Clearwater posts Q1 results for 2020, detailing the initial impacts of the global pandemic on demand
Halifax, Nova Scotia, Canada-based company Clearwater Seafoods Incorporated posted first quarter sales of CAD 100.3 million (USD 71 million, EUR 65.7 million) for 2020, down from the CAD 120.1 million (USD 85.1 million, EUR 78.7 million) seen during the same period in 2019, due predominantly to the impacts of the global COVID-19 pandemic, the firm said during its 15 May investor call.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the quarter also took a hit, falling to CAD 13 million (USD 9.2 million, EUR 8.5 million) compared to the CAD 20 million (USD 14.1 million, EUR 13.1 million) reported for the same quarter in 2019. As a percentage of sales, gross margin and adjusted EBITDA were 16.1 percent and 13 percent, respectively, for Q1 2020, Clearwater confirmed, representing a slight dip from the 17.9 percent and 16.7 percent seen during the same period last year.
Clearwater cited the worldwide COVID-19 crisis – which affected its Chinese customers to a significant degree just before the Chinese New Year festivities, before spreading to additional key markets for the company – as playing a significant role in its Q1 results.
"We started 2020 with great momentum but, unfortunately, Clearwater was directly impacted in the first quarter as our Chinese customers faced the brunt of COVID-19 just before the start of Chinese New Year festivities. By early March, the impact of the global pandemic was being felt in all our markets across the globe with tragic human and challenging economic consequences,” Clearwater CEO Ian Smith told investors.
Volume related to several species, “primarily in Asia, were adversely impacted by lower demand resulting from COVID-19,” according to the company. The key species affected in the first quarter were lobsters, clams, scallops, and langoustines, Clearwater said. It noted that lower demand was partially offset by lower harvesting costs for clam and premium sized scallops. Meanwhile, species FAS shrimp and whelk emerged from the quarter without taking a significant hit.
“Margins will continue to benefit from a revitalized fleet resulting in lower costs and higher value for certain harvested species, improvements in procurement strategies and continuous improvement programs to manage costs. Clearwater also expects to benefit from strong catch rates and lower fuel costs for the remainder of 2020,” Clearwater said in a press release.
Foodservice customers have been “seriously affected” by the pandemic and the global social distancing measures put in place during Q1 to curb the spread of the virus, the company said. However, consumer demand in traditional retail and online channels “is thriving in this difficult market,” it added.
The company pivoted quickly to support liquidity during the COVID-19 pandemic in the first quarter of 2020, with its board of directors temporarily suspending dividends, Smith noted. It also devised and implemented health and safety protocols to ensure the wellbeing of employees in the face of the pandemic, and instituted the Clearwater Cares program, which aims to give back to local communities and frontline healthcare workers and first-responders.
“I am truly proud, humbled by and grateful to our Clearwater employees who are leading with courage, integrity, responsibility and with their hearts. Through our Clearwater Cares program our employees are helping their neighbors and supporting frontline healthcare, emergency service providers and food banks in their communities. They are doing this on their own time and while working tirelessly to support a safe and reliable global food supply under extraordinary conditions,” Smith said.
“As a company, we took immediate and effective action to ensure the health and safety of our employees in our plants, offices, and vessels by implementing stringent health and safety protocols,” he added. “We moved quickly to align our operations to the rapidly changing market conditions while safeguarding our ability to harvest, process and reliably deliver food safely to our customers around the world.”
Clearwater was also able to successfully close an amendment to its senior secured credit facility on 13 May, Smith explained, and the company has conducted cost-cutting measures related to non-essential spending in Q1 to preserve finances for the remainder on 2020.
“Concurrently, we cut all non-essential spending and capital expenditures to preserve cash for the remainder of the year and successfully secured an amendment to our credit facilities,” Smith said. “We have taken these necessary steps with focus and discipline and are now well-positioned to weather the current economic conditions and take advantage of future growth opportunities as global seafood demand recovers."
Moving deeper into 2020, Clearwater said it expects demand to improve and a foodservice recovery to take hold.
“Demand is expected to improve as governments begin to relax measures to control the spread of COVID-19. In the near term, we have responded to these circumstances by placing extra focus and attention on the expansion of global distribution, new packaging formats and increased promotional activity through channels and customers experiencing heightened demand (such as retail and e-commerce). Concurrently, efforts to prepare for the recovery of Clearwater sales in foodservice are ongoing,” the company said, noting that it is “well-positioned to take advantage of future growth opportunities as global seafood demand recovers.”
Canada-based Clearwater reported over CAD 610 million (USD 454 million, EUR 405 million) in sales in 2019, and said it was considering an outright sale as of 5 March, 2020.
“Clearwater’s board of directors has determined it is timely, prudent, and in the best interests of the company and its stakeholders to commence the strategic review in light of the company having recently received several expressions of interest,” Clearwater said at the beginning of March. “The company’s board of directors, including representatives of its controlling shareholders, is committed to fully evaluating appropriate strategic options while simultaneously supporting the company’s management and employees in their ongoing efforts.”
“Strategic options may include, but are not limited to, a sale of all or a material portion of Clearwater’s assets, either in one transaction or in a series of transactions, the outright sale of Clearwater, a merger or other transaction involving Clearwater and a third party, joint ventures, licensing arrangements, various financing alternatives, or other significant transaction,” it added in an announcement sent out to investors.