Clearwater reports strong results for third quarter of 2012

Tue, 13 Nov 2012


HALIFAX, Nov. 13, 2012 /CNW/ – (TSX: CLR, CLR.DB.A):

Eleventh consecutive quarter of growth in sales and EBITDA
Results for third quarter of 2012 include sales growth of 4.2% to $101.6 million and EBITDA growth of 10.3% to $25.1 million.
Year to date results included sales growth of 4.8% to $257.5 million and EBITDA growth of 17.4% to $52.6 million.
Significant progress made in the third quarter of 2012 towards free cash flow and leverage goals
Appoints highly accomplished IT Executive as new Vice-President and Chief Information Officer.
Today, Clearwater Seafoods Incorporated (“Clearwater”) reported its results for the third quarter of 2012.

Third quarter 2012 sales were $101.6 million and EBITDA was $25.1 million versus 2011 comparative figures of $97.6 million and $22.8 million, representing growth rates of 4.2% in sales and 10.3% in EBITDA. This represents the eleventh consecutive quarter of improved results.

Year-to-date Clearwater reported sales of $257.5 million and EBITDA of $52.6 million versus 2011 comparative figures of $245.6 million and $44.8 million representing growth rates of 4.8% in sales and 17.4% in EBITDA.

Growth in sales and EBITDA came as a result of higher sales volumes, particularly of coldwater shrimp, as well as higher sales prices for most species. The impact of the growth in sales on EBITDA was partially offset by a shift to lower margin species and higher procurement costs in certain species.

Free cash flows grew in the third quarter of 2012 to $12.6 million versus $4.8 million in 2011. Year-to-date free cash flows were an investment of $20.7 million versus $11.3 million in 2011 due to seasonality in working capital and capital expenditure investments. Clearwater expects that strong earnings and further reductions in working capital during the fourth quarter of 2012 will result in positive free cash flow for 2012.

Free cash flows were used to reduce debt during the quarter. This, combined with higher EBITDA has resulted in an improvement in leverage from 4.1 at the end of the second quarter of 2012 to 3.7 at the end of the third quarter. Clearwater expects that strong free cash flows in the fourth quarter of 2012 will enable it to reduce leverage further and closer to our goal of 3.0 times.


Global demand for seafood is outstripping supply, creating favorable market dynamics for vertically integrated producers such as Clearwater with strong resource access.

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

The supply of wild seafood is limited and is expected to lag behind the growing global demand. This supply-demand imbalance has created a market place in which purchasers of seafood are increasingly willing to pay a premium to suppliers that can provide consistent quality and food safety, wide diversity and reliable delivery of premium, wild, sustainably harvested seafood.

Clearwater, like other vertically integrated seafood companies, 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.

Clearwater expects strong earnings in the fourth quarter of 2012 due to seasonally higher sales during the fourth quarter.

Ian Smith, Chief Executive Officer, commented, “In the quarter the company had the highest revenues and EBITDA in its history. Management is satisfied with the progress made towards both our 2012 and longer term financial targets and we have every expectation that our momentum will continue through the balance of fiscal 2012 and into 2013.”

Management’s commitment to creating shareholder value

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 towards achieving all of these goals in 2012.

Rolling 12 month Period ending
September 29, 2012 December 31, 2011 October 1, 2011 Target*
EBITDA* 68,087 60,284 58,620 N/A
19.8% 18.1% 18.2% 15.0%
(as a % of sales)

Sales* 344,630 332,785 329,446 N/A
Sales growth 4.6% 5.5% 7.6% 5.0%

Financial Performance
Free cash flows (7,448) 2,015 (10,619) N/A

Leverage** 3.7 3.9 4.1 3.0

Return on assets** 11.5% 10.5% 10.5% 12.0%
* Supplemental information provided for target
** Target to be accomplised over several years
Note: Refer to definitions within the Management Discussion and Analysis

Management has undertaken 8 initiatives to create shareholder value.

1. Growing EBITDA and sales sustainably – Clearwater has experienced continued growth in EBITDA and sales by controlling costs and improving productivity, product mix and prices.

Sales growth year-to-date was 4.8% in line with expectations and is expected to result in Clearwater hitting its 5% annual sales growth target. Year-to-date EBITDA as expressed as a percentage of sales continues to be strong at 20.4% and is expected to remain strong for the last quarter of the year resulting in an annual rate stronger than that realized in fiscal 2011.

Clearwater expects strong earnings in the fourth quarter of 2012 due to seasonally higher sales. Over the mid-term Clearwater will continue to lever its vertical integration existing segments to capture a growing share of the seafood value chain through the introduction of value-added new products in certain core species.

2. Generating strong free cash flows – Clearwater is focused on generating increasing free cash flows on an annualized basis and plans to accomplish this through generating strong cash earnings, managing its working capital and carefully planning and managing its capital expenditure program. Clearwater’s operations have a predictable seasonal pattern in which EBITDA is higher in the second half of the year and capital expenditures and inventories 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 and higher free cash flows, lower debt balances and lower leverage levels in the second half of the year.

