Mr Smith said: "The single largest contributor to year over year growth was the addition of Macduff Shellfish, acquired in October 2015. Excluding Macduff, Clearwater's core business financial performance was below expectations as the company felt the combined effects of shortages of supply in northern shrimp and sea scallops.
"The addition of the Belle Carnell combined with our proprietary advancements in harvesting technology across the clam fleet resulted in the complete harvest of the Arctic surf clam Total Allowable Catch ("TAC") for the first time in the history of the fishery. While this bodes well for a strong 2017, the rapid increase in supply was not anticipated and outstripped the near term capacity of our existing channels and customers to the detriment of prices.
"While this bodes well for a strong 2017, the rapid increase in supply was not anticipated and outstripped the near term capacity of our existing channels and customers to the detriment of prices, margins and year-end inventory levels.
"In 2017, we expect to deliver another year of record sales and adjusted EBITDA with growth in virtually every market, channel and species.
"Harvest conditions challenged us in 2016 but our access to supply, advanced harvesting and processing technology, diversity of species and breadth of markets channels and customers positions us well for sustainable and profitable growth in 2017 and beyond."
Annual results
Clearwater reported record sales and adjusted EBITDA1 of $611.6 million and $120.9 million respectively for 2016 versus 2015 comparative results of $504.9 million and $109.7 million. This represents growth rates of 21.1 per cent for sales and 10.2 per cent for adjusted EBITDA marking Clearwater's seventh consecutive year of top and bottom line growth.
Sales and adjusted EBITDA were positively impacted by strong sales prices for scallops and higher sales volumes for clams, lobster, langoustine, whelks and crab. Higher average foreign exchange rates for the US dollar, Yen and the Euro had a net positive impact of $7.0 million, contributing to the improvement in sales.
The cash flows used in working capital increased against 2015 by $2.3 million to a use of $21.1 million for 2016. The increased level of working capital resulted primarily from high inventory levels for clams and certain procured species, partially offset by timing of collections of accounts receivable.
Inventory levels increased during the third and fourth quarters of 2016 to higher than anticipated levels following successful harvesting in our clam fleet. With the addition of the third vessel into the fishery in the latter part of 2015 combined with improved efficiency through the implementation of advanced harvesting technology and equipment, harvesting volumes increased significantly and therefore the company was able to catch the full clam quota for the first time in 2016. Overall inventory levels increased through the second half of 2016 resulting in
Overall inventory levels increased through the second half of 2016 resulting in year-end clam inventories closing $23.9 million higher than 2015. Clam sales volumes increased 22.7 per cent over the prior year with pricing adjustments, investments in marketing, promotion and distribution expansion initiated to increase sales. The benefits of these investments were not fully realized in 2016 as it will take time to effect expanded distribution of clams. Management anticipates the benefits will be realized through 2017 and inventories will return to normal levels by the end of the year.
Free cash flows1 were $10.2 million in 2016 as compared to $39.1 million in 2015. Higher adjusted EBITDA was offset by higher working capital balances from inventory. Other contributing factors included higher interest expense that resulted from higher inventory balances and timing of payments to non-controlling interests, that reduced free cash flow balances by approximately $12.7 million in 2016. Cash taxes were also higher by $5.2 million as a result of a full year of Macduff operations.
Leverage1 decreased to 4.2x adjusted EBITDA as at 31 December 2016 compared to 4.4x at the end of 2015. Clearwater's long-term target for leverage 3.0x and Clearwater plans to be in line with this target within the next two years or less.
Earnings for the year increased $80.3 million to $59.6 million in 2016 primarily as a result of improvements in gross margin from strong sales prices for the majority of core species and the impact of lower average foreign exchange rates. The changes in foreign exchange resulted in non-cash unrealized foreign exchange gains on long-term debt and forward contracts as the Canadian dollar strengthened against the US dollar and the GBP.
Adjusted earnings1 attributable to shareholders declined $19.7 million to $23.8 million in 2016 primarily as a result of higher interest expense resulting from higher working capital balances and income tax expense. Please refer to the Management Discussion and Analysis for a definition of adjusted earnings.
Fourth quarter results
Clearwater reported sales and adjusted EBITDA1 of $165.7 million and $29.5 million for the fourth quarter of 2016 versus 2015 comparative figures of $165.5 million and $39.0 million, respectively.
Reductions in coldwater shrimp and sea scallop Total Allowable Catch ("TAC") and poor live lobster quality, from the inshore fishery, combined with high shore prices resulted in lower margins. Lower average foreign exchange rates as the Canadian dollar strengthened against the US dollar, Euro and GBP resulted in a negative impact to sales of $5.2 million.
Cash flows from working capital improved in the fourth quarter of 2016, by $31.3 million to $64.7 million compared to the same period in 2015, as Clearwater finished harvesting its quota of several species earlier in the year and these inventories were sold in the normal course of business.
Earnings for the fourth quarter of 2016 increased $16.2 million to earnings of $12.4 million primarily as a result of non-cash unrealized foreign exchange gains on long-term debt and forward contracts as the Canadian dollar strengthened against the US dollar and the GBP.
Adjusted earnings attributable1 to shareholders declined $18.2 million to $0.8 million primarily a result of species sales and size mix at lower gross margins and lower 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.
Dividends
The Board of Directors approved and declared a quarterly dividend of CAD $0.05 per share payable on 3 April 2017 to shareholders of record as of 17 March 2017.
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.
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.
