Clearwater Reports First Quarter Results for 2018

HALIFAX, May 8, 2018 /CNW/ - (TSX: CLR):

• First quarter cash from operations and free cash flow improved $32.8 million and $43.5 million, respectively, to generate cash from operations of $14.8 million and free cash flow of $9.6 million.
  
  
• Sales and adjusted EBITDA were $120.1 million and $19.1 million versus 2017 comparative results of $128.4 million and $19.8 million.
  
  
• The change in working capital investment in the first quarter of 2018 improved $33.3 million reflecting management's focus on working capital.
  
  
• The Board declared a quarterly dividend of $0.05 per share payable on June 1, 2018 to shareholders of record as of May 19, 2018.

First Quarter Results
First quarter cash generated from operations increased $32.8 million to $14.8 million driven by working capital improvements of $33.3 million and free cash flow increased $43.5 million to $9.6 million. For the rolling twelve months ended March 31, 2018, cash generated from operations reached a record $90.9 million reflecting solid earnings, the result of efforts to expand distribution channels, and a focus on cost and working capital management.

Sales in the first quarter of 2018 were slightly lower than the record high sales in the first quarter of 2017 as scallop harvest plans were adjusted to start later in the quarter to optimize cost efficiency. Strong catch rates and selling prices for FAS shrimp and a 12% improvement in clam prices and mix contributed to sales.

Gross margin in the first quarter declined to 15.4% as a percentage of sales, from 18.0% in the same period of 2017. Lower sales volumes of scallops, a harvested species that typically has higher gross margins, and higher input prices for procured species, were partially offset by increased sales volumes of FAS shrimp, ground fish, and higher FAS shrimp and clam mix and prices.

Average foreign exchange rates for the Canadian dollar against selling currencies was favourable versus the same quarter of the prior year, positively impacting sales by $2.0 million.   

Earnings attributable to shareholders decreased $15.9 million in the first quarter of 2018 as compared to the first quarter of 2017 primarily the result of higher unrealized foreign exchange losses on long term debt, higher losses on contract derivatives and lower margins.

Debt and Leverage

Leverage for the rolling twelve-month period ending March 31, 2018 remained unchanged at 5.0x adjusted EBITDA compared to December 31, 2017 as adjusted EBITDA and debt balances remained consistent. 

Based on the seasonality of our business and harvest plans, we expect leverage to modestly increase in the second and third quarters of 2018 before decreasing by the end of the year.   

Dividends

The Board declared a quarterly dividend of $0.05 per share payable on June 1, 2018 to shareholders of record as of May 19, 2018.

On February 15, 2018 the Board approved a Dividend Reinvestment Plan (DRIP) effective February 23, 2018.

The Board reviews dividends quarterly with a view to setting the appropriate dividend amount annually.

The Board continues to review the policy on a regular basis to ensure the dividend level remains consistent with Clearwater's dividend policy.

These dividends are eligible dividends as defined for the purposes of the Income Tax Act (Canada) and applicable provincial legislation and, therefore, qualify for the favorable tax treatment applicable to such dividends.

Seasonality

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, while investments in capital expenditures and working capital are typically higher in the first half of the year and lower in the second half. This typically 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. 

OUTLOOK

In 2018, Clearwater will lose 30% of our quota in the clam fishery as a result of the Minister of the Department of Fisheries and Oceans' decision to expropriate 25% of the quota from Clearwater without compensation, at the same time as announcing a modest quota reduction. TAC reductions in scallops and competitive market pressure associated with an anticipated significant increase in US scallop supply are expected to offset progress in volume, pricing and margin on other core species. Lower capital expenditures and further inventory reductions to historic levels, are expected to increase free cash flow resulting in lower debt and leverage. Combined with the seasonality of our business, we expect leverage to be modestly higher for the second and third quarters of 2018 before decreasing by the end of the year.

Clearwater's core fisheries are managed for long-term sustainability. We have taken and will continue to pursue timely and carefully considered measures in response to these near-term TAC challenges including; adjustments to harvest plans, pricing and distribution strategies, cost and working capital reductions as well as the major organization restructuring completed in December 2017. We expect these measures will generate strong cash flows from operations, reduce debt and leverage, yield a higher return on assets and generate positive returns to shareholder value.

Global demand for seafood is being driven by growing worldwide population, shifting consumer tastes towards healthier diets, and rising purchasing power of middle class consumers in emerging economies. The supply of wild seafood is limited and is expected to continue to lag behind the growing global demand. This supply-demand imbalance has created a marketplace in which purchasers of seafood are increasingly willing to pay a premium to suppliers that can provide consistent quality and food safety, wide diversity and reliable delivery of premium, wild, sustainably harvested seafood.

Clearwater is well positioned to take advantage of this opportunity because of its licenses, premium product quality, diversity of species, global sales footprint, and year-round harvest and delivery capability.

Core Strategies

Expanding Access to Supply - Expanding access to supply of core species and other complementary, high demand, premium, wild and sustainably harvested seafood through improved utilization and productivity of core licenses as well as acquisitions, partnerships, joint ventures and commercial agreements.

