Clearwater Reports Strong First Quarter Results Supporting Positive Outlook for 2017

HALIFAX, May 11, 2017 /CNW/ – (TSX: CLR):

Today Clearwater Seafoods Incorporated reported its first quarter results for the period ended April 1, 2017:

• Sales and adjusted EBITDA of $128.4 million and $19.8 million respectively for 2017 versus 2016 comparative results of $116.2 million and $18.9 million. This represents growth rates of 10.4% for sales and 4.8% for adjusted EBITDA.
• Overall sales volumes were higher than the prior year as strong Clam and scallop harvest volumes were partially offset by 25% lower Frozen-at-sea ("FAS") shrimp sales volumes due to difficult harvesting conditions.
• Inventory increased $3.5 million compared to the end of 2016 as lower clam inventory volumes were offset by higher seasonal harvesting costs and timing of scallop landings.
• Completed an offering of USD $250 million senior unsecured notes, and entered into a secured $300 million revolving credit facility and a $35 million secured term loan, enabling the refinancing of existing indebtedness and increasing liquidity and capital flexibility.
• The Board declared a quarterly dividend of $0.05 per share payable on June 2, 2017 to shareholders of record as of May 20, 2017.

Ian Smith, Chief Executive Officer, commented, "The results of our operations for the first quarter of 2017 are in line with management’s expectations.  Strong global market demand and harvesting improvements resulted in higher sales volumes in many of our core species, while margins were pressured by lower sales prices for clams and lower catch rates for FAS shrimp. The successful refinancing of our indebtedness improved liquidity and capital flexibility, and will support our planned growth initiatives.

2017 began with product mix challenges that included high inventory levels for clams from harvesting the entire Total Allowable Catch ("TAC") for the first time in history in 2016, and lower available supply for FAS shrimp and sea scallops related to reductions in TAC. In the first quarter of 2017, the Canadian dollar strengthened against the majority of our selling currencies, negatively impacting adjusted EBITDA by $4.5 million².

Mr. Smith further commented, "Despite the impacts of seasonality, product mix challenges, and foreign exchange, adjusted EBITDA grew 4.8%. For the balance of 2017, we expect clam inventories to continue to decline and margins to improve as we focus on price realization through the expansion of our markets and channels."

Clearwater reported sales and adjusted EBITDA¹ of $128.4 million and $19.8 million for the first quarter of 2017 versus 2016 comparative figures of $116.2 million and $18.9 million, respectively. This represents a growth rate of 10.4% and 4.8% for sales and adjusted EBITDA. Gross margin as a percentage of sales was 18.0% compared to 23.1% in the first quarter of 2016.

Sales and adjusted EBITDA benefited from higher sales volumes in clams, scallops, and lobster, partially offset by a reduction in available supply for shrimp and the strengthening of the Canadian dollar against other currencies.  Margins as a percentage of sales were lower than the first quarter of 2016 due to difficult fishing conditions for FAS shrimp, and lower sales prices for clams from higher available supply.  In the first quarter of 2016 demand for clams had outstripped supply.   

Working capital was $16.2 million higher than the first quarter of 2016 reflecting higher clam inventories. Clam inventory volume peaked in the fourth quarter of 2016, decreased in Q1 2017 through sales growth, and is expected to continue to decline with increasing demand and the Asian market peak sales season in the second half of the year.  Overall, inventories are $3.5 million higher than fourth quarter 2016 due to the timing of scallop landings partially offset by overall lower clam volumes.   

Earnings attributable to shareholders decreased $12.3 million in the first quarter of 2017 from earnings of $14.5 million to a loss of $2.2 million. The decrease was driven by the weakening of the USD against the Canadian dollar during the period as compared to 2016, resulting in a reduction of unrealized foreign exchange gains related to debt, working capital and forward contracts.  The decrease was partially offset by lower realized foreign exchange losses and net finance costs.  

Adjusted earnings attributable to shareholders¹ decreased $1.8 million as higher adjusted EBITDA and lower interest expense was offset by timing of landings for Argentine scallops which is harvested by a joint venture partner. 

Dividends

The Board of Directors approved and declared a quarterly dividend of CAD $0.05 per share payable on June 2, 2017 to shareholders of record as of May 20, 2017.

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.

Seasonality

Clearwater’s business experiences a 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 results in lower cash flows in the first half of the year and higher in the second half.

Results for the first quarter of 2017 are consistent with Management’s expectations.

Outlook

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 please refer to the reconciliation of adjusted earnings and adjusted earnings attributable to shareholders, within the non-IFRS measures, definitions and reconciliations section of the MD&A.

Financial Statements and Management’s Discussion and Analysis Documents

For a detailed analysis of Clearwater’s 2017 fist quarter results please see Clearwater’s First 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
2 – Includes the impact of realized forward contracts for first quarter of 2017 and 2016.

SOURCE Clearwater Seafoods Incorporated