High Liner Foods Reports Operating Results for the First Quarter of 2020 and Provides COVID-19 Related Update

- Integrated and Flexible Operations Provide a Steady Supply of Seafood to Families Across North America -

LUNENBURG, NS, May 12, 2020 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner Foods" or "the Company"), a leading North American value-added frozen seafood company, today reported financial results for the thirteen weeks ended March 28, 2020.

"Our improving financial performance in Q1 reflects significant progress and momentum in our business," said Rod Hepponstall, President and CEO of High Liner Foods. "Our work to drive continuous improvement across our business has significantly enhanced our ability to respond to the extraordinary challenges posed by COVID-19. We enter this period as strong as we have ever been."

"Our fully integrated and flexible supply chain is allowing us to maximize supply to our retail customers who continue to have increased demand for our frozen seafood products at this unprecedented time. We are able to deliver excellent fill rates to our retail customers by leveraging excess capacity in our foodservice business that surfaced due to COVID-19 restrictions," continued Mr. Hepponstall. "We are well positioned to navigate through the current challenges including economic uncertainty and fluctuating customer demand for our products thanks to our integrated North American operations, solid balance sheet, prudent cost management measures and significant liquidity."

Mr. Hepponstall added, "We are grateful for the dedication and commitment of our employees, especially those on the front line in our production and warehouse facilities. Their safety will remain our top priority as we ensure the essential steady supply of seafood to meet the needs of families across North America."

Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended March 28, 2020, or the first quarter of 2020, are as follows (unless otherwise noted, all comparisons are relative to the first quarter of 2019):

• Sales volume decreased by 1.2 million pounds, or 1.5%, to 77.3 million pounds compared to 78.5 million pounds;
  
  
• Sales volume increased in the first quarter of 2020 compared to the first quarter of 2019 prior to the net unfavorable impact of COVID-19 starting mid-March;
  
  
• Sales decreased by $8.8 million to $268.6 million compared to $277.4 million;
  
  
• Gross profit increased by $2.7 million to $58.8 million compared to $56.1 million and gross profit as a percentage of sales increased by 170 basis points to 21.9% compared to 20.2%;
  
  
• Adjusted EBITDA increased by $4.0 million, or 14.9%, to $30.7 million excluding the $5.5 million recovery received in the first quarter of 2019 associated with the Company's 2017 product recall;
  
  
• Net income decreased by $0.6 million to $14.2 million compared to $14.8 million and diluted earnings per share ("EPS") decreased to $0.41 compared to $0.43; and
  
  
• Net Debt¹ to rolling twelve-month Adjusted EBITDA was 4.2x at March 28, 2020 compared to 4.1x at the end of Fiscal 2019.

COVID-19 Related Update 

High Liner Foods responded quickly to the dramatic impact of COVID-19 on its business and that of its key customers and stakeholders. The Company's COVID-19 Task Force is focused on enhanced health and safety protocols for all employees, including putting in place additional measures to safeguard its frontline employees and to facilitate social distancing. The Company will continue to adapt and adopt best practices that prioritize the health and safety of its employees and the stability of food supply from its facilities.

Starting mid-March, High Liner Foods experienced an unprecedented surge in demand from its retail customers tied to COVID-19 that continues today. The Company has been able to meet the increased demand and satisfy its customers with excellent fill rates by redirecting resources, inventory and production capacity across its integrated North American operations. Over the same time period, the Company has experienced a significant decline in its foodservice business, which represented approximately 65% of its total business in 2019, as a result of foodservice industry closures that include restaurants and schools across North America. Demand from its institutional foodservice customers, like long-term and health care facilities, has remained relatively stable since the onset of the COVID-19 pandemic in North America.

The Company's overall supply chain has operated with minimal disruption during COVID-19 despite operating fewer production lines overall and implementing social distancing measures.. There have been limited interruptions in production, transportation and warehousing activities and no significant issues related to the procurement of raw materials and ingredients. Production resumed on April 27, 2020, at High Liner Foods' Portsmouth plant following a short operational suspension put in place by the Company while it activated its COVID-19 response plan.

Like other food processors, High Liner Foods is experiencing increased costs associated with COVID-19 including extraordinary recognition pay for frontline employees, personal protective equipment, safety enhancements and increased sanitation. It is taking the necessary steps to manage spending and preserve cash to minimize the impact of COVID-19 including adjustments to its workforce and deferring approximately $6.0 million of the $15.0 million previously planned for capital expenditures in 2020.

