CLEARWATER REPORTS SECOND QUARTER 2020 RESULTS
Clearwater reports second quarter 2020 results.
- Second quarter sales and adjusted EBITDA1 were $106.0 million and $18.9 million respectively, versus $153.9 million and $30.3 million in the prior year, due to the global impact of COVID-19.
- Year-to-date sales and adjusted EBITDA1 were $206.3 million and $32.0 million respectively versus $274.0 million and $50.3 million in the prior year.
- Gross margin and adjusted EBITDA as a percentage of sales were 17.4% and 17.9% respectively in the second quarter compared to 20.5% and 19.7% in 2019.
- Leverage1 increased modestly to 5.3x compared to 5.2x in the second quarter of 2019.
The Company is continuing with the formal process to identify, review and evaluate a broad range of potential strategic alternatives Second Quarter and Year-to-date Results
“As the impact of COVID-19 expanded globally in the second quarter to impact all of our sales regions and the majority of our species, the measures that we began implementing in the first quarter have been successful. We remain operational in our fleet and all plants with the exception of one seasonal shrimp secondary processing operation which we chose not to open due to weak demand. The impact of COVID-19 has been complex for our customers, our supply chain partners and our company. Clearwater has implemented measures to protect employee health and safety, and to align harvesting and processing to customer demand” said Ian Smith, Chief Executive Officer of Clearwater. “Our ability to remain in continuous operation at sea, on land and around the globe when combined with our strong customer relationships has enabled specific COVID-19 responses tailored to these markets. While we expect retail strength and food service softness to continue in the near term, our demand is recovering. We remain focused on expanding global distribution, new products and formats, and increased promotional activity in channels that are experiencing heightened demand including retail and e-commerce. We are also continuing to prepare for the recovery in global food service.”
Sales for second quarter and year-to-date 2020 were $106.0 million and $206.3 million as compared to $153.9 million and $274.0 million in the same periods of 2019. Sales volumes decreased across most species and regions in the first half due to lower demand in food service. Traditional retail and on-line consumer demand are thriving in this difficult market, whereas food service customers and their supply chain have been seriously affected by social distancing measures.
Adjusted EBITDA for second quarter and year-to-date 2020 were $18.9 million and $32.0 million as compared to $30.3 million and $50.3 million in 2019. In the quarter, lower demand for clam, lobster, and langoustines and higher costs related to COVID-19 were partially offset by lower harvesting costs for scallops and clam, lower fuel costs, continuous improvement programs savings, refined procurement strategies and government support programs.
Average foreign exchange rates realized on sales had a net positive impact of $2.2 million and $2.9 million for the second quarter and first half of 2020, respectively, as compared to the same periods of 2019.
Cash used in operations was $6.9 million in the second quarter of 2020 as compared to $35.6 million for the same period of 2019. Free cash outflow was $18.8 million as compared to $48.0 million in the second quarter of 2019, due to lower investments in working capital partially offset by lower cash earnings and higher capital expenditures. Measures that Clearwater has implemented will ensure continued generation of cash to support ongoing operations and capital expenditures as well as selective strategic initiatives that will generate future growth.
Liquidity, Debt and Leverage
Rigorous and disciplined cash preservation measures were implemented during the first half of the year. These included accessing government support programs and operational adjustments to several species that significantly improved cash flows while having minimal impact on species profitability. The quality of receivables remains high reflecting the strength of our customer base which enabled us to leverage the COVID-19 support of our Credit Insurance partners.
Leverage for the second quarter of 2020 was 5.3x compared to 5.2x for the same period of 2019. Disciplined working capital management and strong 2019 results in the trailing twelve-month calculation, largely offset the impact of lower COVID-19 demand resulting in lower net debt at the second quarter of 2020 compared to 2019.
Clearwater has strong access to liquidity and funding. Discipline and focus on cashflows from operations, working capital and capital expenditures will maintain liquidity throughout seasonal operations.
