High Liner Foods Reports Improved Operating Results for the First Quarter of 2023

-Delivers Continued Quarterly Adjusted EBITDA Gains -

LUNENBURG, NS, May 16, 2023 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner Foods" or "the Company"), a leading North American value-added frozen seafood company, today announced financial results for the thirteen weeks ended April 1, 2023.

"Q1 2023 was another strong quarter for High Liner Foods marking eight consecutive quarters of Adjusted EBITDA growth," said President and CEO Rod Hepponstall. "Our foodservice business continues to perform particularly well. We are leveraging the diversification of our business, along with our branded and value-added offering and a data-driven approach, to inspire greater seafood consumption and to support our customers by offering consumers assurances of quality and value, in a time of economic challenges."

Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended April 1, 2023, or the first quarter of 2023, are as follows (unless otherwise noted, all comparisons are relative to the first quarter of 2022):

• Sales increased by $34.5 million, or 11.7%, to $329.2 million compared to $294.7 million and sales volume increased by 3.6 million pounds, or 4.9%, to 77.0 million pounds compared to 73.4 million pounds;
• Gross profit increased by $6.4 million, or 10.3%, to $68.4 million compared to $62.0 million and gross profit as a percentage of sales decreased to 20.8% compared to 21.0%;
• Adjusted EBITDA⁽¹⁾ increased by $2.9 million, or 10.2%, to $31.2 million compared to $28.3 million and Adjusted EBITDA as a Percentage of Sales decreased to 9.5% compared to 9.6%;
• Net income decreased by $0.7 million, or 4.8%, to $13.9 million compared to $14.6 million and diluted earnings per share ("EPS") decreased to $0.40 per share, compared to $0.42 per share;
• Adjusted Net Income⁽¹⁾ increased by $1.3 million, or 8.6%, to $16.4 million compared to $15.1 million and Adjusted Diluted EPS⁽¹⁾ increased to $0.48 per share compared to $0.43 per share; and
• Net Debt⁽¹⁾ to Rolling Twelve-Month Adjusted EBITDA⁽¹⁾ was 3.6x at April 1, 2023 compared to 3.7x at the end of Fiscal 2022 and 3.2x at April 2, 2022. This ratio increased during Fiscal 2022 due to increased investment in inventory.

Q1 Operational Update 

The Company continued to deliver strong operational performance in the first quarter. High Liner Foods leveraged its branded and value-added offering to provide foodservice customers with operational efficiencies and menu innovation, which remain priorities in the current market. In the Company's retail business, the impact of changing consumer behaviour because of inflationary and recessionary pressures became more pronounced across the entire grocery sector, impacting overall sales volume during the Lenten period and first quarter. 

"The value and choice we offer consumers to shop across our portfolio of brands and products has meant that, after many quarters of inflationary and recessionary pressures on the consumer, we are only now seeing economic conditions have a more significant impact on our retail performance. This is not unexpected, and our retail business is performing in line with the category overall. To mitigate the impact, we will continue to invest in our brands and work closely with our customers to ensure we are offering the right value at the right time."

"We continued to grow our foodservice business and are very encouraged by the progress we are making in our targeted growth channel and species, anchored by the stability of our institutional customers across healthcare and education. We continue to win market share in priority areas such as casual dining, QSR and fast growing popular species such as shrimp. Once again, the diversification of our business is a source of stability and enables us to be resilient  in the face of economic headwinds," said Mr. Hepponstall.

The Company's integrated and diversified global supply chain continues to perform well. Global supply constraints and delays are easing across the industry and High Liner Foods remains focused on efficient management of inventory and maintaining excellent service levels in support of its customers.

Financial Results

For the purpose of presenting the Consolidated Financial Statements in USD, CAD-denominated assets and liabilities in the Company's operations are converted using the exchange rate at the reporting date, and revenue and expenses are converted at the average exchange rate of the month in which the transaction occurs. As such, foreign currency fluctuations affect the reported values of individual lines on our balance sheet and income statement. When the USD strengthens (weakening CAD), the reported USD values of the Parent's CAD-denominated items decrease in the Consolidated Financial Statements, and the opposite occurs when the USD weakens (strengthening CAD).

Investors are reminded for purposes of calculating financial ratios, including dividend payout and share price-to-earnings ratios, to take into consideration that the Company's share price and dividend rate are reported in CAD and its earnings, EPS and financial statements are reported in USD.

