Welcome to the Swiss Water Decaffeinated Coffee Incorporated conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Before Swiss Water Decaffeinated Coffee Incorporated conference call starts, they're required to remind you that certain information in today's presentation is forward-looking in nature. Any such forward-looking information or statements are based on assumptions that they considered reasonable at the time the information was prepared. Such information involves known and unknown risks, uncertainties, and other factors outside our control that could cause actual results to differ materially from those expressed in the forward-looking information. Swiss Water Decaffeinated Coffee Incorporated does not assume responsibility for the accuracy and completeness of the forward-looking information. Similarly, they do not undertake any obligation to publicly revise this forward-looking information to reflect subsequent events or circumstances except as required by law.
Please refer to Swiss Water Decaffeinated Coffee Inc.'s management's discussion and analysis, posted on SEDAR and Swiss Water's website for a full discussion regarding forward-looking statements and the risks therein. I would now like to turn the floor over to your host, Frank Dennis. Please go ahead.
Thank you, Jordan, good afternoon, everyone, and thanks for taking the time to join me. I'm Iain Carswell, CFO of Swiss Water Decaffeinated Coffee Inc. Frank Dennis, our President and CEO, is unable to attend today's call, so I'll carry the ball this time. I'm here to discuss Swiss Water's financial results for the three and six months ended June 30th, 2024, which were released yesterday. I'll begin by taking you through our financial results, and then I will tell you more about our longer-term plans and expectations. After that, I'll be happy to take your questions. We continue to see strong and growing demand for our chemical-free decaffeinated coffee offerings during the second quarter and first half of this year, and are pleased to report strong volume growth and profitability during the quarter.
However, as we noted during our last call, when comparing our quarterly results for 2024 with the same periods last year, it's important to note that the distribution of quarterly sales volumes in 2023 did not follow a normal seasonality pattern. In particular, Swiss Water reported much stronger than normal volume growth and financial results during the first and fourth quarters last year. In Q1, 2023, this was mainly due to the front-loading of customer orders in anticipation of a period of production constraint during the second and third quarters. During this period, our capacity was temporarily restricted because we had to shut down and exit our legacy production facility in Burnaby, BC, prior to the full commissioning of our second new decaffeination line at our Delta, BC facility.
As our new Delta Line 2 ramped up over the summer and fall of last year, and with all production now consolidated in one location, the order backlogs built up over the transition from Burnaby were processed and shipped during Q4 of 2023. With this context in mind, the year-over-year decline in volumes for the first six months of this year was fully expected when compared with the abnormally high volume we recorded in the first quarter and first half of last year. I believe it's fair to say that our results for the current year to date are consistent with a return to normal order patterns and plant operations. With that context in mind, let me now take you through our financial results. As always, I'll begin my review with volume shipped to customers, as this is the key metric that drives our financial performance.
Taken together, volumes shipped to customers in all categories were up by 12% in the quarter. However, for the first half, volumes were down by 5% from the 2023 level, largely due to the front loading of orders into the first quarter of last year, as I've noted. Looking at the volumes by customer type, shipment to roasters, those customers who roast and package coffee to sell to consumers in their own coffee shops or for home or office consumption, were down by 4% in the second quarter and by 9% for the six months. While shipments to importers, those customers who resell our coffees to roasters, where and when they need it, were up by 40% in the quarter and by 1% for the first half.
Looking at the roaster segment another way, specialty roaster account volumes were up by 32% in the quarter and down by 2% in the six months to June 30. These accounts serve the out-of-home consumer, primarily in cafes and restaurants in our key geographic markets. Shipments to large commercial roasters were also down in Q2, shrinking by 5% compared to the second quarter of last year. For the first half, shipments to these accounts were 11% below last year's level. Turning now to revenues. Second quarter revenue of CAD 43.4 million was unchanged from Q2 of last year. However, at CAD 82.1 million, first half revenue was down by CAD 10.3 million from the 2023 level.
