Clearwater Reports Strong Fourth Quarter and 2018 Annual Results

HALIFAX, March 7, 2019 /CNW/ – (TSX: CLR):

• Fourth quarter sales and adjusted EBITDA¹ were $159.8 million and $24.1 million versus $174.8 million and $28.5 million in the prior year.
• Sales and adjusted EBITDA¹ for the year were $592.2 million and $104.4 million versus $621.0 million and $108.6 million in the prior year. 
• Record cash generated from operations for the year of $76.5 million, an increase of $18.3 million over 2017.  Strong free cash flow¹ of $45.2 million for the year, representing a $53.6 million increase over the prior year. Leverage¹ decreased to 4.7x.
• On March 7, 2019 the Board of Directors approved and declared a dividend of $0.05 per share payable on April 1, 2019 to shareholders of record as of March 18, 2019.

Fourth Quarter and Annual Results

Cash generated from operations of $76.5 million sets a record high and demonstrates the company’s strong ability to generate cash.  Free cash flow increased $53.6 million to $45.2 million as capital expenditures declined following the completion of our fleet renewal program in 2017. 

Sales for 2018 were $592.2 million versus $621.0 million in the prior year while gross margin as a percentage of sales increased to 18.0% versus 17.7%. 

With the reversal of the Arctic surf clam decision in early August, we were able to convert our restored harvest access into record sales revenue for clam, at lower costs and better margins than in the prior year. Margins rebounded for frozen-at-sea shrimp with improved harvesting conditions and stable pricing while scallop prices fell globally in response to expanding supply conditions (especially in the United States). Sales and margins for whelk, crab and langoustine products benefited from expanded distribution to Asia and North America.

Continued progress in productivity and cost savings helped deliver another solid year.  Investments in research and development and innovation yielded process and quality improvements as well as significant cost savings across our fleet and land-based operations. Organizationally, our late 2017 restructuring and company-wide changes to our sales and operations planning, procurement, financial analysis and reporting processes contributed to improved customer service, better cost visibility and overall profitability. 

Average foreign exchange rates positively impacted fourth quarter sales by $3.8 million and 2018 sales by $11.7 million versus the same period of the prior year.

Debt and Leverage

Leverage as at December 31, 2018 decreased to 4.7x compared to 5.0x as at December 31, 2017.  Strong generation of cash from operations and a reduction in capital expenditures following the completion of the fleet renewal program in 2017, enabled a $28.3 million reduction in net debt balances which more than offset a decrease in adjusted EBITDA attributable to shareholders.

Clearwater will continue de-leveraging activities in 2019, prioritizing cash generation through cost savings, margin improvement, further inventory reductions and lower capital expenditures.

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

Dividends

On March 7, 2019, the Board of Directors approved and declared a dividend of $0.05 per share payable on April 1, 2019 to shareholders of record as of March 18, 2019.

The Board reviews dividends quarterly to achieve an appropriate dividend amount annually.

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, 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 2019, we expect balanced growth across multiple species and regions led by Asia-Pacific and driven by increased volume and significant new product introductions including new products in clam, sea cucumber, and whelk as well as a full year offering of live crab. Continued innovation throughout our global supply chain on land and sea will reduce cost and increase the productivity of our asset base while continuing to enable product diversification in response to changing consumer trends.

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

Clearwater’s access to the full clam total allowable catch for 2019 and a FAS shrimp harvest unrestricted by vessel refits will be met with the continuing competitive conditions for scallop associated with higher worldwide supply.

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.

Financial Statements and Management’s Discussion and Analysis Documents

For a detailed analysis of Clearwater’s 2018 fourth quarter and annual results please see Clearwater’s Annual 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 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 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