Clearwater Reports Fourth Quarter and Annual 2017 Results

HALIFAX, March 6, 2018 /CNW/ - (TSX: CLR):

• 2017 sales and adjusted EBITDA were $621.0 million and $108.6 million versus 2016 comparative results of $611.6 million and $120.9 million.
• Fourth quarter 2017 sales and adjusted EBITDA¹ were $174.8 million and $28.5 million versus 2016 comparative results of $165.7 million and $29.5 million.
• Inventory declined $12.6 million for 2017 compared to $22.0 million increase in 2016.
• On February 21^st, the Department of Fisheries and Oceans Canada ("DFO") announced their decision to award an Arctic surf clam harvesting licence. In 2018, we will be making necessary adjustments to the Clam business to protect the hundreds of remaining jobs in the fishery and long-term shareholder value while we continue to pursue our legal options.
• The Board declared a quarterly dividend of $0.05 per share payable on April 2, 2018 to shareholders of record as of March 15, 2018. On February 15, 2018 Clearwater announced the approval of a dividend reinvestment plan ("DRIP").

Quarter and Annual results
Improvements in sales for both the year and the fourth quarter of 2017 represented growth rates of 1.5% and 5.5%, respectively as compared to the same periods in 2016.  Lower Total Allowable Catch ("TAC") for coldwater shrimp and soft market conditions for langoustines and king scallops were offset by volume increases in clams, sea scallops and Argentine scallops. 

In 2017, gross margin declined to 17.7% as a percentage of sales, from 23.6% in 2016 as strong overall sales volumes were offset by the reduction of higher margin shrimp volumes and an overall product mix and size shift towards lower margin products. 

For the year, foreign exchange rates were unfavorable as the Canadian dollar strengthened against the US dollar, GBP and the Yen negatively impacting sales and gross margin by $12.0 million for all currencies. This unfavourable foreign exchange impact was partially offset by Clearwater's foreign exchange hedging program, which contributed $3.1 million of realized gains within adjusted EBITDA.

For 2017 total cash generated from operations was $58.1 million, $4.9 million lower than 2016, including a decrease in inventory of $12.6 million, partially offset by a $22.0 million increase in accounts receivable, due to timing of sales.

Free cash flows¹ declined $9.9 million to a use of cash of $8.4 million in 2017 primarily due to higher capital expenditures and lower adjusted EBITDA, partially offset by working capital improvements. Annual capital expenditures represent the successful completion our five year fleet renewal program.  Capital spending is expected to decline by $60-70 million in 2018. 

Debt and Leverage

Leverage for the year ending December 31, 2017 increased to 5.0x adjusted EBITDA excluding non-controlling interest ("net adjusted EBITDA") from 4.2x on December 31, 2016 as a result of lower net adjusted EBITDA from a reduction in gross margin and higher debt balances.

For 2018, modest TAC reductions in clam and the announcement of a new entrant, potential TAC reductions in scallops, competitive market pressure associated with an anticipated significant increase in US scallop supply and foreign exchange headwinds are expected to offset progress in volume, pricing and margin on other core species. Combined with the seasonality of our business, we expect leverage to be higher during the first nine months of 2018 before improving by the end of the year.  Significantly lower capital expenditures and further inventory reductions to historic levels, are expected to increase free cash flow which will result in lower debt and leverage.

Department of Fisheries and Oceans Canada ("DFO")

On February 21, 2018 the DFO announced that Five Nations Clam Company is the recipient of a licence to harvest 25% of the TAC for Arctic surf clams to be effective January 1, 2018. Clearwater had agreed to be the operational partner with thirteen Mi'kmaq bands from Nova Scotia in their proposal for the licence which was not successful. Clearwater was a pioneer in the development of the clam fishery, which began in 1986. Clearwater purchased its licences and quota with the consent of the DFO and has invested hundreds of millions of dollars to develop this fishery and the market, including $156 million in the last three years. In this decision to expropriate investment value and undermine the good faith capital investment decisions of the private sector, the Minister has destabilized the investment climate in the Canadian fisheries and the Canadian natural resource sector. In 2018, we will be making necessary adjustments to our clam business to protect the hundreds of remaining jobs in the fishery and long-term shareholder value while we continue to pursue our legal options.

Dividends

The Board declared a quarterly dividend of $0.05 per share payable on April 2, 2018 to shareholders of record as of March 15, 2018.

