Attention Business/Financial Editors
CLEARWATER REPORTS THIRD QUARTER 2008 RESULTS
/Not for release over US newswire services/
HALIFAX, November 14/CNW/ - (TSX:CLR.UN):
Prices and margins stable and showing strength despite current market
conditions
Fleet fully operational and possibility of lower fuel costs in future quarters
Sales and gross profit for the third quarter of 2008 were $82 million and
$18 million versus $91 million and $22 million in 2007 (prior to adjustment
in 2008 for new inventory standard)
Management confident in refinancing its balance sheet and senior term
debt which is due December 8, 2008
Today, Clearwater Seafoods Income Fund (the “Fund”) reported third quarter
2008 results.
Sales prices and margins performed well during the quarter, despite challenging
market conditions. We believe our strategy of operating with a variety of
species and selling to a diverse group of customers worldwide will continue to
show positive results in what we expect to be a challenging economic environment
over the next twelve months.
We are pleased to announce the completion of our multi-year vessel renewal
program. With the last of our planned frozen-at-sea vessel conversions complete
and our new lobster vessel expected to start operations in November, our fleet
is now fully operational with no major vessel acquisitions or conversions
planned for the next three to five years. This will result in a more efficient
fleet with lower costs, improved quality and greater catch volumes, all of which
will serve to further improve profitability.
Looking at the quarter, sales and gross profit for the third quarter of 2008
were $82 million and $18 million versus $91 million and $22 million in 2007
(prior to the adjustment in 2008 for new inventory standard).
There were a number of significant operational items that impacted the third
quarter of 2008 as follows:
Scallop ma- - Scallop margins down from 2007 due mainly
to
gi-
s
lower ov- sa- volumes driven lower catch volumes of
larger size
ra- es
l
scallops, part- offset higher average prices in the quarter.
Costs
ally
were - hig- part to sale of product procured from
third
- er,
-
o
parties a- hi- fu- costs. These factors combined, led an
overall
d herl
decrease in total gross margins during the quarter. Subsequent to quarter- end
fuel prices have declined which should lead to lower operating costs going
forward.
Clam margins - The clam fleet has operated with less harvesting capacity
in the first half of 2008 resulting in lower harvest and sales volumes in the
third quarter of 2008. We expect to see this improve in the future as our
newly converted vessel, the Arctic Endurance, successfully completed its sea
and fishing trials during the second quarter and has begun to harvest
product, which is now being sold. Clam harvest costs were higher due to
higher fuel costs but as stated above, these are expected to lower as fuel
prices decline.
Shrimp and turbot - Our new shrimp/turbot joint venture has shown some Shrimp
prices in the quarter increased to the
very promising initial results.
highest levels we have seen in recent years, catch rates have been strong and
margins from turbot were also very strong in the quarter.
Lobsters - we realized improved lobster sales and margins in the quarter a
as res- of shore prices prices paid, partia-
lower selling
lt ly
prices.
The factors listed above led to lower distributable cash levels in the third
quarter and year-to-date as compared with 2007. Distributable cash for the
quarter and nine months of 2008 was a shortfall of $3.2 million and $9.6 million
versus distributable cash of $5.8 million and $486,000 in the comparative
periods of 2007.
The Trustees continue to monitor the distribution policy and have
decided it
would be appropr- to a a distribu-
third of and
ate ion
- restrictions in agreements, not consid-
distr- until
- ring butio-
- s
-
n
the refinancing mentioned in this release is complete.
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 expects strong growth in the clam business and the
full annual impact from this new vessel should be seen in 2009.
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
extension of the 10
10 years, the
of the factory and and
the
of rights to
fishing quotas.
intere- in the part-
to reflect the
ts ersh-
p
- and use of quotas quotas share
of
-
e
increased from
April April 1, 1, 2008
will enable
tocombi- combine
e
and related shri-
into a a larger
p
created efficien- efficiencies
profits for the
ies
business with significantly less capital employed.
We expect
returnsfrom this
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
On October 28, 2008 Clearwater Seafoods Income Fund and CS Acquisition
Limited Partnership (the "Purchaser") announced that they would not be in a
position to close the previously announced transaction pursuant to which a
partnership owned by a consortium led by Clearwater Fine Foods Inc. ("CFFI"),
would acquire the business of the Fund.
