Clearwater reports record sales and adjusted EBITDA for the third quarter of 2015

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

HALIFAX, Nov. 13, 2015 /CNW/ - (TSX: CLR):

Today Clearwater Seafoods Incorporated reported its third quarter results for the period ended October 3, 2015:

• Record sales and adjusted EBITDA for the third quarter of 2015 of $147.3 million and $38.8 million versus comparative 2014 figures of $134.1 million and $30.9 million. This represents year over year growth of 10% in sales and 26% in adjusted EBITDA due to strong sales prices and higher average exchange rates, partially offset by lower sales volumes.
• Strong operating cash flows in the third quarter and year to date period were offset by the timing of seasonal increases 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 completed the acquisition of Macduff Shellfish Group Limited ("Macduff"), one of Europe's leading wild shellfish companies, on October 30, 2015.
• Declares an increase in the quarterly dividend from CAD $0.04 per share to CAD $0.05 payable on December 15, 2015 to shareholders of record as of November 30, 2015.
• Management expects strong market conditions for core species will continue for the balance of 2015, positively impacting sales prices and operating margins.

Third quarter results

Clearwater reported record sales and adjusted EBITDA¹ of $147.3 million and $38.8 million for the third quarter of 2015 versus 2014 comparative figures of $134.1 million and $30.9 million, respectively, representing growth of 10% in sales and 26% in adjusted EBITDA. 

The 10% growth in sales and 25% 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 offset by higher harvesting and procurement costs and lower sales volumes. 

These positive market conditions were partially offset by lower available supply for scallops and clams in the third quarter of 2015. Lower supply was due to challenging weather conditions in the first half of the year, unplanned vessel maintenance in our clam fleet, an expected cyclical reduction in our total allowable catch for sea scallops and the timing of landings were all contributing factors.

Gross margin as a percentage of sales increased from 25.4% to 31.8% as strong sales prices for the majority of species and a strengthening US dollar against the Canadian dollar had a $15.3 million net positive impact on sales and margins.

Adjusted earnings attributable to shareholders increased $8.5 million to $18.7 million for the third quarter of 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. 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 seasonal investments in working capital in the third quarter of 2015. As a result free cash flows¹ declined $2.5 million from $6.2 million in the third quarter of 2014. The third 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 $339.4 million and adjusted EBITDA¹ of $70.7 million for the first nine months of 2015 versus 2014 comparative figures of $325.4 million and $61.5 million, reflecting growth in sales and adjusted EBITDA of 4.4% and 15%, respectively. 

Gross margin as a percentage of sales improved from 22.4% in the first nine months of 2014 to 26.2% for the same period of 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 $19 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.

These positive market conditions were partially offset by lower available supply for scallops and clams which is consistent with the results for the third quarter of 2015.

Strong operating cash flows were offset by the timing of seasonal investments in working capital in the first nine months of 2015.  As a result, free cash flows¹ declined $20.0 million from a use of cash of ($6.4) million in 2014 to a use of cash of ($26.4) million in 2015.  The free cash flow results are in line with management's expectations and position the company well to generate strong annual free cash flows. 

Adjusted earnings attributable to shareholders increased $11.7 million to $24.7 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 non-cash adjustments.  Please refer to the Management Discussion and Analysis for a breakdown of the impact. 

Earnings declined from $9.7 million to a loss of $16.9 million in 2015 as a result of 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.

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 for a purchase price of £94.4 million plus seasonal working capital debt.

This investment strengthens Clearwater's leading global market position in complementary premium wild seafood with an immediate 20% expansion of supply (approximately 15 million pounds) of high quality shellfish including; scallops, langoustine, whelk and crab.

In addition, 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 are projected to help Macduff grow adjusted EBITDA another 25% to £11.5 million in fiscal 2016. Looking out further, management have identified further opportunities to invest that can enhance volume, revenue, margins and adjusted EBITDA.

Taking into account the purchase price of £94.4 million (which excludes seasonal working capital debt) and the pro-forma 2016 adjusted EBITDA of £11.5 million, management estimates the effective acquisition multiple on the transaction is approximately 8.2 times adjusted EBITDA. The transaction is expected to be accretive to adjusted EBITDA in 2016 by up to CAD $0.38 per share and adjusted earnings by up to CAD $0.17 per share.

Please refer to the Management Discussion and Analysis ("MD&A") for additional information including funding of the transaction. 

