CLEARWATER REPORTS FIRST QUARTER 2011 RESULTS

/NOT FOR DISTRIBUTION TO UNITED STATES OR FOR DISSEMINATION IN THE UNITED STATES /

HALIFAX, May 31, 2011 /CNW/ - (TSX: CLR.UN CLR.DB.B CLR.DB.A):

  • EBITDA grew by 25.1% to $9.9 million in the first quarter of 2011 due to continued expansion of gross margins.

  • Management expects positive gross margins and earnings momentum to continue in 2011

  • Plans to invest up to $15 million to upgrade its fleet harvesting and plant processing capabilities in 2011

  • Board approves plans to convert from trust to public corporate structure

  • New Executive Vice President and Chief Commercial Officer joins Clearwater effective April 26th

Today, Clearwater Seafoods Limited Partnership ("Clearwater") reported its results for the first quarter of 2011.

Clearwater reported 2011 first quarter EBITDA of $9.9 million on sales of $69.2 million versus 2010 comparative figures of $7.91 million and $69.31 million representing a growth in EBITDA of 25.1%.

The growth in first quarter 2011 EBITDA of $2.0 million came as a result of improved sales prices and a shift to higher margin species, partially offset by lower sales volumes, higher harvesting costs per pound and a strengthening Canadian dollar.

1 - Refer to consolidation of entity previously proportionately consolidated within the critical accounting policy section in the MD&A for changes to the 2010 comparatives.

Outlook for 2011

Management is encouraged by the first quarter 2011 results and the increasing global consumer and customer demand for its premium, wild, sustainably harvested seafood. Taken in combination with the successful execution of its' pricing strategy, cost savings and other productivity initiatives, management believes Clearwater is poised to deliver sales, operating margin and earnings growth through the balance of 2011.

Included in these productivity initiatives are Clearwater's 2011 plant and vessel upgrade program and a restructuring of its Canadian Lobster operations. The plant and vessel upgrade program is on track with the majority of the investments to be completed in the first half of 2011. In total, Clearwater expects to invest up to $15 million to upgrade its fleet harvesting and plant processing capabilities in 2011.

In addition, Clearwater has restructured its lobster operations. We have closed a surplus dry land storage facility for live lobster in Clark's Harbor, Nova Scotia and reinvested and expanded capacity in two of our newer and larger lobster holding facilities located in Arichat and Lockeport, Nova Scotia. With a net neutral impact to EBITDA in 2011, this restructuring positions Clearwater to improve profitability and productivity within a highly competitive segment of the seafood industry that has good long term growth prospects.

Foreign Exchange Hedging Program

Clearwater has a targeted foreign exchange hedging program that is designed to reduce volatility in net cash flows. This program focuses on using forward contracts to lock in exchange rates for up to 75% of expected sales receipts in its key currencies for periods up to 18 months forward. As of May 31, 2011 Clearwater has covered 69% of its estimated net Euro and Yen exposure for the remainder of 2011. As a result, Clearwater expects that the impact of exchange rate volatility on 2011 cash flows will be largely mitigated. In addition, Clearwater has significant natural hedges against US dollar exposures through loans denominated in US dollars.

Capital Structure

In 2009 the Canadian Federal government announced tax changes for income trusts that allow trusts to convert to a corporation on a tax-free basis prior to 2013.

Clearwater has reviewed its corporate structure in light of this legislation and determined that a public corporate structure is more appropriate than a trust structure for the business. The business has the ability to defer income taxes and it plans to continue to retain earnings to reduce debt and provide for asset replacement and growth.

As a result, Clearwater's Board of Trustees has determined that the Fund should convert from an income trust to a public corporate structure effective January 1, 2012. The Fund is developing its conversion plan and further details will be announced in the second quarter of 2011. The Fund's annual general meeting will be deferred from its initially announced date of June 22, 2011 to August 25, 2011 so that this may be addressed at the same meeting as the annual general business.

Investment by Cooke Aquaculture

On May 4th Cooke Aquaculture announced they had purchased an interest in Clearwater's trust units representing approximately 10% of Clearwater's voting units.

Cooke Aquaculture, based in Blacks Harbour, New Brunswick is a well established leader in the high quality aquaculture of salmon and trout. Clearwater is pleased that an experienced and successful Canadian seafood company like Cooke sees the same value and growth opportunity in our company that we do.

New Vice President Customer Relations

Effective April 26th, 2011, Greg Morency has joined Clearwater as Executive Vice President, Chief Commercial Officer responsible for Clearwater's global sales and marketing organization.

