Clearwater reports second quarter results supporting positive outlook for 2016

/Not for distribution to United States or for dissemination in the United States/

HALIFAX, Aug. 4, 2016 /CNW/ - (TSX: CLR):

Today Clearwater Seafoods Incorporated reported its second quarter results for the period ended July 2, 2016:

  • Second quarter sales and adjusted EBITDA of $140.2 million and $27.5 million representing growth rates of 20% and 24% respectively. Year to date figures of $256.4 million and $46.3 million representing growth rates of 33% and 45% respectively.
  • The growth in sales revenues and adjusted EBITDA were due primarily to higher sales volumes, improved margins and favorable exchange rates.
  • Operating cash flows were in line with seasonal expectations and reflect the timing of planned investments in working capital and position the company well to generate strong annual free cash flows.
  • Leverage improved to 3.8x, and was better than seasonal expectations and we remain on target to further reduce leverage by year-end 2016.

Second Quarter Results

Clearwater reported sales and adjusted EBITDA1 of $140.2 million and $27.5 million for the second quarter of 2016 versus 2015 comparative figures of $116.7 million and $22.2 million, respectively, representing growth of 20% in sales and 24% in adjusted EBITDA. 

The growth in sales revenues and adjusted EBITDA were due primarily to higher sales volumes, improved margins and favorable exchange rates.

Volume growth was primarily attributable to langoustine, whelk and clam.  This was partially offset by lower scallop and shrimp volumes associated with the timing of landings late in the quarter.  At the end of the quarter, inventories in all species were solid and support a strong sales outlook for the third and fourth quarters of 2016.

Sales and gross margin were positively impacted by strong market demand in all regions as well as higher selling prices in home currencies and higher average exchange rates, partially offset by higher procurement costs and sales mix.

Gross margin as a percentage of sales improved to 26.3% versus 24.0% in 2015 due to strong sales prices for the majority of species as well as a strengthening US dollar and Yen against the Canadian dollar which had a $5.6 million net positive impact on sales and margins.

Adjusted earnings attributable to shareholders for the second quarter of 2016 decreased $3.3 million to $1.4 million primarily as a result of higher interest expense due to an increase in loan facilities on October 30, 2015 related to the financing of the Macduff acquisition. This was partially offset by higher sales volumes, strong sales prices and higher average foreign exchange rates.

Refer to the Management Discussion and Analysis for a breakdown of the non-IFRS measure and the related earnings attributable to shareholders. 

Operating cash flows were in line with seasonal expectations and reflect the timing of planned investments in working capital.  Strong harvesting conditions in the first and second quarter of 2016 allowed Clearwater to invest in inventories and receivables and position the company well to achieve strong annual adjusted EBITDA and free cash flows in 2016. Free cash flows were ($37.1) million in the second quarter of 2016 as compared to ($36.7) million in the second quarter of 2015.

Year to Date Results

Clearwater reported sales and adjusted EBITDA1 of $256.4 million and $46.3 million for the first half of 2016 versus 2015 comparative figures of $192.1 million and $31.9 million, respectively, representing growth of 33% in sales and 45% in adjusted EBITDA. 

The growth in sales revenues and adjusted EBITDA were due primarily to higher sales volumes, improved margins and favorable exchange rates.

Volume growth was primarily attributable to langoustine, whelk and clam partially offset by shrimp.

Sales and gross margin were positively impacted by strong market demand in all regions as well as higher selling prices in home currencies and higher average exchange rates partially offset by higher procurement costs and sales mix.

Gross margin as a percentage of sales increased from 22.0% to 24.8% due to strong sales prices for the majority of species as well as a strengthening US dollar and Yen against the Canadian dollar which had a $13.5 million net positive impact on sales and margins.

Adjusted earnings attributable to shareholders for the first half of 2016 decreased $0.6 million to $5.2 million1 primarily as a result of higher interest expense due to an increase in loan facilities on October 30, 2015 related to the financing of the Macduff acquisition.  This was partially offset by higher sales volumes, strong sales prices and higher average foreign exchange rates.