Financial Results

For the purpose of presenting the Consolidated Financial Statements in USD, CAD-denominated assets and liabilities in the Parent'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 for the thirteen weeks ended March 28, 2020 and March 30, 2019 are summarized in the following table:

	Thirteen weeks ended
(Amounts in 000s, except per share amounts, unless otherwise noted)	March 28, 2020			March 30, 2019
Sales volume (millions of lbs)	77.3			78.5
Average foreign exchange rate (USD/CAD)	1.3414			1.3301
Sales in USD	$	268,588		$	277,424
Gross profit	$	58,768		$	56,076
Gross profit as a percentage of sales	21.9		%	20.2		%
Adjusted EBITDA	$	30,705		$	32,215
Adjusted EBITDA as a percentage of sales	11.4		%	11.6		%
Net income	$	14,227		$	14,762
Diluted EPS	$	0.41		$	0.43
Adjusted Net Income^1	$	14,288		$	14,925
Adjusted Diluted EPS	$	0.42		$	0.44
Diluted weighted average number of shares outstanding	34,404			34,216

Sales volume for the first quarter of 2020 decreased by 1.2 million pounds (1.5%) to 77.3 million pounds compared to 78.5 million pounds in same period in 2019. In our retail business, sales volume was lower overall related to lost business in the fourth quarter of Fiscal 2019, partially offset by a surge in demand in late March related to COVID-19. In our foodservice business, sales volume was lower overall due to the impact of COVID-19 on our foodservice customers in late March. Prior to the net unfavorable impact of COVID-19 starting mid-March, sales volume increased in the first quarter of 2020 compared to the first quarter of 2019 due to the impact of new business and new product sales.

Sales in the first quarter of 2020 decreased by $8.8 million (3.2%) to $268.6 million compared to $277.4 million in the same period in 2019 due to the lower sales volumes mentioned above and unfavorable changes in sales mix.

Gross profit in the first quarter of 2020 increased by $2.7 million (4.8%) to $58.8 million compared to $56.1 million in the same period in 2019 and gross profit as a percentage of sales increased by 170 basis points to 21.9% compared to 20.2%. The increase in gross profit reflects favorable changes in product mix and improved supply chain efficiencies related to the critical initiatives completed in Fiscal 2019, partially offset by the lower sales volumes discussed above. The weaker Canadian dollar had the effect of decreasing the value of reported USD gross profit from our Canadian operations in 2020 by approximately $0.3 million relative to the conversion impact last year.

Adjusted EBITDA in the first quarter of 2020 decreased by $1.5 million (4.7%) to $30.7 million compared to $32.2 million in the same period in 2019 and Adjusted EBITDA as a percentage of sales decreased by 20 basis points to 11.4% compared to 11.6%. The decrease in Adjusted EBITDA reflects the inclusion of $5.5 million of the $8.5 million recovery received from the ingredient supplier in the first quarter of 2019 associated with the 2017 product recall. Excluding the $5.5 million recovery from the first quarter of 2019, Adjusted EBITDA increased by $4.0 million (14.9%) in the first quarter of 2020 as a result of the increase in gross profit discussed above and a decrease in distribution and net SG&A expenses. The impact of converting our CAD-denominated operations and corporate activities to our USD presentation currency decreased the value of reported Adjusted EBITDA in USD by $3.2 million in the first quarter of 2019 compared to $2.1 million in the same period in 2019.

Reported net income in the first quarter of 2020 decreased by $0.6 million to $14.2 million (diluted EPS of $0.41) compared to $14.8 million (diluted EPS of $0.43) in the same period in 2019. The decrease in net income reflects the additional $3.0 million product recall recovery from the ingredient supplier that was excluded from Adjusted EBITDA in the first quarter of 2019 and the decrease in Adjusted EBITDA discussed above, partially offset by a decrease in share-based compensation expenses, a decrease in finance costs and a decrease in income taxes.

In the first quarter of 2020, net income included an expense of $0.5 million classified as "business acquisition, integration and other expense (income)" related to certain non-routine expenses. In 2019, net income included a recovery of $7.2 million classified as "business acquisition, integration and other expense (income)" related to the product recall recovery, short-term termination benefits as a result of restructuring activities and other non-cash expenses. Excluding the impact of these non-routine or other non-cash expenses and including only $3.0 million of the product recall recovery received during the first quarter of 2019, Adjusted Net Income in the first quarter of 2020 decreased by $0.6 million to $14.3 million (Adjusted Diluted EPS of $0.42) compared to $14.9 million (Adjusted Diluted EPS of 0.44) in 2019.

