Clearwater Reports Strong Third Quarter Results for 2018

HALIFAX, Nov. 7, 2018 /CNW/ – (TSX: CLR):

• Third quarter sales and adjusted EBITDA were $164.2 million and $30.7 million versus $163.6 million and $32.8 million in the prior year.
• Year to date sales and adjusted EBITDA were $432.4 million and $80.3 million versus $446.3 million and $80.1 million in the prior year.
• Strong year to date cash generation as cash from operations and free cash flow were $30.7 million and $12.6 million, an increase of $15.2 million and $43.2 million versus the prior year.
• On August 10, 2018, the Department of Fisheries and Oceans announced their decision to cancel the process to issue a fourth clam licence and confirmed that the remaining 25 percent of the clam quota would be issued to Clearwater for 2018 and 2019.
• On November 7, 2018 the Board of Directors approved and declared a dividend of $0.05 per share payable on December 3, 2018 to shareholders of record as of November 19, 2018.

Third Quarter and year to date results

Cash generated from operations increased $15.2 million for the first three quarters of 2018 to $30.7 million driven by working capital improvements of $10.2 million. Free cash flow increased $43.2 million to $12.6 million as capital expenditures declined following the completion of our fleet renewal program in 2017.

Adjusted EBITDA was $30.7 million for the third quarter and $80.3 million year to date, versus $32.8 million and $80.1 million in the prior year, respectively. As a percentage of sales adjusted EBITDA increased to 18.6% year to date versus 18.0% in the prior year. This reflects strong sales mix, cost efficiencies and favourable net foreign exchange.

Year to date strong prices and increased landings for FAS shrimp and favourable sales mix for clams were offset by lower available supply and competitive conditions for scallop associated with increased US supply as compared to the same period 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 third quarter of 2018 improved to 20.3% versus 17.0% in the prior year.  Gross margin as a percentage of sales year to date improved to 18.6% versus 18.1% in the prior year.

Average foreign exchange rates positively impacted year to date sales by $7.6 million versus the same period of the prior year.

Debt and Leverage

Leverage as at September 29, 2018 was 5.0x adjusted EBITDA attributable to shareholders, consistent with December 31, 2017. Higher adjusted EBITDA and strong cash from operations offset an increase in US dollar denominated debt balances as the US dollar strengthened against the Canadian dollar.

Dividends

On November 7, 2018 the Board of Directors approved and declared a dividend of $0.05 per share payable on December 3, 2018 to shareholders of record as of November 19, 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 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 the third quarter of 2018, the Department of Fisheries and Oceans (“DFO”) announced their decision to cancel the process to issue a fourth clam licence to Five Nations Clam Company and confirmed that the remaining 25 percent of the clam quota would be issued to Clearwater for 2018 and 2019. This decision enabled Clearwater to avoid adjustments in our operations and workforce, keeping our people working in 2018 and 2019 and allowing economic benefits from this quota to remain in coastal communities where these year- round jobs are vital.

The DFO also signaled their intent to initiate a new process in the spring of 2019 that would identify a licence holder to enhance access and promote Indigenous reconciliation effective 2020. Clearwater intends to participate in the new process in partnership with Indigenous communities. Clearwater believes that it is best positioned to provide meaningful and tangible benefits to Indigenous partners given our assets and experience in this unique and capital-intensive fishery.

In 2017, with full access to the clam quota and three harvesting vessels, Clearwater harvested 100% of the total allowable catch and reported clam sales of $109.2 million.

In 2019, we expect meaningful and balanced growth across all regions led by Asia-Pacific driven by increased volume, an improved sales mix favoring higher value species and modest price improvement. Clam sales are expected to benefit from expanded distribution channels in China, particularly in Tier II and Tier III cities, favourable product mix, and the introduction of new clam products and formats, leveraging our existing licenses, as we continue to plan for success and long-term shareholder value creation in our clam business.

Clearwater will also continue de-leveraging activities in 2019, prioritizing cash generation, cost savings, margin improvement, further inventory reductions and lower capital expenditures. The resulting increased free cash flow will be used to reduce debt and leverage for the balance of 2018 and throughout 2019.

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 volume 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.

Financial Statements and Management’s Discussion and Analysis Documents

For a detailed analysis of Clearwater’s 2018 third quarter results please see Clearwater’s Third 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.

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1 – Refer to discussion on non-IFRS measures within the Management Discussion and Analysis

SOURCE Clearwater Seafoods Incorporated