Clearwater Seafoods posts third-quarter results as COVID-19 continues to sow complexities

COVID-19 continues to have a complex impact on Halifax, Nova Scotia, Canada-based Clearwater Seafoods Incorporated – as well as its customers and supply chain partners – in 2020, chief executive officer Ian Smith said in reviewing the company’s third-quarter results.

"The impact of COVID-19 has been complex for our customers, our supply chain partners, and our company in 2020. We are proud of our ability to remain in continuous operation at sea, on land, and around the globe, a testament to our employees' character and teamwork which resulted in strong third quarter margin realization and cashflow," Smith said. "Our customer relationships and demonstrated agility in responding to shifts in consumer demand have been successful in partially mitigating the impacts of COVID-19 on our business."

The company, which is being sold to Premium Brands Holdings Corporation and a Mi’kmaq First Nations Coalition for roughly CAD 1 billion (USD 768 million, EUR 650 million), posted sales of CAD 133.7 million (USD 102 million, EUR 86 million) in the third quarter of 2020, bringing its year-to-date sales up to CAD 340 million (USD 259 million, EUR 218.8 million). While the latest figures trend lower than those seen in 2019, when third-quarter sales totaled CAD 34.5 million (USD 26.3 million, EUR 22.2 million) and year-to-date sales amounted to CAD 449.2 million (USD 343.2 million, EUR 289.3 million), the company said that demand has rebounded lately as some markets have re-opened.

"We implemented measures in the first quarter of 2020 to protect employee health and safety and to align harvesting and processing to customer demand. These measures have allowed us to remain operational in our fleet and all plants. We experienced strong demand in the third quarter as certain markets re-opened and we continue to prepare for the recovery in the global food service segment. We remain focused on protecting the organization, our operations and meeting consumer needs," Smith said.

The foodservice sector continues to contend with pandemic-fueled impacts, the company said, even as retail and e-commerce experience new demand.

“Year-to-date sales volumes decreased across most species and regions due to lower demand in foodservice in 2020,” the company said. “Traditional retail and online consumer demand continue to thrive in this difficult market, whereas foodservice customers and their supply chain have been more seriously affected by social distancing measures.”

Clearwater’s adjusted EBITDA for the third quarter and 2020 year-to-date were CAD 30.9 million (USD 23.6 million, EUR 19.8 million) and CAD 62.9 million (USD 48 million, EUR 40.5 million), respectively, compared to the CAD 34.5 million (USD 26.3 million, EUR 22.2 million) and CAD 84.8 million (USD 64.7 million, EUR 54.5 million) notched in 2019.

For Q3 2020, “lower, but improving, demand for clam, lower market prices for certain species, and higher costs related to COVID-19,” were offset in part by improved demand and prices for scallop, crab, and live lobster, the firm said. Lower harvesting costs for scallops and clam, lower fuel costs, continuous improvement programs savings, refined procurement strategies, and government COVID-19 support programs also proved helpful in facing the aforementioned difficulties in its latest quarter, Clearwater said.

A net positive of CAD 3.4 million (USD million, EUR million) for Q3 and CAD 6.4 million (USD million, EUR million) for 2020 to-date was reported by Clearwater as it pertains to average foreign exchange rates realized on sales, as compared to the same period of 2019. Cash from operations and free cash flow for the company increased CAD 20.1 million (USD 15.3 million, EUR 12.9 million) and CAD 20 million (USD 15.2 million, EUR 12.8 million) in the third quarter of 2020 compared to the same period of 2019.

“Increase in free cash flow was due to favorable changes in working capital, driven by inventory management strategies, 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,” the company said.

In response to the markets shifts experienced so far in light of the pandemic in 2020, Clearwater said it has focused on “the expansion of global distribution, new products and formats, and shifting promotional activity to channels that are experiencing heightened demand.”

“Demand improved in the third quarter as government relaxed measures allowing certain markets and channels to reopen,” the company said. “For the balance of 2020, our focus will move to ensuring adequate supply of certain species, mix, and formats to fulfill growing customer demand through the peak holiday periods in Europe, North America, and Asia. Concurrently, Clearwater will continue our COVID-19 measures, as noted below, as we prepare for accelerated growth in 2021 associated with the recovery in global foodservice channels and our plans for increased business investment post-closing of the arrangement agreement. We will also position our United Kingdom operations for continued European Union market access and success regardless of the outcome of Brexit negotiations.”

Clearwater’s latest results follow the company’s announcement on 10 November of its pending purchase by Premium Brands Holdings Corporation and FNC Holdings, a legal entity founded by the Membertou and Miawpukek First Nation.

"Clearwater is a world-class seafood company with a great management team, best-in-class products and a globally respected brand. Premium Brands will use its value-add expertise, brand development capabilities, and extensive customer relationships to continue to grow this leading global seafood company," Premium Brands President and CEO George Paleologou said in a release announcing the purchase. "We are proud to partner with the Mi'kmaq First Nations communities in this unique opportunity to enhance First Nations' participation in commercial fisheries at the same time building the seafood portfolio within the Premium Brand ecosystem."

The FNC Holdings investment represents the single largest investment in the seafood industry by any indigenous group in Canada.

"This is a transformational opportunity for the Mi'kmaq to become significant participants in the commercial fishery through the investment in existing infrastructure, management expertise, and a global market presence." Membertou First Nation Chief Terry Paul said. "Mi'kmaq not only become 50 percent owners of the company but expect to hold Clearwater's Canadian fishing licenses within a fully Mi'kmaq-owned partnership.”