Clearwater reports strong second quarter results

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HALIFAX, Aug. 7, 2014 /CNW/ - (TSX: CLR):

Today Clearwater Seafoods Incorporated reported its second quarter year to date results for the period ended June 28, 2014:

  • Reports record second quarter sales of $113.4 million

  • Growth of 19% in second quarter sales and adjusted EBITDA, driven by strong demand and higher exchange rates

  • Rolling twelve month adjusted EBITDA and free cash flow increased $9.4 million to $81.8 million and $10.7 million to $37.5 million, respectively

  • Year-to-date growth of 16.8% and 9.7% in sales and adjusted EBITDA, respectively

  • Year-to-date growth in free cash flows of $11.4 million due to a positive contribution from working capital offset by higher net capital investments

  • Management maintains a strong positive outlook for the remainder of 2014  and sees a favorable overall economic environment for seafood companies

  • Declares quarterly dividend of $0.025 per share payable on September 2, 2014 to shareholders of record as of August 19, 2014.

Second quarter results

Clearwater reported sales of $113.4 million and adjusted EBITDA1 of $20.3 million for the second quarter of 2014 versus 2013 comparative figures of $95.4 million and $17.0 million, reflecting growth of 19% in both sales and adjusted EBITDA, respectively.

The 19% growth in both sales and adjusted EBITDA was driven by strong market demand that increased sales volumes and pricing for scallops, shrimp and lobster as well as a $6.6 million positive impact due to a foreign exchange rate environment that had average spots rates for major currencies such as the US dollar and Euro at higher levels in 2014 than the second quarter of 2013.

Earnings for the second quarter of 2014 were $18.9 million and included non-cash foreign exchange gains of $20.7 million as the Canadian dollar strengthened against the US dollar and the Euro resulting in large non-cash gains on the translation of both Clearwater's $200 million US dollar denominated debt and its' foreign exchange hedging contracts.

Free cash flows1 were ($11.7) million versus ($9.6) million in the second quarter of 2013, a decline of $2.1 million, due primarily to the timing of capital expenditures.

Year to date results

Clearwater reported sales of $191.2 million and adjusted EBITDA1 of $30.6 million for the first half of 2014 versus 2013 comparative figures of $163.7 million and $27.9 million, reflecting growth of 16.8% and 9.7% in sales and adjusted EBITDA, respectively.

Gross margin as a percentage of sales improved from 18.4% in the first half of 2013 to 20.4% for the same period of 2014, due to strong demand, higher prices for the majority of species and favourable exchange rates.  Higher catch rates for sea scallops and the timing of landings for shrimp increased available supply which also contributed to the increase in total gross margin.  Poor weather conditions for turbot and higher harvesting costs for scallops and shrimp partially offset the improvements to gross margin.

Free cash flows1 from operating activities improved $18.1 million from negative ($13.0) million to positive $5.1 million due to higher adjusted EBITDA and a $16.7 million improvement in working capital, offset by higher capital expenditures (net of designated borrowings) from scheduled refits and vessel conversions, and the timing of payments to minority interest partners.   As a result year to date free cash flows improved $11.4 million from the same period in 2013.

Seasonality

Clearwater's business experiences a seasonal pattern in which sales, margins and adjusted EBITDA are lower in the first half of the year while investments in capital expenditures and working capital are typically higher resulting in lower free cash flows in the first half of the year and higher free cash flows in the second half of the year.

Results for the second quarter of 2014 are consistent with Management's expectations for the quarter and in-line with its expectations for fiscal 2014.

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.

Ian Smith, Chief Executive Officer, commented, "We are delighted with the results in the second quarter in both harvesting and sales.

Mr. Smith continued "We posted strong sales results across our portfolio of sustainably harvested, wild caught seafood and are maintaining our annual financial targets.  Also, we have continued to invest and advance several major capital projects that are key to sustaining our long term growth, profitability and competitive advantage."

Mr. Smith concluded "Looking to the longer-term, we are encouraged by a recent Agricultural Outlook published by the OECD-FAO that predicts growth in seafood pricing is expected to outpace other proteins by almost 3 times from now until 2020."

For 2014 Clearwater has the following annual targets:

  • sales growth - 5% or greater
  • adjusted EBITDA margins - 18% or greater
  • Free cash flow growth - 5% or greater
  • Leverage - 3x or lower
  • return on assets - 12% or higher

Dividends

The Board of Directors approved a quarterly dividend of CAD$0.025 per share payable on September 2, 2014 to shareholders of record on August 19, 2014.

