Clearwater continues a trend of strong results in first quarter 2012

Tue, 08 May 2012

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HALIFAX, May 8, 2012 /CNW/ – (TSX: CLR, CLR.DB.B, CLR.DB.A):

Continues trend of positive earnings momentum and growing EBITDA

Strong first quarter sales, gross margins and EBITDA
Sales grew by 2.4% to $70.9 million
Gross margin grew by 6.2%
EBITDA grew by 10.0% to $11.0 million
On track with 2012 financial targets for creating shareholder value

Obtains third party valuation of fishing licences and quotas of $453 million, $341 million higher than the book value of $112 million.
Today, Clearwater Seafoods Incorporated (“Clearwater”) reported its results for the first quarter of 2012.

Clearwater reported EBITDA of $11.0 million on sales of $70.9 million in the first quarter of 2012 versus 2011 comparative figures of $10.0 million and $69.2 million representing growth of 10.0% in EBITDA and growth of 2.4% in sales.

The 10.0% EBITDA growth in the first quarter of 2012 came as a result of higher sales prices and higher sales volumes, partially offset by a shift to lower margin species and higher harvesting and procurement costs per pound in certain species.


Global demand for seafood is outstripping supply; creating favorable market dynamics for primary producers such as Clearwater.

Demand has been driven by growing worldwide population, shifting consumer tastes; and rising incomes and purchasing power of middle class consumers in emerging economies.

The supply of seafood is limited and is expected to lag the growing demand in the industry. This Supply-demand imbalance creates pricing power in which purchasers of seafood pay a premium to suppliers that can provide consistent quality, wide diversity and reliable delivery of seafood

Clearwater is well positioned to take advantage of this opportunity because of its licenses, premium product quality, diversity of species, global sales footprint, and year-round harvest and delivery capability.

Ian Smith, Chief Executive Officer, commented, “Management is satisfied with the progress made in the first quarter towards our 2012 annual plan as well as the increasing global consumer and customer demand for our premium, wild, sustainably harvested seafood.

We will continue to execute with excellence against our overall business strategy as well as key cost-saving and productivity initiatives and we have every expectation that our earnings momentum will continue through the balance of fiscal 2012.”

Management’s commitment to creating shareholder value

There are seven key initiatives that management is pursuing to create value for the shareholders. They include:

Growing EBITDA sustainably – Clearwater has demonstrated its ability to consistently grow EBITDA in a sustainable manner. As of the first quarter of 2012 the rolling 4 quarter EBITDA grew by 16% to $61.3 million. This is driven by growth in EBITDA in both 2011 and the first quarter of 2012 which saw EBITDA grow by 10.0%. Management expects revenue growth to accelerate through the balance of the year as higher value fisheries like Canadian Sea Scallops move into peak harvest and demand season. In addition, Clearwater will continue to lever its strengths and its vertical integration to win in existing segments while capturing a growing share of the seafood value chain through the introduction of value-added new products in core species, including bacon-wrapped, MSC-certified, Canadian Sea Scallops. This will enable Clearwater to continue its EBITDA growth momentum through the balance of 2012.

Generating strong free cash flows – Clearwater is focused on generating free cash flows and plans to accomplish this through generating strong cash earnings, managing its working capital and carefully planning and managing its capital expenditure program. It is important to understand that Clearwater’s operations have a predictable seasonal pattern in which EBITDA is higher in the second half of the year and capital expenditures are higher in the first half of the year. This results in lower free cash flows, higher debt balances and higher leverage in the first half of the year. Free cash flows for the first quarter of 2012 decreased to a net investment of $7.0 million as a result of the increased investment in inventory, planned investments in property, plant and equipment and increased distributions to minority partners. Management is pleased with the free cash flow results in the first quarter of 2012 and is on target to reach its annual goals for 2012.

Improving leverage and committing to leverage targets – As of the first quarter of 2012 leverage has improved to 3.91 versus 4.42 as of the first quarter of 2011. Clearwater has committed to further reductions to achieve a target of 3.0 by December 31, 2014 by increasing earnings and using its free cash flow to reduce debt. Management is pleased with the results in the first quarter of 2012, and is line to reach its leverage reduction target in 2012.

Improving the capital structure – In the fourth quarter of 2011 management completed the conversion of the public entity from a trust to a corporate structure, making the structure more efficient and transparent for both investors and lenders. Management continues to review opportunities to further improve its capital structure in 2012.

Focused management of foreign exchange – Over the past year Clearwater has implemented a focused and targeted foreign exchange hedging program to reduce the impact of volatility in exchange rates on earnings. This, combined with stronger processes for price management reduces the impact of exchange rate volatility on the business.

Building world class leadership, management, sales and marketing capabilities – Over the past year Clearwater has hired a Chief Commercial Officer, and a Chief Talent Officer. They have begun to implement best in class programs for key account management, new product development, and recruitment and compensation practices.

