4) $819 December 31, 2023December 31, 2022Statutory rate27%27%Income before tax$(524) $3,206 Income tax calculated at applicable tax rates$(141) $866 Non-deductible expenses142 (43) Foreign tax rate differential(5) (4) Income tax (recovery) expense $(4) $819 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
14.4 Deferred income tax assets (liabilities)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets and liabilities and when the deferred tax balances relate to the same taxation authority. The
movement in deferred income tax assets and liabilities during the year was as follows:
15. OTHER LIABILITIES
Other liabilities balances represent the fair value of the deferred share units (“DSUs”) and the cash-settled
portion of the restricted share units (“RSUs”), and are outstanding as follows:
16. LEASE LIABILITIES
16.1 Lease liabilities
Lease liabilities are as follows:
The Company leases the following:
Swiss Water leases a build-to-suit production facility in Delta. The lease can be renewed at the
Company’s option in five-year increments up to a total of 30 years. The lease commenced in July 2018.
Under the lease, the Company has multiple options to buy out the lease starting at the end of the
second five-year term. The buy-out value will be equal to the fair market value of the property as
determined by an appraisal process, subject to specified maximum and minimum values. In 2022, the
Company exercised its first lease renewal option, which will expire in July 2028.
During the year ended December 31, 2023, the property lease for the production facility in Burnaby
expired and the Company returned the leased property to the landlord. Refer to note ‘Property plant
and equipment’ (Note 10) for additional information related to the expiry of this lease.
3 8 | P a g e
Goodwill and intangibles Property plant and equipment Financing issuance costs and other ARO Lease Liability Share based compen-sation Derivatives liability and convertible debenture Debenture with warrants Other compre-hensive income Tax Losses Total Balance at January 1, 2022692$ (18,874)$ 401$ 516$ 5,862$ 154$ (1,247)$ (597)$ (319)$ 8,217$ (5,195)$ To income tax expense11 251 (70) 612 (482) 53 2,017 483 - (2,874) 1 To equity- - - - - - - - 575 - 575 Balance at December 31, 2022703$ (18,623)$ 331$ 1,128$ 5,380$ 207$ 770$ (114)$ 256$ 5,343$ (4,619)$ Balance at January 1, 2023703$ (18,623)$ 331$ 1,128$ 5,380$ 207$ 770$ (114)$ 256$ 5,343$ (4,619)$ To income tax expense(24) (13,205) 273 (92) (414) 119 (466) 228 - 13,493 (88) To equity- - - - - - - - (433) - (433) Balance at December 31, 2023679$ (31,828)$ 604$ 1,036$ 4,966$ 326$ 304$ 114$ (177)$ 18,836$ (5,140)$ Other liabilities, current$1,141 $554 Other liabilities, non-current64 208 $ 1,205$ 762December 31, 2023December 31, 2022Lease liabilities, current$1,681 $1,671 Lease liabilities, non-current16,712 18,256 $18,393 $19,927 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Seaforth leases a warehouse in Delta and the lease expires in June 2027. The Company has two options
to renew the lease for an additional term of five years each.
During the year ended December 31, 2023, a lease for a truck expired and the Company entered into
a new lease for a truck, which will expire in February 2028. The total value of lease liabilities added
was $0.2 million. There was no such transaction in 2022. Refer to Note 10 for details.
Swiss Water leases various office equipment with expiring dates of October 2024 and January 2025.
SWEU leases a sales office in France which expires in October 2027.
16.2 Amounts recognized in the consolidated statement of (loss) and income and the consolidated
statement of cash flows
From the total of lease cash payments, the portion relating to finance expense is recognized in the
operating activities while the principal portion of lease payments is recognized in the financing component
on the consolidated statement of cash flows.
The amounts recognized in the consolidated statement of (loss) and income and consolidated statement
of cash flows are as follows:
16.3 Minimum lease payments
As at December 31, 2023, the minimum payments under lease liabilities are as follows:
17. ASSET RETIREMENT OBLIGATION (“ARO”)
The Company estimates that the total undiscounted amount of cash flows required to settle its ARO is
approximately $6.0 million, all of which is allocated to the Delta location. As at December 31, 2023, the
Company recorded a total of $3.8 million (2022: $4.2 million), reflecting the present value of the ARO
using a risk-free rate of 3.06% (2022: between 3.28% and 4.02%).
