High Liner Foods Reports Operating Results for the Fourth Quarter of 2018

LUNENBURG, NS, Feb. 27, 2019 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner Foods", "High Liner" or "the Company"), the leading North American value-added frozen seafood company, today reported financial results for the thirteen and fifty-two weeks ended December 29, 2018.

Key financial results, reported in U.S. dollars, for the thirteen weeks ended December 29, 2018 or fourth quarter of 2018 are as follows (unless otherwise noted, all comparisons are relative to the fourth quarter of 2017):

• Sales decreased by $20.1 million to $242.9 million compared to $263.0 million;
  
  
• Gross profit decreased by $4.2 million to $40.3 million compared to $44.5 million;
  
  
• Adjusted EBITDA¹ decreased by $1.1 million to $12.0 million compared to $13.1 million;
  
  
• Net cash flows provided by (used in) operating activities increased by $33.3 million to an inflow of $10.0 million compared to an outflow of $23.3 million;
  
  
• Adjusted Net Income¹ decreased by $2.6 million to $2.2 million compared to $4.8 million and Adjusted Diluted EPS decreased to $0.07 compared to $0.15; and
  
  
• Net income decreased by $15.0 million to a loss of $0.8 million compared to income of $14.2 million and diluted earnings per share (EPS) decreased to a loss of $0.02 compared to income of $0.43.

Net income for the fourth quarter of 2017 reflects a non-cash income tax recovery of $11.2 million attributable to the reduction in the U.S. federal corporate income tax rate from 35% to 21% that came into effect on January 1, 2018 under the Tax Cuts and Jobs Act ("U.S. Tax Reform") enacted on December 22, 2017, and was not attributable to any operational or market driven event.

"Our fourth quarter and year-end financial performance is aligned with our expectations for this stage of our turnaround plan," said Rod Hepponstall, President and CEO of High Liner Foods. "With our successful organizational realignment behind us, our team is now positioned to unlock High Liner's potential and deliver on our remaining critical initiatives. While there is still work to do and headwinds to contend with, we are seeing progress related to our ability to operate more efficiently and maximize opportunities on both sides of the border as one integrated North American organization."

As previously disclosed, over the next nine to twelve months, High Liner will focus on five critical initiatives to stabilize the business and create optimal conditions for innovation, industry leadership and growth in support of long-term value creation for stakeholders. The Company is currently focused on executing its critical initiatives related to business simplification, supply chain excellence and Rubicon alignment and shrimp growth, which will lay the ground work for the final critical initiative - return to profitable organic growth. High Liner has completed the first critical initiative of organizational realignment.

Key financial results, reported in U.S. dollars, for the fifty-two weeks ended December 29, 2018, or Fiscal 2018, are as follows (unless otherwise noted, all comparisons are relative to Fiscal 2017):

• Sales decreased by $5.3 million to $1,048.5 million compared to $1,053.8 million;
  
  
• Gross profit increased by $2.1 million to $188.2 million compared to $186.1 million;
  
  
• Adjusted EBITDA decreased by $3.6 million to $62.5 million compared to $66.1 million;
  
  
• Net cash flows provided by (used in) operating activities increased by $78.4 million to an inflow of $56.9 million compared to an outflow of $21.5 million;
  
  
• Adjusted Net Income decreased by $13.1 million to $17.0 million compared to $30.1 million and Adjusted Diluted EPS decreased to $0.51 compared to $0.93;
  
  
• Net income decreased by $14.9 million to $16.8 million compared to $31.7 million and diluted EPS decreased to $0.50 compared to $0.97;
  
  
• Net interest-bearing debt¹ decreased by $27.3 million to $360.6 million at December 29, 2018 compared to $387.9 million at the end of Fiscal 2017; and
  
  
• Net interest-bearing debt to rolling twelve-month Adjusted EBITDA was 5.8x at December 29, 2018 compared to 5.9x at the end of Fiscal 2017 (5.6x at the end of Fiscal 2017 when calculated including trailing twelve month Adjusted EBITDA for Rubicon).

Related to the Company's product recall announced in April 2017, during the fifty-two weeks ended December 29, 2018, the Company recognized an $8.5 million recovery associated with the product recall losses from the ingredient supplier, which was recognized as business acquisition, integration and other (income) expense in the consolidated statements of income. Subsequent to December 29, 2018, the Company recovered an additional $8.5 million associated with the product recall from the ingredient supplier, for a total recovery of $17.0 million. This additional recovery will be recognized during the first quarter of 2019, reflecting the period in which the recovery became virtually certain, in accordance with IFRS. As a result, the Company has fully recovered the $13.5 million in losses recognized during the fifty-two weeks ended December 30, 2017 related to consumer refunds, customer fines, the return of product to be re-worked or destroyed, and direct incremental costs, and an additional $3.5 million related to lost sales opportunities and increased production costs. No further recoveries are expected.

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). The average USD/CAD exchange rates for the thirteen and fifty-two weeks ended December 29, 2018 were $1.3197 and $1.2956, respectively ($1.2715 and $1.2983 for the thirteen and fifty-two weeks ended December 31, 2017).

