Attention Business/Financial Editors
CLEARWATER REPORTS SECOND QUARTER 2008 RESULTS
/Not for release over US newswire services/
HALIFAX, August 14/CNW/ - (TSX:CLR.UN):
Sales and gross profit for the second quarter of 2008 were $69 million and $13
million versus $75 million and $16 million in 2007 (prior to adjustment in 2008
for new inventory standard)
Year to date sales and gross profit were $126 million and $25 million versus
$134 million and $28 million (prior to adjustment in 2008 for new inventory
standard)
Distributable cash relatively stable for the first half of 2008 versus 2007
being a shortfall of $6.4 million versus a shortfall of $5.3 million in 2007.
Sea and fishing trials completed for newly converted clam vessel, positioning
clam business for growth. Incurred $1.6 million of commissioning costs during
the quarter.
Negotiated renewed and expanded joint venture agreement for the shrimp business,
securing continued partnership for the future.
Acquires new lobster vessel, improved efficiencies to result
Fund enters into transaction agreement
Today, Clearwater Seafoods Income Fund (the “Fund”) reported second quarter 2008
results.
Sales and gross profit for the second quarter of 2008 were $69 million and $13
million versus $75 million and $16 million in 2007 (prior to the adjustment in
2008 for new inventory standard).
There were a number of significant events, positive and negative, that impacted
the second quarter of 2008 as discussed below.
Exchange - For the second quarter of 2008, sales and margins were negatively
impacted by $2 million when current effective rates are compared to those of
2007.
Fluctuating exchange rates also resulted in an increase of $2.4 million in
realized foreign exchange expense compared to 2007. It is important to
understand that more than 80% of Clearwater's sales are denominated in
currencies other than the Canadian dollar, whereas the majority of its expenses
are in Canadian dollars. As a result, foreign exchange fluctuations can have a
material impact on Clearwater's financial results.
The overall impact of exchange on cash earnings was $4.4 million versus 2007 ($2
million negative impact on sales and gross profit and $2.4 million reduction in
realized exchange gains).
Vessel commissioning and restructuring expenses - During the quarter Clearwater
incurred approximately $1.6 million in commissioning its new clam vessel. In
addition, Clearwater incurred approximately $700,000 in restructuring costs for
its lobster business.
Lobster margins - margins were impacted in 2008 by increased shore prices from
the December 2007 lobster buy. However, lower shore prices and good quality in
the spring of 2008 buy have resulted in a stronger inventory position at the end
of the second quarter, which we will see the benefit from in the second half of
the year.
Administration and selling expense reductions - Clearwater achieved continued
reductions in administrative and selling expenses in 2008. This relates mainly
to lower spending on professional and consulting fees. The current year
strategic review costs of approximately $130,000 are offset by lower
professional and consulting costs for the first quarter of 2008. The prior year
included costs of approximately $650,000 related to potential acquisitions and
approximately $200,000 more in information technology consultation spending.
The impact of the new inventory accounting standard resulted in an additional
reduction of $2.3 million in selling and administrative costs in the current
quarter as those costs were reclassified to cost of goods sold.
Impact from the adoption of new inventories accounting standard - The adoption
of a new inventory standard had the impact of increasing second quarter earnings
by $1 million but it did not materially impact year-to-date results (see details
at the end of this release).
The factors listed above led to lower distributable cash levels in the second
quarter but on a year-to-date basis distributable cash levels are relatively
consistent with 2007. Distributable cash for the first half of 2008 was a
shortfall of $6.4 versus a shortfall of $5.3 million in 2007. Distributable
cash for the second quarter of 2008 was a shortfall of $5 million versus
$594,000 of distributable cash in 2007. On January 21, 2008, due to the 2007
financial results, the Trustees of the Fund announced the suspension of monthly
distributions. Tom Traves, Chairman of the Trustees has stated “The Trustees
will continue to monitor the distribution policy with distributions to be
determined quarterly and paid in arrears after considering the traditional
criteria in determining the distribution policy.” The Trustees have decided it
would be appropriate to not pay a distribution for the second quarter of 2008.
