Clearwater reports strong second quarter results for 2018
HALIFAX, Aug. 8, 2018 /CNW/ - (TSX: CLR):
- Adjusted EBITDA grew 10.7% to $30.5 million for the second quarter versus $27.5 million in the prior year. Sales were $148.1 million for the second quarter versus $154.3 million in the prior year.
- Adjusted EBITDA grew 4.9% to $49.6 million for the first half of 2018 versus $47.3 million in the prior year. Sales were $268.2 million in the first half versus $282.7 million in the prior year.
- Strong cash generation continued into the second quarter as working capital requirements and capital expenditures declined. First half cash from operations was $9.4 million, an increase of $43.8 million versus the prior year.
- On August 8, 2018 the Board of Directors approved and declared a dividend of $0.05 per share payable on September 4, 2018 to shareholders of record as of August 21, 2018.
Second Quarter and First half results of 2018
Cash generated from operations increased $43.8 million for the first half of 2018 to $9.4 million driven by working capital improvements of $37.6 million and free cash flow increased $60.5 million to a use of cash of $6.3 million as capital expenditures declined following the completion of our fleet renewal program in 2017.
Adjusted EBITDA grew 10.7% to $30.5 million for the second quarter versus $27.5 million in the prior year. As a percentage of sales adjusted EBITDA increased to 20.6% and 18.5% for the second quarter and first half of 2018 as compared to 17.8% and 16.7% in the prior year. This reflects strong sales mix and lower administrative and selling costs following the organization restructuring in the fourth quarter of 2017.
Strong prices and timing of landings for FAS shrimp and higher volumes and sales mix for clams were offset by lower available supply and competitive scallop conditions associated with increased US supply for a net decline in sales in both the second quarter and first half of 2018 as compared to the same periods in 2017. FAS shrimp volumes are significantly higher than the prior year reflecting the timing of landings and improved harvesting conditions. Expanded distribution channels in China increased sales for clams, reducing inventory from peak levels.
Gross margin as a percentage of sales for the second quarter of 2018 was 19.3%, consistent with the prior year.
Average foreign exchange rates for the Canadian dollar against selling currencies for the first half of the year were favourable versus the same period of the prior year, positively impacting sales by $1.6 million.
Debt and Leverage
Leverage as at June 30, 2018 was 5.1x adjusted EBITDA attributable to shareholders as compared to 5.0x as at December 31, 2017. The increase in debt balances, expected in the first half of the year due to the seasonality of the business, was offset by improvement in rolling twelve-month adjusted EBITDA attributable to shareholders from $89.2 million at December 31, 2017 to $90.9 million at June 30, 2018. Debt balances denominated in US dollars and GBP increased as a result of higher average foreign exchange rates as the US dollar and the GBP strengthened against the Canadian dollar.
Dividends
On August 8, 2018 the Board of Directors approved and declared a dividend of $0.05 per share payable on September 4, 2018 to shareholders of record as of August 21, 2018.
The Board reviews dividends quarterly with a view to setting the appropriate dividend amount annually.
The Board continues to review Clearwater's dividend policy on a regular basis to ensure the dividend level remains consistent with the 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 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 2018, Clearwater lost 30% of its quota in the clam fishery as a result of the decision of the Minister of the Department of Fisheries and Oceans to expropriate 25% of the quota from Clearwater without compensation, at the same time as announcing a modest quota reduction. Clam sales for 2018 are expected to benefit from expanded distribution channels in Asia – led by China and favorable product mix as we continue to reduce inventory from peak levels in 2017. Lower total allowable catch ("TAC") for Scallops in 2018 and competitive conditions associated with increases of US scallop supply are expected to be offset by favourable catch rates, cost and pricing in FAS shrimp and other 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 third quarter 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 licences, 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 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 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 Management Discussion and Analysis.
| Key Performance Indicators and Financial Measures |
||||||||||||
| 13 weeks ended |
26 weeks ended |
Rolling twelve months ended |
||||||||||
| June 30 |
July 1 |
June 30 |
July 1 |
June 30 |
July 1 |
|||||||
| In 000's of Canadian dollars |
2018 |
2017 |
2018 |
2017 |
2018 |
2017 |
||||||
| Profitability |
||||||||||||
| Sales |
$ |
148,142 |
$ |
154,302 |
$ |
268,214 |
$ |
282,669 |
$ |
606,576 |
$ |
637,815 |
| Sales growth |
(4.0%) |
10.1% |
(5.1%) |
10.2% |
(4.9%) |
12.0% |
||||||
| Gross margin1 |
$ |
28,605 |
$ |
29,690 |
$ |
47,065 |
$ |
52,812 |
$ |
104,318 |
$ |
133,758 |
| Gross margin1 as a % of sales |
19.3% |
19.2% |
17.5% |
18.7% |
17.2% |
21.0% |
||||||
| Adjusted EBITDA1 |
$ |
30,501 |
$ |
27,542 |
$ |
49,615 |
$ |
47,310 |
$ |
110,899 |
$ |
121,929 |
| Adjusted EBITDA1 (as a % of sales) |
20.6% |
17.8% |
18.5% |
16.7% |
18.3% |
19.1% |
||||||
| Adjusted EBITDA attributable to shareholders1 |
$ |
26,147 |
$ |
23,551 |
$ |
41,080 |
$ |
39,349 |
$ |
90,885 |
$ |
101,223 |
| Adjusted EBITDA attributable to shareholders (as a % of sales)1 |
17.6% |
15.3% |
15.3% |
13.9% |
15.0% |
15.9% |
||||||
| Earnings attributable to shareholders |
$ |
(923) |
$ |
9,489 |
$ |
(14,681) |
$ |
11,661 |
$ |
(10,583) |
$ |
31,120 |
| Basic earnings (loss) per share |
$ |
(0.01) |
$ |
0.15 |
$ |
(0.23) |
$ |
0.18 |
$ |
(0.37) |
$ |
0.49 |
| Diluted earnings (loss) per share1 |
$ |
(0.01) |
$ |
0.15 |
$ |
(0.23) |
$ |
0.18 |
$ |
(0.38) |
$ |
0.47 |
| Adjusted Earnings attributable to shareholders1 |
$ |
6,980 |
$ |
70 |
$ |
7,324 |
$ |
2,065 |
$ |
13,951 |
$ |
21,265 |
| Adjusted earnings (loss) per share |
$ |
0.11 |
$ |
0.00 |
$ |
0.11 |
$ |
0.03 |
$ |
0.22 |
$ |
0.33 |
| Cash Flows and Leverage |
||||||||||||
| Cash from (used in) operations |
$ |
(5,426) |
$ |
(16,432) |
$ |
9,404 |
$ |
(34,388) |
$ |
101,929 |
$ |
63,152 |
| Free cash flows1 |
$ |
(15,952) |
$ |
(32,899) |
$ |
(6,324) |
$ |
(66,786) |
$ |
52,120 |
$ |
(4,015) |
| Leverage1 |
N/A |
N/A |
N/A |
N/A |
5.1 |
4.9 |
||||||
| Returns |
||||||||||||
| Return on assets1 |
N/A |
N/A |
N/A |
N/A |
8.2% |
10.5% |
||||||
Financial Statements and Management's Discussion and Analysis Documents
For a detailed analysis of Clearwater's 2018 second quarter results please see Clearwater's Second 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, langoustine, clams, whelk, coldwater shrimp and crabs.
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, (902) 443-0550, [email protected]
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