"A veteran of the food and consumer products industry, Mr. Morency, has held senior leadership positions at Heinz, Unilever, International Paper and Tate & Lyle. Mr. Morency also has extensive industry experience in North America, Europe and Asia including his most recent position as Vice President and General Manager, Asia Pacific for Tate & Lyle. Greg's proven track record, international experience in sales and marketing as well as his knowledge of global consumer markets make him an ideal fit for this key position," said Ian Smith, Chief Executive Officer of Clearwater.

Leading the global sales and marketing organization, Mr. Morency will take responsibility and be the driving force behind the execution of two of Clearwater's core strategies: targeting profitable and growing markets, channels and customers; and, innovating and positioning products to deliver superior customer satisfaction and value.

Business strategy

Ian Smith, Chief Executive Officer, commented,

"We will continue to execute with excellence against our overall business strategy as well as key cost saving and productivity initiatives. Market demand for our products is strong across all major segments and we have every expectation that our business momentum will continue in 2011. Furthermore, we believe that our six core strategies of:

  1. Expanding access to supply;
  2. Targeting profitable and growing markets, channels and customers;
  3. Innovating and positioning our products to deliver superior customer satisfaction and value;
  4. Increasing margins by improving price realization and cost management;
  5. Preserving the long-term sustainability of our resources; and
  6. Improving our organizational capability and capacity, talent, diversity and engagement

will enable winning results and provide Clearwater with sustainable competitive advantage and long term growth."

Ian Smith
Chief Executive Officer
Clearwater Seafoods Limited Partnership
May 31, 2011

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater and Clearwater Seafoods Income Fund's 2011 first quarter results, please see the Management's Discussion and Analysis and the financial statements. These documents can be found in the disclosure documents filed by Clearwater Seafoods Income Fund with the securities regulatory authorities available at www.sedar.com or at its website www.clearwater.ca.

Key Financial Figures ($000's except unit amounts)        
             
Clearwater   13 weeks ended    
    April 2, 2011     April 3, 2010
               
Sales 1 $69,235     $69,262
Net earnings (loss) 1 1,827     (9,845)
               
EBITDA 1 $9,854     $7,878
             
Units outstanding at period-end            
Limited Partnership Units 51,126,912     51,126,912
Fully diluted 67,122,975     62,323,941

 
1.  Please see the Management's Discussion and Analysis for a reconciliation of these amounts to the financial statements.

__________________________________________________________________________________

Note: In the table above comparative sales for 2010 and EBITDA have been adjusted to reflect the full consolidation of an entity that was previously proportionately consolidated.

The Fund does not consolidate the results of Clearwater's operations but rather accounts for the investment using the equity method. Due to the limited amount of information that this would provide on the underlying operations of Clearwater, the financial highlights of Clearwater are included above.

Consolidation of Entity Previously Proportionately Consolidated

As a result of changes made effective January 1, 2011 to the management agreement that governs Clearwater's frozen-at-sea shrimp and turbot harvesting operations, Clearwater began to fully consolidate these operations in 2011. Previously it included its proportionate 54% share of these operations in its results. To provide for greater ease of comparison, Clearwater has updated the 2010 comparative figures in the MD&A to full consolidation, which included increasing sales, cost of goods sold, selling, general and administration, interest expense and minority interest expense. The MD&A contains a full reconciliation of the adjustments made to the 2010 comparative figures.

With the acquisition of control Clearwater remeasured its' interest in these operations to fair value which resulted in a gain of $11.6 million in the first quarter of 2011.

International Financial Reporting Standards ("IFRS")

Effective January 1, 2011 International Financial Reporting Standards ("IFRS") replaced Canadian GAAP for publicly accountable enterprises. Accordingly, Clearwater began reporting under IFRS in the first quarter of 2011 and has provided comparative figures for 2010 using IFRS.

It is critical for readers of Clearwater's financial statements to understand that:

  1. There was no impact on Clearwater's EBITDA from the adoption of IFRS.

  2. There was no impact on Clearwater's cash flows from operations and total cash flows from the adoption of IFRS.

  3. The adoption of IFRS did not impact any of Clearwater's key lending ratios

  4. All adjustments required to adopt IFRS were non-cash.

  5. There are additional disclosures required under IFRS which have dramatically increased the length of the first quarter of 2011 Quarterly Report.

The main changes to Clearwater's financial statements were as follows:

Cash Flows

There were no material changes to the statement of cash flows. The net earnings figure changed due to non-cash changes in depreciation, the amortization of the cumulative foreign currency translation account and non-cash adjustments required to record the Class D & E units at fair value and minority interest but cash flow from operations did not change.