In June 2023, the lease for the Burnaby location concluded and the property was fully restored and
returned to the landlord, as per contractual terms. Of the estimated $1.5 million ARO for the Burnaby
3 9 | P a g e
Balance, open$19,927 $21,719 Additions146 - Remeasurement8 - Terminations(7) - Finance expense955 1,033 Lease cash payments(2,638) (2,776) Foreign exchange2 (49) Balance, end$18,393 $19,927 December 31, 2023December 31, 2022No later than 1 year$2,558 Later than 1 year and no later than 5 years7,881 Later than 5 years49 $10,488 December 31, 2023
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
location, the actual aggregate cost and payments, made during 2022 and 2023, were $1.3 million as per
table below. The remainder of Burnaby’s ARO balance was written off to other gains. During the year
ended December 31, 2023, the Company recognized, in the consolidated statement of (loss) and income,
other gains totaling $0.2 million, which is the unused portion of the ARO for the Burnaby location (2022:
nil). During the years ended December 31, 2022 and 2023, ARO transactions were as follows:
18. SHARE CAPITAL
18.1 Common shares
Swiss Water is authorized to issue an unlimited number of common shares without par value. Each share
is equally eligible to receive dividends when declared and represents one vote at meetings of shareholders.
As at December 31, 2023, there were 9,212,955 common shares issued and outstanding.
18.2 Preferred shares
On May 9, 2022, at the Annual and Special Meeting of Shareholders, the Shareholders approved the
amendment to the Articles of Amalgamation of the Company to create two new classes of shares, Class A
Preferred Shares and Class B Preferred Shares.
As at December 31, 2023, there were nil preferred shares issued and outstanding.
18.3 Warrants
In 2021, the Company issued 2.25 million warrants to MRC. Each warrant was exercisable for one common
share at a price of $3.33, expiring on October 31, 2024. The warrant's initial value was recorded as a
component of equity and subsequently was not remeasured.
Effective November 22, 2022, the debenture with warrants agreement was amended to (i) extend the
maturity date of the warrants from October 31, 2024, to April 30, 2026, and (ii) provide for a cashless
exercise whereby MRC may elect to receive, upon exercise, such number of shares that is equal to the
difference between the $3.33 exercise price and the fair market value of the shares. There was no change
to the number of shares issuable under the agreement or the exercise price of the warrants. As the
agreement now allows for a cashless option for a variable number of shares, the warrants were reclassified
from equity to financial liability. Refer to Note 13.2(iii) for further details.
As at December 31, 2023 and 2022 these 2.25 million warrants continue to be issued and outstanding with
an exercise price of $3.33, maturing on April 30, 2026. As at December 31, 2023, the remaining weighted
average life of warrants is 2.33 years (2022: 3.33 years).
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Balance, open$4,180 $1,911 Remeasurement recognized in other gains(175) - Remeasurement recognized in property plant and equipment905 2,389 Payments(1,174) (164) Accretion103 44 Balance, end$3,839 $4,180 Less current portion- (1,334) Balance, non-current$3,839 $2,846 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
18.4 Restricted share units
The Company has an RSU plan that allows it to grant RSUs to officers, employees, and consultants of Swiss
Water or its subsidiaries. The RSU plan is administered by the Board of Directors, which sets the terms of
incentive awards under the RSU plan. On May 9, 2022, Swiss Water shareholders approved an increase
in the number of common shares available for issuance under the RSU plan. The increase was from a
maximum of 815,509 common shares to a maximum of 1,115,509 common shares. All RSU grants vest on
the third anniversary of issuance provided the grant recipient is still employed by Swiss Water or one of
its subsidiaries as at the date of vesting. Grants are forfeited if a recipient is no longer employed by Swiss
Water or one of its subsidiaries. Upon vesting, each RSU converts to one common share. These grants
allow participants to receive up to 50% of the market value of the award in cash (instead of shares) upon
vesting, in order to facilitate payment of taxes owing on the awards. Any RSUs paid in cash are returned
to the pool and may be re-issued, subject to the maximum number of common shares available under
RSU.