The financial results in USD for the thirteen weeks ended April 1, 2023 and April 2, 2022 are summarized in the following table:

		Thirteen weeks ended
(Amounts in 000s, except per share amounts, unless otherwise noted)		April 1, 2023		April 2, 2022
Sales volume (millions of lbs)		77.0		73.4
Average foreign exchange rate (USD/CAD)		1.3526		1.2661
Sales		$         329,164		$          294,735
Gross profit		$           68,405		$            62,014
Gross profit as a percentage of sales		20.8 %		21.0 %
Adjusted EBITDA		$           31,199		$            28,340
Adjusted EBITDA as a percentage of sales		9.5 %		9.6 %
Net income		$           13,888		$            14,645
Diluted EPS		$               0.40		$                0.42
Adjusted Net Income		$           16,437		$            15,068
Adjusted Diluted EPS		$               0.48		$                0.43
Diluted weighted average number of shares outstanding		34,537		35,424

Sales volume for the thirteen weeks ended April 1, 2023, or the first quarter of 2023, increased by 3.6 million pounds, or 4.9%, to 77.0 million pounds compared to 73.4 million pounds in the thirteen weeks ended April 2, 2022, or the first quarter of 2022. In our foodservice business, sales volume was higher due to increased sales in newer product lines, new business, an increase in our contract manufacturing business and improved customer service levels. The Company achieved strong service levels during the first quarter of 2023, as compared to the first quarter of 2022 due to the increased investment in working capital in the latter part of Fiscal 2022 to mitigate the impact of the global supply chain challenges. This was partially offset by lower sales volume in our retail business during the Lenten period primarily due to consumers becoming more price-conscious, resulting in softer demand for protein, including seafood products as consumers switched to lower cost meal solutions.

Sales in the first quarter of 2023 increased by $34.5 million, or 11.7%, to $329.2 million compared to $294.7 million in the same period in 2022, reflecting higher sales volumes mentioned above and pricing actions implemented during Fiscal 2022 and the first quarter of 2023 to mitigate inflationary increases on input costs. The weaker Canadian dollar in the first quarter of 2023 compared to the same quarter of 2022 decreased the value of reported USD sales from our CAD-denominated operations by approximately $4.4 million relative to the conversion impact last year.

Gross profit in the first quarter of 2023 increased by $6.4 million to $68.4 million compared to $62.0 million in the same period in 2022 and gross profit as a percentage of sales decreased by 20 basis points to 20.8% compared to 21.0%. The increase in gross profit reflects the higher sales volume and pricing actions discussed previously, despite inflationary increases in input costs, as well as some improvement in operating efficiencies at our plants, partially offset by a change in product mix. The weaker Canadian dollar decreased the value of reported USD gross profit from our CAD-denominated operations by approximately in $0.8 million relative to the conversion impact last year.

Adjusted EBITDA in the first quarter of 2023 increased by $2.9 million to $31.2 million compared to $28.3 million in the same period in 2022 while Adjusted EBITDA as a percentage of sales decreased to 9.5% compared to 9.6%. The increase in Adjusted EBITDA is a result of the increase in gross profit partially offset by the increase in distribution and net SG&A expenses.

Reported net income in the first quarter of 2023 decreased by $0.7 million to net income of $13.9 million (diluted EPS of $0.40) compared to $14.6 million (diluted EPS of $0.42) in the same period in 2022. The decrease in net income reflects higher finance costs, higher share-based compensation expense, and higher business acquisition, integration and other expense, partially offset by the increase in Adjusted EBITDA, discussed previously and lower income taxes. 

Reported net income in the first quarter of 2023 included certain non-routine expenses classified as "business acquisition, integration and other expense." Excluding the impact of these non-routine items or other non-cash expenses, and share-based compensation, Adjusted Net Income in the first quarter of 2023 increased by $1.3 million or 8.6%, to $16.4 million compared to $15.1 million in the same period in the prior year. Adjusted Diluted EPS increased $0.05 in the first quarter of 2023 to $0.48 as compared to $0.43 in the same period of the prior year.

Net cash flows provided by (used in) operating activities in the first quarter of 2023 increased by $32.6 million to an inflow of $12.9 million compared to an outflow of $19.7 million in the same period in 2022 due to favourable changes in non-cash working capital balances and higher cash flows provided by operations, partially offset by higher interest paid.

Net Debt decreased by $6.2 million to $379.3 million at April 1, 2023 as compared to $385.5 million at December 31, 2022, reflecting lower bank loans, lower long-term debt and lower lease liabilities as at April 1, 2023, as compared to December 31, 2022.