This announcement came as a result of the unprecedented uncertainty and
volatility in global financial markets and, in particular, Glitnir Banki hf
being placed into receivership shortly before the anticipated closing in
October. Glitnir was to provide approximately 10 per cent of the financing
required to complete the transaction. Despite diligent efforts to address the
financing issues, the parties were unsuccessful in arranging the alternative
sources of financing needed for the completion of the transaction. As a result,
the parties terminated the transaction agreement.
Tom Traves, Chairman of the Trustees, speaking on behalf of the Fund, stated,
"The Trustees are disappointed that this disruption of the financial markets did
not allow the Fund and the consortium partners to complete the transaction.
However, we remain confident in the business and its prospects for the long
term. The Trustees will continue to work with CFFI to review alternatives to
maximize value for the unit holders."
CFFI continues to be supportive of the Trustees' efforts. John Risley, President
of CFFI, stated "Clearwater has and will continue to be a long term strategic
investment for CFFI and we continue to believe in the long term prospects of the
business. We will continue to work with the Fund and its advisors in reviewing
its options as markets return to more normal conditions."
Refinancing
Management is currently working on refinancing its balance sheet and with a
successful conclusion, believes that the following renewed facilities combined
with the significant cash balances currently being carried will be sufficient to
meet Clearwater's ongoing cash requirements:
Notes due in December 2008 - There are approximately Canadian
$43 and
mil- US$15 mill- of term - due
December 2008.
ion on -
-
-
s
Man- is iscurr- discussions - exte-
the date and
gem- ntly od
nt
rep- these notes in - 2009 and b- it will be
successful in
ace - l-
- e-
- es
y
achieving this.
Foreign exchange contracts - Clearwater has a significant book of
exchange
for- contr- outstanding. - quarter-end
mark to
ign cts t
mar- liability thesecontracts wasapproximately
$7.9million (see
et
noteto Clear- Seafoods L-
Partnership'sfinancial
ater m-
t-
d
sta- Subse- to quarter- the
Canadian dollar
eme- uent end
ts).
dep- significantly against thecurren- contracted
for, in in
eci- ies
ted
particular the US dollar and the Japanese Yen. As a
result the majority
of
Clearwater's opt- contracts effect- became
forward contracts,
on vely
the of whi- a- due - Novemb- 2008 to
- 2009.
h e nr -
-
-
-
-
y
Man- iscurr- - discussions w- view to
extending the
gem- ntly n th
nt
maturity of these contracts to better match its foreign currency receipts.
For further information on Clearwater's capital resources please refer to the
liquidity and capital resources section of its 2008 third quarter Management's
Discussion and Analysis.
Summary
With the last of our planned frozen-at-sea vessel conversions complete and our
new lobster vessel expected to start operations in November, our fleet is now
fully operational with no major vessel acquisitions or conversions planned for
the next three to five years. This will result in a more efficient fleet with
lower costs, improved quality and greater catch volumes, all of which will serve
to further improve profitability.
Harvestcostsha- been impacted by higher fuelcosts, but subsequent
to
e
quarter-end ha- declined to moreacceptable levels. A one-cent
perli-
e re
change in - pr- of fuel impacts harvesting cos- by approximately
$280,000
- ce s
e
based on - 2007 fuel purchases. Subsequent to quarter-end 2008
fu-
- l
-
-
-
l
prices per litre declined below year-to-date average
costs.
The current exchange environment has seen a weakening of the Canadian dollar
versus a basket of international currencies. In fiscal 2007 46% of our sales
were denominated in US dollars at an average exchange rate of 1.07, 19% were in
Euros at an average rate of 1.45, 9% were in Japanese Yen at an average rate of
0.009 and 7% were in Pound Sterling at an average rate of 2.12.
Clearwater does not expect to realize a material net benefit to short-term cash
flows from this positive exchange environment as it has substantial foreign
exchange contracts including option and forwards which effectively lock in the
rate to be realized by Clearwater for the next 12-18 months depending on
currency.
Clearwater's inventory of foreign exchange contracts is disclosed in
note 5(a) to its third quarter 2008 financial statements.