Periodically, the Company grants RSUs, some of which are performance RSUs, and others are non-
performance RSUs. Both non-performance and performance RSUs vest over time on the third anniversary
of their grant. Performance based RSUs are subject to meeting additional performance objectives
specified by the Board of Directors.
Each award is increased by the value of dividends paid to shareholders during the vesting period, using a
formula that uses the higher of the then-current share price and $3.20. The Company values the RSUs
using the volume based weighted average share price (“VWAP”). VWAP is based on the Canadian dollar
trading price of the Company’s common shares on the Toronto Stock Exchange for the five trading days
immediately preceding that relevant date, calculated by dividing the total value by the total volume of
common shares traded, according to the RSU plan.
The movement in RSUs was as follows:
4 1 | P a g e
Volume based Average remaining weighted average vesting period PerformanceNumber of RSUsshare pricein years basedBalance at January 1, 2022439,747 $3.07 1.56 RSUs granted63,000 $2.25 2.13 NoRSUs granted - performance158,300 $2.63 1.21 YesRSUs cash-settled(50,164) $3.14 - NoRSUs exercised(36,142) $5.11 - NoBalance at December 31, 2022574,741 $2.55 1.11 Balance at January 1, 2023574,741 $2.55 1.11 RSUs granted95,000 $2.48 2.12 NoRSUs granted - performance158,300 $2.42 0.21 YesRSUs cash-settled(64,001) $2.69 - NoRSUs exercised(47,140) $2.95 - NoBalance at December 31, 2023716,900 $2.19 0.54
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
18.5 Deferred share units
The Company has a DSU plan in order to issue DSUs to participants of Swiss Water. The DSU plan was
adopted to allow participants the opportunity to defer compensation and encourage a sense of ownership
in Swiss Water. Under the DSU plan, participants may elect to defer compensation and receive DSUs equal
to the value of the deferred compensation.
The first DSUs were issued in April 2012. The number of DSUs was determined by dividing the amount of
deferred compensation by the fair market value (“FMV”). The FMV of DSUs is defined in the DSU plan as
the weighted average closing price of Swiss Water shares for the five business days immediately preceding
the relevant date.
Upon the occurrence of a redemption event, the affected participant will be entitled to receive a lump
sum cash payment, net of applicable withholding taxes, equal to the product of the number of DSUs held
by that participant and the FMV on the date of the redemption event. The DSUs do not contain any vesting
conditions or forfeiture provisions, as they are issued in exchange for deferred compensation.
Under the DSU plan, outstanding DSUs as at the record date are increased by the dividend whenever
dividends are paid to shareholders. The movement in DSUs was as follows:
19. REVENUE
The following are disaggregation of revenue and contract balances related to contracts with customers.
Details on contracts with customers, disaggregation, judgements, performance obligations, transaction
price, and timing of satisfaction of performance obligation are outlined in the Accounting policies under
‘Revenue recognition’. Related credit risk and customer concentration are discussed in the Note on
‘Financial risk management’, under ‘Credit risk’.
4 2 | P a g e
Weighted average PerformanceNumber of DSUs share pricebasedBalance at January 1, 202299,861 3.11$ DSUs issued 85,590 2.83$ NoBalance at December 31, 2022185,451 2.31$ Balance at January 1, 2023185,451 2.31$ DSUs issued 81,330 2.66$ NoDSUs redeemed(32,120) 2.76$ NoBalance at December 31, 2023234,661 2.78$
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
19.1 Disaggregation of revenue
Revenue disaggregated by geographical markets is disclosed in Note 24 under segment reporting. The
Company also disaggregates revenue by major products and services: decaffeinated coffee sales,
decaffeination services, and distribution with the following results for the years ended December 31, 2023
and 2022 as follows:
19.2 Contract balances
As at December 31, 2023, the accounts receivable balance of $19.1 million (2022: $20.7 million) consists
of amounts due from customer contracts and reflects the Company’s right to a consideration that is
unconditional. Provision for expected credit loss included in accounts receivable balance as at December
31, 2023 was $0.1 million (2022: $0.1 million). As at December 31, 2023 there were no liabilities related
to contracts with customers, while in 2022, $0.3 million of deferred revenue, related to cash received in
advance of deliveries, was included in accrued liabilities. During both years ended December 31, 2023 and
2022 there were no significant changes in the contract assets and contract liabilities balances. The
Company did not have other contract assets or liabilities from contracts with customers.