As with volumes, the drop in six-month revenue was largely an expected result of a normalization of order patterns when compared to a first half last year that was strongly skewed by volume loading and higher than normal sales during the first quarter. Lower coffee quality differentials and changes in our mix of business also had a negative impact on revenues. During the first half of this year, we had a higher proportion of toll sales, which do not generate green coffee revenue, but only a processing fee.
Looking at the cost side, our second quarter cost of sales was CAD 35.7 million, down by CAD 4.2 million or 11% compared to Q2 last year. The decrease in the quarter was primarily driven by cost savings associated with the consolidation of operations at one location, lower utility rates, and a CAD 400 thousand dollar decrease in one-time depreciation expense. In addition, the higher proportion of toll sales this year also reduced cost of sales. For the first half, cost of sales was CAD 69.3 million, down by CAD 14.8 million, or 18% from the 2023 level. The six-month decrease was driven by lower sales volume, cost savings associated with the consolidation of operations at one location, and a CAD 2.5 million dollar decrease in depreciation expense.
As you may recall, in 2023, we incurred significant non-cash depreciation expenses in both the second quarter and first half. These resulted from the write-down of unsalvageable assets at our old Burnaby facility as we prepared to vacate the site in June of last year. There was no such charge in Q2 for the first half of this year. As to green coffee costs, at an average of $2.20 per pound in the second quarter, the NYC was up by $0.35 from $1.85 per pound in Q2 last year. For the first half, the NYC averaged $2.05 per pound, up by $0.15 from $1.80 last year.
With coffee prices now on an upward trend and interest rates remaining high, we can expect some of our customers to consume their own inventories and wait for the market to come back down again before replenishing their stocks. This is a normal market dynamic that may negatively impact our volumes temporarily. Foreign exchange rates can also have a material impact on our profitability and cash from operations. This is because most of our revenues are generated in U.S. dollars, while a significant proportion of our costs are incurred and paid in Canadian funds. Our exposure to changes in the exchange rate is managed, in part through derivative financial instruments. However, all other factors being equal, we benefit when the U.S. dollar appreciates, as it did during the second quarter.
In Q2, the US dollar averaged 1.37 Canadian, up 3 cents from 1.34 Canadian in the second quarter last year. During the first half, US dollar averaged 1.36 Canadian, compared to an average of 1.35 Canadian in 2023. This appreciation had a positive impact on our revenues when they were converted to Canadian dollars. Second quarter gross profit was CAD 7.7 million, an increase of CAD 4.3 million when compared to Q2 of 2023. For the first half, gross profit was CAD 12.8 million, up by CAD 4.5 million, or 54% from last year's result. Gross profit percentage increased to 18% for the quarter, compared to 8% in Q2 last year. For the first half, gross profit percentage was 16%, up from 9% last year.
The profitability improvements this year were in part the result of cost savings and efficiencies generated from our consolidation of all Swiss Water production and other operations at one location. This has generated savings from reduced building maintenance, utilities consumption, staffing, and transportation between locations. The Q2 increases were also driven by higher sales volume, higher green coffee differential margins, and the positive impact of the CAD 400,000 decrease in one-time depreciation expenses. For the first half, the CAD 2.5 million decrease in depreciation expense, partially offset by comparatively lower sales volume and a decline in green coffee differential margins during Q1, helped drive the improvement. Second quarter operating expenses were CAD 3.9 million, up by CAD 600,000 when compared to Q2 2023. For the first half, operating expenses were CAD 7.7 million, up by CAD 900,000 from last year.
The administrative portion of operating expenses was up by 35% in Q2 and by 19% for the six months. The primary driver of the increase in both periods was planned headcount and wage increases and increased professional fees. These negative impacts were partially offset by cost savings associated with consolidation of all operations at one location. The sales and marketing component of operating expenses was up by CAD 200,000, or 16% in the quarter, and unchanged for the first half. The main drivers of the difference during the quarter were increased travel and trade show activity, as well as the timing of marketing activities. Q2 operating income of CAD 3.7 million was up significantly from CAD 76,000 in the second quarter of 2023.