Net Debt to Rolling Twelve-Month Adjusted EBITDA was 3.6x at April 1, 2023 compared to 3.7x at the end of Fiscal 2022 and 3.2x at April 2, 2022.  Net Debt to Rolling Twelve-Months Adjusted EBITDA increased during Fiscal 2022 primarily as a result of increased investment in seasonal working capital in Fiscal 2022 and inflation in raw materials. In the absence of any major acquisitions or unplanned capital expenditures in 2023, we expect this ratio to be in line with the Company's long-term target of 3.0x at the end of Fiscal 2023.

Outlook

 "Inflationary and economic pressures are increasingly impacting consumer purchasing decisions related to dining outside the home and grocery purchases. While we are not immune to the potential negative impact on our business, we are well positioned to navigate evolving market conditions as a result of the diversification of our business, customers, and portfolio," said Rod Hepponstall.

"Looking ahead to the remainder of the year, I remain confident in the outlook for our business, our ability to navigate near-term recessionary challenges and our ability to deliver annual year over year Sales and Adjusted EBITDA growth. We are focused on making improvements in working capital, which through the course of the year, will allow us to generate significant cash flow from operations and create further value for all stakeholders."

The Company has a strong balance sheet and is well equipped to invest in organic growth, explore opportunities for transformative growth through potential M&A activities to build shareholder value and continue to grow the dividend over time.

Dividend

Today, the Company's Board of Directors approved a quarterly dividend of CAD$0.13 per share on the Company's common shares, payable on June 15, 2023 to holders of record on June 1, 2023. These dividends are considered "eligible dividends" for Canadian income tax purposes.

Conference Call

 The Company will host a conference call on Wednesday, May 17, 2023, at 10:00 a.m. ET (11:00 a.m. AT) during which Rod Hepponstall, President & Chief Executive Officer, Paul Jewer, Executive Vice President & Chief Financial Officer and Anthony Rasetta, Chief Commercial Officer, will discuss the financial results for the first quarter of 2023. To access the conference call by telephone, dial 416-764-8659 or 1-888-664-6392. Please connect approximately 10 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay by telephone until Saturday, June 17, 2023 at midnight (ET). To access the archived conference call, dial 1-888-390-0541 and enter the replay entry code 162947#.

A live audio webcast of the conference call will be available at www.highlinerfoods.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.

The Company's Unaudited Condensed Interim Consolidated Financial Statements and MD&A as at and for the thirteen weeks ended April 1, 2023 were filed concurrently on SEDAR with this news release and are also available at www.highlinerfoods.com.

Non-IFRS Measures

The Company reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). Included in this media release are the following non-IFRS financial measures: Adjusted EBITDA, Adjusted EBITDA as a Percentage of Net Sales, Adjusted Net Income, Adjusted Diluted EPS, Net Debt and Net Debt to Rolling Twelve-Month Adjusted EBITDA.

The Company believes these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below. These measures do not have any standardized meaning as prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS. 

Adjusted EBITDA and Adjusted EBITDA as a Percentage of Sales

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization adjusted for items that are not considered representative of ongoing operational activities of the business. The related margin, Adjusted EBITDA as a Percentage of Sales, is defined as Adjusted EBITDA divided by net sales, where net sales is defined as "Sales" on the consolidated statements of income.

We use Adjusted EBITDA (and Adjusted EBITDA as a percentage of sales) as a performance measure as it approximates cash generated from operations before capital expenditures and changes in working capital, and it excludes the impact of expenses and recoveries associated with certain non-routine items that are not considered representative of the ongoing operational activities, as discussed above, and share-based compensation expense related to the Company's share price. We believe investors and analysts also use Adjusted EBITDA (and Adjusted EBITDA as a percentage of sales) to evaluate the performance of our business. The most directly comparable IFRS measure to Adjusted EBITDA is "Net income" on the consolidated statements of income. Adjusted EBITDA is also useful when comparing to other companies, as it eliminates the differences in earnings that are due to how a company is financed. Also, for the purpose of certain covenants on our credit facilities, "EBITDA" is based on Adjusted EBITDA, with further adjustments as defined in the Company's credit agreements.

The following table reconciles Adjusted EBITDA with measures that are found in our Consolidated Financial Statements, and calculates Adjusted EBITDA as a Percentage of Sales.

