Clearwater reports record sales and adjusted EBITDA for 2015

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HALIFAX, March 22, 2016 CNW/ – (TSX: CLR):

Today Clearwater Seafoods Incorporated reported its fourth quarter and annual results for the period ended December 31, 2015:

• Record fourth quarter sales and adjusted EBITDA of $165.5 million and $39.0 million representing growth rates of 38% and 51% respectively. Excluding the acquisition of Macduff, growth in sales and adjusted EBITDA was 16% and 34%, respectively.
• Record annual sales and adjusted EBITDA of $504.9 million and $109.7 million representing annual growth rates of 14% and 26% respectively.  Excluding the acquisition of Macduff, growth in sales and adjusted EBITDA was 8% and 21%, respectively.
• Record annual free cash flows of $39.1 million, reflecting annual growth of 27%.
• Improved leverage from approximately 5.3x at closing of Macduff Shellfish acquisition on October 30, 2015 to 4.4x at December 31, 2015.  We remain on target to further reduce leverage below 4.0x by year-end 2016.
• Declares quarterly dividend of $0.05 per share payable on April 15, 2016 to shareholders of record as of March 31, 2016.

Fourth quarter results

Clearwater reported record sales and adjusted EBITDA¹ of $165.5 million and $39.0 million for the fourth quarter of 2015 versus 2014 comparative figures of $119.5 million and $25.9 million, respectively, representing growth of 38% in sales and 51% in adjusted EBITDA.  Note that these figures include the results of Macduff Shellfish for the two months from acquisition on October 30, 2015 including sales of $27.0 milllion and adjusted EBITDA of $4.5 million.  Excluding the acquisition of Macduff, growth in sales and adjusted EBITDA was 16% and 34%, respectively.

The growth in sales revenues and adjusted EBITDA were due to higher prices and higher average exchange rates and the acquisition of Macduff.

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 for the US dollar, partially offset by higher harvesting and procurement costs. 

Gross margin (excluding  the amortization of fair value adjustment to inventory and fixed assets from acquisition of Macduff) as a percentage of sales increased from 25.0% to 27.3% as strong sales prices for the majority of species and a strengthening US dollar against the Canadian dollar had a $14.7 million net positive impact on sales and margins.

Adjusted earnings attributable to shareholders increased $9.4 million to $19.0 million primarily as result of improvements in gross margin from strong sales prices for the majority of core species and higher average foreign exchange rates as the US dollar strengthened against the Canadian dollar.  Refer to the Management Discussion and Analysis for a breakdown of the non-IFRS measure and the related earnings attributable to shareholders. 

Strong operating cash flows were supplemented by seasonal reductions in working capital in the fourth quarter.  As a result free cash flows¹ increased $27.1 million to $64.4 million from $37.2 million in 2014. 

Annual results

Clearwater reported annual sales of $504.9 million and adjusted EBITDA¹ of $109.7 million versus 2014 comparative figures of $444.7 million and $87.4 million, reflecting growth in sales and adjusted EBITDA of 14% and 26%, respectively.  Excluding the acquisition of Macduff, growth in sales and adjusted EBITDA was 8% and 21%, respectively.

Gross margin (excluding amortization of the fair value adjustment to inventory and fixed assets from acquisition of Macduff) as a percentage of sales improved from 23.1% in 2014 to 26.6% in 2015, due to strong demand, higher prices for the majority of species and favorable exchange rates as a strengthening US dollar against the Canadian dollar had a $33.6 million net positive impact on sales and gross margin.  The improvement in gross margin was partially offset by higher harvesting and procurement costs per pound.

Free cash flows¹ increased $8.2 million from $30.9 million in 2014 to $39.1 million in 2015.  Strong operating cash flows were partially offset by higher investments in working capital and capital expenditures (net of borrowing) in 2015. Free cash flow results are in line with management’s expectations and position the company to generate strong annual free cash flows in 2016. 

Adjusted earnings attributable to shareholders increased $20.9 million to $43.5 million in 2015 primarily as a result of strong sales prices for the majority of core species and higher average foreign exchange rates as the US dollar strengthened against the Canadian dollar.  To assist users in understanding our earnings we have calculated adjusted earnings which exclude certain non-cash adjustments.  Please refer to the Management Discussion and Analysis for a definition of adjusted earnings. 