Target Profitable and Growing Markets, Channels and Customers - Clearwater targets growing markets, consumers, channels and customers on the basis of size, profitability, demand for eco-label seafood and ability to win. Our focus is to win in key channels and with customers that are winning with consumers.

Innovate and Position Products to Deliver Superior Customer Satisfaction and Value - We continue to work with customers on new products and formats as we innovate and position our premium seafood to deliver superior satisfaction and value that is differentiated by relevant dimensions such as taste, quality, safety, sustainability, wellness, convenience and fair labour practices.

Increase Margins by Improving Price Realization and Cost Management - Leverage the scarcity of seafood supply and increasing global demand, in addition to continuing to invest in, innovate and adopt state-of-the-art technology, systems and processes.

Pursue and Preserve the Long-Term Sustainability of Resources on Land and Sea - As a leading global supplier of wild-harvested seafood, sustainability remains at the core of our business and our mission. Investing in the long-term health and the responsible harvesting of the oceans and the bounty is every harvester's responsibility and the only proven way to ensure access to a reliable, stable, renewable and long-term supply of seafood. Sustainability is not just good business, like innovation it's in our DNA.

Build Organizational Capability, Capacity and Engagement - We attract, train and retain the best talent to build business system and process excellence company-wide.

For those readers who would like to understand the calculation of adjusted earnings and adjusted earnings attributable to shareholders please refer to the reconciliation of adjusted earnings within the non-IFRS measures, definitions and reconciliations section of the MD&A.

Key Performance Indicators and Financial Measures
	13 weeks ended				Rolling twelve months ended
		March 31		April 1		March 31		April 1
In 000's of Canadian dollars		2018		2017		2018		2017
Profitability
Sales	$	120,072	$	128,367	$	612,736	$	623,693
Sales growth		(6.5%)		28.6%		(1.8%)		14.3%
Gross margin^1	$	18,459	$	23,122	$	105,404	$	140,881
Gross margin^1 (as a % of sales)		15.4%		18.0%		17.2%		22.6%
Adjusted EBITDA^1	$	19,114	$	19,768	$	107,940	$	121,841
Adjusted EBITDA attributable to shareholders^1	$	14,933	$	17,887	$	88,289	$	99,483
Adjusted EBITDA attributable to shareholders (as a % of sales)^1		12.4%		13.9%		14.4%		16.0%
Earnings attributable to shareholders	$	(13,760)	$	2,174	$	(170)	$	31,592
Basic earnings (loss) per share	$	(0.22)	$	0.03	$	(0.00)	$	0.50
Diluted earnings (loss) per share^1	$	(0.22)	$	0.03	$	(0.00)	$	0.49
Adjusted Earnings attributable to shareholders^1	$	344	$	1,979	$	7,041	$	21,963
Adjusted earnings (loss) per share	$	0.01	$	0.03	$	0.11	$	0.35
Cash Flows and Leverage
Cash from operations	$	14,834	$	(17,957)	$	90,928	$	50,205
Free cash flows^1	$	9,632	$	(33,888)	$	35,177	$	(8,090)
Leverage^1		N/A		N/A		5.0		4.4
Returns
Return on assets^1		N/A		N/A		8.0%		10.8%

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater's 2018 first quarter results please see Clearwater's First Quarter Report for 2018, which includes Management's Discussion and Analysis and the related financial statements. These documents can be found in the disclosure documents filed by the Corporation with the securities regulatory authorities available at www.sedar.com or on Clearwater's website at www.clearwater.ca.

COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS

This news release may contain "forward-looking information" as defined in applicable Canadian securities legislation. All statements other than statements of historical fact, included in this release, including, without limitation, statements regarding future plans and objectives of Clearwater, constitute forward-looking information that involve various known and unknown risks, uncertainties, and other factors outside management's control. Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect including, but not limited to, total allowable catch levels, selling prices, weather, exchange rates, fuel and other input costs. There can be no assurance that such information will prove to be accurate and actual results and future events could differ materially from those anticipated in such forward-looking information.

For additional information with respect to risk factors applicable to Clearwater, reference should be made to Clearwater's continuous disclosure materials filed from time to time with securities regulators, including, but not limited to, Clearwater's Annual Information Form. The forward-looking information contained in this release is made as of the date of this release and Clearwater does not undertake to update publicly or revise the forward-looking information contained in this release, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

No regulatory authority has approved or disapproved the adequacy or accuracy of this news release.

About Clearwater

Clearwater is one of North America's largest vertically integrated seafood companies and the largest holder of shellfish licenses and quotas in Canada. It is recognized globally for its superior quality, food safety, diversity of species and reliable worldwide delivery of premium wild, eco-certified seafood, including scallops, lobster, clams, coldwater shrimp, crab and groundfish.

Since its founding in 1976, Clearwater has invested in science, people and technological innovation as well as resource ownership and management to sustain and grow its seafood resource. This commitment has allowed it to remain a leader in the global seafood market and in sustainable seafood excellence.

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1 – Refer to discussion on non-IFRS measures within the Management Discussion and Analysis  

SOURCE Clearwater Seafoods Incorporated

Investor relations, [phone], [email protected]

Related Links

http://www.clearwater.ca