Dividends

The Board of Directors approved and declared an increase in the quarterly dividend from CAD $0.04 per share to CAD $0.05 per share payable on December 15, 2015 to shareholders of record as of November 30, 2015.

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 for the dividend to increase in the future as the business continues to grow and expand.

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 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 both the third quarter and year to date period of 2015 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 year-to-date results for 2015 and expect 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." 

Mr. Smith continued "Strong global demand across all markets and species has been a key strength that has more than offset challenging harvest conditions in the first half of 2015. With our fourth quarter still ahead of us, exceptional market conditions and improving supply position, we remain confident in our full year outlook."

Mr. Smith concluded "Looking forward, the acquisition of Macduff further strengthens our global market position by expanding our supply of premium wild shellfish by approximately 20%."

Our core strategies are:

• 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 utilization and productivity of core licenses as well as acquisitions, partnerships, joint ventures and commercial agreements.
  The investment in Macduff in October 2015 provides Clearwater with access to approximately 28% of the United Kingdom's s supply of king scallops and whelk. Macduff products include King and Queen scallops, langoustines, brown crab and whelk and overall provides access on an annual basis to approximately 15 million pounds of premium, wild caught, safe, traceable and complementary shellfish species. 
  In addition 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 completed fishing trials and initial trips in the third quarter of 2015 and has joined Clearwater's fleet in the fourth quarter. Management expects that once the vessel has reached full operational capacity in 2016/2017 it could increase annual clam sales by up to 50% (as compared to 2014 annual sales).
• 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. 
  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 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.
  In addition there are opportunities to expand the distribution of Macduff products with Clearwater providing expanded market and customer service/access as well as sales and marketing strength in North America and Asia, especially Japan and China.
• Increase Margins by Improving Price Realization and Cost Management - In 2015 we began 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.
  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. 
• 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") 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 creates a new growth platform for Clearwater that will complement our robust organic growth plans. Having grown rapidly over the past four years, Macduff is the fishing company best positioned to lead and benefit from future investment in the European Union and it has identified multiple opportunities to fuel such growth. This growth will provide opportunities to invest and, develop and engage our entire workforce.

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 $3.9 million or 7.9% to $53.5 million in the first nine months 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

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

Adjusted earnings attributable to shareholders increased $11.7 million to $24.7 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

Key Performance Indicators
In 000's of Canadian dollars (unless otherwise indicated)		October 3		September 27
Rolling twelve months ended		2015		2014
Profitability
Adjusted EBITDA	$	96,593	$	83,853
Adjusted EBITDA (as a % of sales)		21.0%		19.2%
Sales		458,940		436,254
Sales growth		5.2%		17.7%
Financial Performance
Free cash flows		10,843		32,371
Leverage (adjusted EBITDA multiple)		3.9		3.6
Returns
Return on assets		12.4%		12.9%

Financial Statements and Management's Discussion and Analysis Documents

For a detailed analysis of Clearwater's 2015 third quarter results please see Clearwater's Third 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.

		13 weeks ended				39 weeks ended			Rolling twelve months ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Sales	$	147,332	$	134,069	$	339,442	$	325,244	$	458,940	$	436,254
Earnings (loss)		1,717		2,959		(16,879)		9,668		(16,749)		9,369
Basic earnings (loss) per share		(0.08)		(0.02)		(0.54)		0.02		N/A		N/A
Diluted earnings (loss) per share^1		(0.09)		(0.02)		(0.54)		0.02		N/A		N/A
Adjusted earnings^2 attributable to shareholders	$	18,681	$	10,145	$	24,681	$	12,959	$	34,295	$	22,447
Adjusted earnings per share^2		0.31		0.18		0.44		0.24		N/A		N/A
Adjusted EBITDA^2	$	38,811	$	30,945	$	70,732	$	61,506	$	96,593	$	83,853
Adjusted EBITDA attributable to shareholders^2		31,252		25,922		53,479		49,552		74,577		68,052
Shares outstanding, at period-end^3	59,958,998		54,978,098		56,692,538		54,720,055			N/A		N/A
Basic and diluted weighted average shares	60,399,138		54,978,098		56,692,538		54,720,055			N/A		N/A

1.

Diluted earnings (loss) per share for the 39 weeks ended October 3, 2015 was anti-dilutive.

2.

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

3.

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.

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, 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.

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

SOURCE Clearwater Seafoods Incorporated

Robert Wight, Chief Financial Officer, Clearwater, [phone]; Tyrone Cotie, Treasurer, Clearwater, [phone].