On May 15, 2020, to enhance liquidity and recognizing the uncertainty related to the duration and impact of COVID-19, the Company suspended dividends for the balance of 2020. This was incorporated into the amendment of the credit facility with secured lenders Seasonality
Clearwater’s business experiences a predictable seasonal pattern in which sales, margins and adjusted EBITDA are lower in the first half of the year and higher in the second half. Investments in capital expenditures and working capital are typically higher in the first half of the year and lower in the second half. This normally results in lower cash flows, higher debt balances and higher leverage in the first half of the year and higher cash flows, lower debt balances and lower leverage in the second half.
Clearwater was directly impacted by COVID-19 in the first half of 2020 as we and our global customer base faced the implications of the growing pandemic through food service closures, social distancing and other measures targeted at reducing spread. As a vertically integrated seafood company, the impact to Clearwater, its customers, supply chain partners, operational protocols and employees is complex.
Traditional retail and on-line consumer demand are thriving whereas food service customers and their supply chains are experiencing interruptions.
Demand improved in the latter part of the second quarter and is expected to improve further as governments relax measures and markets continue to reopen. We have responded by placing extra focus and attention on the expansion of global distribution, new products and formats and increasing promotional activity in channels that are experiencing heightened demand including retail and e-commerce. We are also continuing to prepare for the recovery in the global food service channels.
As a business, Clearwater is considered an essential service and continues to harvest, process, and deliver seafood to customers globally.
Clearwater has taken immediate action in response to COVID-19 to ensure employee safety and security and business continuity including:
- Health screening protocols;
- Securing personal protective equipment for employees throughout our global supply chain;
- Implementing social distancing and enhanced cleaning protocols in our processing plants and on harvesting vessels;
- Supporting our essential workers with thank-you pay and adapting travel to and from harvest ports to maintain labour mobility; and
- Successfully transitioning approximately 98% of our office, sales and administrative staff to working remotely and in continued close coordination across three continents and 17 time zones.
Clearwater has strong access to liquidity and funding. Discipline and focus on cashflows from operations, working capital and capital expenditures preserved cash flow in the second quarter and will maintain liquidity for seasonal operations. Leverage is expected to increase in the near term as a direct impact of COVID-19.
While the short-term impact of COVID-19 has introduced additional forward-looking uncertainty, as a vertically integrated seafood company, with proprietary licences, advanced and year-round harvesting and processing capabilities, premium product quality, diversity of species, global sales and distribution footprint and an experienced, dedicated workforce, Clearwater is well-positioned to take advantage of future growth opportunities as global seafood demand recovers.
Clearwater’s core strategies are built around these strengths, remain highly relevant and our long-term growth outlook beyond 2020 remains very positive.
Expanding Access to Supply – Expanding access to supply of core species and other complementary, high demand, premium, wild and sustainably-harvested seafood through improved utilization and productivity of core licences as well as acquisitions, partnerships, joint ventures and commercial agreements.
Target Profitable and Growing Markets, Channels and Customers – Clearwater targets growing markets, consumers, channels, and customers on the basis of size, profitability and demand for eco-label seafood. Our focus is to win in key channels and with customers that are winning with consumers.
Innovate and Position Products to Deliver Superior Customer Satisfaction and Value – We continue to work with customers on new products and formats as we innovate and position our premium seafood to deliver superior satisfaction and value that is differentiated by relevant dimensions such as taste, quality, safety, sustainability, wellness, convenience and fair labour practices.
Increase Margins by Improving Price Realization and Cost Management – Clearwater leverages the scarcity of seafood supply and increasing global demand, in addition to continuing to invest in, innovate and adopt state-of-the-art technology, systems and processes.
Pursue and Preserve the Long-Term Sustainability of Resources on Land and Sea – As a leading global supplier of wild-harvested seafood, sustainability remains at the core of our business and our mission. Investing in the long-term health and the responsible harvesting of the oceans and its bounty is every harvester’s responsibility and the only proven way to ensure access to a reliable, stable, renewable, and long-term supply of seafood. Sustainability is not just good business, like innovation it’s in our DNA.
Build Organizational Capability, Capacity and Engagement – We attract, train, and retain the best talent to build business system and process excellence company-wide.
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