Clearwater Reports Third Quarter and Year to Date Results for 2017 and announces Organization Restructuring

• Third quarter 2017 sales and adjusted EBITDA¹ were $163.6 million and $32.8 million versus 2016 comparative results of $189.5 million and $45.2 million.
• Year to date 2017 sales and adjusted EBITDA were $446.3 million and $80.1 million versus 2016 comparative results of $445.9 million and $91.5 million.
• Improvements in working capital during the quarter, including reductions in clam inventories, yielded cash from operations of $49.9 million in the third quarter 2017 and $15.5 million year to date 2017 as compared to 2016, representing an increase of $31 million for both periods.
• Due to the expectation of continued challenging supply and market conditions related to total allowable catch ("TAC") and procured raw material pricing across several species for the near term, Clearwater is announcing an organizational restructuring to adjust appropriately for these potential conditions. The restructuring will significantly reduce the cost structure to yield annual run rate savings of a minimum of $10.0 million, and will streamline the company's organizational structure. A one-time charge of $6.0 - $8.0 million will be recorded in the fourth quarter of 2017.
• The Board declared a quarterly dividend of $0.05 per share payable on December 1, 2017 to shareholders of record as of November 18, 2017 and confirmed its intention to establish a dividend reinvestment plan ("DRIP").

HALIFAX, Nov. 9, 2017 /CNW/ - Quarter and year to date results

Third quarter cash generated from operations increased $31.2 million to $49.9 million driven by working capital improvements of $52.6 million of which $34.5 million was related to inventory and accounts receivable. For the rolling twelve months ended September 30, 2017, working capital improved $80.9 million of which $36.6 million was related to inventory. 

The third quarter of 2017 was challenging compared to the same period of 2016. Lower sales volumes of Frozen-at-Sea ("FAS") shrimp, Argentine scallops and langoustines when combined with a stronger Canadian dollar resulted in lower sales and gross margin. Third quarter foreign exchange rates were lower as the Canadian dollar strengthened against the US dollar, GBP and the Yen negatively impacting sales and gross margin by  $6.7 million for all currencies ($8.8 million for all currencies – year to date 2017).

Sales volumes for FAS shrimp for both year to date and third quarter 2017 declined 36% from lower TAC levels, timing of landings late in the quarter and the completion of a scheduled vessel refit.  Slower market conditions for langoustines in the EU reduced sales volumes and price, while delays in landings and processing for Argentine scallops reduced available supply in the quarter.

Third quarter selling prices in home currency for clams and turbot were down as compared to the same period of 2016. Year to date, clam sales volumes have increased 56% as pricing and promotional incentives that began late in the third quarter of 2016 continue to bear fruit. These programs have been effective in increasing our channel penetration as well as customer and geographic distribution but at lower prices and margins than prior year.

Debt and Leverage

Leverage for the rolling twelve-month period ending September 30, 2017 increased to 5.0x adjusted EBITDA from 4.2x on October 1, 2016 as a result of lower adjusted EBITDA due to lower sales volumes for FAS shrimp, langoustines and lower clam margins and higher debt balances related to our major capital expenditure program which will be completed by the end of the year.  

We expect leverage at the end of 2017 to be lower as we continue to generate cash and reduce inventory levels through our peak selling period. 

Organization restructuring

We expect challenging supply and market conditions related to TAC and procured raw material pricing across several species, as well as foreign exchange volatility to persist into 2018. To adjust appropriately for these potential conditions, we have undertaken a restructuring that will significantly reduce our cost structure and capital spending as well as streamline the company's organization structure.  As part of this restructure, we will streamline the company's leadership including the elimination of three executive roles - President of Global Markets, President of Global Supply Chain and Chief Information Officer effective immediately.

These changes represent minimum annual cost savings of $10 million and will result in a one-time charge of $6.0 - $8.0 million in the fourth quarter of 2017.

