Swiss Water Decaffeinated Coffee Income Fund Reports Second Quarter 2008 Results

Swiss Water Decaffeinated Coffee Income Fund (“the Fund”) today reported financial results for the three and six months ended June 30, 2008. The three-month period represents the second quarter of its 2008 fiscal year. The Fund holds all of the outstanding securities of Swiss Water Decaffeinated Coffee Company, Inc. (“SWDCC” or “the company”) and its results are dependent on the operating results of SWDCC.

Operating Results

(1) EBITDA, adjusted distributable cash and adjusted distributable cash per unit are non-GAAP financial measures. Definitions of these terms can be found in SWDCC's Management's Discussion and Analysis to be posted on SEDAR on or before August 11, 2008.

During the second quarter and the first half of 2008, SWDCC’s processing volumes grew by 9.4% and 13.8% respectively, over the same periods of 2007. The higher sales volumes were due to several factors including:

- a modest order backlog from the fourth quarter of 2007 which was related to a customer supply issue. Volume from this customer grew by 57% in the second quarter and by 35% in the first half of 2008. 

- the addition of a significant new customer in late 2007 which increased year-over-year demand throughout the first half of 2008.

- strong demand from existing customers, which offset a volume reduction related to a customer’s decision to discontinue a long-standing in-store promotion program that drove significant volume last year

Revenues increased by 1.9% in Q2 2008 and by 8.5% in the first half of 2008 compared to the same periods in 2007.  Revenue did not grow at the same rate as processing volumes largely due to the relative weakness of the US dollar in 2008 compared to a year ago.  As a result, SWDCC realized significantly less foreign exchange on its US dollar denominated sales in 2008, which comprised 83% and 86% of total revenues in the second quarter and the first half, respectively. In addition, revenues for both periods were affected by a shift in product mix to lower revenue business.

SWDCC’s gross profit for the second quarter and first half of 2008 increased by 12.7% and 10.7%, respectively, compared to 2007. The improvement was mainly the result of the higher sales volumes, reduced costs of goods sold and lower foreign exchange on US dollar denominated input costs. These factors more than offset higher green coffee costs and a reduction in foreign exchange on US revenues. Second quarter EBITDA was up by 4.9% year-over-year, while six-month EBITDA increased by 7.0%. The increases were related to the same factors discussed above, which more than offset the $0.3 million increase in consumer advertising expense recorded in both periods. 

During the second quarter, the company’s net income decreased by 91.7% over the same period in 2007. This was mainly due to the recording of net losses on derivative financial instruments used to manage its US dollar exposure and coffee futures. During the first half of 2008, net income decreased by 42.6% over the prior year for the same reason.

Monthly distributions to unitholders were maintained at the level set in March 2007, when they were increased by 5.9% to $0.075 per unit. During the second quarter, the Fund generated distributable cash of $2.1 million, and paid $1.5 million in distributions to unitholders. In the first six months of 2008, distributable cash of $4.2 million was generated and $3.0 million was paid to unitholders. This resulted in a payout ratio of 73% for the second quarter and 71% for the first half.

“During the second quarter and through the first half of 2008, we met our volume expectations and were generally pleased with the gains made in most segments of our business. With net growth from new and existing customers in all segments except our toll business expected to continue, we foresee our annual volumes to increase over 2007,” said Frank Dennis, President and CEO of SWDCC and a Trustee of the Fund.  “We launched a multi-media advertising campaign during the second quarter. This marketing program clearly communicates the advantages of the SWISS WATER® Process, and highlights our ability to provide consumers with decaffeinated coffee that has not been exposed to chemical solvents such as Methylene Chloride or Ethyl Acetate – the chemicals used in approximately 80% of decaffeinated coffee now available to consumers worldwide.  We expect this important investment to grow our business over the balance of this year and into next.” 

A more detailed discussion of the Fund’s financial results can be found in its second quarter Management’s Discussion and Analysis, which is to be posted with the Fund’s audited financial statements on SEDAR (www.sedar.com) on or before August 11, 2008.

Company Profile

SWDCC is the world’s only consumer-branded chemical free coffee decaffeinator, and is certified organic by the OCIA (Organic Crop Improvement Association).

SWDCC decaffeinates customer-owned coffees, including organically certified coffees, for a toll fee. The company also purchases high-quality green coffees from more than 10 different countries, decaffeinates them and markets them to the green coffee trade. These two revenue streams are known as the company’s “toll” and “non-toll” businesses, respectively.

As of June 30, 2008 approximately 55% of SWDCC’s revenue came from the US, 32% from Canada and the balance from international markets, including the United Kingdom, Japan and Australia. Consistent with most global, commodity-based businesses, the bulk of the Fund’s revenues are earned in US dollars.

For more information, please contact:

Stan Thompson, Chief Financial Officer
Swiss Water Decaffeinated Coffee Company Inc.,
Phone: 604.444.8780    Fax: 604.420.8711
Email: sthompson@swisswater.com
Website: www.swisswater.com