Operating cash flows were in line with seasonal expectations and reflect the timing of planned investments in working capital.  Strong harvesting conditions in the first half of 2016 allowed Clearwater to invest in inventories and receivables and position the company well to achieve strong annual adjusted EBITDA and free cash flows in 2016. Free cash flows were ($61.5) million in the first half of 2016 as compared to ($30.1) million in the first half of 2015, a period that saw far less harvesting activity and therefore lower inventories.

Acquisition of Macduff

On October 30, 2015 Clearwater successfully completed its acquisition of Macduff Shellfish Group Limited ("Macduff"), one of Europe's leading wild shellfish companies.

This investment strengthens Clearwater's leading global market position in complementary premium wild seafood by expanding our access to supply by more than 15 million pounds or 20%.

Clearwater's second quarter 2016 results include sales of $29.5 million and adjusted EBITDA of $3.8 million for Macduff, the second full quarter in which we are reporting Macduff results.  Year to date, Clearwater's results include sales of $55.3 million and adjusted EBITDA of $5.8 million for Macduff.  Macduff'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. 

Looking forward, Macduff is positioned for growth in 2016.  In June 2015 Macduff acquired an additional four scallop trawlers and licenses (bringing their fleet to 13 mid-shore scallop harvesting vessels) along with additional preferred procurement access in whelk. This recent investment along with additional organic growth is projected to help Macduff grow adjusted EBITDA in 2016.

Capital structure

In June Clearwater issued 2,895,700 shares on a bought deal basis for $13.90 per share yielding gross proceeds of $40.3 million.   Concurrently, Clearwater completed a non-brokered private placement with certain existing shareholders for 1,080,000 shares at $13.90 per share for gross proceeds of $15 million. The total gross proceeds from the offering were $55.3 million and the proceeds net of expenses were $53.1 million.

The net proceeds were used in the quarter to further strengthen liquidity by repaying balances on revolving debt facilities. This increase in liquidity will be used in the future to fund growth opportunities, working capital and general corporate purposes.

Dividends

The Board of Directors approved and declared a dividend of $0.05 per share payable on September 1, 2016 to shareholders of record as of August 18, 2016.

The Board reviews dividends quarterly with a view to setting the appropriate dividend amount annually.

The Board will continue 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 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 first half of 2016 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.

As a vertically integrated seafood company, Clearwater 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 "Exceptional harvesting conditions – especially in May and June of the second quarter of the year, have positioned us well for a strong performance in the third and fourth quarters of 2016." 

Mr. Smith continued "We are also very pleased with the continued strong performance and results of Macduff post- acquisition as well as our recently expanded clam fleet.."

Mr. Smith concluded "In 2016 Clearwater celebrates its 40th anniversary and kicks off the next five year, 2016 to 2020 strategic plan. In it, we continue to focus on executing with excellence against our six core strategies and see many attractive opportunities for future growth."

Core Strategies

Expanding Access to Supply - We will continue to actively invest in 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.

The investment in Macduff provides Clearwater with access to an incremental 15 million pounds or 20% of premium, wild caught, safe, traceable and complementary shellfish species. 

In addition, in July 2015 Clearwater launched its new state-of-the-art factory clam vessel, the Belle Carnell.  At CAD $65 million, it is the single-largest vessel investment in Clearwater's history and will harvest Arctic Surf Clams, Cockle Clams and Propeller Clams year-round on the Grand Banks.  The vessel joined Clearwater's fleet in the fourth quarter of 2015 and significantly improves utilization of existing licenses and quota in this Marine Stewardship Council (MSC) certified sustainable fishery.

