Clearwater reports strong second quarter results and positive outlook for 2015

/NOT FOR DISTRIBUTION TO UNITED STATES OR FOR DISSEMINATION IN THE UNITED STATES/

HALIFAX, Aug. 4, 2015 /CNW/ – (TSX: CLR): Today Clearwater Seafoods Incorporated reported its second quarter results for the period ended July 4^th, 2015:

• Sales and adjusted EBITDA for the second quarter of 2015 grew by 2.9% and 9.4% to $116.7 million and $22.2 million versus 2014 comparative figures of $113.4 million and $20.3 million, respectively, due to higher prices and higher average exchange rates, partially offset by lower sales volumes.
• Strong market demand in all regions for our core species continues to positively impact selling prices.
• Strong operating cash flows in the second quarter and year-to-date periods were offset by the timing of planned investments in working capital in 2015. These results are in line with management’s expectations and position the company well to generate strong annual free cash flows.
• Successfully launched its new state-of-the-art factory clam vessel, the Belle Carnell. At CAD $65 million, this vessel is the single-largest vessel investment in Clearwater’s history and will harvest Arctic Surf Clams, Cockle Clams and Propeller Clams year-round.
• Management expects markedly improved harvest conditions and strong market conditions for core species will continue for the balance of 2015, positively impacting sales prices, volumes and operating margins.
• Declares quarterly dividend of CAD $0.04 per share payable on September 2, 2015 to shareholders of record as of August 19, 2015

Second quarter results

Clearwater reported sales of $116.7 million and adjusted EBITDA¹ of $22.2 million for the second quarter of 2015 versus 2014 comparative figures of $113.4 million and $20.3 million, respectively.

The 2.9% growth in sales and 9.4% growth in adjusted EBITDA were due to higher prices and higher average exchange rates, partially offset by lower sales volumes.

Sales and gross margin were positively impacted by strong market demand in all regions for our core species as well as higher selling prices in home currencies and higher average exchange rates for the US dollar.

Partially offsetting these positive market conditions was lower than expected inventory available for sale. Challenging weather conditions at sea and on land during the first quarter of 2015 carried over into mid second quarter of 2015. The impact of these weather conditions was to delay harvesting operations and scheduled vessel maintenance for our clam and scallop fleets. As a result, we experienced lower inventory available for sale in the second quarter of 2015.

Harvest conditions improved markedly in May and June which greatly improved catch rates, harvest costs, positioning the company for a strong second half of 2015.

Gross margin as a percentage of sales increased from 21.5% to 24.0% as strong sales prices for the majority of species and a strengthening US dollar against the Canadian dollar had a $2.4 million net positive impact on sales and margins.

Adjusted earnings attributable to shareholders for the second quarter of 2015, which excludes non-cash and non-operational adjustments, increased $3.0 million to $4.7 million primarily as a result of the improvements in gross margin.  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 offset by the timing of planned investments in working capital in the second quarter of 2015.  As a result free cash flows¹ declined $25.0 million to a use of cash of ($36.7) million from a use of cash of ($11.7) million in the second quarter of 2014.  The second quarter free cash flow results are in line with management’s expectations and position the company well to generate strong annual free cash flows.

Year to date results

Clearwater reported sales of $192 million and adjusted EBITDA¹ of $31.9 million for the first half of 2015 versus 2014 comparative figures of $191 million and $30.6 million, reflecting relatively consistent sales and 4.2% growth in adjusted EBITDA, primarily a result of an improvement in gross margin.

Gross margin as a percentage of sales improved from 20.4% in the first half of 2014 to 22.0% for the same period of 2015, due to strong demand, higher prices for the majority of species and favorable exchange rates. This was partially offset by lower sales volumes which were a result of challenging weather conditions at sea and on land during the first quarter of 2015 that delayed harvesting operations and scheduled vessel maintenance for our clam and scallop fleets. 

