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Clearwater 'better prepared for Brexit than rivals'

The company has been pre-positioning as much as inventory as possible inside EU borders.

Canadian shellfish giant Clearwater said it expects to be better prepared for Brexit than rivals, no matter how the United Kingdom ends up leaving the European Union.

During a call with analysts, CEO Ian Smith said although issues at borders are seen as problem, at least in the short term, the company has done everything it can to mitigate the potential fallout given the continued indecision over how the United Kingdom will leave the European Union on Oct 30, the current legal default date for departure.

"I would be as bold as to say that our preparations relative to other Canadian and UK companies are actually going to be a competitive advantage for us whatever may come, whether there is a deal or there is no deal," Smith said.

Clearwater has been pre-positioning as much as inventory as possible inside EU borders, while its customers have also been hard at work building up inventory positions to protect themselves.

State of play

The UK seafood sector is being warned to prepare for a "no deal" Brexit following comments by the United Kingdom's new Prime Minister Boris Johnson.

The new occupant of 10 Downing Street has gone out of his way to make it clear that he is ready to leave without a deal on Oct. 31 if changes to the current deal negotiated by his predecessor May cannot be secured before then.

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Senior EU officials say negotiations have ended and they will only help Johnson adjust wording in the political declaration to help assuage hardline Brexiteers in his Conservative party over the so-called Irish backstop, aimed preventing a hard border between Northern Ireland, which is part of the United Kingdom, and The Republic of Ireland, an EU member state, in the event that the transition expires before an agreement is reached.

Reasons to be cheerful

For seasonality reasons Clearwater's sales are typically skewed towards the second half of the year, with shellfish species and other premium lines strong sellers during holiday entertaining at Christmas and Chinese New Year.

Against this background, very strong harvest conditions in the first half of this year have helped to lift the company's seasonable build up of inventory ahead of where it normally would be.

Smith told IntraFish that various factors put the company in a strong position, listing the product mix and cost structure of the inventory and higher margins linked to the strong harvest conditions.

He also cited order patterns, with a number of supplies already being fully allocated to customers, allied to investments in land and sea-based technologies. "The combination of those things augers well for the back half of the year in terms of good cost structure, strong demand and very good inventory positions," he said.

New product line boost

Smith's comments follow Clearwater reporting on Wednesday flat earnings in the second quarter of the year, partly due to competitive conditions and lower selling prices for some key species.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter stood at CAD 30.5 million (€20.4 million/$22.9 million), a 1 percent decrease year-on-year.

Sales for the period grew 4 percent, to CAD 153.8 million (€102.7 million/$115.4 million), while gross margin reached 20.5 percent.

Competitive market conditions across scallop species and frozen-at-sea (FAS) shrimp offset the strong harvests, landings and available supply in scallops, crab and langoustines, the company said.

Looking further ahead Smith said expects the launch of Canadian sea cucumber lines, sourced from an inshore fishery close to Clearwater operations, to add millions to top and bottom lines and be in the company's top five highest margin products. How much the product generates in dollar terms will depend on ability to build inventory.

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