Swiss Water Decaffeinated Coffee : 2023 First Quarter MD&A

SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the first quarter ended March 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 May 10, 2023, provides a review of the financial results for the three months ended March 31, 2023, relative to the comparable periods of 2022. The three month period represents the first quarter ("Q1") of our 2023 fiscal year. This MD&A should be read in conjunction with Swiss Water's condensed consolidated interim financial statements for the three months ended March 31, 2023, the audited consolidated financial statements for the year ended December 31, 2022, 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", "intends", "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 production line currently under construction; 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, construction 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. 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.

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SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the first quarter ended March 31, 2023

EXECUTIVE SUMMARY

The following selected information, other than Adjusted EBITDA was derived from the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2023, prepared in accordance with IAS 34. For the definition of Adjusted EBITDA, refer to the Non-IFRS Measures section of this MD&A.

In $000s except per share amounts		3 months ended March 31,
(unaudited)		2023		2022
Revenue	$	49,045	$	38,415
Gross profit		4,894		5,763
Operating income		1,424		2,880
Net (loss) income		(701)		1,385
Adjusted EBITDA1		4,982		3,882
Net (loss) income per share - basic2	$	(0.08)	$	0.15
Net (loss) income per share - diluted2	$	(0.08)	$	0.15

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-sharecalculations 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.

Financial highlights

• Revenue for the three months ended March 31, 2023, was $49.0 million which represents a $10.6 million or 28% increase over the same period in 2022. The increase is a result of strong volume growth and the appreciation of the US dollar. In addition, our Seaforth subsidiary continues to operate at record levels of activity. Revenue of $49.0 million represents a record quarter for Swiss Water.
• Effective January 1, 2023, the Company reduced the estimated useful life of the non-salvaged assets located at our production facility in Burnaby, BC, by 12 years. The useful life of these assets was re-aligned against the final production date at the site, which was estimated for April 2023. At the time of the change in estimate, these assets had a net book value of approximately $3.0 million. The financial impact of the change in the estimate was an incremental depreciation expense of $2.1 million for the period ended March 31, 2022. The impact of this change is reflected within the $3.0 million depreciation charge for the three months ended March 31, 2023. This one-time change in estimate has been applied prospectively. There was no such change in estimate during the comparative period in 2022.
• Gross profit for the three months ended March 31, 2023, was $4.9 million which represents a $0.9 million or 15% decrease compared to the same period in 2022. Gross profit percent decreased from 15% to 10%. The decrease was primarily driven by a one-time $2.1 million increase in depreciation expense associated with the non-salvaged assets located at our production facility in Burnaby, BC. To a much lesser extent, the Company also experienced some inflationary pressure on variable production costs and freight.
• Operating income for the three months ended March 31, 2023, was $1.4 million which represents a $1.5 million or 51% decrease from the same period in 2022. The decrease was primarily driven by the increase in depreciation expense, and to a lesser extent, inflationary pressure on variable production costs and freight, as described above.
• Net income for the three months ended March 31, 2023, was a loss of $0.7 million which represents a $2.1 million or 151% decrease, compared to the same period in 2022. The decrease was mainly due to the

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SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the first quarter ended March 31, 2023

$2.1 million increase in depreciation expense, as described above, and a $1.0 million loss on the revaluation of Swiss Water's embedded option within our debenture with warrants. These factors were partially offset by strong volume growth.

• Adjusted EBITDA1 for the three months ended March 31, 2023, was $5.0 million which represents a $1.1 million or 28% increase over the same period in 2022. The improvement in Adjusted EBITDA was mainly driven by the positive effect of increased sales volume and the reversal of the elevated one-time charges affecting net income. Adjusted EBITDA of $5.0 million is the second highest quarterly amount ever recorded by Swiss Water.

Operational highlights

• Total sales volumes increased by 21%, compared to Q1 of 2022. Volume growth was enhanced by the shipment of products to both new and existing customers. Encouragingly, we recorded 46% and 14% volume growth in the United States and Canada, respectively. International sales decreased by 16%, compared to Q1 2022. For Asia-Pacific, this is mainly due to timing, and we expect volumes to increase over the remainder of 2023. For Europe, inflationary pressures, together with the conflict in Ukraine, have led to reduced consumption. It is difficult to forecast how these factors will affect buying patterns in this region over the remainder of 2023.
• Our largest geographical market by volume in Q1 2023 was the United States, followed by Canada and international markets. By dollar value, 58% of our sales were to customers in the United States, 24% were to Canadian customers, and the remaining 18% were to international customers. Our North American business continues to expand rapidly, and this more than offset the lower volumes in our Asia-Pacific and European regions.

The Company recorded strong double-digit growth in Q1 2023. Sales to customers in the United States increased by $11.6 million or 70% when compared to 2022. Sales to customers in Canada increased by $2.7 million or 29%. Although we saw a decline in our international sales in Q1 2023, this was largely due to timing. Generally, we continue to see robust growth with existing customers. This was supplemented during the quarter by many of our customers moving orders ahead in the year to manage their inventory needs in advance of the transition from our Burnaby facility to our new second production line in Delta. Ultimately, our strong volume performance reflects the strength of our relationships with our customer base and the growing recognition of the importance of drinking coffee decaffeinated without the use of harmful chemicals.

