Clearwater reports second quarter 2010 results

August 31, 2010 09:14

Clearwater reported second quarter EBITDA of $7.1 million on sales of $65.2 million versus 2009 comparative figures of $8.5 and $70.2 million. During the second quarter of 2010 strong sales volumes, selling prices, lower costs and lower selling, general and administrative expenses offset 83% of the negative impact of a stronger Canadian dollar as compared to 2009, reports with reference to Clearwater.

Year-to-date, Clearwater reported EBITDA of $13.6 million on sales of $127.9 million versus $17.9 million and $141.2 million in 2009. In 2010 strong sales volumes, selling prices and lower costs offset 74% of the negative impact of a stronger Canadian dollar as compared to 2009.

In both the second quarter and first half of 2010 sales volumes have remained healthy with 2nd quarter volumes up 12% from 2009 and year-to-date volumes up 4%. Strong and accelerating demand for core products has allowed Clearwater management to execute planned price increases in the majority of species including scallops, clams and cooked and peeled shrimp and plans are in place to implement further increases in the remainder of the year.

Rolling four quarter EBITDA as of the second quarter of 2010 was $35.0 million as compared to $40.5 million in the comparative period in 2009. This decrease is a result of fiscal 2009 not exhibiting the typical seasonal pattern for the business, which is to realize higher EBITDA levels in the second half of the year as compared to the first half. In 2009, the first half EBITDA levels were higher than normal due largely to favourable exchange rates (for example the average exchange rate on the US dollar was 1.196 in the first half of 2009 versus 1.038 in the first half of 2010). In contrast, the second half of 2009 EBITDA levels were lower than seasonal norms due in part to soft market conditions for live lobster, which reduced demand and sales throughout the fourth quarter of 2009.

Looking forward to the balance of 2010, management believes that 2010 results will reflect a more typical pattern with the second half results showing greater strength than the first half, with improving annual EBITDA performance versus the prior year despite the continued negative impact of foreign exchange. This is based on expectations for continued strong sales volumes, planned price increases as well as the realization of additional cost savings and productivity gains in both operations and selling, general and administrative expenses. This expectation for higher second half EBITDA is dependent upon stable economic conditions in Asia, North America and Europe and a measure of stability in exchange rates.

In addition, Management and the Board will continue to focus on reducing debt levels and leverage. During the 12 months since the second quarter of 2009, Clearwater reduced its net debt by $10.5 million to $209.5 million versus $220.0 million at July 4, 2009. In the second quarter of 2010 net debt levels increased by $4.2 million due to the planned seasonal investment in inventories, primarily lobster. In the latter part of the year Clearwater will reduce this investment in working capital as these inventories are sold down. Clearwater's strategy for maintaining liquidity and reducing leverage includes carefully managing its working capital and capital expenditures and liquidating assets that do not achieve an adequate return on capital. Clearwater will continue to focus on reducing its leverage by improving earnings and using the positive cash flow of the business to reduce debt. This should enable Clearwater to lower interest costs over time.

Clearwater has two near-term loans for which it has been reviewing refinancing options. This includes approximately 1.3 billion in ISK denominated bonds (including CPI and accrued interest) that mature on September 27, 2010 (approximately Canadian $11.3 million) and $45 million of Class C Units that mature on December 31, 2010. Clearwater expects to be able to refinance these loans prior to their respective maturity dates.
Ian Smith, Chief Executive Officer, commented,

"While foreign currency headwinds masked the underlying strength of
operations in the first half of 2010 I am encouraged by our continued
volume strength in the second quarter and the increasing global consumer
and customer demand for our premium, wild, eco-labeled seafood. Taken in combination with our recent pricing, cost savings and other productivity initiatives, I believe Clearwater is poised to deliver markedly improved operating margins and earnings performance through the balance of 2010.
Furthermore, I believe that our strategies of:

    - Expanding access to and supply of core species
    - Targeting profitable and growing markets;
    - Positioning our products as high quality, premium offerings;
    - Capitalizing on our investments in innovation;
    - Preserving the long-term sustainability of our resources; and
    - Improving the organizational capacity, talent, diversity and engagement

    will result in improved results in the near-term and provide us with a
    sustainable competitive advantage in the mid to longer term".

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