				Thirteen weeks ended
(Amounts in $000s)		April 1, 2023		April 2, 2022
Net income		$                               13,888		$                                14,645
Add back (deduct):
Depreciation and amortization expense		6,068		5,671
Finance costs		7,044		3,792
Income tax expense		596		3,757
Standardized EBITDA		27,596		27,865
Add back (deduct):
Business acquisition, integration and other (income) expenses		1,767		268
(Gain) loss on disposal of assets		(71)		41
Share-based compensation expense		1,907		166
Adjusted EBITDA		$                               31,199		$                                28,340
Net Sales		$                             329,164		$                              294,735
Adjusted EBITDA as Percentage of Sales		9.5 %		9.6 %

Rolling Twelve-Month Adjusted EBITDA

		Rolling twelve months ended
(Amounts in $000s)		April 1, 2023		December 31, 2022		April 2, 2022
Net income		$                53,973		$                54,730		$                39,066
Add back (deduct):
Depreciation and amortization expense		23,975		23,578		23,034
Finance costs		21,513		18,261		14,821
Income tax expense		7,933		11,094		5,650
Standardized EBITDA		107,394		107,663		82,571
Add back (deduct):
Business acquisition, integration and other (income) expenses^(1)		(5,674)		(7,173)		2,772
Impairment of property, plant and equipment		332		332		42
Loss on disposal of assets		51		163		169
Share-based compensation expense		4,623		2,882		5,405
Rolling Twelve-Month Adjusted EBITDA		$              106,726		$              103,867		$                90,959

⁽¹⁾ The business acquisition, integration and other (income) expenses for the fifty-two weeks ended December 31, 2022, includes insurance proceeds of $10.0 million which was excluded in Adjusted EBITDA.

Adjusted Net Income and Adjusted Diluted EPS

Adjusted Net Income is net income adjusted for the after-tax impact of items which are not representative of ongoing operational activities of the business and certain non-cash expenses or income. Adjusted Diluted EPS is Adjusted Net Income divided by the average diluted number of shares outstanding.

We use Adjusted Net Income and Adjusted Diluted EPS to assess the performance of our business without the effects of the above-mentioned items, and we believe our investors and analysts also use these measures. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. The most comparable IFRS financial measures are net income and EPS.

The table below reconciles our Adjusted Net Income with measures that are found in our Consolidated Financial Statements and calculates Adjusted Diluted EPS.

						Thirteen weeks ended
		April 1, 2023				April 2, 2022
		$000s		Adjusted Diluted EPS		$000s		Adjusted Diluted EPS
Net income		$               13,888		$                   0.40		$               14,645		$                   0.42
Add back (deduct):
Business acquisition, integration and other (income) expenses		1,767		0.05		268		0.01
Share-based compensation expense		1,907		0.06		166		—
Tax impact of reconciling items		(1,125)		(0.03)		(11)		—
Adjusted Net Income		$               16,437		$                   0.48		$               15,068		$                   0.43
Average shares for the period (000s)				34,537				35,424

Net Debt and Net Debt to Rolling Twelve-Month Adjusted EBITDA

Net Debt is calculated as the sum of bank loans, long-term debt (excluding deferred finance costs and modification gains/losses) and lease liabilities, less cash.

We consider Net Debt to be an important indicator of our Company's financial leverage because it represents the amount of debt that is not covered by available cash. We believe investors and analysts use Net Debt to determine the Company's financial leverage. Net Debt has no comparable IFRS financial measure, but rather is calculated using several asset and liability items in the consolidated statements of financial position.

Net Debt to Rolling Twelve-Month Adjusted EBITDA is calculated as Net Debt divided by Rolling Twelve-Month Adjusted EBITDA (see above). We consider Net Debt to Rolling Twelve-Month Adjusted EBITDA to be an important indicator of our ability to generate earnings sufficient to service our debt, that enhances understanding of our financial performance and highlights operational trends. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies; however, the calculations of Adjusted EBITDA may not be comparable to those of other companies, which limits their usefulness as comparative measures.

The following table reconciles Net Debt to IFRS measures reported as at the end of the indicated periods in the consolidated statements of financial position and calculates Net Debt to Rolling Twelve-Month Adjusted EBITDA.

(Amounts in $000s)		April 1, 2023		December 31, 2022
Bank loans		$            123,770		$            127,554
Add-back: Deferred finance costs included in bank loans ^(1)		541		574
Total bank loans		124,311		128,128
Long-term debt		236,632		238,200
Current portion of long-term debt		7,500		7,500
Add-back: Deferred finance costs included in long-term debt ^(2)		4,627		4,972
Less: Net loss on modification of debt ^(3)		(504)		(542)
Total term loan debt		248,255		250,130
Long-term portion of lease liabilities		2,325		2,813
Current portion of lease liabilities		4,426		4,622
Total lease liabilities		6,751		7,435
Less: Cash		—		(155)
Net Debt		$            379,317		$            385,538
Rolling Twelve-Month Adjusted EBITDA		$            106,726		$            103,867
Net Debt to Rolling Twelve-Month Adjusted EBITDA		3.6x		3.7x

⁽¹⁾ Represents deferred finance costs that are included in "Bank loans" in the consolidated statements of financial position. See Note 3 to the Consolidated Financial Statements.