Outlook
Colin MacDonald, Clearwater's CEO stated “Our strengths are our strong
positions
in our internationally recognized sustainable fisheries, our leading edge,
innovative harvesting and processing technologies, our vertical integration and
our business strategies to deliver long-term value. We have an outstanding and
dedicated
workforce,- quota - and global
customer
- -
- -
- -
- -
- -
- -
- -
t -
-
-
,
relationships that - and we forwa- building on
these
- d
-
-
-
-
s
strengths for the balance of 2008 and going
forward.
“Our sales prices and margins performed well during the quarter, despite
challenging market conditions.
We believe our strategy of operating with a
variety of species and selling to a diverse
group of customers world-wide as well as
strong demand for sustainable seafood will
continue to show positive results in what we
expect to be a challenging economic
environment over the next twelve months.
“Finally I am pleased to announce the completion of our multi-year vessel
renewal program and we look forward to operating the most up-to-date fleet of
factory freezer vessels in Canada.”
Colin MacDonald
Chief Executive Officer
Clearwater Seafoods Limited Partnership
November 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 third 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
Effective January 1, 2008, Clearwater adopted section 3031 “Inventories” that
establishes more extensive guidance on the determination of cost, requires
impairment testing and expands the disclosure requirements to increase
transparency. The adoption of this standard impacted the costs that are included
in inventory, as a portion of plant overhead, administration and depreciation
costs are included in inventory. As a result, the gross profit has been impacted
as the administration and depreciation costs that are now included in inventory
are expensed as part of the cost of goods sold as opposed to other costs that
are listed below the gross profit.
In the third quarter of 2008 Clearwater changed its accounting policy from
expensing refit costs as incurred to capitalizing and amortizing them over the
period between refits as this results in the financial statements providing more
reliable and relevant information about the effects of these refits on the
entity's financial position and financial performance.
Clearwater has changed this policy retroactively and a result has updated the
comparative figures presented to reflect the new policy.
The adoption of this
policy reduced amounts in of sold for costs,
increased amortization expense and increased capital expenditures.
Clearwater 2008 third quarter report provides full details on the impact of
these changes in accounting policies and standards on the 2008 and 2007 figures.
_______________________________________-
___________________
Clearwat- 13 39 weeks
ended
r weeks
ended
- S- Se- Sept- Se- September 27,
Sept- September 29, 2007
- p- te- mber te- 2008 mber
- e- ber 29, ber 29,
- b- 27, 27, 2007
- r 20- 20-
- 2- 8 8
- ,
- 2-
r 08
-
-
,
-
-
-
8
(as (as (as (as
re- rest-
rest- restated)
ta- ted) ted)
ed)
S- $- $9- $207,905
$224,9-
l- 1- ,5-
1
s 5- 5
7
Net earnings (- $8- ($20,671)
$25,322
(loss) 1- 705
,-
3-
)
Basic net earnings (loss) per
u- (- $0- ($0.40)
$0.48
it 0- 17
2-
)
Cash flows from operating
activities before changes in
working capital $- $7- $2,426
$8,679
,- 867
93
Distributable cash (- $5- ($9,631)
$486
(1) 3- 793
2-
0)
Distributions declared (1) $0 $7- $0
$23,692
875
Weighted average out- -
units tan- -
ing -
-
-
-
-
-
-
-
g
Limited Partnership Units 5- 52,6- 51,151,076 52,6-
52,648,140
,- 8,140 8,140
2-
,-
12
Fully - 62- 61,8- 62,348,105 61,8-
61,872,612
diluted - 32- 2,612 2,612
- ,9-
- 1
-
-
-
-
-
1
1.Please refer to the Distributable Cash definition in the MD&A for detailed
The
reconciliations of these amounts. receives
Fund dis- - f- Cl- in distributes them
unitholders. As su-
rib- - omar-
h,
tio- - at-
s - r
-
-
-
-
-
-
-
-
s
distributable cash for the Fund is equal to the
distributions received and paid.
2.The Fund does not consolidate the results of Clearwater's operations but
rather
accounts for the investment the
using equitymet- - D- li- of inform- that this w-
on on theunderl-
od. - e it- tion u-
ing
- d d
-
-
-
.
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.
