Despite COVID-19 Clearwater remain operational in their fleet and all plants with the exception of one seasonal shrimp secondary processing operation
Clearwater reports second quarter 2020 results
Thursday, August 13, 2020, 02:00 (GMT + 9)
- 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.
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.
(Photos by Clearwater)