- Strong Retail Demand for Value-Added Seafood and Continued Margin Improvements - 

LUNENBURG, NS, Aug. 11, 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 and twenty-six weeks ended June 27, 2020.

"High Liner Foods' performance in the second quarter of 2020 demonstrates how quickly and effectively we pivoted to meet new customer realities during this unprecedented time," said Rod Hepponstall, President and CEO of High Liner Foods. "Thanks to our transformative efforts last year we are able to continue improving our business and position the Company for further profitable growth despite the challenges presented by COVID-19."

"We are capitalizing on new opportunities to deliver the value-added products that consumers are hungry for, retailers want in stock and foodservice customers need in order to operate efficiently in the new normal. Our foodservice business is recovering more quickly than anticipated and our supply chain continues to be extremely efficient and reliable providing a competitive advantage and further cementing customer loyalty."

Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended June 27, 2020, or the second quarter of 2020, are as follows (unless otherwise noted, all comparisons are relative to the second quarter of 2019):

  • Net Debt1 to rolling twelve-month Adjusted EBITDA1 improved to 3.9x at June 27, 2020 compared to 4.2x at March 28, 2020 and 4.1x at the end of Fiscal 2019;

  • Net income increased by $2.5 million to $3.4 million compared to $0.9 million and diluted earnings per share ("EPS") increased to $0.10 compared to $0.03;

  • Gross profit as a percentage of sales increased by 300 basis points to 22.2% compared to 19.2% and gross profit decreased by $6.1 million to $36.7 million compared to $42.8 million;

  • Adjusted EBITDA as a percentage of sales increased by 230 basis points to 10.3% compared to 8.0% and Adjusted EBITDA decreased by $0.8 million to $17.1 million compared to $17.9 million; and

  • Sales volume decreased by 11.1 million pounds to 49.3 million pounds compared to 60.4 million pounds and sales decreased by $57.2 million to $165.8 million compared to $223.0 million.

_____________________________

1

Please refer to High Liner Foods' Management's Discussion and Analysis ("MD&A") for the thirteen and twenty-six weeks ended June 27, 2020 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA", "Adjusted Net Income", "Adjusted Diluted EPS" and "Net Debt".

COVID-19 Related Update 
The overall impact of the pandemic on the Company's retail business continues to be positive. High Liner Foods continues to maximize retail sales and respond to the increased demand for higher margin branded value-added products with high case fill rates and the introduction of new products.

In each month of the second quarter of 2020, foodservice demand steadily improved at a faster pace than the Company anticipated, particularly for higher margin value-added products. High Liner Foods expects this trend to continue as restrictions are lifted and more of the its foodservice customers re-open for business. High Liner Foods notes that its restaurant customers that have reopened have been very receptive to its convenience-focused products to simplify food preparation and accommodate reduced labour. The Company continues to benefit from the diversification of its foodservice business through this period with institutional foodservice customers, like long-term care and health care facilities, providing stable demand.

High Liner Food's three plants are operating at planned capacity and higher efficiency rates to meet demand from its retail and foodservice customers and consumers. The Company's overall supply chain continues to be robust with no significant issues related to production, transportation and warehousing activities nor the procurement of raw materials and ingredients.

Like other food processors, High Liner Foods continues to incur increased costs associated with COVID-19. The Company continues to take proactive steps, including utilizing government support such as the Canadian Emergency Wage Subsidy ("wage subsidy"), to manage spending and drive efficiency to offset the increased costs. Employee safety is High Liner Food's top priority and as the pandemic evolves, it will continue to implement measures designed to protect the health and safety of its employees and prevent disruption to the Company's supply chain and operations.

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 and twenty-six weeks ended June 27, 2020 and June 29, 2019 are summarized in the following table:


Thirteen weeks ended

Twenty-six weeks ended

(Amounts in 000s, except per share
amounts, unless otherwise noted)

June 27,
2020


June 29,
2019


June 27,
2020


June 29,
2019

Sales volume (millions of lbs)

49.3


60.4


126.6


139.0

Average foreign exchange rate
(USD/CAD)

1.3871


1.3380


1.3642


1.3341

Sales in USD

$

165,829


$

223,034


$

434,417


$

500,458

Gross profit

$

36,733


$

42,848


$

95,501


$

98,924

Gross profit as a percentage of sales

22.2%


19.2%


22.0%


19.8%

Adjusted EBITDA

$

17,087


$

17,883


$

47,792


$

50,098

Adjusted EBITDA as a percentage of
sales

10.3%


8.0%


11.0%


10.0%

Net income

$

3,382


$

946


$

17,609


$

15,708

Diluted EPS

$

0.10


$

0.03


$

0.52


$

0.46

Adjusted Net Income1

$

4,660


$

4,680


$

18,948


$

19,605

Adjusted Diluted EPS

$

0.14


$

0.13


$

0.56


$

0.57

Diluted weighted average number of
shares outstanding

33,542


34,257


33,715


34,261

Sales volume for the second quarter of 2020 decreased by 11.1 million pounds to 49.3 million pounds compared to 60.4 million pounds in same period in 2019. In our foodservice business, sales volume continued to be lower due to the impact of COVID-19 on our foodservice customers. In our retail business, sales volume was higher due to a surge in demand related to COVID-19, partially offset by lost business in the fourth quarter of Fiscal 2019 that continued to impact volume year-over-year. The decline in sales volume was partially offset by new business and new product sales.