20. EMPLOYEE BENEFITS EXPENSES
Expenses recognized for employee benefits are detailed below:
Short-term benefits comprise salaries, accrued bonuses, benefits, and director fees. Long-term benefits
comprise share-based compensation under the RSU plan and the DSU plan.
Post-employment benefits are contributions to employee retirement accounts, as well as statutory
remittances related to post-employment benefits. These are recognized as an expense when employees
have rendered service entitling them to the contributions.
21. RELATED PARTY TRANSACTIONS
The Company’s related parties include its subsidiaries, key management personnel, and a company related
to a director. Details of transactions between the Company and related parties (other than its subsidiaries
identified in Note 1, Nature of Business) are discussed below. All intercompany transactions, balances,
income, and expenses are eliminated on consolidation.
4 3 | P a g e
Decaffeinated coffee sales$144,118$153,128Decaffeination services10,13811,350Distribution12,02112,457$166,277$176,935December 31, 2023December 31, 2022Short-term benefits$12,353 $12,566 Long-term benefits597 477 Post-employment benefits1,185 1,080 $14,135 $14,123 December 31, 2022December 31, 2023
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
21.1 Compensation of key management personnel
During the year ended December 31, 2023, $0.4 million of RSU key management personnel remuneration
that was directly related to the construction of Delta equipment was added to the property plant and
equipment (2022: $nil).
The remuneration of directors and key management personnel included in the consolidated statement of
(loss) and income for the years ended December 31 2022 and 2023 was as follows:
21.2 Trading transactions
During the year, the Company entered into the following transactions with a company that is related to a
director of the Company:
As at December 31, 2023, the Company had the following balances receivable from and payable to a
company that is related to a director:
These transactions were in the normal course of operations and were measured at the fair value of the
consideration or receivable, which was established and agreed to by both parties.
21.3 Employee Loans
On October 26, 2021, the Company and a member of key management entered into a promissory note in
the amount of $0.07 million. For as long as the borrower remains an employee, the obligation to repay
the principal is forgiven against current and future awards under the RSU plan, by forfeiture of awards.
The loan is interest free other than in the event of default, in which case the promissory note would bear
simple interest at a rate of 10% per annum. As at December 31, 2023, the loan balance of $0.01 million
was included in other current receivables (2022: $0.04 million in non-current receivables).
21.4 Debenture with warrants
MRC is a shareholder of Swiss Water, and under the terms of the debenture with warrants agreement,
MRC added their senior executive to Swiss Water’s Board of Directors. As a holder of the debenture with
warrants, MRC has the right to exercise the warrants and obtain an additional 2.25 million shares of Swiss
Water. As such, MRC is considered a related party. Refer to the Borrowings under the subheading ‘MRC –
Debenture with warrants with MRC’ for this related party disclosure.
4 4 | P a g e
Short-term benefits$2,150 $2,260 Long-term benefits443 348 Post-employment benefits280 249 $2,873 $2,857 December 31, 2022December 31, 2023Sales$1,078 $1,728 Purchases of raw materials$6,705 $9,007 December 31, 2023December 31, 2022Accounts receivable$5 $3 Accounts payable$1,074 $2,170 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
22. BASIC AND DILUTED EARNINGS PER SHARE (“EPS”)
The Company presents basic and diluted EPS for its common shares. Basic EPS is calculated by dividing
income or loss attributable to shareholders of the Company by the weighted average number of common
shares outstanding during the reporting period. Diluted EPS is calculated by dividing income or loss
attributable to shareholders of the Company by the weighted average number of common shares
outstanding, adjusted for the effects of all dilutive potential common shares. The weighted average
number of shares outstanding on a diluted basis takes into account the additional shares for the assumed
exercise of RSUs and warrants, if dilutive. The number of additional shares is calculated by assuming that
outstanding warrants were exercised and that the proceeds from such exercises were used to acquire
common stock at the average market price during the reporting period. When the effects of a potential
issuance of shares under warrants and RSUs would be anti-dilutive, basic and diluted loss per share are
the same.
