Swiss Water Decaffeinated Coffee : 2023 Second Quarter MD&A

SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the second quarter ended June 30, 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 August 9, 2023, provides a review of the financial results for the three and six months ended June 30, 2023, relative to the comparable periods of 2022. The three month period represents the second quarter ("Q2") 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 and six months ended June 30, 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 SEDAR+.

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 second quarter ended June 30, 2023

EXECUTIVE SUMMARY

The following selected information, other than Adjusted EBITDA was derived from the unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2023, prepared in accordance with IAS 34 as issued by the IASB. For the definition of Adjusted EBITDA, refer to the Non-IFRS Measures section of this MD&A.

1. Adjusted EBITDA is defined in the 'Non-IFRS Measures' section of this MD&A and is a "Non-IFRS 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 and six months ended June 30, 2023, was $43.4 million and $92.4 million respectively, which represents a $5.0 million decrease in the quarter and a $5.6 million increase for the first half, compared to the same periods in 2022. The decrease in Q2 revenue resulted from an expected period of reduced production capacity which limited volume available to customers during the quarter. This was due to the short gap between exiting our legacy Burnaby site, and the completion and full commissioning of our new, second production line at our Delta, BC facility. The last bag of coffee was decaffeinated at Burnaby in late April and the first trial production run on the new Delta line was put through in July, subsequent to the end of the second quarter. Higher than normal volumes shipped in the first quarter, as customers moved orders forward in anticipation of the transition, helped mitigate the impact on first-half revenue.
• On January 1, 2023, we reduced the estimated useful life of the non-salvaged assets at our 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 three and six months period ended June 30, 2023, these non-salvaged assets were fully depreciated. As a result, an expense of $0.8 and $3.0 million related to these non-salvaged assets is reflected within the $1.9 million and $4.9 million of total depreciation expense recorded in the quarter and first half respectively. The financial impact of the change in this estimate was a one-time incremental depreciation expense of $0.4 million and $2.5 million for the three and six months ended June 30, 2023 respectively. There was no such change in estimate during the comparative periods last year.
• Gross profit for the three and six months ended June 30, 2023, was $3.4 million and $8.3 million respectively, which represents a $4.5 million decrease in the quarter and a $5.4 million decrease in the first half, when compared to the same periods in 2022. Gross profit percent decreased from 16% to 9% year-over-year in the quarter. The decrease was primarily driven by reduced volumes due to the

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SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the second quarter ended June 30, 2023

temporary production capacity limitation described above as well as, materially lower green coffee differential margins and a one-time incremental depreciation expense of $0.4 million in the second quarter and $2.5 million for the six months ended June 30, 2023. In addition, we experienced inflationary pressure on our variable production costs, including natural gas and carbon, as well as on freight and warehousing.

• Net income for the three and six months ended June 30, 2023, was a loss of $0.4 million and $1.1 million respectively, which represents a $1.8 million decrease in the quarter and a $3.9 million decrease for the first half, when compared to the same periods in 2022. The decrease was driven by the same factors that impacted gross profit, as described above, as well as a material increase in finance expenses associated with Swiss Water's borrowings. These negative factors were partially offset by gains on risk management activities, revaluation of the embedded option, higher finance income, reduced loss on foreign exchange, and lower income tax expense.
• Adjusted EBITDA1 for the three and six months ended June 30, 2023, was $1.8 million and $6.8 million respectively, which represents a $3.5 million decrease in the quarter and a $2.4 million in the first half, when compared to the 2022 result. The decrease was primarily driven by lower sales volumes and reduced green coffee differential margin, as described above.

Operational highlights

• As expected, total sales volumes decreased by 25% and 5% for the three and six months ended June 30, 2023 respectively, compared to the same periods in 2022. In anticipation of the consolidation of all production in Delta and the resulting temporary reduction in capacity during the transition, we were proactive in our communications with customers and suppliers regarding the production of coffee leading up to the Burnaby exit, during the estimated period of lower production capacity, and before the new line in Delta begins producing a commercially viable product. As a result, many of our customers moved orders ahead into the first quarter to ensure they would have sufficient coffee on hand to bridge the transition. This necessitated a front-loaded working capital investment to cover the elevated production volumes we put through during Q1. To date, this proactive communication regarding the transition has minimized disruption to our customers and business.
• Encouragingly, and despite our temporary capacity limitations, sales volume to our North American customers remained flat during the first half of 2023, when compared to the same period in 2022. Although international sales volume decreased, this was not unexpected, and we are cautiously optimistic this can be partially offset by higher sales volumes during the second half of 2023. In Europe, acute inflationary pressures, together with concerns regarding the conflict in Ukraine, have led to reduced consumption. It is difficult to forecast how these factors will affect European buying patterns over the remainder of 2023.
• Our largest geographical market by volume in the first half of 2023 was the United States, followed by Canada and international markets. By dollar value, 55% of our sales were to customers in the United States, 25% were to Canadian customers, and the remaining 20% were to international customers. Overall, we recorded sales of $92.4 million for the first half of this year, which represents a $5.6 million, or 6%, increase over the 2022 result.

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.

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SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the second quarter ended June 30, 2023

• Sales dollars to customers in the United States increased by $10.9 million, or 28%, when compared to the first half of 2022, while sales dollars to customers in Canada increased by $3.7 million, or 19%. Generally, we continue to see robust demand from existing customers. During Q1, this was supplemented by the fact that many of our customers moved orders ahead to manage their inventory needs in advance of the transition from our Burnaby facility to our second production line in Delta. Ultimately, our 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, the first half of 2023 saw commercial volumes remain flat and specialty roaster volumes decline when compared to 2022. The reduction in business with specialty roasters was partially the result of the temporary capacity constraint we have been managing during the transition from Burnaby. We will remain proactive in our communications with these customers over the coming months as our new capacity in Delta comes fully on line. Furthermore, some of our specialty customers are proactively managing their order flows as they try to reduce inventory levels in response to rising interest rates, falling coffee quality differentials and uncertainty around coffee consumption during the second half of this year.
• 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 we have had to contend with in recent quarters, shipping delays and increased freight rates do persist. Furthermore, on July 1st, a port strike affecting more than 30 ports across BC, including the Port of Vancouver commenced. We continue to monitor this situation closely and we remain in daily contact with our customers and suppliers regarding the movement of coffee. Many in the industry remain cautious about the time it will take for supply chains to return to normal operating efficiency. However, we are cautiously optimistic that the port strike in Vancouver will be fully resolved and will not have a material impact on our operations during the balance of the year.
• The NY'C' for Arabica coffee increased rapidly 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 pressure on the futures market and we saw spot availability of coffees fall substantially as a result. Although the NY'C' has fallen since the fourth quarter of 2022, it remains elevated, above the levels seen prior to the third quarter of 2021. The effects of this coffee market will be realized over the balance of 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 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-IFRS 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. By considering Adjusted EBITDA in combination with IFRS, we believe that readers are

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SWISS WATER DECAFFEINATED COFFEE INC.

Management Discussion and Analysis

For the second quarter ended June 30, 2023

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, other gains/losses 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 three and six months ended June 30, 2023, was $1.8 million and $6.8 million respectively, which represents a $3.5 million and $2.4 million decrease over the same periods in 2022. The decrease was driven mainly by lower sales volumes and reduced green coffee differential margin.

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

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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