First half operating income was CAD 5.1 million, compared to CAD 1.5 million last year. Now turning to net income. We reported net income of CAD 947,000 for the quarter, compared to a net loss of CAD 371,000 in Q2 last year. For the first half, net income was CAD 47,000, compared to a net loss of CAD 1.1 million for the first six months of 2023. The loss we recorded in both periods last year was largely due to the temporary capacity constraint and additional costs incurred as we exited our old Burnaby facility. As with gross profit, the improvement in net income this year was driven by savings resulting from our consolidation of operations at one location in Delta, as well as gains on foreign exchange.
This was partially offset by higher interest expenses on our construction loans and increased mark-to-market losses on our risk management activities, as well as the higher operating expenses. Second quarter net finance costs of CAD 1.8 million were up by CAD 200,000 or 12% over Q2 of 2023. For the first half, net finance costs were CAD 3.7 million, up by CAD 700,000 or 21% from last year's level. The increase was primarily because following the commissioning of our second decaffeination line in Delta, the interest on the construction loans for the project could no longer be capitalized. Second quarter Adjusted EBITDA of CAD 4.5 million was up by CAD 2.7 million from Q2 2023.
For the first six months of this year, we recorded Adjusted EBITDA of CAD 7.3 million, an increase of CAD 500,000 from the first half of last year. The increase in both periods was mainly driven by savings realized by consolidating operations in Delta, partially offset by our higher operating expenses. As we noted previously, we built up inventory levels during the first quarter of last year to ensure that we had sufficient coffee on hand to meet customer demand during the transition from Burnaby, when our production capacity was temporarily constrained. However, during the second half of 2023, the commissioning of our second production line in Delta led to an acceleration in raw material usage and increased shipments of finished goods. As a result, inventories closed 2023 at their lowest levels since Q1 of 2021.
As planned, our inventory levels fell further during the second quarter and first half, in part because we consumed the last remaining coffee inventories we had built up to bridge last year's move out of Burnaby, BC. Furthermore, shipping delays affecting freight passing through the Panama Canal also slowed the arrival of coffee into Vancouver. By the end of the second quarter, we held CAD 28.8 million in coffee inventory, down from CAD 30.3 million at December 31, 2023. While slightly lower than historical levels, this is sufficient to support our operations and near-term growth. The reduction in working capital commitments resulting from the lower inventory level enabled us to continue reducing our debt and to accumulate cash deposits. As always, we remain focused on optimizing inventory levels and proactively managing our working capital commitments.
With construction of our new production assets now complete and fully paid for, debt reduction is a key priority for Swiss Water going forward. Under the terms of our agreement with Mill Road Capital, we are scheduled to fully repay the CAD 15.8 million debenture with warrants held by Mill Road in October of this year. Having finished the second quarter in a strong liquidity position with over CAD 18.4 million cash on hand, we expect to be able to fund the Mill Road obligation with a combination of available cash reserves and proceeds from operations. If necessary, these funds can be supplemented by incremental borrowings on our existing debt facilities. As we look ahead, Swiss Water is well positioned for the future.
We have a diversified global customer base, new state-of-the-art production facilities, quality products that are in growing demand, increasing brand awareness, and a proven team. All our operations are now consolidated in a single location with two modern processing lines, including our recently completed second decaffeination line. These assets enable us to optimize our operational processes and produce premium decaffeinated coffee of consistently high quality. We have sufficient production capacity to meet our current needs, and with ongoing optimization, along with some modest targeted investments, enough capacity to meet our medium-term growth needs. The performance of all our Delta production assets has been excellent, and we are optimistic that we can utilize what we have learned from operating line one to unlock further efficiency gains on our new line two.
In general, trading conditions remain favorable in our key markets, and we see growing demand as ever more industry participants move away from chemical decaffeination in favor of chemical-free and organic processes like ours. As we noted during our last earnings call, this positive trend is supported by some interesting developments on the regulatory front. In March of this year, the state of California considered a proposal regarding the use of methylene chloride to decaffeinate coffee. Methylene chloride, which has been banned for use in paint strippers and cosmetics, is the most common chemical method used to decaffeinate coffee. If passed into legislation, as of January 1, 2027, California will require any entity that offers for sale coffee that has been decaffeinated using methylene chloride to label the final product, clearly stating that methylene chloride is used in the decaffeination of this product.
