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Clearwater Seafood Income Fund - Annual Results 2005   17.2.2006 10:40:14
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 Clearwater Seafood Income Fund 4Q 2005.pdf
Clearwater Seafoods Income Fund announces fourth quarter results

Clearwater Seafoods Income Fund announces fourth quarter results




    HALIFAX, Feb. 16 /CNW/ - (TSX:CLR.UN):


    -  Lower fourth quarter results, consistent with management expectations


    -  Challenges in 2005 due to foreign exchange, lower scallop total allowable catch ("TAC") and vessel disruptions


    -  Trustees to revisit status of distributions quarterly in arrears, starting concurrent with first quarter 2006 earnings release in May 2006


During the fourth quarter of 2005 Clearwater's sales and net earnings were $84.2 million and $5.9 million respectively versus sales of $98.8 million and net earnings of $16.6 million in 2004. These results were consistent with management expectations for a slower quarter as outlined in our last quarterly report.


The major changes in gross profit for the quarter were as a result of the following:


    -  Lower earnings in the clam business due in part to lower selling prices when converted to Canadian dollars and higher vessel costs;


    -  Lower earnings in the scallop business due to lower volumes, increased costs due to vessel interruptions and higher fuel and crew costs partially offset by increased selling prices.


Clearwater's annual sales and net earnings for 2005 were $315 million and $21.0 million respectively versus sales of $345 million and net earnings of $37.5 million in 2004.


The significant factors contributing to the decrease from 2004 include:


    -  Reduction in sales and gross profit due to the strengthening Canadian dollar in the amount of $17.6 million compared to 2004;


    -  32% lower TAC for the Canadian scallop business that resulted in lower volumes, partially offset by higher selling prices;


    -  Abnormally high frequency of vessel disruptions in 2005.


These factors have reduced margins and therefore the amount of cash available for distribution for the year. Distributable cash generated in 2005 was $27.2 million ($54.3 million in 2004), which resulted in a payout ratio of 101% in 2005 (100% in 2004). On December 31, 2005 subordination on 9.4 million units expired, as a result all units (52,788,843 units) will participate in any future distributions. Despite the ongoing challenge of foreign exchange, management believes higher selling prices for core species as well as less vessel disruptions will provide the potential for improvement in distributable cash levels in 2006 with further opportunity for growth in 2007 and beyond.


In October 2005 Clearwater announced that the distributions were suspended for the fourth quarter of 2005. The Trustees have determined that going forward they plan to review the ability of Clearwater to pay distributions on a quarterly basis in arrears with the first such review to occur concurrent with first quarter 2006 earnings release which will be in May 2006. As part of that review they will give consideration to the financial results for the most recently completed quarter, capital expenditure requirements, expectations regarding future earnings levels, leverage levels and the payout ratio before making a determination as to the amount to distribute, if any.


A number of challenges were faced in 2005 that had a negative impact on earnings and some challenges, for example, foreign exchange and high fuel costs, are expected to continue into 2006. The core business is healthy and we have invested approximately $184 million in the past five years and continue to make investments to further strengthen it. The resources we fish are healthy and the long-term outlook for the business is positive. The initiatives on price increases, the investment in our clam business, growing our new raw lobster business and investing in more frozen-at-sea scallop vessels are multi-year initiatives and the returns from them will be reflected over several years. For 2005 the benefits from these initiatives did not keep pace with the significant impact of foreign exchange, a lower scallop TAC and higher vessel costs.


For an analysis of Clearwater and Clearwater Seafood Income Fund's (the "Fund") results for the quarter, please see the discussion and analysis included with this report.


                                      13 weeks               3 weeks                Year                      Year
                                      ended                   ended                   ended                   ended
($000's except                 December 31,        December 31,        December 31,        December 31,
per unit amounts)             2005                     2004                     2005                     2004
Sales                              $ 84,220                $ 98,845                $ 14,839                $ 345,459
Net earnings                    $ 5,888                 $ 16,553                $ 21,040                $ 37,473
Basic and diluted 
net earnings per unit        $ 0.11                   $ 0.31                   $ 0.40                   $ 0.71
Distributable cash(1)        $ 7,970                 $ 18,018                $ 27,205                $ 54,276
Distributions paid or 
payable(2)                       $ -                        $ 14,139                $ 27,367                $ 54,276
Distributions paid per unit on
Unsubordinated units        $ 0.00                   $ 0.29                   $ 0.63                   $ 1.15
Distributions paid per unit on
Subordinated units           $ 0.00                   $ 0.18                   $ 0.00                   $ 0.46
Weighted Average Units
Outstanding Limited
Partnership Units              52,788,843            52,788,843            52,788,843            52,788,843
Fully diluted                     56,870,476            56,870,476            56,870,476            56,870,476
The Fund
                                      13 weeks               13 weeks               Year                      Year
                                      ended                   ended                   ended                    ended
($000's except                 December, 31        December 31,        December, 31        December 31,
per unit amounts)             2005                     2004                     2005                     2004
Net earnings                    $ 3,214                 $ 7,968                 $ 9,658                  $ 18,675
Basic and diluted net
Earnings per unit              $ 0.11                   $ 0.27                   $ 0.33                   $ 0.64
Distributable cash(1)        -                           $ 8,451                 $ 18,525                $ 33,804
Distributions paid
or payable                       -                           $ 8,451                 $ 18,525                $ 33,804
Weighted Average Units
Outstanding Trust
Units(3)(4)                       29,407,626            29,407,626            29,407,626            29,407,626
Special Trust Units            23,381,217            23,381,217            23,381,217            23,381,217

(1) Please refer to the Distributable cash definition in the MD&A for detailed reconciliations of these amounts. The Fund receives distributions from Clearwater and in turn distributes them to its unitholders. As such, distributable cash for the Fund is equal to the distributions received and paid.


(2) Distributions for the year ended December 31, 2004 include $2.7 million of distributions paid to 9,352,487 subordinated units in the first quarter of 2004.


(3) Clearwater's Partnership Agreement provides that as long as Clearwater Fine Foods Incorporated ("CFFI") owns more than 45% of the units and the special trust units of the Fund on a fully diluted basis, they have the right to appoint 4 of the 7 directors of CS ManPar. CFFI currently owns 46.71% of the units and special trust units and therefore the Fund does not currently have the right to nominate the majority of the board of directors. Therefore the Fund does not consolidate the results of Clearwater's operations but rather accounts for the investment using the equity method. Due to the limited amount of information that this would provide on the underlying operations of Clearwater, the financial highlights of Clearwater are also enclosed.



Colin MacDonald

Chief Executive Officer

Clearwater Seafoods Limited Partnership

February 16, 2006