Basic and dilutive earnings per share are as follows:
Potential common shares are anti-dilutive when their conversion to common shares increases earnings
per share or decreases loss per share from continuing operations. Anti-dilutive potential common shares
are excluded from the weighted average number of shares outstanding for the purposes of calculating the
diluted earnings per share. The following potential common shares are anti-dilutive in one or more periods
and are therefore excluded from the weighted average number of common shares outstanding for the
purposes of calculating the diluted earnings per share:
23. SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include cash on hand, other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
4 5 | P a g e
Basic and diluted (loss) earnings per shareNet (loss) income and diluted net (loss) income attributable to shareholders$(528) $2,387 Weighted average number of shares, basic and diluted9,206,368 9,158,161 Basic and diluted (loss) earnings per share$(0.06) $0.26 December 31, 2023December 31, 2022Weighted average number of RSUs granted668,232 442,511 Weighted average number of Warrants issued2,250,000 2,250,000 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Changes in non-cash working capital are as follows:
Cash and non-cash transactions recognized within operating activities are as follows:
During the year ended December 31, 2023, Swiss Water paid $1.2 million related to asset
retirement obligation to restore its legacy Burnaby leased property (2022: $0.2 million). Once the
Company satisfied its obligation to restore the Burnaby location and returned the property to the
landlord, the Company wrote off the remainder of the asset retirement obligation and recognized
a $0.2 million gain. (2022: nil). This gain is a non-cash item affecting operating activities.
During the year ended December 31, 2023, $0.1 million in cash was paid to settle RSUs, while $0.1
million was paid to settle DSUs (2022: $0.1 for RSUs and nil for DSUs).
During the prior year ended December 31, 2022, $0.1 million of non-cash Scientific Research and
Development tax credit was recorded in the administrative expenses. There was no such
transaction during the year 2023.
During the year ended December 31, 2023 and 2022, lease payments for short-term leases and
leases of low value, which are not included in the measurement of the lease liability are classified
as cash flows from operating activities.
Cash and non-cash transactions affecting operating and investing activities are as follows:
During the year ended December 31, 2023, $1.3 million of cash interest payments on construction
loans was added to property, plant and equipment (2022: $0.7 million).
During the year ended December 31, 2023, $0.9 million of non-cash asset retirement obligation
for the Delta leased property was added to property, plant and equipment (2022: $2.4 million).
During the year ended December 31, 2023, $0.4 million of non-cash share based compensation
related to the construction of the production facility in Delta was added to property, plant and
equipment (2022: nil).
As at December 31, 2023, $0.2 million in additions to property, plant and equipment were
recorded in accounts payable and accrued liabilities (2022: $6.2 million). These transactions did
not require the use of the Company’s cash.
4 6 | P a g e
Accounts receivable$1,772 $(6,722) Inventories37,213 (36,091) Other assets and liabilities(197) 57 Prepaid expenses and other receivables196 (163) Accounts payable and accrued liabilities(13,612) 16,681 Payments for asset retirement obligation(1,174) (164) Derivative assets, liabilities and hedged firm commitments at fair value through profit and loss(5,725) 11,796 $18,473 $(14,606) December 31, 2022December 31, 2023
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
As at December 31, 2023, $0.3 million of depreciation on manufacturing equipment was included
in inventory (2022: $0.6 million). This is a non-cash item within operating and investing activities.
Cash and non-cash transactions affecting operating and financing activities are as follows:
During the prior year ended December 31, 2022, the Company incurred $0.8 million in financing
transaction costs related to the renegotiation of the Company’s borrowings. Of these costs, the
Company paid $0.4 million by December 31, 2022, while the remainder, $0.4 million, was paid
during year ended December 31, 2023.
During the prior year ended December 31, 2022, $0.6 million in non-cash gains were recognized
on extinguishment of debt. There was no such transaction during the year 2023.
During the year ended December 31, 2023 and 2022, the Company has classified the interest
portion of lease payments within operating activities and the principal portion within financing
activities.
Other cash and non-cash transactions:
During the year ended December 31, 2023, $0.4 million in cash was received from a utility
company for installing energy saving machinery and the Company recognized this refund within
the property plant and equipment. In the prior year 2022, the Company received $1.4 million in
cash reimbursement from vendors. These transactions are a part of investing activities.