Statement of Financial Position

  1. The carrying value of certain property, plant and equipment as of January 1, 2010 increased by $4.5 million upon transition to IFRS due to asset componentization. In addition a reclassification of $1.5 million was recorded as of January 1, 2011 from other assets to property, plant and equipment.
  2. Reduction of the Cumulative Foreign Currency Translation Account - IFRS 1 allows entities to reduce this account to nil upon the date of transition, i.e. January 1, 2010. This resulted in a reduction of $4.4 million of this account as of January 1, 2010.
  3. Non-controlling Interest - Non-controlling interest is presented as a component of equity under IFRS rather than as a liability. This resulted in a reclassification of $3.6 million of minority interest to non-controlling interest as of January 1, 2010.
  4. Deferred income taxes - As of January 1, 2010 deferred tax liabilities were decreased by $443,000.
  5. Long-term debt - As of January 1, 2010 long-term debt was decreased by $19.9 million due to the revaluation of Class D and E units to fair market value. Previously, the Class D and E Units in the Partnership were accounted for at cost and the Fund analyzed the carrying value of these investments by considering whether there was a loss in value that was other than temporary. Under IFRS, the Class D and E Units were accounted for as a financial asset, measured at fair value through profit or loss. In addition the revolving loan is presented as a component of current liabilities under IFRS rather than as a long term liability. This resulted in a reclassification of $29.3 million as of January 1, 2010.
  6. Under Canadian GAAP, the Class A Units and Class B Exchangeable Units were classified as equity.  Under IFRS, the Class A and B Units are accounted for as a financial liability, measured at cost, and are classified as "Partnership unit liability". The carrying value included $2.2 million related to the conversion option on the Class D and E units, which has been reclassified to the Class D and E unit liability.
  7. Amounts previously disclosed as deficit, contributed surplus, and accumulated other comprehensive loss within equity, are included within the classification "Net deficit attributable to unitholders" under IFRS. The impact to deficit of $20.7 million as at January 1, 2010 was a result of the $19.9 million revaluation of the Class D and E units to fair market value (refer above), the reclassification of the reduction in accumulated other comprehensive loss of $4.4 million and a reduction in accumulated amortization of $4.5 million as a result of the componentization of property, plant and equipment.
  8. Under Canadian GAAP, a deferred gain on fishing rights was classified as other long term liabilities. Under IFRS, the deferred gain is not recognized, reducing total fishing rights by $10.1 million as of January 1, 2010.

Statement of income (loss)

  1. Depreciation and amortization charges - As a result of refining the degree to which we componentized our vessels and plants we have recorded higher depreciation and amortization charges in the first quarter of 2010 of $134,000.
  2. Mark-to-Market on the long-term debt. As a result of the revaluation of the Class D and E Units to fair market value a mark-to-market adjustment of $4.2 million was recorded in the first quarter of 2010.
  3. As a result of the revaluation of the Class D and E Units to fair market value, deferred financing charges of $279,000 were reversed.
  4. Amortization of The Cumulative Foreign Currency Translation Account - This account accumulates the exchange difference that results from converting foreign subsidiaries at average current rates of exchange and converting all assets and liabilities at period end rates. IFRS 1 allows entities to reduce this account to nil upon the date of transition, i.e. January 1, 2010 and Clearwater took this election. Under Canadian GAAP, a gain or loss equivalent to the proportionate amount of exchange gains and losses accumulated in the account was recognized in net income when there was a reduction in Clearwater's net investment in its subsidiary. Under IFRS this account is only recognized in net income if there is considered to be a permanent reduction in the investment. As a result of this difference, a previously recognized loss of $214,000 was reversed.
  5. Deferred income taxes - deferred taxes decreased by $18,000 due to the tax impact of the other IFRS adjustments.
  6. Presentation of non-controlling interest - non-controlling interest of ($59,000) is presented as an allocation of net earnings rather than as a recovery under IFRS.

The net impact of the above changes was a $3.8 million increase in the net loss to $10.1 million for the first quarter of 2010.

COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS

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. The Fund and Clearwater do 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 recognized for its consistent quality, wide diversity and reliable delivery of premium wild, eco-labeled seafood, including scallops, lobster, clams, coldwater shrimp, crab and groundfish.

Since its founding in 1976, Clearwater has invested in science, people, technology, resource ownership and resource management to preserve and grow its seafood resource. This commitment has allowed it to remain a leader in the global seafood market.

 

 

SOURCE CLEARWATER SEAFOODS INCOME FUND

For further information:

Robert Wight, Chief Financial Officer, Clearwater, (902) 457-2369; Tyrone Cotie, Director of Corporate Finance and Investor Relations, Clearwater, (902) 457-8181.

Organization Profile

CLEARWATER SEAFOODS INCOME FUND

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890