Communicating the underlying asset values – Clearwater has an industry-leading portfolio of quotas that provide strong security of underlying value to lenders and investors. In April 2012 an independent appraisal of these quotas was completed by TriNav Fisheries Consultants which placed a value on the quotas of $453 million. Furthermore, the company has continued to make focused investments to maintain the value and improve the efficiency of its vessels and plant assets, both of which serve to support strong asset values. This is supported by recent appraisals of certain of Clearwater’s vessels. Management believes that book values approximate market values for working capital and property, plant and equipment. The net book value of Clearwater’s net working capital, vessels, plant and equipment when combined with the appraised value of its licenses is over $600 million.
Clearwater’s financial targets for creating shareholder value include:

Annual sales growth of 5% or greater
Annual EBITDA as a percentage of sales of 15% or greater
Return on assets of 12% or greater
Leverage (debt to EBITDA) of 3 times by December 31, 2014
The sales and EBITDA ratios are annual goals whereas the return on assets and leverage ratios will be accomplished over time.

Management is satisfied with Clearwater’s progress on all these goals in the first quarter of 2012.

Sales growth was 2.4% in the first quarter of 2012, in line with expectations and when combined with stronger growth expected in the latter half of the year is expected to result in Clearwater hitting its 5% annual sales growth target.

EBITDA as expressed as a percentage of sales continues to be strong at 15.5% in the first quarter of 2012 and is expected to increase in the latter half of the year resulting in an annual rate stronger than that realized in fiscal 2011.

Return on assets continues to show improvement and is in line with 2012 goals.

Finally, leverage increased in the first quarter of 2012 as compared to December 31, 2011 due to expected and planned seasonality. During the second half of the year Clearwater will make a meaningful reduction in leverage in 2012 towards its goal of achieving target leverage of 3.0 by 2014.

Management believes that it has the correct strategies and focus to enable improved results and provide a sustainable competitive advantage and long-term growth. These strategies include:

Expanding access to supply;
Targeting profitable and growing markets, channels and customers;
Innovating and positioning our products to deliver superior customer satisfaction and value;
Increasing margins by improving price realization and cost management;
Preserving the long-term sustainability of our resources; and
Improving our organizational capability and capacity, talent, diversity and engagement
Management also believes that it has the people, processes and financial resources to execute this strategy to create value for its shareholders and in early 2012 developed a five year plan to support and give direction to these goals.

Financial Statements and Management’s Discussion and Analysis Documents

For a detailed analysis of Clearwater’s 2012 first quarter results, please see the first quarter of 2012’s Management’s Discussion and Analysis and financial statements. These documents can be found in the disclosure documents filed by the Corporation with the securities regulatory authorities available at or at its website

The entity previously known as Clearwater Seafoods Income Fund was reorganized into a publicly traded corporation called “Clearwater Seafoods Incorporated” (“Clearwater”) on October 2, 2011. The related share structure of Clearwater was reorganized such that Clearwater Seafoods Incorporated now consolidates the results of its wholly owned subsidiary, Clearwater Seafoods Limited Partnership.

To provide appropriate comparative information to investors all information prior to the conversion date of October 2, 2011 has been adjusted to reflect the transfer of control using continuity of interest accounting. As a result, the 2012 first quarter financial statements were prepared on a consolidated basis for the current and comparative quarter as if the conversion had occurred on January 1, 2011.

Key Financial Figures (In 000 of Canadian dollars except share amounts)

13 weeks ended
March 31, 2012 April 2, 2011

Sales $70,884 $69,235
Earnings (loss) (2,927) 1,832
Earnings and diluted earnings (loss) per share (0.09) 0.01

EBITDA 1 $10,980 $10,001

Shares outstanding, at period-end 2 50,948,698 51,126,912
Fully diluted 71,831,640 72,496,623

1. Please see the Management’s Discussion and Analysis for a reconciliation of EBITDA to the financial statements.
2. Effective October 2, 2011 the units of the Fund were converted into shares of Clearwater Seafoods Incorporated on a 1 for 1 basis.

This news release may contain forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors outside management’s control including, but not limited to, total allowable catch levels, selling prices, weather, exchange rates, fuel and other input costs that could cause actual results to differ materially from those expressed in the forward-looking statements. Clearwater does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances other than as required under applicable securities laws.

About Clearwater

Clearwater is one of North America’s largest vertically integrated seafood companies and the largest holder of shellfish licenses and quotas in Canada. It is recognized globally for its superior quality, food safety, diversity of species and reliable worldwide delivery of premium wild, eco-certified seafood, including scallops, lobster, clams, coldwater shrimp, crab and groundfish.

Since its founding in 1976, Clearwater has invested in science, people and technological innovation as well as resource ownership and management to sustain and grow its seafood resource. This commitment has allowed it to remain a leader in the global seafood market and in sustainable seafood excellence.

View the Clearwater website as

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