The COVID-19 strategies Halifax, Nova Scotia, Canada-based Clearwater Seafoods Incorporated started implementing in the first quarter of 2020 have proven successful, the firm’s president Ian Smith revealed during a call with investors on 11 August.
The call covered Clearwater’s second-quarter results, including sales of CAD 106 million (USD 79.8 million, EUR 67.8 million) – an increase over Q1 sales of CAD 100.3 million (USD 71 million, EUR 65.7 million), but a far cry from 2019’s second quarter figures of CAD 153.9 million (USD million, EUR million) “due to the global impact of COVID-19,” the company said.
“Sales volumes decreased across most species and regions in the first half due to lower demand in foodservice,” Clearwater stated in a press release. “Traditional retail and on-line consumer demand are thriving in this difficult market, whereas foodservice customers and their supply chain have been seriously affected by social distancing measures.”
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the quarter came in at CAD 18.9 million (USD 14.2 million, EUR 12.1 million), down from the CAD 30.3 million (USD 22.8 million, EUR 19.4 million) seen during the same period last year.
“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,” the company said.
To-date, 2020 sales and adjusted EBITDA are CAD 206.3 million (USD 155.3 million, EUR 132.1 million) and CAD 32 million (USD 24.1 million, EUR 20.4 million), respectively, another drop compared to the CAD 274 million (USD 206.3 million, EUR 175.4 million) and CAD 50.3 million (USD 37.8 million, EUR 32.2 million) seen during this time in 2019.
Clearwater noted that gross margin and adjusted EBITDA as a percentage of sales were 17.4 percent and 17.9 percent, respectively, in the second quarter, a slight decrease from the 20.5 percent and 19.7 percent reported in 2019. A modest increase in leverage to 5.3x from 2019’s 5.2x was observed in Q2 of 2020, the company noted.
“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 said.
The company’s “formal process to identify, review, and evaluate a broad range of potential strategic alternatives” is ongoing, it said.
Smith remarked on Clearwater’s operational tenacity navigating the pandemic and Q2.
"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," he said.
"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,” Smith said. “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 foodservice."
Cash used in operations was CAD 6.9 million (USD 5.1 million, EUR 4.4 million) during Q2 of 2020, a significant drop from the CAD 35.6 million (USD 26.8 million, EUR 22.7 million) used during the same period last year. Moreover, free cash outflow decreased to CAD 18.8 million (USD 14.1 million, EUR 12 million) compared to CAD 48 million (USD 36.1 million, EUR 30.7 million) in the second quarter of 2019, “due to lower investments in working capital partially offset by lower cash earnings and higher capital expenditures,” Clearwater said.
“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 added.
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 foodservice customers and their supply chains are experiencing interruptions, Cleawater said.
Improvements in demand are expected by Clearwater moving deeper into 2020.
“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,” it said. “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.”
The company said “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 licenses, 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,” the company said. “Clearwater's core strategies are built around these strengths, remain highly relevant and our long-term growth outlook beyond 2020 remains very positive."
The company outlined the immediate actions it has taken in response to COVID-19 to ensure that its staff is safe and secure, 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 labor mobility; and
- Successfully transitioning approximately 98 percent of our office, sales and administrative staff to working remotely and in continued close coordination across three continents and 17 time zones.