Target Profitable & Growing Markets, Channels & Customers – Clearwater benefits from strong and growing global demand for sustainably harvested, safe, traceable and premium wild seafood. In 2016, we will continue to segment and target 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.  With the acquisition of Macduff, Clearwater has enhanced access to key distribution channels including food service and grocery retail in multiple markets including the UK, France, Italy, Spain and Portugal.

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's relevantly differentiated on the dimensions of taste, quality, safety, sustainability, wellness, convenience and fair labour practices.

The acquisition of Macduff has expanded the product range Clearwater can make available to its large and growing core customer base – especially in Asia and the Americas. We see tremendous opportunity to the utilize the sales and marketing strength of the Clearwater brand and organization to provide expanded market and customer service/access to Macduff's four major species – Scallops, Langoustines, Whelk and Crab.

The expansion of our clam fleet has provided us with capacity to harvest and market Northern Propeller Clam, a species with historically limited market appeal.   This product has been transformed through new product development ("NPD") into a source of incremental revenue and profit in both the Japanese and North American Sushi markets. 

Clearwater's NPD efforts have also resulted in the significant growth, geographic and channel distribution expansion of our high pressure-processed frozen raw lobster including major air and cruise lines as well major retailers in the EU and Asia.

Increase Margins by Improving Price Realization and Cost Management - In 2016 we are continuing the implementation of our "ocean to shelf" global supply chain with a focus on capturing cost savings through greater efficiency and improved productivity of our global operations. This includes leveraging the scarcity of seafood supply versus increasing global demand to continuously improve price realization, revenue and margins.  It also includes investing in innovative state-of-the-art technology, systems and processes that maximize value, minimize cost, reduce waste, increase yield and improve quality, reliability and safety of our products and people.

We see opportunities to drive value in utilizing Macduff's North Atlantic harvesting operations, integrated UK-based primary and secondary processing capabilities and expertise with land-based processing facilities in Scotland. In addition, our patented next generation live lobster storage and distribution system promises to improve quality, reduce waste and significantly lower the operating costs in our lobster business. Early tests have already yielded a significant reduction in mortality in storage and distribution, the single largest industry cost driver.  

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. That's why Clearwater has been recognized by the Marine Stewardship Council ("MSC") as a leader in sustainable harvesting for wild fisheries and how Clearwater can offer the widest selection of sustainably-certified species of any seafood harvester worldwide.

Clearwater will continue to invest in science and sustainable harvesting technology and practices to add value to all fisheries in which we participate in Canada, Argentina and the United Kingdom.

Build Organizational Capability, Capacity & Engagement - A high level of performance can only be achieved by a talented and engaged global workforce at sea and on land, employing well communicated strategies and plans with measurable objectives. It also requires an enduring commitment to invest in our people.     

Management is evaluating multiple opportunities to fuel additional growth which will provide opportunities to continue to invest in, develop and engage our entire workforce in Canada and abroad.

Other financial information

To assist readers in understanding the share of adjusted EBITDA attributable to shareholders of Clearwater and to assist users in understanding earnings we have included two additional measures – adjusted EBITDA attributable to shareholders of Clearwater and adjusted earnings attributable to shareholders of Clearwater.

Adjusted EBITDA attributable to shareholders of Clearwater

Adjusted EBITDA attributable to shareholders increased by $4.9 million to $21.8 million in the second quarter of 2016 and by $14.3 million to $36.6 million year to date primarily as a result of higher volumes, strong sales prices for the majority of core species and higher average foreign exchange rates as the US dollar strengthened against the Canadian dollar.

For those readers who would like to understand the calculation of adjusted EBITDA please refer to the reconciliation of adjusted EBITDA within the non-IFRS measures, definitions and reconciliations section of the MD&A.