Strong operating cash flows were offset by the timing of planned investments in working capital in the first half of 2015.  As a result, free cash flows¹ declined $17.5 million from a use of cash of ($12.6) million in the first half of 2014 to a use cash of ($30.1) million in the first half of 2015.  The year-to-date free cash flow results are in line with management’s expectations and position the company well to generate strong annual free cash flows.

Earnings declined from $6.7 million in the first half of 2014 to a loss of $18.6 million in the same period of 2015 as a result an increase in non-cash unrealized foreign exchange losses from the translation of the US dollar denominated debt as the US dollar strengthened against the Canadian dollar.

Adjusted earnings attributable to shareholders, which excludes non-cash and non-operational adjustments, increased $3.2 million to $6.0 million in the first half of 2015 primarily a result of improvements in gross margin. Refer to the Management Discussion and Analysis for a breakdown of the impact.

Dividends

The Board of Directors approved and declared a quarterly dividend of CAD $0.04 per share payable on September 2, 2015 to shareholders of record as of August 19, 2015.

The Board will continue to review the policy on a regular basis to ensure the dividend level remains consistent with Clearwater’s long term 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 second quarter of 2015 are consistent with Management’s expectations for the quarter and in-line with its expectations for fiscal 2015.

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 continued to make progress in the first half of 2015 with the expectation that our five-year strategic plan goal of $100 million in adjusted EBITDA is now within our reach – one full year ahead of our original timetable. 2015 will also be the year in which we lay the foundation for our next five year strategic plan (2016 – 2020), which will see us continue to focus on executing with excellence against our core strategies.”

Mr. Smith concluded “Harvest conditions challenged us in the first half of 2015 but strong global demand across all markets and species has been a key strength. With our strongest sales periods still ahead of us, exceptional market conditions and improving supply position, we remain confident in our full year outlook.”

Our core strategies are:

• Expanding Access to Supply – In late July 2015 Clearwater completed the launch of its new state-of-the-art factory clam vessel, the Belle Carnell.

  At CAD $65 million, this vessel is the single-largest vessel investment in Clearwater’s history and will harvest Arctic Surf Clams, Cockle Clams and Propeller Clams year-round.

  The vessel will undergo fishing trials and conduct initial trips in the third and fourth quarter of 2015 but once fully operational in 2016 is expected to increase annual clam sales by up to 50% of 2014 annual sales.

  We will also continue to actively invest in access to supply of core species and other complementary, high demand, premium, wild and sustainably harvested seafood through utilization and productivity of core licenses as well as acquisitions, partnerships, joint ventures and commercial agreements.

• Target Profitable & Growing Markets, Channels & Customers – We continue to benefit from strong and increasing global demand for sustainably harvested, safe, traceable and premium wild seafood. In 2015, 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.
• Innovate and Position Products to Deliver Superior Customer Satisfaction and Value – We continue to work with customers on new product forms. We will continue to 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 and convenience.
• Increase Margins by Improving Price Realization and Cost Management – In 2015 we will begin to implement our first “ocean to shelf” global supply chain. We have ambitious expectations to drive top and bottom line growth, capturing savings in global supply chain efficiencies and improved productivity. This will include 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.
• 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 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”) and World Wildlife Fund (“WWF”) 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.
• 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.

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 Clearwater shareholders and adjusted earnings.

Adjusted EBITDA attributable to shareholders of Clearwater

Adjusted EBITDA attributable to shareholders decreased by $1.4 million or 5.9% to $22.2 million for the first half of 2015, primarily due to lower selling volumes and an increase in selling and administrative expenses.

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

To assist readers in estimating our earnings we have included a calculation of adjusted earnings.

Adjusted earnings attributable to shareholders, which excludes non-cash and non-operational adjustments, increased $3.2 million to $6.0 million in the first half of 2015 primarily a result of improvements in gross margin. Refer to the Management Discussion and Analysis for a breakdown of the impact.

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 second quarter results please see Clearwater’s Second Quarter 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