⁽²⁾ Represents deferred finance costs that are included in "Long-term debt" in the consolidated statements of financial position. See Note 4 to the Consolidated Financial Statements.

⁽³⁾ A gain on modification of debt related to the refinancing completed in March 2021, has been excluded from the calculation of Net Debt as it does not represent the expected cash outflows from the term loan facility.

Forward Looking Statements

Forward-looking statements can generally be identified by the use of the conditional tense, the words "may", "should", "would", "could", "believe", "plan", "expect", "intend", "anticipate", "estimate", "foresee", "objective", "goal", "remain" or "continue" or the negative of these terms or variations of them or words and expressions of similar nature. Actual results could differ materially from the conclusion, forecast or projection stated in such forward-looking information. As a result, we cannot guarantee that any forward-looking statements will materialize. Assumptions, expectations and estimates made in the preparation of forward-looking statements and risks that could cause our actual results to differ materially from our current expectations are discussed in detail in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Risk Factors section of our MD&A for the thirteen weeks ended April 1, 2023, the Risk Factors section of our 2022 annual MD&A and the Risk Factors section of our 2022 Annual Information Form. The risks and uncertainties that may affect the operations, performance, development and results of High Liner Foods' business include, but are not limited to, the following factors: compliance with food safety laws and regulations; timely identification of and response to events that could lead to a product recall; volatility in the CAD/USD exchange rate; competitive developments including increases in overseas seafood production and industry consolidation; availability and price of seafood raw materials and finished goods and the impact of geopolitical events (and related economic sanctions) on the same; the impact of the U.S. Trade Representative's tariffs on certain seafood products; costs of commodity products, freight, storage and other production inputs, and the ability to pass cost increases on to customers; successful integration of acquired operations; potential increases in maintenance and operating costs; shifts in market demands for seafood; performance of new products launched and existing products in the market place; changes in laws and regulations, including environmental, taxation and regulatory requirements; technology changes with respect to production and other equipment and software programs; enterprise resource planning system risk; adverse impacts of cybersecurity attacks or breach of sensitive information; supplier fulfillment of contractual agreements and obligations; competitor reactions; completion and/or advancement of sustainability initiatives, including, without limitation, initiatives relating to the carbon work plan, waste reduction and/or seafood sustainability and traceability initiatives; High Liner Foods' ability to generate adequate cash flow or to finance its future business requirements through outside sources; credit risk associated with receivables from customers; volatility associated with the funding status of the Company's post-retirement pension benefits; adverse weather conditions and natural disasters; the availability of adequate levels of insurance; management retention and development; economic and geopolitical conditions such as Russia's invasion of Ukraine and the implementation and/or expansion of related sanctions policies; and the potential impact of a pandemic outbreak of a contagious illness, such as COVID-19 pandemic, on general economic and business conditions and therefore the Company's operations and financial performance. Forward-looking information is based on management's current estimates, expectations and assumptions, which we believe are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Except as required under applicable securities laws, we do not undertake to update these forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf, whether as a result of new information, future events or otherwise. We include in publicly available documents filed from time to time with securities commissions and The Toronto Stock Exchange, a discussion of the risk factors that can cause anticipated outcomes to differ from actual outcomes. Except as required under applicable securities legislation, we do not undertake to update forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf, whether as a result of new information, future events or otherwise.

About High Liner Foods Incorporated

High Liner Foods Incorporated is a leading North American processor and marketer of value-added frozen seafood. High Liner Foods' retail branded products are sold throughout the United States and Canada under the High Liner, Fisher Boy, Mirabel, Sea Cuisine, and Catch of the Day labels, and are available in most grocery and club stores. The Company also sells branded products to restaurants and institutions under the High Liner, Mirabel, Icelandic Seafood and FPI labels and is a major supplier of private label value-added seafood products to North American food retailers and foodservice distributors. High Liner Foods is a publicly traded Canadian company, trading under the symbol HLF on the Toronto Stock Exchange.

For further information about the Company, please visit our website at www.highlinerfoods.com or send an e-mail to [email protected]. 

SOURCE High Liner Foods Incorporated

Paul Jewer, FCPA, FCA, Executive Vice President & Chief Financial Officer, High Liner Foods Incorporated, Tel: [phone], [email protected]; Kimberly Stephens, CPA, CA, Vice President, Finance, High Liner Foods Incorporated, Tel: [phone], [email protected]