Adjusted earnings attributable to shareholders of Clearwater


 





13 weeks ended

26 weeks ended

Rolling 12 months ended




July 2

July 4

July 2

July 4

July 2

July 4





2016


2015


2016


2015


2016


2015
















Reconciliation of earnings to adjusted earnings














Earnings (loss)

$

13,513

$

9,739

$

29,326

$

(18,595)

$

27,250

$

(15,506)


Add (subtract)















Deferred tax assets booked related to prior years


-


-


-


-


-


(2,575)



Restructuring and refinancing costs


(366)


1,807


(847)


2,105


2,867


2,454



Acquisition related costs


(42)


-


1,159


-


4,562


-



Fair value impact on purchase price allocation


-


-


-


-


2,166


-



Stock based compensation (recovery) expense


249


(127)


1,750


3,521


3,499


10,679



Loss on insurance claim


-


300


-


300


-


300



Unrealized foreign exchange and derivative loss


(9,338)


(1,726)


(28,480)


26,352


7,220


46,129



Devaluation of peso on working capital


653


-


5,199


-


10,543


-



Fair value on long-term debt


83


(1,621)


1,878


(735)


495


(1,458)





(8,761)


(1,367)


(19,341)


31,543


31,352


55,529
















Adjusted earnings

$

4,752

$

8,372

$

9,985

$

12,948

$

58,602

$

40,023
















Adjusted earnings attributable to:














Non-controlling interests


3,374


3,705


4,826


7,145


15,792


14,459


Shareholders


1,378


4,667


5,159


5,803


42,810


25,564




$

4,752

$

8,372

$

9,985

$

12,948

$

58,602

$

40,023

 

For those readers who would like to understand the calculation of adjusted earnings please refer to the reconciliation of adjusted earnings at the end of this release as well as in the definitions and reconciliations section of the MD&A.  

One of the largest items that we adjust for in calculating adjusted earnings are foreign exchange gains and losses.

Clearwater is primarily an export company with greater than 85% of our sales taking place outside Canada and in foreign currencies.   It has a business model built on access to a limited resource and diversity of species, markets and customers and has operated successfully in a variety of exchange rates environments. However, accounting standards require that we assume the settlement of foreign exchange hedging and debt instruments prior to their maturity at each period end.  This results in non-cash gains or losses that are included in earnings for the period.  We exclude these gains and losses when calculating Adjusted EBITDA, Adjusted Earnings Attributable to Shareholders of Clearwater and Free Cash Flows. 

Key Performance Indicators

Key Performance Indicators





In 000's of Canadian dollars

(unless otherwise indicated)


July 2


July 4

Rolling twelve months ended


2016


2015

Profitability





Adjusted EBITDA

$

124,129

$

88,734






Adjusted EBITDA (as a % of sales)


21.8%


19.9%






Sales


569,240


445,677

Sales growth


27.7%


7.1%






Financial Performance





Free cash flows


7,748


13,296






Leverage (adjusted EBITDA multiple)


3.8


3.9






Returns





Return on assets


12.6%


13.0%






 

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater's 2016 second quarter results please see Clearwater's Second Quarter Report for 2016, 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 twelve months ended










July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015


Sales

$

140,180

$

116,748

$

256,405

$

192,110

$

569,240

$

445,677


Earnings (loss)


13,513


9,739


29,326


(18,595)


27,250


(15,506)


Basic earnings (loss) per share


0.16


0.10


0.41


(0.47)


N/A


N/A


Diluted earnings (loss) per share1


0.16


0.10


0.41


(0.47)


N/A


N/A
















Adjusted earnings2 attributable to shareholders

$

1,377

$

4,667

$

5,159

$

5,803

$

42,810

$

25,564


Adjusted earnings per share2


0.02


0.09


0.09


0.11


N/A


N/A
















Adjusted EBITDA2

$

27,454

$

22,196

$

46,319

$

31,922

$

124,129

$

88,734


Adjusted EBITDA attributable to shareholders2


21,811


16,892


36,573


22,228


101,248


69,254
















Shares outstanding, at period-end3

63,934,698

59,958,998

63,934,698

59,958,998


N/A


N/A


Basic and diluted weighted average shares

60,439,577

55,197,039

60,196,676

55,086,793


N/A


N/A


1. Diluted earnings (loss) per share for 13 weeks ended July 2, 2016 and the 26 weeks ended July 4, 2015 were anti-dilutive.