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 and financial statements are reported in USD.

The financial results for the  thirteen and fifty-two weeks ended December 29, 2018 and December 30, 2017 are summarized in the following table:

	Thirteen weeks ended						Fifty-two weeks ended
(Amounts in 000s, except per share amounts, unless otherwise noted)	December 29,  2018			December 30,  2017			December 29,  2018			December 30,  2017
Sales volume (millions of lbs)	66.1			71.6			284.0			291.8
Average foreign exchange rate (USD/CAD)	1.3197			1.2715			1.2956			1.2983
Sales in domestic currency	$	261,224		$	280,917		$	1,123,228		$	1,131,733
Foreign exchange impact on sales	$	(18,346)		$	(17,895)		$	(74,697)		$	(77,887)
Sales in USD	$	242,878		$	263,022		$	1,048,531		$	1,053,846
Gross profit	$	40,287		$	44,504		$	188,157		$	186,079
Gross profit as a percentage of sales	16.6%			16.9%			17.9%			17.7%
Adjusted EBITDA in domestic currency	$	13,663		$	13,355		$	66,731		$	68,780
Foreign exchange impact on Adjusted EBITDA	$	(1,695)		$	(295)		$	(4,257)		$	(2,668)
Adjusted EBITDA	$	11,968		$	13,060		$	62,474		$	66,112
Adjusted EBITDA as a percentage of sales	4.9%			5.0%			6.0%			6.3%
Net (loss) income	$	(810)		$	14,227		$	16,776		$	31,653
Diluted EPS	$	(0.02)		$	0.43		$	0.50		$	0.97
Adjusted Net Income	$	2,169		$	4,849		$	17,049		$	30,142
Adjusted Diluted EPS	$	0.07		$	0.15		$	0.51		$	0.93
Diluted weighted average number of shares outstanding		33,675			33,423			33,619		32,527

Sales volume for the fourth quarter of 2018 decreased by 5.5 million pounds to 66.1 million pounds compared to 71.6 million pounds in same period in 2017. The decrease in sales volume reflects lower sales volume in our Canadian retail business and our U.S. retail and foodservice businesses.

Sales in the fourth quarter of 2018 decreased by $20.1 million to $242.9 million compared to $263.0 million in the same period in 2017 mainly due to the decreased volume mentioned previously and changes in product mix, partially offset by price increases related to raw material cost increases.

Gross profit in the fourth quarter of 2018 decreased by $4.2 million to $40.3 million compared to $44.5 million in the same period in 2017, partially reflecting a decrease in gross profit as a percentage of sales to 16.6% compared to 16.9%. Gross profit in the fourth quarter of 2017 included losses associated with the product recall in 2017 ($1.5 million). Excluding the impact of the recall, gross profit decreased by $5.7 million to $40.3 million (16.6% as a percentage of sales) compared to $46.0 million (17.5% as a percentage of sales) in the same period of 2017 due to lower sales volume, raw material cost increases, changes in product mix and U.S. plant inefficiencies, partially offset by price increases. In addition, the weaker Canadian dollar had the effect of decreasing the value of reported USD gross profit from our Canadian operations in 2018 by approximately $0.4 million relative to the conversion impact last year.

Adjusted EBITDA in the fourth quarter of 2018 decreased by $1.1 million to $12.0 million (4.9% of sales) compared to $13.1 million (5.0% of sales) in the same period in 2017.  Excluding the impact of converting our CAD-denominated operations and corporate activities to our USD presentation currency (a decrease of $1.7 million in 2018 and $0.3 million in the same period last year), Adjusted EBITDA increased by $0.3 million, year over year reflecting lower distribution expenses and SG&A expenses across the Company, partially offset by the lower gross profit after adjusting for the losses associated with the 2017 product recall.

Reported net income in the fourth quarter of 2018 decreased by $15.0 million to a net loss of $0.8 million (loss per diluted share of $0.02) compared to a net income of $14.2 million (diluted EPS of $0.43) in the same period last year.  The decrease in net income reflects the the lower income tax recovery during the fourth quarter of 2018 due to the reduction in federal corporate income tax rate associated with the U.S. Tax Reform. Additionally, net income decreased due to the decrease in Adjusted EBITDA mentioned previously, an impairment of property, plant and equipment, an increase in termination benefits associated with the organizational realignment announced in November 2018 and an increase finance costs.

In 2018, net loss included "business acquisition, integration and other (income) expenses" related to termination benefits associated with the organizational realignment, and other non-cash expenses, including an impairment of property, plant and equipment. In 2017, net income included "business acquisition, integration and other (income) expenses" related to business development activities, termination benefits associated with restructuring activities, losses related to the product recall and other non-cash expenses. Excluding the impact of these non-routine and other non-cash expenses, and the impact of the U.S. Tax Reform in 2017, Adjusted Net Income in the fourth quarter of 2018 decreased by $2.6 million to $2.2 million (Adjusted Diluted EPS of $0.07) compared to $4.8 million (Adjusted Diluted EPS of $0.15) in the same period last year.