Strategic investments
In late April 2008, Clearwater took delivery of the vessel it had been
converting over the past several months for its clam fishery. The vessel
undertook sea trials and commissioning in the second quarter and commenced
fishing in June. Management continues to believe there is strong potential for
growth in the clam business and expects to begin to realize this potential in
the latter part of the year. This new vessel combined with the ocean bottom
mapping technology will enable the clam business to realize significant
improvements for 2008 and beyond.
Clearwater has also renewed and expanded its joint venture agreement for its
shrimp harvesting operations effective April 1, 2008. The key terms of this new
agreement include an extension of the partnership for a further 10 years, the
contribution by our partner of the factory vessel Ocean Prawns and the
contribution by both parties of rights to fish shrimp and turbot fishing quotas.
Each partner's equity interests in the partnership were adjusted to reflect the
contribution of the vessel and use of quotas such that Clearwater's share of the
partnership earnings have increased from 50% to 54% from April 1, 2008 onwards.
This joint venture will enable Clearwater and its partner to combine shrimp
harvesting assets and related shrimp and turbot quotas into a larger operating
entity that is expected to create efficiencies and improved profits for the
business in the future.
Finally, subsequent to quarter-end Clearwater purchased a vessel for conversion
for the lobster fleet. The total expected cost, including conversion costs is
approximately $5.7 million. This vessel will lower the average age of the
lobster fleet, improve operating efficiency and reliability of fishing efforts,
significantly lower fuel consumption and result in greater stability in crewing.
As a result, Clearwater expects to retire 3 of the 4 existing lobster vessels in
the latter part of the year. We expect to realize increased returns from this
vessel due to lower fleet management costs and lower mortality from improved
handling.
The overall impact of these investments is to increase our harvesting capacity
while reducing our expected operating costs through employing more efficient
vessels and reducing the size of our fleet.
Strategic Review
Earlier today Clearwater Seafoods Income Fund announced that it had entered into
an acquisition agreement with CS Acquisition Limited Partnership (“CS
Acquisition”), a partnership consortium led by Clearwater Fine Foods
Incorporated (“CFFI”), the controlling unitholder of Clearwater Seafoods Limited
Partnership.
Under the terms of the Agreement, CS Acquisition will acquire all of the assets
of the Fund, which will result in the Fund's unitholders receiving $4.50 per
unit and the holders of convertible debentures receiving 101% of the par value
of debentures plus accrued interest.
Based on the recommendation of its Special Committee, the Board of Trustees has
unanimously resolved to recommend that unitholders approve the transaction. The
Fund will issue a management information circular which will contain its
recommendation to unitholders together with the formal valuation and fairness
opinion.
This offer effectively results in CS Acquisition Limited Partnership acquiring
all of the Fund's investment in Clearwater. Concurrent with this transaction,
Clearwater will reorganize it current capital structure, which will effectively
result in the replacement of existing debt facilities with new debt facilities
and the consolidation of its partnership units.
For further details of this proposed transaction please see the news release on
this topic issued earlier today by Clearwater.
Summary
From an operational perspective, the clam business operated without any
significant interruptions during the year-to-date period although we did incur
significant expenses commissioning our new clam vessel.
Lobster margins were impacted in 2008 by increased shore prices from the
December 2007 lobster buy. However, lower shore prices and good quality in the
spring of 2008 buy have resulted in a stronger inventory position at the end of
the second quarter, which we will see the benefit from in the second half of the
year. In addition, we incurred approximately $700,000 in restructuring expenses
for our lobster business during the quarter to position it for greater profits
in the future.
Administrative and selling expenses continue to be lower than 2007.
The only earnings in the frozen at sea shrimp business resulted from the one
vessel in our joint venture. We successfully brought our new shrimp vessel
on-stream in the second quarter and renewed and expanded the joint venture
agreement for the shrimp harvesting operations effective April 1, 2008.
