Swiss Water Eyes 2027 Capacity Boost as Chemical-Free Decaf Demand Perks Up

Key Points

• Swiss Water plans to expand capacity by 15% at its Delta, British Columbia, facility, with the approximately CAD 6 million project expected to come online in the second half of 2027 as demand for chemical-free decaf grows.
• Consumer wellness trends, regulatory scrutiny of methylene chloride and brand concerns are driving interest in water-based decaffeination, with growth opportunities in North America and faster-growing Asian markets.
• The company reported record trailing adjusted EBITDA of CAD 17.1 million, a 37% increase in volume since 2020 and more than CAD 15 million in debt repayment over the past six months; it is also exploring caffeine recovery as a potential future CAD 3 million–CAD 5 million EBIT opportunity.

Swiss Water Decaffeinated Coffee TSE: SWP said it is preparing to expand production capacity as demand grows for chemical-free decaffeinated coffee, supported by consumer wellness trends, regulatory scrutiny of methylene chloride and increased attention from coffee brands to supply-chain ingredients.

The company said its Delta, British Columbia, plant operates around the clock and that capacity is now about five times its original level. Swiss Water plans to add 15% more capacity within its existing facility, with the additional production expected to come online in the second half of 2027. The expansion is expected to cost about CAD 6 million.

Swiss Water purchases green, or unroasted, coffee, decaffeinates it using water, temperature and time, and supplies the resulting coffee to roasters in more than 65 markets. Its Seaforth subsidiary provides warehousing and logistics services. The company emphasized that it is a processor rather than a coffee roaster, with customers selling the decaffeinated coffee under their own brands.

Consumer and Regulatory Trends

The company said decaf consumption is increasingly being shaped by younger consumers, identifying 18- to 24-year-olds as the largest decaf-drinking demographic. According to the presentation, those consumers are building habits around sleep, wellness and steady energy, while also paying more attention to product labels and how decaf coffee is produced.

Swiss Water said roughly two-thirds of global decaffeinated coffee is still made using chemical solvents. Its water-based process does not use methylene chloride, a solvent that is being reviewed by the U.S. Food and Drug Administration and European regulators for food applications, including decaf coffee.

The company said regulatory review, consumer preferences and brand-risk concerns are supporting a broader move toward water-based decaffeination. It added that large roasters have been seeking additional capacity and that it expects such discussions to translate into volume over time.

Swiss Water also highlighted its consumer brand recognition despite selling primarily to business customers. The company said roasters that use the Swiss Water logo on their products can command a premium of approximately $0.30 to $0.40 per pound, or a premium based on package size, at retail. It is relaunching a U.S. online marketplace featuring brands that use Swiss Water decaffeination.

Financial Progress and Debt Reduction

The company characterized the past decade as a period of building, market disruption and scaling up. It invested CAD 125 million in its Delta plant after its Burnaby lease was set to end, bringing its first new production line online in 2020 and a second line online in 2023. Annual maintenance capital expenditures have since declined to about CAD 1 million, according to the presentation.

Swiss Water said elevated coffee prices had increased the cash required to hold coffee inventory for customers. However, coffee prices have declined from their peak following what the company described as a strong Brazilian coffee harvest, allowing working capital needs to begin falling.

Over the period, the company said trailing gross profit nearly tripled to CAD 32.5 million from about CAD 12 million. It reported adjusted EBITDA of CAD 17.1 million over the past 12 months, its highest level to date, and said adjusted EBITDA has improved for four consecutive quarters.

• Volume has increased 37% since 2020, according to the company.
• Adjusted EBITDA has risen about 2.5 times since 2020.
• Swiss Water repaid more than CAD 15 million of debt over the past six months.
• Construction debt is being reduced by approximately CAD 6 million annually on a fixed schedule.

The company said it has approximately CAD 62 million in tax losses related to its plant investments, which it expects will shield it from cash taxes for four to six years. It has also established a normal course issuer bid that would allow it to repurchase shares when management considers them undervalued.

Growth Plans and Caffeine Recovery

Swiss Water said near-term growth is expected to come from volume increases with existing customers, new conversions from solvent-based decaffeination in North America, and overseas opportunities, particularly in Asia. North America currently represents about 80% of company volume, while overseas markets are growing faster, it said.

The company cited demand in Korea, Taiwan, Japan and China, as well as developing markets including Indonesia and Saudi Arabia. It said Korea, Taiwan and Japan do not allow methylene chloride for decaffeination.

Longer term, Swiss Water is evaluating the recovery of caffeine, currently a byproduct of its process. The company plans to begin operating a pilot plant in Northern Alberta at the end of December. Management said a potential caffeine-recovery project could require roughly CAD 20 million in capital expenditures, though it described the estimate as preliminary, and could represent a future incremental EBIT opportunity of CAD 3 million to CAD 5 million.

Swiss Water said it has three to four years of growth runway from current expansion and optimization efforts, though that timeframe could be shorter if the decaf category continues to grow quickly. Beyond that, the company said it could consider further investment in caffeine recovery or another operating line at its Delta site, where it has an option to purchase the property.

About Swiss Water Decaffeinated Coffee (TSE:SWP)

Swiss Water Decaffeinated Coffee Inc is a specialty coffee company, that offers green coffee decaffeination and Seaforth Supply Chain Solutions Inc providing green coffee handling and storage services. It is a premium green coffee decaffeinator located in the Canadian state of British Columbia. It employs the proprietary Swiss Water Process to decaffeinate green coffee without the use of chemicals, leveraging science-based systems and controls to produce coffee. The company's sales are primarily generated in a single segment of decaffeination of green coffee.

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