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 with an immediate expansion of supply of high quality shellfish including scallops, langoustine, whelk and crab.

Clearwater’s 2015 results include the results of Macduff Shellfish for the two months from acquisition on October 30, 2015 including sales of $27.0 million and adjusted EBITDA of $4.5 million. 

Looking forward, Macduff is positioned for growth in 2016.  In June 2015 Macduff acquired an additional 4 scallop trawlers and licenses (bringing their fleet to 14 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.

Dividends

The Board of Directors approved and declared a dividend of $0.05 per share payable on April 15, 2016 to shareholders of record as of March 31, 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.

Chief Financial Officer Appointment

Teresa Fortney will be appointed Vice President and Chief Financial Officer effective March 24^th, 2016. Teresa is a Chartered Professional Accountant with over 29 years of senior financial leadership experience in the consumer foods industry including; Maple Leaf Foods, Schneider Foods and McCormick’s. Current Chief Financial Officer, Robert Wight will step back from his role to focus on leading the integration of Macduff Shellfish before retiring later this year.

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 both the fourth quarter of 2015 and year 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 "We are pleased with our results for 2015 and particularly satisfied to exceed our five-year strategic plan goals of $500 million in revenue and $100 million in adjusted EBITDA one year ahead of our original timetable." 

Mr. Smith continued "strong global demand across all markets and species will continue to be a key driver for our business in 2016"

Mr. Smith concluded "Looking forward, we expect to see significant volume growth in 2016 associated with the acquisition of Macduff, the expansion of our clam fleet and expanded procurement of core species."

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 of premium, wild caught, safe, traceable and complementary shellfish species including King and Queen scallops, langoustines, brown crab and whelk. 

In late 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. We expect the Belle Carnell could contribute up to a 50% increase in total clam volume of all species in 2016 versus prior year.  

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. 

In addition to increasing supply, Macduff provides Clearwater 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 also expands the product range Clearwater can make available to its large and growing core customer base –especially in Asia and the Americas. Macduff’s four major species – King and Queen Scallops as well as Whelk and Brown Crab will benefit from expanded market and customer service/access as well as the sales and marketing strength of the Clearwater brand and organization.

Clearwater’s new product development ("NPD") efforts have resulted in the significant growth, geographic and channel distribution expansion of our higher pressure-processed frozen raw lobster including major air and cruise line as well major retailers in the EU and Asia.

Northern Propeller Clam, a species with historically limited market appeal has been transformed through NPD into a significant source of incremental revenue and profit in both the Japanese and North American Sushi markets. 

Increase Margins by Improving Price Realization and Cost Management – In 2015 we began to implement our "ocean to shelf" global supply chain. We will continue this work in 2016 capturing cost savings through the 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.

The Macduff investment expands Clearwater’s North Atlantic harvesting operations and provides integrated UK-based primary and secondary processing capabilities and expertise with land-based processing facilities in Scotland. Investments in automated shucking continue to generate significant cost savings and productivity gains in our Canadian Sea Scallop. 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. In October 2015 Clearwater received an award from ESRI Canada, for our commitment to sustainable business practices through the use of our geographic information system ("GIS"), which allows us to reduce our impact on the ocean floor and more efficiently conduct our harvest operations. 

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.     

Macduff is one of the largest vertically integrated shellfish harvesters in the UK and creates a new growth platform for Clearwater to complement our robust organic growth plans. Management is already evaluating multiple opportunities to fuel additional growth which will provide opportunities 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 $9.4 million to $19.0 million in the fourth quarter of 2015 primarily as a result of 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

Adjusted earnings attributable to shareholders increased $20.9 million to $43.5 million in 2015 primarily a result of improvements in gross margin from 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 earnings please refer to the reconciliation of adjusted earnings within the non-IFRS measures, definitions and reconciliations section of the MD&A.

Key Performance Indicators

Financial Statements and Management’s Discussion and Analysis Documents

For a detailed analysis of Clearwater’s 2015 annual results please see Clearwater’s Annual Report for 2015, 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.

SOURCE Clearwater Seafoods Incorporated