In summary, margins were impacted by commissioning costs, foreign exchange and
lower lobster margins. However, a fully commissioned clam fleet and a new
shrimp joint venture will provide the opportunity to increase our harvest and
sales volumes going forward.
Outlook
Colin MacDonald, Clearwater's CEO stated “We hold significant quotas in our key
species, we have leading edge, innovative harvesting and processing technologies
and we are vertically integrated. Our business strategies to deliver long-term
value are sound. We have an outstanding and dedicated workforce, excellent
quota positioning, and global customer relationships that span decades and we
look forward to building on these strengths for the balance of 2008 and going
forward.”
Colin MacDonald
Chief Executive Officer
Clearwater Seafoods Limited Partnership
August 14, 2008
Financial Statements and Management's Discussion and Analysis Documents
For an analysis of Clearwater and Clearwater Seafoods Income Fund's quarterly
results, please see management's discussion and analysis and the second quarter
and year-to-date 2008 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).
Financial Highlights and Significant Items
Summary of impact of new inventory accounting standard
The second quarter and year-to-date 2008 results were prepared in accordance
with the new inventory standard issued by the Canadian Institute of Chartered
Accountants, effective January 1, 2008 for Clearwater. This standard provides
more extensive guidance on the determination of cost and requires that variable
overheads, a portion of administration expenses and depreciation be inventoried
and as a result, included in the cost of goods sold. This standard was not
applied retroactively and prior year numbers were not restated. An adjustment
was made to decrease opening deficit to reflect the impact of this standard on
the opening inventory figure for January 1, 2008. The first quarter 2007 does
not reflect a similar adjustment and therefore the quarters are not readily
comparable.
The following table illustrates the impact of the new standard on amounts
reported in the second quarter and year-to-date 2008 financial statements.
Year-to-date
Amount prior to Adjustment for new Amount per
application of standard financial statements
new standard
Cost of good sold $ 101,180 $ 10,245 $ 111,425
Gross profit 25,168 (10,245) 14,923
Administration and selling 17,728 (4,943) 12,785
Depreciation and
Amortization 5,596 (5,231) 365
Net loss $ (9,807) $ (71) $ (9,878)
Second quarter
Amount prior to Adjustment for new Amount per
application of standard financial statements
new standard
Cost of good sold $ 56,295 $ 4,301 $ 60,596
Gross profit 12,938 (4,301) 8,637
Administration and selling 9,037 (2,339) 6,698
Depreciation and
Amortization 2,840 (3,013) (173)
Net income $ 10,440 $ 1,051 $ 11,491
____________________________________________________________________
Key Financial Figures ($000's except unit amounts)
Clearwater 13 weeks ended
26 weeks ended
June 28, 2008 June 30, 2007 June 28, 2008 June 30, 2007
Sales $ 69,223 $ 75,311 $ 126,348 $ 134,406
Net earnings (loss) $ 11,491 $ 12,120 $ (9,878) $ 15,788
Basic net earnings (loss)
per unit $ 0.22 $ 0.23 $ (0.19) $ 0.30
_________________________________ __
Cash flows from operating activities,
before changes in working
capital $ (2,529) $ 2,012 $ (3,697) $ (1,605)
Distributable cash 1 $ (4,964) $ 594 $ (6,421) $ (5,307)
Distributions declared 1 $ - $ 7,901 $ - $ 15,817
Weighted Average Units outstanding
Limited Partnership Units 51,126,912 52,662,604 51,163,225 52,725,098
Fully diluted 62,324,111 64,484,281 62,360,424 60,620,119
______
Please refer to the Distributable Cash definition in the MD&A for detailed
reconciliations of these amounts. The Fund receives distributions from
Clearwater and in turn distributes them to its unitholders. As such,
distributable cash for the Fund is equal to the distributions received and paid.
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.
About Clearwater
Clearwater is recognized for its consistent quality, wide diversity and reliable
delivery of premium seafood, including scallops, lobster, clams, coldwater
shrimp, crab and ground fish.
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.
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.