During the year ended December 31, 2023, Swiss Water leased a new truck and $0.2 million of
right-of-use assets were added to leased liabilities (2022: $nil). This non-cash item affects
financing and investing activities.
24. SEGMENT REPORTING
The Company’s sales are primarily generated by the decaffeination of the green coffee segment and in
three geographic areas: Canada, the United States, and other international markets. The Company’s
revenue from external customers and its non-current assets (excluding deferred tax assets), by location,
are detailed below.
24.1 Non-current assets (excluding deferred taxes)
Non-current assets, excluding deferred taxes, are in the following geographic segments:
4 7 | P a g e
Canada$136,424 $128,341 United States12 22 Europe99 125 $136,535 $128,488 December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
24.2 Revenue
Revenue is primarily generated from a single business segment of decaffeination of green coffee beans.
Management examines revenue from the sale of coffee and services provided to customers who are
located in the following geographic regions:
24.3 Impairment
As disclosed in the ‘Property, plant and equipment’ note, during the year ended December 31, 2022, the
Company recognized a $2.5 million impairment of plant and equipment. These assets are located in
Canada. There was no such impairment in 2023.
25. FINANCIAL RISK MANAGEMENT
The Company’s risk management program focuses on the unpredictability of commodity prices and
foreign exchange rates and seeks to minimize potential adverse effects on the Company’s financial
performance and cash flows. The Company uses derivative financial instruments to hedge these risk
exposures. In addition, the Company monitors other financial risks on a regular basis.
Risk management is carried out under policies approved by the Board of Directors. The Company’s
exposure to and management of financial risks is discussed in more detail below.
25.1 Commodity price risk hedges on purchase commitments and inventory
Commodity price risk is the risk that the fair value of inventory will fluctuate as a result of changes in
commodity prices. The Company utilizes futures contracts to manage its commodity price exposure. The
Company buys and sells futures contracts for coffee on the Intercontinental Exchange in order to offset
its inventory position and fix the input cost of green coffee.
As at December 31, 2023, the Company had futures contracts to buy 9.3 million lbs of green coffee with a
notional value of US$17.1 million, and contracts to sell 13.8 million lbs of green coffee with a notional
value of US$25.5 million. The furthest contract matures in December 2024 (2022: buy 16.8 million lbs of
green coffee with a notional value of US$27.1 million, and contracts to sell 26.8 million lbs of green coffee
with a notional value of US$43.4 million). An estimated 1% decrease in the mark-to-market rate applied
to coffee futures would have resulted in an estimated gain of $0.1 million to the net income before tax,
and vice versa.
4 8 | P a g e
Canada$48,086$45,400United States83,64286,160International and other34,54945,375$166,277$176,935December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
The following tables provide a summary of commodity hedges designated as hedging instruments:
25.2 Foreign exchange currency risk hedges
The Company realizes a significant portion of its revenues in US$ and purchases green coffee in US$ which
is, in some cases, sold to customers in Canadian dollars. The Company enters into forward foreign
currency contracts to manage its exposure to currency rate fluctuations and to minimize the effect of
exchange rate fluctuations on business decisions. These contracts relate to the Company’s future net cash
flows in US$ from sales. In addition, the Company enters into forward contracts to buy US$ for coffee
that it resells in Canadian dollars.
As at December 31, 2023, the Company had forward currency contracts to buy US$9.9 million and sell
US$51.3 million (2022: buy US$7.1 million and sell US$54.8 million) from January 2024 through to January
2027 at various Canadian exchange rates ranging from $1.28 to $1.38. An estimated CAD 1 cent decrease
in the value of US$ would have resulted in an estimated gain of $0.3 million to the net income and other
comprehensive income before tax, and vice versa.
The following tables provide a summary of amounts related to foreign currency forward contracts
designated as hedging instruments. Not included in the tables below are fair value changes for swap and
other contracts, as these are not designated hedge instruments.
Currency risk hedges related to US$ sales
As at December 31, 2023, the Company designated as hedging instruments US$51.3 million in forward
contracts to sell US dollars, which relate to highly probable forecasted sales revenue (2022: US$40.2
million).