Furthermore, in January of this year, the US Food and Drug Administration filed a food additive petition and a color additive petition that call on the agency to rescind its approvals for four carcinogens in food.... methylene chloride, which is noted for its use in coffee decaffeination, is one of these chemical additives. These actions have generated significant media coverage and are clear signals of growing consumer demand for greater transparency regarding the products they eat and drink. As a result, there's meaningful consumer attention on decaffeination and the availability of chemical-free and organic alternatives, such as our Swiss Water Process. Despite the strong position these and other factors have put us in, caution continues to be called for.
Volatility in the coffee futures market persisted through 2023 and continued during the first half of this year, as roasters reset their inventories following a prolonged period of logistical challenges. However, looking forward, we are seeing evidence that some roasters are choosing to replenish their inventories more slowly than we anticipated, due to affordability concerns caused by a persistently high NYC coffee commodity price. Rapid increases in the NYC and elevated volatility destabilize short-term demand for decaffeinated coffees, as roasters delay orders to reduce their working capital commitments. In a balanced market, price is fundamentally driven by the availability of coffee. The NYC and the London Robusta markets have risen to near record highs and both remain inverted. This is leading to slowing roaster demand and increased risk management costs.
It has also resulted in very limited spot availability for coffees due to backfill supply chain issues, leading to some shortages. Adding to our challenges, like businesses everywhere, Swiss Water is not immune to wider macroeconomic risks. Inflation has not fully abated, and economies around the world are struggling to get a grip on it by raising or at least maintaining high interest rates. The ongoing war in Ukraine and the crisis in the Middle East have disrupted the global order and continued to create a lot of uncertainty in Europe and around the world. And as I noted, Swiss Water has experienced significant inflationary pressure in virtually all our input costs, from natural gas, to freight, to labor. These risks and increasing costs demand our close attention and may require further mitigation measures in the future.
Despite these challenges, we are optimistic that we will be able to deliver volume growth and improved profitability in 2024. Whatever the future holds, Swiss Water is now much better positioned for the years ahead. That wraps up my comments for today. I would now be happy to answer any questions you may have.
There doesn't appear to be any questions at this moment. Oh, there does appear to be one. One moment. The first question comes from the line of Richard Rudgley from Glenbrook Capital. You may now go ahead.
Thank you. Yes, thanks for raising methylene chloride's U.S. opportunity and... But I had some questions about the elevated coffee prices, which you alluded to, and as you've said before, often, especially your smaller customers, often restrain themselves from buying in the hope that they can obviously buy to the lower level. But do you think these historic highs are more secular and that they really might not get as many opportunities as in the past to buy at lower levels? And also, I had another question about the implications of the impending EU restrictions on coffee grown from clear-cut land. What implications would that have for Swiss Water, either directly or indirectly?
Thank you, Richard. With regards to the first question, I mean, prices are elevated right now. I mean, they have been at this level in the past. They're not historic levels, and in the past, they have dropped back down to kind of more normal levels. I do expect in time the market will drop back. I can't guarantee that, but certainly the level of volatility that we're seeing right now is unusual. I mean, we're keeping a close eye on it. I'm not sure anyone in the industry right now loves the high prices that we're seeing.
But ultimately, most businesses operating within the coffee industry have supportive credit agreements that allow them to continue to invest in working capital, and we certainly do have that. So I'm not sure that fully answers your question, but it's the best that I have right now. In terms of the European legislation, and that's something that we're looking very closely at right now, we don't have a strong view yet on what the potential impact could be for Swiss Water. The majority of our business is in Asia and North America. We do have some exposure in Europe, but it's the smallest part of our business from a geographical perspective right now.
So it's something that we're looking into, and as and when we have a better understanding of that, we will provide more information.
Well, thanks very much. Yeah, congratulations again on you know, all the business progress you've made. Look forward to talking to you next time.
Thanks, Richard. Appreciate it.
Okay, if there are no further questions, I will conclude today's call. Sorry?