•  Sales up 13.9% to C$77.8m (US$71m)
  •  EBITDA of $10.2m, down from $10.8m
  •  Net loss of $12.1m

Canadian fish group Clearwater has reported widening first-quarter losses despite "strong" sales growth.

It reported a net loss of C$12.1m in the three months to 31 March, compared to C$1.8m a year earlier. The company blamed the higher loss on $13.3m in unrealised foreign exchange.

EBITDA fell 5.6% due to higher fuel costs, "seasonally higher" harvest and procurement costs as well as payments made on foreign exchange hedging contracts.

These factors offset sales growth of 13.9% in the period, with revenues driven by higher demand and pricing.

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Clearwater reports strong growth in sales in the first quarter of 2014 and positive outlook for the year


Sales grew by 13.9% in the first quarter of 2014 driven by strong demand and higher exchange rates

Adjusted EBITDA was stable as compared to first quarter 2013 as seasonally higher costs and foreign exchange hedging contracts offset the positive impact of higher sales during the quarter

Free cash flow grew by $13.5 million in the quarter due to a positive contribution from working capital offset partially by higher net capital investments

The twelve month rolling adjusted EBITDA and free cash flow for the first quarter of 2014 increased $6.4 million to $78.5 million and from $30.5 million to $40.0 million, respectively.

Management maintains a strong positive outlook for the remainder of 2014 and sees a more favorable overall economic environment for Canadian seafood exporters

Targets for 2014 include sales growth of 5% or greater; growth in free cash flows of 5% or greater; and return on assets of 12% or greater

Declares quarterly dividend of $0.025 per share payable on May 28, 2014 to shareholders of record as of May 14, 2014. First quarter results

Clearwater reported sales of $77.8 million and adjusted EBITDA1 of $10.2 million for the first quarter of 2014 versus 2013 comparative figures of $68.3 million and $10.8 million, reflecting growth of 13.9% in sales and stable EBITDA levels. Free cash flows1 were ($0.9) million versus ($14.3) million in the first quarter of 2013, an increase of $13.5 million.

The 13.9% growth in sales was driven by strong market demand and pricing as well as a $5.9 million positive impact due to a foreign exchange rate environment that had average spots rates for major currencies such as the US dollar, Euro and Yen at higher levels in 2014 than the first quarter of 2013. This was partially offset by lower sales volumes, due primarily to the timing of shipments.

Adjusted EBITDA was stable as the positive impact of higher sales was offset by higher fuel costs per pound and seasonally higher harvest and procurement costs as well as payments made on foreign exchange hedging contracts.

Net earnings for the quarter decreased by $10.4 million. The primary reason for this difference was unrealized foreign exchange of $13.3 million. This non-cash adjustment relates to the fact that we are required to adjust our US dollar denominated long term debt and US dollar, Euro and Yen foreign exchange hedging contracts using higher period end exchange rates on these currencies.

Hedging contract payments relate to foreign exchange contracts that matured during the first quarter of 2014. Clearwater's foreign exchange hedging program is designed to enable Clearwater to complete its annual planning cycle and remove uncertainty regarding exchange rates by locking in up to 75% of annual net foreign exchange exposure.

Should the current environment of a stronger US dollar, Euro and Yen versus the Canadian dollar persist it will have a net positive impact on 2014 sales but the hedging program would offset a portion of these gains. The net impact on Adjusted EBITDA would remain positive. Looking forward to 2015, Clearwater will realize a greater benefit of such higher rates as any future hedging contracts it enters into would be at rates closer to current spot rates.

Free cash flows for the first quarter of 2014 grew by $13.5 million over the same period in 2013 primarily due to a $13.7 million improvement in working capital, higher operating cash flows before working capital and higher dividends received. This was partially offset by a $4.1 million increase in planned capital expenditures.

Rolling twelve month results

Adjusted EBITDA for the twelve month period to the first quarter of 2014 increased by $6.4 million, or 8.9%, to $78.5 million from $72.1 million for the same period in 2013.

Rolling twelve month free cash flow for the first quarter of 2014 increased $30.5 million to $40.0 million from $9.1 million in the same period in 2013.

Growth in adjusted EBITDA and free cash flows were due to a strong and growing market demand that improved sales prices for the majority of species and yielded strong sales volumes for scallops, both of which increased margins. Improvements in free cash flows were partially offset by higher capital expenditures including scheduled refits and higher payments to minority interest partners.


Clearwater's business experiences a seasonal pattern in which sales, margins and adjusted EBITDA are lower in the first half of the year while investments in capital expenditures and working capital are higher resulting in lower free cash flows in the first half of the year and higher free cash flows in the second half of the year.

Results for the first quarter of 2014 are consistent with Management's expectations for the quarter and in-line with its expectations for fiscal 2014.


Global demand for seafood is outpacing supply, creating favorable market dynamics for vertically integrated producers such as Clearwater which have strong resource access.

Demand has been driven by growing worldwide population, shifting consumer tastes towards healthier diets, and rising purchasing power of middle class consumers in emerging economies.

The supply of wild seafood is limited and is expected to continue to lag behind the growing global demand. This supply-demand imbalance has created a market place in which purchasers of seafood are increasingly willing to pay a premium to suppliers that can provide consistent quality and food safety, wide diversity and reliable delivery of premium, wild, sustainably harvested seafood.

Clearwater, like other vertically integrated seafood companies, is well positioned to take advantage of this opportunity because of its licenses, premium product quality, diversity of species, global sales footprint, and year-round harvest and delivery capability.

Ian Smith, Chief Executive Officer, commented, "With the exception of the last six months, all of our growth and increased profitability over the last 4 years has occurred during a period of:

Significantly unfavorable FX relative to most of the major currencies we sell in;

Weak economic conditions in many/most of our major markets including Europe, USA and Japan; and

An overall weak environment for global trade. To this point our largest tailwind has been global demand and increasing per capita consumption in the face of limited supply (the scarcity factor). We are now operating in a much more favorable economic environment for Canadian exporters, providing further tailwinds."

Mr. Smith continued "We posted strong sales results across our portfolio of sustainably harvested, wild caught seafood during the first quarter of 2014 and are maintaining our annual financial targets. Also, during the quarter we continued to invest and advance several major capital projects that are key to sustaining our long term growth, profitability and competitive advantage."

For 2014 Clearwater has the following annual targets:

sales growth - 5% or greater, adjusted EBITDA margins - 18% or greater, Free cash flow growth - 5% or greater Leverage - 3x or lower return on assets - 12% or higher Dividends

The Board of Directors approved a quarterly dividend of CAD$0.025 per share payable on May 28, 2014 to shareholders of record on May 14, 2014.


In making the determination of dividend levels Clearwater's Board gives consideration to a number of key principles including:the expected future earnings;the amount of free cash flows that should be retained to reinvest in the business;the assurance that all obligations can be met with respect to existing loan agreements; andthe desire to provide room for the dividend to increase in the future as the business continues to grow and expand. The Board is satisfied with current dividend levels.

Original source: Clearwater Seafoods