Free cash flows were a net investment of $7.5 million for the rolling 12 month period ending September 29, 2012, versus positive free cash flow of $2.0 million to December 31, 2011 and a net investment of $10.7 million to October 1, 2011. The higher investment in 2012 is a result of higher seasonal investment in working capital and capital expenditures.

3. Improving leverage – As of the third quarter of 2012 leverage improved to 3.7 versus 3.9 as at December 31, 2011 and 4.1 at the end of the second quarter of 2012. Clearwater expects that strong free cash flows in the fourth quarter of 2012 will enable it to reduce leverage further. Clearwater has committed to further leverage reductions to achieve the target of 3.0 by December 31, 2014 by increasing earnings and using its free cash flow to reduce debt.

4. Return on assets – Return on assets has improved from 10.5% at December 31, 2011 to 11.5%, a continuing trend of improvement and focused management of investments. The target of 12.0% is expected to be accomplished over the next several years.

Other key initiatives include:

5. Improving the capital structure – During the second quarter of 2012 Clearwater successfully completed a series of capital market transactions that substantially improved its debt structure. The financing enables Clearwater to reduce projected interest costs by approximately $4.6 million annually, strengthens its liquidity and provides the capital structure necessary to execute growth plans while further reducing overall leverage. Clearwater is now focused on initiating an active communications plan with its investors to ensure continued access, when required, to all sources of growth capital.

6. Focused management of foreign exchange – Clearwater has a focused and targeted foreign exchange hedging program to reduce the impact of short-term volatility in exchange rates on earnings. This, combined with stronger processes for price management reduces the impact of exchange rate volatility on the business. Clearwater has approximately 72% of its US Dollar, Euro and Yen exposures for the remainder of 2012 hedged at rates of 1.03, 1.29 and 0.013 respectively. In addition, Clearwater has 74% of its Euro and Yen exposures for 2013 hedged at rates of 1.27 and 0.013 and approximately 70% of its first quarter 2013 USD exposure at an average rate of 1.00.

7. Building world class leadership, management, sales and marketing capabilities – Clearwater has begun implementing best in class programs for key account management, new product development, sales and operating planning, recruitment and compensation practices. In addition, over the past two years Clearwater has added a number of new people to its senior management team and its’ Board of Directors. Most recently, John Burwash joined Clearwater as Vice-President and Chief Information Officer. John is a highly accomplished IT Executive with over 20 years experience within the global automotive industry where he held senior IT leadership positions at Cosma International (An operating unit of the Magna International Group of Companies) since 1996. John will be building upon an already ambitious IT agenda, taking charge of a responsive and customer service-oriented team and ensuring that a planned ERP implementation and system upgrades provide the solid and state-of-the-art foundation needed to fuel Clearwater’s next phase of growth.

8. Communicating underlying asset values – Clearwater has an industry-leading portfolio of quotas that provide strong security of underlying value to lenders and investors. In the second quarter of 2012 an independent appraisal of these quotas was completed by TriNav Fisheries Consultants, which placed a value on the quotas of $453 million. Clearwater obtained further independent support for the value in these licenses in the third quarter of 2012 when both the Arctic surf clam fishery and Nova Scotia snow crab fishery received the Marine Stewardship Council (MSC) certification. These species join the Clearwater family of MSC-certified offerings including Canadian sea scallops, Argentine scallops, Canadian coldwater shrimp and Eastern Canadian offshore lobster. Clearwater now boasts a total of seven species certified by the MSC, completing the certification of all its core products, and giving the Company the widest selection of MSC-certified species of any seafood harvester worldwide.
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 including the five year plan it developed in early 2012 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 third quarter and year-to-date results, please see the 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 third quarter and year-to-date financial statements were prepared on a consolidated basis for both the current and comparative periods as if the conversion had occurred on January 1, 2011.

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

13 weeks ended 39 weeks ended Rolling 12 months ended
September 29, 2012 October 1, 2011 September 29, 2012 October 1, 2011 September 29, 2012 October 1, 2011

Sales $ 101,640 $ 97,590 $ 257,490 $ 245,645 $ 344,630 $ 329,446
Earnings 17,618 5,056 12,186 6,561 28,576 1,595
Basic Earnings per share 0.30 0.05 0.13 0.04
Diluted Earnings per share1 0.27 0.05 0.13 0.04

EBITDA 2 $ 25,125 $ 22,771 $ 52,617 $ 44,814 $ 68,087 $ 58,620

Shares outstanding, at period-end 3 50,948,698 51,058,528 50,948,698 51,103,867
Weighted average shares on a fully diluted basis 4 60,069,575 72,496,623 67,882,334 72,496,623
1 Diluted earnings per share for the 13 weeks ended October 1, 2011, the 39 weeks ended September 29, 2012 and October 1, 2011 were anti-dilutive.
2 Please see the Management’s Discussion and Analysis for a reconciliation of EBITDA to the financial statements.
3 Effective October 2, 2011 the units of the Fund were converted into shares of Clearwater Seafoods Incorporated on a 1 for 1 basis.
4 If the outstanding convertible debentures were exercised the shares outstanding on a fully diluted basis at September 29, 2012 would be 58,472,257 shares.

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.


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