Net cash flows provided by operating activities in the first quarter of 2020 decreased by $25.0 million to $2.0 million compared to $27.0 million in the same period in 2019 primarily reflecting unfavorable changes in net non-cash working capital and lower cash flows from operations, partially offset by lower interest and income tax payments. The unfavorable changes in net non-cash working capital are the result of unfavorable changes in inventories and accounts payable, partially offset by favorable changes in accounts receivable and provisions.

Net Debt at March 28, 2020 increased by $9.1 million to $355.7 million compared to $346.6 million at the end of Fiscal 2019 reflecting increased working capital requirements, an increase in short-term borrowings to support operations as a result of COVID-19 and higher lease liabilities, partially offset by debt repayments in the first quarter of 2020 due to cash flows from operations in 2019 and a higher cash on hand balance at March 28, 2020 as compared to the end of Fiscal 2019.

Net Debt to Adjusted EBITDA was 4.2x at March 28, 2020 compared to 4.1x at the end of Fiscal 2019. This ratio may not improve, or will be higher, by the end of Fiscal 2020 as a result of the anticipated negative impact of COVID-19 on Adjusted EBITDA, however, we continue to expect that the Company will be in compliance with all covenants and terms of our banking facilities during Fiscal 2020.

Outlook

High Liner Foods' outlook is directly impacted by the duration of government imposed social distancing measures related to COVID-19, specifically timing for re-opening of currently shuttered segments of the foodservice industry and related consumer behaviour which at this point remain uncertain. High Liner Foods can also not estimate whether potential future production disruptions will occur and whether incremental costs associated with COVID-19 will extend beyond the second quarter.

Despite the strength in High Liner Foods' retail business, the Company anticipates that the declines in the foodservice side of its business may limit its ability to deliver year-over-year EBITDA growth. High Liner Foods will continue to offset the impact of this decline by strengthening its retail capacity and carefully managing costs. It is also working in partnership with its hospitality customers as they pivot to take out and delivery options and to ensure readiness for a quick ramp up as and when social distancing restrictions are lifted across North America and consumer demand returns.

The Company is confident in its liquidity position as a result of its prudent cash management and early refinancing of debt in 2019. The Company does not have any impending debt maturities and will continue to utilize its $150 million working capital credit facility if required. Borrowings on this facility, net of cash on hand, are currently approximately $28.9 million.

Dividend

Today, the Company's Board of Directors approved a quarterly dividend of CAD$0.05 per share on the Company's common shares, payable on June 15, 2020 to holders of record on June 1, 2020.

Conference Call

The Company will host a conference call on Tuesday, May 12, 2020, at 2:00 p.m. ET (3:00 p.m. AT) during which Rod Hepponstall, President & Chief Executive Officer and Paul Jewer, Executive Vice President & Chief Financial Officer, will discuss the financial results for the first quarter of 2020. To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. 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 Tuesday, May 19, 2020 at midnight (ET). To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 5368836.

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 webcast will be archived at the above website for one year.

The Company's Unaudited Condensed Interim Consolidated Financial Statements and MD&A as at and for the thirteen weeks ended March 28, 2020 were filed concurrently on SEDAR with this news release and are also available at www.highlinerfoods.com.

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, Canada and Mexico 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.

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 2019 Annual Report and the Risk Factors section of our 2019 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 same; the impact of the U.S. Trade Representative's tariffs on certain seafood products; costs of commodity products 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 marketplace; 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; 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; compliance with debt covenants; the availability of adequate levels of insurance; adverse weather conditions and natural disasters; management retention and development; and the potential impact of a pandemic outbreak of a contagious illness, such as the 2019 coronavirus 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.

The Company reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). Included in this media release are certain non-IFRS financial measures as supplemental indicators of operating performance. These non-IFRS measures are Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Net Debt. Please refer to the Company's MD&A for the thirteen weeks ended March 28, 2020 for definitions of non-IFRS financial measures used by the Company and reconciliation of these non-IFRS measures to measures that are found in our Unaudited Condensed Interim Consolidated Financial Statements.

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. These measures do not have a standardized meaning 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.

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

^1 Please refer to High Liner Foods' Management's Discussion and Analysis ("MD&A") for the thirteen weeks ended March 28, 2020 for definitions of the non-IFRS financial measures used by the Company, includng "Adjusted EBITDA", "Adjusted Net Income", "Adjusted Diluted EPS" and "Net Debt".

SOURCE High Liner Foods Incorporated

please contact: Paul Jewer, FCPA, FCA, Executive Vice President & Chief Financial Officer, High Liner Foods Incorporated, Tel: [phone], [email protected]; Heather Keeler-Hurshman, CPA, CA, CPIR, Vice President, Investor Relations & Communications, High Liner Foods Incorporated, Tel: [phone], [email protected]

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www.highlinerfoods.com