Clearwater Reports Record First Quarter 2019 Results

HALIFAX, May 14, 2019 /CNW/ – (TSX: CLR):

• First quarter sales and adjusted EBITDA¹ were $120.1 million and $20.0 million respectively versus $120.1 million and $19.1 million respectively in the prior year. Adjusted EBITDA grew 4.8% versus the prior year resulting in record Q1 adjusted EBITDA.
• Cash from operations and free cash flow were $12.3 million and $4.6 million respectively versus $14.8 million and $9.6 million in the prior year.
• Clearwater entered into a landmark 50-year partnership, effective January 1, 2019, with fourteen First Nations communities adjacent to the surf clam resource supporting Indigenous Reconciliation and expanding First Nation participation in Canadian fisheries.
• The Board of Directors declared a dividend of $0.05 per share payable on June 6, 2019 to shareholders of record as of May 23, 2019.

First Quarter Results

Record first quarter EBITDA of $20.0 million was driven by higher margin scallop sales, stronger demand for lobster in China and strong langoustine sales volumes as harvest volumes increased.  As a result, gross margin as a percentage of sales increased over 16% from 15.4% in the prior year to 17.9% in the first quarter of 2019. Scallop mix, supply and costs were positive following an earlier start to the harvest and strong catch conditions. 

Sales for the first quarter of 2019 were $120.1 million reflecting higher available supply in scallops, crab and langoustines and favourable prices and mix in clam and lobster.  These were offset by competitive market conditions across scallop species leading to lower prices compared to first quarter of 2018.  Scallop prices remained consistent with the fourth quarter of 2018.  Average foreign exchange rates realized on sales for the first quarter of 2019 had a net positive impact on sales of $1.0 million as compared to the same period of the prior year. 

Cash generated from operations was $12.3 million and free cash flow was $4.6 million compared to $14.8 million and $9.6 million respectively in the prior year. Strong cash flow generated from EBITDA was invested in inventory and capital expenditures.

Debt and Leverage

Leverage at the end of the first quarter of 2019 was 4.7x compared to 4.7x at the end of 2018 and 5.0x at the end of the first quarter of 2018.  Higher EBITDA in the first quarter of 2019, as compared to the first quarter of 2018, offset a marginal increase in net debt. Cash generated from operations was invested in inventory, capital expenditures of $6.6 million and a $2.3 million reduction in debt.  The debt reduction was offset by the impact of the new lease accounting standard.

Consistent with the seasonality of the business, we expect leverage to be higher during harvesting peaks before decreasing by the end of the year.

Dividends

On May 14, 2019, the Board of Directors approved and declared a dividend of $0.05 per share payable on June 6, 2019 to shareholders of record as of May 23, 2019.

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

For the remainder of 2019, we expect balanced growth across multiple species and regions led by Asia-Pacific and driven by increased volume and new product offerings including new products in clam, sea scallop, sea cucumber and whelk, as well as a full year offering of live crab.

Clearwater will continue de-leveraging activities in 2019, prioritizing cash generation, cost savings, margin improvement and normalized capital expenditures.  The resulting cash generation will be used to reduce debt.

Clearwater has access to the full clam total allowable catch for 2019. Competitive conditions for scallop associated with higher worldwide supply are expected to continue for 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 near-term challenges including; adjustments to harvest plans, pricing and distribution strategies, and cost 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 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 with its proprietary 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 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.

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.

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 ground fish.

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