Net cash flows provided by (used in) operating activities in the fourth quarter of 2018 increased by $33.3 million to an inflow of $10.0 million compared to an outflow of $23.3 million in the same period in 2017 primarily reflecting more favourable results from operations, including income tax refunds, and favourable changes in net non-cash working capital, partially offset by higher interest payments.

Net interest-bearing debt to rolling twelve-month Adjusted EBITDA was 5.8x at December 29, 2018 compared to 5.9x at the end of Fiscal 2017 (5.6x at the end of Fiscal 2017 when calculated including trailing twelve month Adjusted EBITDA for Rubicon).

Dividend & Capital Structure

Today, the Board of Directors of the Company approved a quarterly dividend of CAD$0.145 per share on the Company's common shares payable on March 15, 2019 to holders of record on March 7, 2019. The Board is continuing to review the Company's capital structure to determine the prudent use of capital and will provide an update when the Company reports its financial results for the first quarter of 2019 in May.

Outlook

High Liner continues to advise shareholders that until it successfully executes its critical initiatives over the next nine to twelve months, it is likely to continue to face pressure on its financial results due to a number of internal and external factors. Longer term, the Company expects its financial performance to improve and targets a return to profitable growth by 2020.

Conference Call

The Company will host a conference call on Wednesday, February 27, 2019, at 2:00 p.m. ET (3:00 p.m. AT) during which Rod Hepponstall, President & CEO and Paul Jewer, Executive VP & CFO, will discuss the financial results for the fourth quarter of 2018. 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 Wednesday, March 13, 2019 at midnight (ET). To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 8092168.

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 Audited Consolidated Financial Statements and MD&A as at and for the fifty-two weeks ended December 29, 2018 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 the 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 C. Wirthy & Co. labels, and are available in most grocery and club stores.  The Company also sells branded products to restaurants and institutions under the High Liner, Icelandic Seafood and FPI labels and is the 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.

This document contains forward-looking statements. Forward-looking statements can generally be identified by the use of the conditional tense, the words "may", "should", "estimate", "will", believe", "plan", "expect", "goal", "remain" or "continue", or the negative of these terms or variations of them or words and expressions of similar nature. Specific forward-looking statements in this document include, but are not limited to expectations with respect to: future growth strategies and their impact on the Company's market share and shareholder value; anticipated financial performance including earning trends and growth; achievement, and timing of achievement, of strategic goals and publicly stated financial targets, including to increase our market share, acquire and integrate other businesses and reduce our operating and supply chain costs;  our ability to develop new and innovative products that result in increased sales and market share; expected leverage levels and expected net interest-bearing debt to Adjusted EBITDA; increased demand for our products whether due to the recognition of health benefits of seafood or otherwise; changes in costs for seafood and other raw materials; any proposed disposal of assets and/or operations; increases or decreases in processing costs; the USD/CAD exchange rate; percentage of sales from our brands; expectations with regards to sales volume, earnings, product margins, product innovations, brand development and anticipated financial performance; competitor reactions to Company strategies and actions; impact of price increases or decreases on future profitability; sufficiency of working capital facilities; future income tax rates; the expected timing and amount of recovery associated with product recall costs; our ability to  successfully integrate the acquisition of Rubicon Resources, LLC; levels of accretion and synergy and earnings growth related to Rubicon; the expected amount and timing of integration activities related to acquisitions; expected leverage levels and net interest-bearing debt to Adjusted EBITDA; and statements under the heading "Outlook" including expected demand, sales of new product, the efficiency of our plant production, U.S. tariffs on certain seafood products imported from China, and expected amount and timing of cost savings related to the optimization of the Company's structure. These statements are based on a number of factors and assumptions including, but not limited to: seafood and other ingredient availability, demand and pricing; product pricing, including the cost of raw materials, energy and supplies; operating costs; plant performance; the condition of the Canadian and U.S. economies; our ability to attract and retain customers; required level of bank loans and interest rates; income tax rates and the interpretation of the U.S. Tax Reform by tax authorities; the impact of the U.S. Administration's tariffs on certain seafood products; and our ability to attract and retain experienced and skilled employees. The statements are not a guarantee of future performance. By their nature, forward-looking statements involve uncertainties and risks that could result in the forecasts and targets not being achieved. Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially from those expressed in such forward-looking statements. 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, CAD-Equivalent Adjusted Diluted EPS, and Net Interest-Bearing Debt. Please refer to the Company's MD&A for the fifty-two weeks ended December 29, 2018 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 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].

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¹ Please refer to High Liner Foods' MD&A for the fifty-two weeks ended December 29, 2018 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA", "Adjusted Net Income", "Adjusted Diluted EPS" and "Net Interest-Bearing Debt".

SOURCE High Liner Foods Incorporated

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 & Corporate Performance, High Liner Foods Incorporated, Tel: [phone], [email protected]

Related Links

www.highlinerfoods.com