Arctic Surf Clam Partnership

Thirteen Mi'kmaq communities from across Nova Scotia announced they are coming together for a significant opportunity to participate in the commercial Arctic Surf Clam fishery following the invitation by the Minister of Fisheries, Oceans and Canadian Coast Guard for applications for a 4^th licence in this fishery. An announcement made by Chief Terrance Paul, Assembly of Nova Scotia Mi'kmaq Chiefs Co-Chair, speaking on behalf of the thirteen nations, said the thirteen bands are working together and have submitted an application for the surf clam license.

The Nova Scotia Mi'kmaq also announced they are partnering with industry leaders, Clearwater Seafoods on the application, confirming that Clearwater will act as an operating partner and the license will be 100% Mi'kmaq owned. Working with an established operator in this fishery follows a proven economic development model used by many of the thirteen communities in other industry sectors for the benefit of all communities.

Dividends

The Board declared a quarterly dividend of $0.05 per share payable on December 1, 2017 to shareholders of record as of November 18, 2017.

The Board confirmed its intent to establish a dividend reinvestment plan ("DRIP") and the Company has submitted a draft plan to the TSX for pre-clearance.

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

Ian Smith, Chief Executive Officer, commented, "The Company expects continued strength in cash from operations. Following the successful completion of a 5 year fleet renewal program in 2017, capital spending is expected to decline by $60-70 million in 2018."

Ian Smith continued, "We are taking action to restructure the organization and remain 100% committed to our core business and strategies."

Mr. Smith further commented, "The powerful seafood industry fundamentals, value proposition and competitive advantages that form the foundation of Clearwater's vertically integrated business model and ability to generate long-term shareholder value remain strong."

Global demand for seafood is outpacing supply, creating favorable market dynamics for vertically integrated producers such as Clearwater which have strong resource access.

Demand 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, like other vertically integrated seafood companies, 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				39 weeks ended				Rolling twelve months ended
		September 30		October 1		September 30		October 1		September 30		October 1
In 000's of Canadian dollars		2017		2016		2017		2016		2017		2016
Profitability
Sales	$	163,597	$	189,457	$	446,265	$	445,862	$	611,955	$	611,365
Sales growth		(13.6%)		28.6%		0.1%		31.4%		0.1%		33.2%
Gross margin^1	$	27,806	$	51,990	$	80,617	$	115,669	$	109,570	$	160,883
Gross margin^1 (as a % of sales)		17.0%		27.4%		18.1%		25.9%		17.9%		26.3%
Adjusted EBITDA^1	$	32,797	$	45,158	$	80,106	$	91,477	$	109,566	$	130,477
Adjusted EBITDA attributable to shareholders^1	$	26,961	$	36,795	$	66,309	$	73,368	$	91,387	$	106,792
Adjusted EBITDA attributable to shareholders (as a % of sales)^1		16.5%		19.4%		14.9%		16.5%		14.9%		17.5%
Earnings attributable to shareholders	$	15,054	$	10,847	$	26,715	$	35,317	$	35,326	$	28,257
Basic earnings (loss) per share	$	0.24	$	0.17	$	0.42	$	0.57	$	0.55	$	0.44
Diluted earnings (loss) per share^1	$	0.24	$	0.17	$	0.42	$	0.57		N/A		N/A
Adjusted Earnings attributable to shareholders^1	$	8,212	$	18,863	$	10,275	$	23,483	$	11,069	$	42,453
Adjusted earnings (loss) per share	$	0.13	$	0.30	$	0.16	$	0.38	$	0.17	$	0.66
Cash Flows and Leverage
Cash from operations	$	49,862	$	18,136	$	15,475	$	(15,773)	$	94,964	$	51,048
Free cash flows^1	$	36,103	$	6,282	$	(30,683)	$	(55,181)	$	26,679	$	9,209
Leverage^1		N/A		N/A		N/A		N/A		5.0		4.2
Returns
Return on assets^1		N/A		N/A		N/A		N/A		8.6%		12.3%

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater's 2017 third quarter results please see Clearwater's Third Quarter 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