4 9 | P a g e
Carrying amount of hedging instrumentsFair value hedgeNominal amount of hedging instruments (in US$'000)$8,396 $16,267 hedging instrument is located Derivative Assets$1,273 $3,288 Changes in fair value used for calculating hedge ineffectiveness- - Fair value hedgeand coffee inventoryand coffee inventoryNominal amount of hedged item (in '000 lbs)4,489 10,045 Inventories & hedgedInventories & hedgedhedged item is located firm commitmentsfirm commitmentsAssets $ 1,226 $ 1,056 Liabilities 569 8,014 Changes in fair value used for calculating hedge ineffectiveness - - December 31, 2022Commodity price risk Coffee futuresCommodity price risk Coffee futuresDecember 31, 2022Purchase commitments Line items in the statement of financial position where December 31, 2023Purchase commitments Line item in the statement of financial position where Accumulated amount of fair value hedge adjustment on hedged item included in the carrying amount of the hedged items December 31, 2023
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
Currency risk hedges related to US$ purchases
As at December 31, 2023, the Company designated as hedging instruments US$5.8 million in forward
contracts to buy US dollars, which relate to coffee purchases (2022: US$7.1 million).
5 0 | P a g e
Carrying amount of hedging instrumentsCashflow hedgeNominal amount of hedging instruments (in US$'000)$51,310 $40,205 hedging instrument is located Derivative Assets$864 $67 Derivative Liabilities265 1,072 - - Changes in fair value used for calculating hedge ineffectivenessLine items in the statement of financial position where December 31, 2023December 31, 2022Currency riskForeign currency forwardsCurrency riskForeign currency forwardsCashflow hedgeNominal amount of hedged item (in US$'000)$ 51,310 $ 40,205 Accumulated other Accumulated other hedged item is located comprehensive incomecomprehensive incomeAssets $ n/a $ n/a Liabilities n/a n/a Changes in fair value used for calculating hedge ineffectiveness - - Cashflow hedge reserve 599 (1,005)Line items in the statement of financial position where Accumulated amount of fair value hedge adjustment on hedged item included in the carrying amount of the hedged items December 31, 2023December 31, 2022Currency riskForeign currency forwardsCurrency riskForeign currency forwardsCarrying amount of hedging instrumentsFair value hedgeForeign currencyForeign currency purchase forwards purchase forwardsNominal amount of hedging instruments (in US$'000)$5,844 $7,124 Line item in the statement of financial position where hedging instrument is located Derivative Assets$4 $138 Derivative Liabilities157 50 Changes in fair value used for calculating hedge ineffectiveness- - December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
25.3
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
due to changes in market interest rates. Interest rate risk for cash equivalents and short-term investments
is low as they are all made in fixed-rate instruments. The Company does have interest rate risk related to
its credit facilities and variable construction loans, where a 1% increase in the Canadian Prime Rate loan,
holding all other variables constant, would result in a $0.4 million decrease to (loss) income before taxes.
There is no interest rate risk on the debenture with warrants and fixed construction loans as the interest
rates are fixed.
25.4 Credit risk
The Company is exposed to credit risk with respect to its cash and cash equivalents, accounts receivable,
deposits and other receivables, and derivative financial instruments.
The Company does not have significant credit risk related to cash and cash equivalents as amounts are
held with major financial institutions.
The Company follows a program of credit evaluations of customers. A customer’s credit check is
performed in advance of providing credit to a customer and by reviewing their external credit ratings and
interviewing customers’ reputable vendors and then reviewed annually.
For the year ended December 31, 2023, revenues from three major customers of $58.9 million (2022:
$56.6 million) represented 35% (2022: 32%) of total revenues for the year. Three major customers
represented 42% of total accounts receivable as at December 31, 2023 (2022: 50%).
The Company had 14% of its accounts receivable past due but not impaired as at December 31, 2023
(2022: 16%). Of the past due accounts receivable, 89% are 1-30 days past due (2022: 92%), while 14% are
over 31 days past due (2022: 1%).
The Company manages the credit risk related to its derivative financial instruments by entering into such
contracts only with high credit quality institutions.
