Clearwater Reports Fourth Quarter and 2019 Annual Results

HALIFAX, March 3, 2020 /CNW/ - (TSX: CLR):

• Fourth quarter sales and adjusted EBITDA¹ were $167.1 million and $30.1 million respectively versus $159.8 million and $24.1 million in the prior year.
• Annual sales and adjusted EBITDA¹ were $616.2 million and $114.9 million respectively versus $592.2 million and $104.4 million in the prior year.
• Gross margin and adjusted EBITDA as a percentage of sales increased to 19.8% and 18.6% respectively in 2019 compared to 18.0% and 17.6% in 2018.
• Leverage decreased to 4.1x in 2019 compared to 4.7x in 2018. Cash from operations decreased $12.8 million due to timing of sales.
• Return on assets increased to 9.6% in 2019 compared to 7.4% in 2018.
• The Board of Directors declared a dividend of $0.05 per share payable on April 1, 2020 to shareholders of record as of March 18, 2020.

Fourth Quarter and Annual Results

Clearwater achieved its second highest annual sales in 2019.  Year-over-year adjusted EBITDA grew by $10.5 million or 10.1%.

Sales for fourth quarter and full year 2019 grew 4.6% and 4.1% respectively, compared to the same periods of 2018. Strong harvest conditions, landings and available supply in clam, scallops and langoustines were partially offset by competitive market conditions for certain scallop sizes. Sales benefited from the introduction of sea cucumber in 2019, while shrimp was negatively impacted by the timing of landings, sales mix and competitive market conditions.

Adjusted EBITDA for the fourth quarter and full year 2019 was $30.1 million and $114.9 million respectively, as compared to $24.1 million and $104.4 million in 2018. Gross margin as a percentage of sales increased in the fourth quarter and full year due to strong harvest conditions and favourable mix for clam and scallops, partially offset by competitive conditions for shrimp. Steady market demand for lobster was offset by increased price competition in key markets. Overall, access to supply and customer demand in procured species remained strong as compared to the prior year.

Annual sales to Europe and Asia are up 6% and 7% respectively.

Average foreign exchange rates realized on sales for the fourth quarter and full year 2019 had a net negative impact to sales of $2.3 million and $1.3 million, respectively, as compared to the same periods in the prior year.

Cash from operations increased $18.5 million in the fourth quarter of 2019 as compared to the same period in 2018.  Full year cash from operations and free cash flow were $63.7 million and $17.4 million respectively versus $76.5 million and $45.2 million in the prior year as EBITDA growth was offset by higher accounts receivable related to the timing of sales.  Free cash flow was also affected by a planned increase in capital expenditures.

Debt and Leverage

Leverage as at December 31, 2019 was 4.1x compared to 4.7x as at December 31, 2018.  Leverage improved as adjusted EBITDA attributable to shareholders increased allowing for a reduction in net debt levels. 

Dividends

On March 3, 2020, the Board of Directors approved and declared a dividend of $0.05 per share payable on April 1, 2020 to shareholders of record as of March 18, 2020.

The Board reviews Clearwater's dividends 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 favourable 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.  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. 

OUTLOOK

In 2020, Clearwater will continue to leverage our broad portfolio of species, global market reach and strong customer base to drive profitable growth while expanding our sales distribution into new markets and channels. At the same time, innovation in the application of artificial intelligence, machine learning and robotics will help us increase productivity, reduce cost and generate higher margins from our vertically integrated global supply chain. 

We will maintain our focus and discipline on improving our key financial performance indicators and executing our strategic priorities. Further reductions in debt and leverage will come from strong cashflow from operations and working capital reductions as we strengthen our balance sheet and set the foundation for future organic growth and acquisitions.

Importantly, Clearwater has, with our First Nations partners, maintained access to the full Arctic Surf Clam quota for 2020. The Landmark agreement signed with our Indigenous partners in 2019 provides millions of dollars in benefits to First Nations through annual revenue sharing, training, leadership, development, employment, as well as procurement of goods and services from Indigenous suppliers. Beyond this agreement, Clearwater will continue to advance working relationships with Indigenous partners to the benefit of all parties.

Trade, economic and geo-political uncertainty as well as the more recent impact of the COVID-19 outbreak, will continue to create industry headwinds in 2020. In response, Clearwater has taken, and will continue to pursue timely and carefully considered measures including adjustments to harvest schedules, species portfolio and product mix, pricing, regional and channel distribution, capital allocation, innovation priorities, cost savings and working capital reductions. These measures will generate strong cash flows from operations, reduce debt and leverage, yield a higher return on assets and generate positive long-term returns to shareholders.