Regarding customer mix, Q1 2023 saw incremental volumes going to both commercial and specialty roaster customers as evidenced by growth rates of 24% and 16%, respectively, when compared to 2022. As in recent quarters, we continue to see new volume associated with the addition of new customers and brands within our North American business.

We remain well positioned with green coffee inventory and can react to short-term demand increases in most coffee origins. Although we have seen some improvements to the green coffee delivery disruptions and supply chain bottlenecks, delays and increased freight rates do persist. While these costs are generally recoverable, they are nonetheless inflationary. We remain in daily contact with our customers and suppliers regarding the movement of coffee. However, many remain cautious of the time it will take for supply chains to return to

1 Adjusted EBITDA is defined in the 'Non-IFRS Measures' section of the MD&A and is a "Non-GAAP Financial Measure" as defined by

CSA Staff Notice 52-306.

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SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the first quarter ended March 31, 2023

normal operating efficiency. This caution has caused participants throughout the coffee supply chain to increase their inventories despite a high New York Futures contract coffee commodity price, or NY'C.

The NY'C for Arabica coffee increased rapidly in the third quarter of 2021 and remained exceptionally high until the third quarter of 2022. The tight availability of exportable coffee due to crop shortages and ongoing logistical backlogs kept the pressure on the futures market and we saw spot availability of coffees fall substantially as a result. Although the NY'C for Arabica coffee did decrease in the fourth quarter of 2022, it remains elevated above the levels seen prior to Q3 2021. The effects of this coffee market will be realized over 2023, and its impact depends on the futures market remaining at, or below, the current level for a sustained period.

We continue to feel inflationary pressures within other components of our variable cost structure. These increases include higher costs for natural gas, carbon, packaging, shipping, and labour. To help maintain margins, we 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.

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 option, gains/losses on extinguishment of debt, adjustment for the impact of IFRS 16 - Leases, 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 three months ended March 31, 2023, was $5.0 million which represents a $1.1 million or 28% increase over the same period in 2022. Operationally, the change in Adjusted EBITDA was driven by increased processing volume and revenue growth. These gains were partially offset by inflationary pressures on our underlying cost structure.

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:

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SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the first quarter ended March 31, 2023

(In $000s)		3 months ended March 31,
(unaudited)		2023		2022
Operating income	$	1,424	$	2,880
Depreciation & amortization		3,582		1,553
Share-based compensation		493		189
Loss (gain) on risk management activities		111		(34)
Unrealized loss (gain) on foreign exchange forward		74		(9)
Impact of IFRS 16 - Leases	$	(702)	$	(697)
Adjusted EBITDA	$	4,982	$	3,882

The reconciliation of net income, an IFRS measure, to Adjusted EBITDA is as follows:

In $000s			3 months ended March 31,
(unaudited)			2023		2022
Net (loss) income for the period		$	(701)	$	1,385
Income tax (recovery) expense			(216)		529
(Loss) income before tax		$	(917)	$	1,914
Finance income			(437)		(71)
Finance expenses			1,837		1,209
Depreciation & amortization			3,582		1,553
Unrealized loss (gain)on foreign exchange forward			74		(9)
Loss on fair value of embedded option			968		-
Loss (gain) on foreign exchange			84		(206)
Share-based compensation			493		189
Impact of IFRS 16 leases			(702)		(697)
Adjusted EBITDA		$	4,982	$	3,882

OUTLOOK

Swiss Water continued to experience strong demand from our customers in Q1 2023. Sustained volume growth over the last two years has been a major driver of our financial results. This positive momentum initially emerged during the early stages of the COVID-19 pandemic when working remotely gained traction, resulting in a significant increase in the at-home consumption of coffee. As pandemic restrictions eased and things returned to normal, many businesses and organizations moved away from the modified work-from- home model. This change slowed the growth of at-home consumption and, as a result, the volumes we deliver to our large commercial customers who serve the grocery channel. However, at the same time, sales to our specialty roaster segment who serve the out-of-home channel grew significantly. Now, many of our specialty customers are ordering in-line or exceeding pre-pandemic levels of activity.

We continue to see increased demand from all our customers that serve the out-of-home market through cafes and restaurants. This has been particularly evident in North America where our food service customers have returned to a normal operating environment. It is particularly encouraging that our sales volumes to our largest market, North America, grew by 35% when compared to Q1 2022.

Despite the normalization of trading conditions, uncertainty persists. Inflationary pressures are becoming ever more apparent and interest rates have risen rapidly across the globe. We cannot reliably predict the ultimate impact these factors will have on global supply chains and customer demand. If inflation rates rise in 2023, we may have to further increase the process rates we charge our customers. However, we are cautiously optimistic that our volume growth will offset some of this anticipated inflationary pressure.

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