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




3. On June 21, 2016 Clearwater completed the issuance of 3,975,000 common shares at $13.90 per common share for gross proceeds of $53.0 million. Transaction costs associated with the equity issue were $2.2 million and have been deducted, net of deferred taxes of $0.7 million, from the recorded amount for the common shares.




On June 30, 2015, Clearwater completed the issuance to the public, on a bought deal basis, of 4,980,900 common shares from the treasury of the Company. The shares were offered at a price of $12.25 per share, for gross proceeds to Clearwater of approximately $61 million. 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.


 

NON-IFRS MEASURES

This news release makes reference to several non-IFRS measures to supplement the analysis of Clearwater's results.  These measures are provided to enhance the reader's understanding of our current financial performance.  They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a consistent basis for comparison between periods.  These non-IFRS measures are not recognized measures under IFRS, and therefore they are unlikely to be comparable to similar measures presented by other companies. 

Management believes that in addition to sales, earnings and cash provided by operating activities, non-IFRS measures are useful terms from which to determine Clearwater's ability to generate cash for investment in working capital, capital expenditures, debt service, income tax and dividends.

These non-IFRS measures can include gross margin, adjusted EBITDA, free cash flow, leverage, adjusted earnings and return on assets. Refer to non-IFRS measures, definitions and reconciliations in the Management Discussion and Analysis ("MD&A") for further information.

Adjusted EBITDA is defined as EBITDA excluding items such as severance charges, gains or losses on property, plant and equipment, gains or losses on quota sales, refinancing and reorganization costs.  In addition recurring accounting gains and losses on foreign exchange (other than realized gains and losses on forward exchange contracts), have been excluded from the calculation of adjusted EBITDA.  Unrealized gains and losses on forward exchange contracts relate to economic hedging on future operational transactions and by adjusting for them, the results more closely reflect the economic effect of the hedging relationships in the period to which they relate.  In addition adjustments to stock based compensation have been excluded from adjusted EBITDA as they do not relate to the operations of the business.

Adjusted Earnings is defined as earnings excluding items such as refinancing and reorganization costs, stock based compensation and recurring accounting gains and losses on unrealized foreign exchange.

Leverage is defined as adjusted EBITDA less minority share of adjusted EBITDA divided by debt (less Clearwater's share of cash).

Free cash flow is defined as cash flows from operating activities, less capital expenditures (net of any borrowings of debt designated to fund such expenditures), scheduled payments on long term debt and distributions to non-controlling interests.  Items excluded from free cash flow include discretionary items such as debt refinancing and repayments, changes in the revolving loan and discretionary financing, investing activities and cash settled stock based compensation.

COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS

This report may contain "forward-looking information" as defined in applicable Canadian securities legislation. All statements other than statements of historical fact, 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.

In addition, this report contains forward-looking information relating to Clearwater's acquisition of Macduff Shellfish Group Limited ("Macduff"), financing of the acquisition, enhancement of Clearwater's scale of operations and accelerated growth, as well as expectations regarding sales, adjusted EBITDA, adjusted earnings and leverage.  This 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, Clearwater's ability to successfully integrate or grow the business of Macduff as planned, 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.  Risk factors that could cause actual results to differ materially from those indicated by forward-looking information contained in this press release include risks and uncertainties related to: (i) diversion of management time and attention on the acquisition, (ii) any disruption from the acquisition affecting relationships with customers, employees or suppliers, (iii) the timing and extent of changes in interest rates, prices and demand, and (iv) economic conditions and related uncertainties.

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 report 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 report, 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 report.

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, langoustines, crab, welk 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: Tyrone Cotie, Treasurer, Clearwater, (902) 457-8181.

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