Sales in the second quarter of 2020 decreased by $57.2 million to $165.8 million compared to $223.0 million in the same period in 2019 due to the lower sales volumes discussed above and changes in sales mix. In addition, the weaker Canadian dollar in the second quarter of 2020 compared to the same quarter of 2019 decreased the value of USD sales from our CAD-denominated operations by approximately $1.6 million relative to the conversion impact last year.

Gross profit in the second quarter of 2020 decreased by $6.1 million to $36.7 million compared to $42.8 million in the same period in 2019 and gross profit as a percentage of sales increased by 300 basis points to 22.2% compared to 19.2%. Gross profit reflects the lower sales volume discussed above and the incremental costs associated with COVID-19, partially offset by favorable changes in product mix, improved supply chain efficiencies related to the critical initiatives completed in Fiscal 2019 and reduced labour costs due to receiving the wage subsidy during the second quarter. The weaker Canadian dollar had the effect of decreasing the value of reported USD gross profit from our Canadian operations in 2020 by approximately $0.4 million relative to the conversion impact last year.

Adjusted EBITDA in the second quarter of 2020 decreased by $0.8 million to $17.1 million compared to $17.9 million in the same period in 2019 and Adjusted EBITDA as a percentage of sales increased by 230 basis points to 10.3% compared to 8.0%. Adjusted EBITDA reflects the decrease in gross profit discussed previously and an increase in distribution expenses, partially offset by a decrease in net SG&A expenses. In addition, the weaker Canadian dollar decreased the value of reported Adjusted EBITDA in USD from our Canadian operations in 2020 by approximately $0.2 million relative to the conversion impact last year.

Reported net income in the second quarter of 2020 increased by $2.5 million to $3.4 million (diluted EPS of $0.10) compared to $0.9 million (diluted EPS of $0.03) in the same period in 2019. The increase in net income reflects a decrease in share-based compensation expense, a decrease in business acquisition integration and other expense (income), and a decrease in finance costs, partially offset by the decrease in Adjusted EBITDA and an increase in income tax expense.

Reported net income in the second quarter of 2020 included an expense of $0.7 million related to certain non-routine expenses classified as "business acquisition, integration and other expense (income) compared to an expense of $2.8 million in the same period in 2019. Excluding the impact of these non-routine, other non-cash expenses and share-based compensation, Adjusted Net Income in the second quarter of 2020 remained consistent with the same period last year at $4.7 million. Correspondingly, Adjusted Diluted EPS increased by $0.01 to $0.14 compared to 0.13 in the same period last year.

Net cash flows provided by operating activities in the second quarter of 2020 decreased by $0.9 million to $32.3 million compared to $33.2 million in the same period in 2019 primarily reflecting unfavorable changes in net non-cash working capital and higher income taxes paid, partially offset by higher cash flows from operations and lower interest payments. The unfavorable changes in net non-cash working capital are the result of unfavorable changes in inventories and accounts payable and accrued liabilities, partially offset by favorable changes in accounts receivable and provisions.

Net Debt at June 27, 2020 decreased by $28.0 million to $327.7 million compared to $355.7 million at March 28, 2020 reflecting a decrease in short-term borrowings, a decrease in lease liabilities and a higher cash on hand balance.

Net Debt to Adjusted EBITDA improved to 3.9x at June 27, 2020 compared to 4.2x at March 28, 2020 and 4.1x at the end of Fiscal 2019. In the absence of any significant changes in the current trends related to COVID-19, we expect that at the end of Fiscal 2020 this ratio will remain consistent with the ratio as at June 27, 2020 despite increased working capital requirements in advance of the Lenten period.

Outlook
Based on the Company's strong performance in the second quarter, High Liner Foods is increasingly confident that it can deliver Adjusted EBITDA growth in 2020.

High Liner Foods believes that it is fully prepared to navigate a potential second wave of COVID-19 in North America and that its diverse and integrated North American business will continue to satisfy the needs of retail and foodservice customers and consumers through excellent fill rates, product innovation and creative solutions to help solve challenges facing foodservice operators looking for convenience-focused products.

We are extremely encouraged by the resilience of our business and the rate of recovery High Liner has experienced in its foodservice business. The Company believes it is well positioned to continue navigating the ongoing economic uncertainty in North America related to COVID-19 and the timing of a full recovery.

The Company is confident in its liquidity position as a result of its prudent cash management and early refinancing of debt in late 2019. The Company does not have any impending debt maturities and will continue to utilize its $150.0 million working capital credit facility if required. Borrowings on this facility, net of cash on hand, are currently approximately $nil.

"Our confidence in the outlook for our business is a direct result of strong and consistent execution against our strategy," said Mr. Hepponstall. "Quarter by quarter we are continuing to improve our business by increasing the profitability of our portfolio, maximizing the efficiency of our supply chain and growing the seafood category through value-added product innovation. We are now poised to actively seize growth opportunities ahead and create value for our shareholders."

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 September 15, 2020 to holders of record on September 1, 2020.

Conference Call
The Company will host a conference call on Tuesday, August 11, 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 second 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, August 18, 2020 at midnight (ET). To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 9951917.

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 and twenty-six weeks ended June 27, 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 MD&A for the thirteen and twenty-six weeks ended June 27, 2020, 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 the 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 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; 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; and the potential impact of a pandemic outbreak of a contagious illness, such as the 2019 coronavirus/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.

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 and twenty-six weeks ended June 27, 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 investor@highlinerfoods.com. 

SOURCE High Liner Foods Incorporated

Copyright 2020 Canada NewsWire

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