CLEARWATER REPORTS FOURTH QUARTER AND ANNUAL 2010 RESULTS
Clearwater reported fourth quarter sales of $77.8 million and EBITDA of $13.8 million versus 2009 comparative figures of $68.4 million
and $9.3 million representing growth rates of 13.8% and 48.0% respectively, reports www.megafishnet.com with reference to Clearwater.
Annual sales were $291.1 million and EBITDA was $44.8 million versus 2009 comparative figures of $284.1 million and $39.3 million representing growth rates of 2.5% and 14.0% respectively.
Annual sales volumes increased 5% versus 2009 and good execution of pricing strategy in response to market demand as well as a continued focus on cost reductions resulted in increased quarterly and annual EBITDA.
Management expects that this positive earnings trend will continue in 2011 as seafood markets are expected to remain strong and operations continue to benefit from cost saving measures.
Completed restructuring of senior debt, including all ISK denominated debt.
Today, Clearwater Seafoods Limited Partnership ("Clearwater") reported its results for the fourth quarter and year ended December 31, 2010.
Clearwater reported fourth quarter EBITDA of $13.8 million on sales of $77.8 million versus 2009 comparative figures of $9.3 million and $68.4 million. This 48.0% increase in EBITDA in the fourth quarter of 2010 was due to strong sales volumes and market prices as well as lower cost of good sold resulting from significantly improved operating efficiencies.
For the year ended December 31, 2010 Clearwater reported EBITDA of $44.8 million on sales of $291.1 million versus $39.3 million and $284.1 million in 2009. Consistent with the fourth quarter, this 14% increase in annual EBITDA was due to strong sales volumes and market prices as well as lower cost of goods sold. These initiatives offset the negative impact of a stronger Canadian dollar as compared to 2009.
Sales volumes have remained healthy with fourth quarter volumes up 10% from 2009 and annual volumes up 5%. Strong demand for core products has allowed Clearwater management to execute pricing strategy in response to market demand in the majority of species in particular scallops, clams and cooked and peeled shrimp.
Outlook for 2011
Management is encouraged by Clearwater's 2010 results and the increasing global consumer and customer demand for its premium, wild, eco-labeled seafood. Taken in combination with the successful execution of pricing strategy, cost savings and other productivity initiatives, Management believe Clearwater is poised to continue to deliver improved operating margins and earnings performance in 2011.
In 2011 Clearwater plans to complete a substantial plant and vessel upgrade program, the majority of which will be completed in the first and second quarters of 2011. In total, Clearwater expects to invest up to $14 million in sustaining its fleet and plants in 2011.
Management believes that 2011 results will continue to reflect the typical pattern for the business in which EBITDA is typically lower in the first half of the year due to lower sales volumes and higher harvest costs due to more challenging winter weather conditions. In the second half of the year results typically show greater strength due to higher sales volumes and lower harvest costs. In 2011 Clearwater expects that the impact of exchange rate volatility on cash flows will be muted due to the implementation of a targeted foreign exchange hedging program.
These assumptions regarding 2011 results are based on continued strong sales volumes in core species, continued strong demand and strong global market prices as well as the realization of additional cost savings and productivity gains.
New debt facilities
Management and the Board are committed to improving Clearwater's financial strength and flexibility by reducing debt levels and leverage, implementing targeted exchange hedging programs and reviewing the status of its corporate structure as a trust.
Clearwater's strategy for maintaining liquidity and reducing leverage includes carefully managing its working capital and capital expenditures and liquidating non-core 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. In 2010 Clearwater's EBITDA improved by 14.0% to $44.8 million and Clearwater reduced its total debt by $8.7 million. As a result, its leverage ratio (net debt to EBITDA) has improved in the past year from 5.22 to 4.47.
On February 4, 2011 Clearwater announced that it had successfully completed a refinancing of its senior debt facilities increasing its' Senior Term Credit Facility ("Senior Notes") from $51.5 million to $70 million, extending the maturity date of its existing Asset Backed Revolving Loan and creating a new US $45 million Second Lien Senior Credit Facility. The proceeds of this refinancing were used to repay and cancel all the Icelandic Krona denominated debt facilities and provide working capital for ongoing corporate needs. This refinancing resulted in a number of benefits for Clearwater including timely funding for its 2011 capital expenditure plan, removing exposure to ISK debt, increasing operational liquidity, increasing financial flexibility, providing capacity to expand its hedging program and removing all near-term debt maturities; all with no increase in annual cash interest costs.
Clearwater has a targeted foreign exchange hedging program that is designed to reduce volatility in net cash flows caused by short-term changes in exchange rates. This program focuses on using forward contracts to lock in exchange rates for up to 75% of its expected sales receipts in its key currencies for periods up to 18 months forward. Clearwater's net exposure, based on 2010 sales figures, i.e. its gross cash receipts less expenses in foreign currencies approximate $233 million annually, so it is targeting a maximum annual hedge position of approximately $175 million. As of March 29, 2011 Clearwater has sold forward Euro 25 million at an average rate of 1.355 and Yen 1.6 billion at an average rate of 0.0121. Using actual gross sales for the last three quarters of 2010 as a benchmark, this represents 52% of 2010 Euro sales and 80% of 2010 Yen sales.
In 2009 the Canadian Federal government announced tax changes for income trusts that took effect on January 1, 2011 and allow trusts to convert to a corporation on a tax-free basis prior to 2013. Clearwater has reviewed its corporate structure in the past in light of these changes in tax legislation and determined that, due to its significant tax assets, it can generate approximately $75 million of currently deductible tax shield which can provide shelter for future taxable earnings allocated to the Fund. As a result, Clearwater has concluded that since the new tax rules will have limited impact on the Fund in the near future, unit holders will not suffer any negative tax consequences if the Fund does not convert to a corporation prior to 2012. However, Clearwater plans to reviews its current structure, and make an announcement in 2011 regarding updating its capital structure.
Business strategy
Ian Smith, Chief Executive Officer, commented,
"I am encouraged by our volume strength in 2010 and the increasing global consumer and customer demand for our premium, wild, eco-labeled seafood. Taken in combination with the successful execution of our pricing strategy, cost savings and other productivity initiatives, I believe Clearwater is poised to continue to deliver improved operating margins and earnings performance in 2011. Furthermore, I believe that our strategies of:
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
will result in improved results in the near-term and provide us with a sustainable competitive advantage in the mid to longer term".