On February 15, 2018 the Board approved a Dividend Reinvestment Plan ("DRIP") effective February 23, 2018 to provide shareholders of Clearwater who are resident in Canada with the option to have the cash dividends declared on the common shares of Clearwater reinvested automatically back into additional shares, without the payment of brokerage commissions or service charges. The DRIP program will be effective for the fourth quarter dividend payment. It is the intention of certain insiders and major shareholders to participate in the DRIP which management believes shows their commitment and belief in the long term value and strategies of the company by supporting cash reinvestment into the business.

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.

OUTLOOK

For 2018, modest TAC reductions in clam and the announcement of a new entrant, potential TAC reductions in scallops, competitive market pressure associated with an anticipated significant increase in US scallop supply and foreign exchange headwinds are expected to offset progress in volume, pricing and margin on other core species. Significantly lower capital expenditures and further inventory reductions to historic levels, are expected to increase free cash flow which will result in lower debt and leverage.  Combined with the seasonality of our business, we expect leverage to be higher during the first nine months of 2018 before improving by the end of the year. 

Our core fisheries are managed for long-term sustainability, we have taken timely and carefully considered measures in response to these near-term challenges including adjustments to harvest plans, pricing and distribution strategies, cost and working capital reductions and a 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. Details include: 

1. Capital Spending and Working Capital Reductions. With the successful completion of our five-year fleet renewal program in 2017, capital spending will decline by $60 to 70 million in 2018. In fact, with one of the youngest and best-maintained offshore fleets in Canada, we expect to be able to maintain these modest new capital spending limits for several years to come.  Inventory is expected to continue to decrease with further reductions of $10 to 20 million by the end of the year.
2. Organization Restructuring and Improved Cost Management. In the fourth quarter of 2017, we initiated a company-wide restructuring targeting annualized savings in excess of $10 million, incurring one-time charges of $6.7 million in the fourth quarter of 2017. While these changes to our organizational structure are significant, they will make us leaner, more agile and reflect our greater ability to leverage state-of-the-art technology and smarter systems to drive margin improvement through increased price realization and improved cost management.

In 2018, Clearwater will continue to navigate the combined forces of technological change, globalization and Mother Nature. Meanwhile, industry fundamentals of limited supply of wild capture seafood, growing population, demand and purchasing power of middle class consumers- especially in Asia, will remain in our favor strengthening our value proposition and creating long-term value for our customers, employees, communities and shareholders.

Global demand for seafood has been 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
Our core strategies remain the same with our emphasis for 2018 focusing on increasing margins, targeting profitable and growing markets, channels and customers and building organizational capability and capacity.

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				Year ended
		December 31		December 31		December 31		December 31
In 000's of Canadian dollars		2017		2016		2017		2016
Profitability
Sales	$	174,766	$	165,690	$	621,031	$	611,551
Sales growth		5.5%		28.6%		1.6%		31.4%
Gross margin^1	$	29,451	$	28,953	$	110,068	$	144,621
Gross margin^1 (as a % of sales)		16.9%		17.5%		17.7%		23.6%
Adjusted EBITDA^1	$	28,490	$	29,460	$	108,596	$	120,937
Adjusted EBITDA attributable to shareholders^1	$	22,952	$	25,078	$	89,156	$	98,446
Adjusted EBITDA attributable to shareholders (as a % of sales)^1		13.1%		15.1%		14.4%		16.1%
Earnings attributable to shareholders	$	(10,956)	$	8,611	$	15,759	$	43,928
Basic earnings (loss) per share	$	(0.17)	$	0.17	$	0.25	$	0.71
Diluted earnings (loss) per share^1	$	(0.17)	$	0.17	$	0.25	$	0.71
Adjusted Earnings attributable to shareholders^1	$	(1,585)	$	795	$	8,690	$	23,766
Adjusted earnings (loss) per share	$	(0.02)	$	0.01	$	0.14	$	0.38
Cash Flows and Leverage
Cash from operations	$	42,663	$	79,487	$	58,141	$	63,040
Free cash flows^1	$	22,252	$	57,360	$	(8,428)	$	1,502
Leverage^1		N/A		N/A		5.0		4.2
Returns
Return on assets^1		N/A		N/A		8.1%		11.0%

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater's 2017 fourth quarter and annual results please see Clearwater's Annual Report for 2017, 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