In making the determination of dividend levels Clearwater's Board gives consideration to a number of key principles including:

  • the expected future earnings;

  • the amount of free cash flows that should be retained to reinvest in the business;

  • the assurance that all obligations can be met with respect to existing loan agreements; and

  • the desire to provide room for the dividend to increase in the future as the business continues to grow and expand.

The Board is satisfied with current dividend levels.

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.

Key Performance Indicators

Key Performance Indicators
In 000's of Canadian dollars
(unless otherwise indicated)
Rolling twelve months ended


June 28
2014


June 29
2013
Target
Profitability          
Adjusted EBITDA $ 81,808  $   72,413  
           
Adjusted EBITDA
  19.7%   20.2% 18.0%
(as a % of sales)         or greater
           
Sales   416,167   358,163  
Sales growth   16.2%   5.2% 5%
          or greater
           
Financial Performance          
Free cash flows   37,520   26,792  
           
Leverage (adjusted EBITDA multiple)   2.9   3.5 3.0
          or lower
           
Returns          
Return on assets   12.9%   12.0% 12%
          or greater
Note: Refer to definitions within the Management Discussion and Analysis

 

Management believes that it has the correct strategies and focus to provide sustainable competitive advantage and long-term growth.  These strategies include:

  1. Expanding access to supply;

  2. Targeting profitable and growing markets, channels and customers;

  3. Innovating and positioning our products to deliver superior customer satisfaction and value;

  4. Increasing margins by improving price realization and cost management;

  5. Preserving the long-term sustainability of our resources; and

  6. Improving our organizational capability and capacity, talent, diversity and engagement.

Management also believes that it has the people, processes and financial resources to execute these strategies and create value for its shareholders. This includes the capacity to execute Clearwater's five year strategic plan. This plan, developed and initiated in 2012, is entitled 5-1-5 and includes goals to achieve $500 million in sales and $100 million in adjusted EBITDA by the end of 2016 (i.e. in 5 years) or earlier.

  1. Refer to definitions within the Management discussion and Analysis

  2. Clearwater's business experiences a predictable seasonal pattern in which sales, margins and adjusted EBITDA are lower in the first half of the year while investments in capital expenditures and working capital are higher. This normally results in negative cash flows in the first half of the year.  We refer to the negative cash flows as "a net use of cash" in this document.

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater's 2014 second quarter results please see Clearwater's Second Quarter Report for 2014, 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.

 
    13 weeks ended   26 weeks ended    Rolling 12 months ended 
    June 28, 2014   June 29, 2013   June 28, 2014   June 29, 2013   June 28, 2014   June 29, 2013
                         
Sales  $ 113,403 $ 95,368 $ 191,174 $ 163,665 $ 416,167 $ 358,163
Earnings (loss)   18,850   (9,866)   6,706   (11,628)   33,631   16,508
Basic earnings (loss) per share    0.30   (0.24)   0.04   (0.30)   N/A   N/A
Diluted earnings (loss) per share1   0.30   (0.24)   0.04   (0.30)   N/A   N/A
                         
Adjusted EBITDA 2 $ 20,336 $ 17,043 $ 30,560 $ 27,855 $ 81,808 $ 72,413
                         
Shares outstanding, at period-end3   54,978,098   50,948,698   54,978,098   50,948,698   N/A   N/A
Weighted average shares on a fully diluted basis   54,978,098   50,948,698   54,587,430   50,948,698   N/A   N/A
  1. Diluted earnings (loss) per share for the 13 and 26 weeks ended June 29, 2013 was anti-dilutive.

  2. Please see the Management's Discussion and Analysis for a reconciliation of adjusted EBITDA to the financial statements.

  3. On February 4, 2014, Clearwater completed the issuance to the public, on a bought deal basis, of 4,029,400 common shares from the treasury of the Company. The shares were offered at a price of $8.50 per Share, for gross proceeds to Clearwater of approximately $34 million.

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.

 

 

SOURCE Clearwater Seafoods Incorporated

For further information:

Robert Wight, Chief Financial Officer, Clearwater, (902) 457-2369; Tyrone Cotie, Treasurer, Clearwater, (902) 457-8181