The fundamental and powerful undercurrents of a growing worldwide population, shifting consumer tastes towards healthier diets, and the rising purchasing power of middle-class consumers in emerging economies will continue to drive increasing global demand for wild caught seafood. In contrast, the supply of wild seafood is limited and is expected to continue to lag behind 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 caught, sustainably harvested seafood.

As a vertically integrated seafood company, Clearwater is well positioned to take advantage of this opportunity with its proprietary licences, advanced and year-round harvesting and delivery capabilities, premium product quality, diversity of species and global sales footprint.

Sustainability, as always, will remain at the forefront of our business as we strive to reduce waste and lower our environmental footprint while making a difference in the workplace, marketplace and in our local communities. When you invest in Clearwater, you are investing in one of the most innovative, global and sustainable seafood companies in the world.

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 licences 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. 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 its 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.

Key Performance Indicators and Financial Measures
	13 weeks ended				Year ended
		December 31		December 31		December 31		December 31
In 000's of Canadian dollars		2019		2018		2019		2018
Profitability
Sales	$	167,085	$	159,807	$	616,244	$	592,246
Sales growth		4.6%		(8.6%)		4.1%		(4.6%)
Gross margin	$	31,346	$	26,467	$	122,253	$	106,837
Gross margin (as a % of sales)		18.8%		16.6%		19.8%		18.0%
Adjusted EBITDA^1,2	$	30,131	$	24,090	$	114,902	$	104,391
Adjusted EBITDA^1,2 (as a % of sales)		18.0%		15.1%		18.6%		17.6%
Adjusted EBITDA attributable to shareholders^1,2	$	27,293	$	21,722	$	99,245	$	88,175
Adjusted EBITDA attributable to shareholders^1,2 (as a % of sales)		16.3%		13.6%		16.1%		14.9%
Earnings (loss) attributable to shareholders	$	17,599	$	(12,340)	$	41,692	$	(16,204)
Basic earnings (loss) per share	$	0.27	$	(0.19)	$	0.64	$	(0.25)
Diluted earnings (loss) per share	$	0.27	$	(0.19)	$	0.64	$	(0.25)
Adjusted earnings (loss) attributable to shareholders^1,2	$	8,383	$	4,790	$	20,717	$	15,831
Adjusted earnings (loss) per share	$	0.13	$	0.07	$	0.32	$	0.25
Cash Flows and Leverage
Cash from (used in) operating activities	$	64,322	$	45,836	$	63,731	$	76,487
Cash from (used in) financing activities		(30,238)		(32,705)		(43,235)		(60,617)
Cash from (used in) investing activities		(11,406)		(4,360)		(23,041)		(16,701)
Free cash flows^1	$	42,564	$	32,651	$	17,419	$	45,206
Leverage^1,3		4.1x		4.7x		4.1x		4.7x
Returns
Return on assets^1,4		9.6%		7.4%		9.6%		7.4%
Total assets		717,499		727,423		717,499		727,423

¹ Refer to discussion on non-IFRS measures, definitions and reconciliations within the Management Discussion and Analysis.

² Adjusted earnings before interest, tax, depreciation and amortization.

³ Leverage is calculated as twelve month rolling adjusted EBITDA attributable to shareholders to net debt and differs from the calculation of leverage for covenant purposes.  Net debt at December 31, 2019 includes lease liabilities of $7.0 million recognized upon transition to IFRS 16, effective January 1, 2019.

⁴ Return on assets is calculated as twelve months rolling adjusted earnings before interest and taxes to total average quarterly assets.

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 Management Discussion and Analysis.

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater's 2019 fourth quarter results please see Clearwater's Annual Report for 2019, 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 contains "forward-looking information" as defined in applicable Canadian securities legislation, including but not limited to, statements regarding future plans and objectives of Clearwater.  Forward-looking information typically, but not always, contains statements with words such as "anticipate", "does not anticipate", "believe", "estimate", "forecast", "intend", "expect", "does not expect", "may", "will", "should", "plan", or other similar terms that are predictive in nature.

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 due to various known and unknown risks, uncertainties, and other factors outside of managements' control. Examples may include, but are not limited to, total allowable catch levels, resource supply, 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, clam, coldwater shrimp, langoustine, whelk, 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.

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