5 1 | P a g e
Fair value hedgeFirm purchase commitmentsFirm purchase commitments& inventories& inventoriesNominal amount of hedged item (in US$'000)$5,844 $7,124 Line item in the statement of financial position where (cid:10)Inventories & hedgedInventories & hedgedhedged item is located firm commitmentsfirm commitmentsAssets $ 131 $ - Liabilities 7 244 Changes in fair value used for calculating hedge ineffectiveness - - Accumulated amount of fair value hedge adjustment on hedged item included in the carrying amount of the hedged items December 31, 2023December 31, 2022
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
25.5 Liquidity risk
Non-derivative financial liabilities are as follows:
The Company has in place a planning and budgeting process to assist in determining the funds required
to support the Company’s normal operating requirements on an ongoing basis and its future plans. The
Company ensures that there are sufficient committed financing facilities to meet its short-term business
requirements, taking into account its anticipated cash flows from operations, its existing bank
indebtedness and additional borrowing capacity. The Company has maintained compliance with its
banking covenants and remains able to satisfy its liabilities as they become due.
25.6 Fair value of financial instruments
The Company classifies and discloses the fair value measurements of its financial instruments using a fair
value hierarchy that reflects the significance of the inputs used in making the measurements. The fair
value hierarchy has the following levels:
a) Level 1 captures the Company’s cash and commodity futures.
b) Level 2 captures the Company’s foreign exchange forward contracts, derivative financial liabilities,
borrowings embedded option, construction loans, credit facilities, and other liabilities.
c) The Company does not have level 3 financial instruments.
Financial instruments that are measured at fair value are categorized as follows. During the year ended
December 31, 2023, there were no transfers between level 1 and 2 instruments.
5 2 | P a g e
2025 to 2026Accounts payable$11,458 $11,458 $- $- $- Other liabilities1,205 1,141 64 - - Lease liabilities18,393 2,571 5,189 2,728 - Credit facility26,728 - 26,858 - - Construction loans and interest56,824 2,748 11,400 11,400 31,740 Debenture with warrants14,631 15,560 - - - Total $129,239 $33,478 $43,511 $14,128 $31,740 Carrying AmountContractual Cash FlowsThereafter2027 to 20282024December 31, 2023Level 1Financial assetsCash and cash equivalents$11,091 $11,091 $- $- Derivative assets2,142 1,273 869 - $13,233 $12,364 $869 $- Financial liabilitiesDerivative liabilities$470 $- $470 $- Borrowings embedded option1,353 - 1,353 - Other liabilities1,205 - 1,205 - $3,028 $- $3,028 $- Level 3December 31, 2023Level 2
SWISS WATER DECAFFEINATED COFFEE INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share amounts)
26. COMMITMENTS AND CONTINGENCIES
In addition to lease liabilities, the Company has the following commitments:
The Company has provided a standby letter of credit in the amount of $0.5 million as security for a
construction bond. This commitment restricts the available borrowing base draws as highlighted in Note
13, ‘Credit Facility – Borrowing base’.
The Company also has, in the normal course of business, entered into various contracts. As at December
31, 2023, these contracts related to the purchase of green coffee in the amount of $44.9 million (2022:
$34.6 million), and equipment purchase commitments in the amount of nil (2022: $5.1 million). Of these
contracts, $44.9 million will become payable within twelve months from December 31, 2023.
The Company is, from time to time, involved in various claims, legal proceedings and complaints arising in
the ordinary course of business. It does not believe that adverse decisions in any pending or threatened
proceedings, or any amount it may be required to pay by reason thereof, will have a material adverse
effect on the financial condition or future results of operations of the Company.
27. COMPARATIVE FIGURES
Certain comparative figures have been presented together to conform with the presentation used in the
current period.
5 3 | P a g e
Level 1Financial assetsCash$3,761 $3,761 $- $- Derivative assets3,580 3,289 291 - $7,341 $7,050 $291 $- Financial liabilitiesDerivative liabilities$1,126 $- $1,126 $- Borrowings embedded option1,429 - 1,429 - Other liabilities762 - 762 - $3,317 $- $3,317 $- Level 2December 31, 2022Level 3
www.Swisswater.com
https://investor.Swisswater.com
TSX: SWP