HLF High Liner Foods Inc

- Delivers Year-over-Year Growth in Sales, Volume and Gross Profit -

LUNENBURG, NS, May 11, 2022 /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 April 2, 2022.

"We had a strong start to the year, growing sales and volumes as we strived to satisfy the continued strong demand for our products from retail and foodservice customers and consumers," said Rod Hepponstall, President and CEO of High Liner Foods. "We grew market share across our business, increased Adjusted EBITDA and gross profit and are more profitable today than prior to the onset of the COVID-19 pandemic despite ongoing inflationary and supply chain pressures."

"I am confident that our efforts to drive continuous improvement and efficiencies, along with our diversified portfolio and supply chain, and the investments we are making in our business, will continue to drive top and bottom-line performance as we execute on our strategy to become the North American leader in branded, value-added seafood."

Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended April 2, 2022, or the first quarter of 2022, are as follows (unless otherwise noted, all comparisons are relative to the first quarter of 2021):

• Sales increased by $51.3 million, or 21.1%, to $294.7 million compared to $243.4 million and sales volume increased by 3.6 million pounds, or 5.2%, to 73.4 million pounds compared to 69.8 million pounds;
• Gross profit increased by $4.3 million, or 7.5%, to $62.0 million compared to $57.7 million and gross profit as a percentage of sales decreased to 21.0% compared to 23.7%;
• Adjusted EBITDA^([1]) increased by $0.5 million, or 1.8%, to $28.3 million compared to $27.8 million and Adjusted EBITDA as a Percentage of Sales decreased to 9.6% compared to 11.4% ;
• Net Debt⁽¹⁾ to Rolling Twelve-Month Adjusted EBITDA⁽¹⁾ was 3.2x at April 2, 2022 compared 3.0x at the end of Fiscal 2021 and 2.9x at April 3, 2021;
• Net income decreased by $3.2 million, or 18.0%, to $14.6 million compared to $17.8 million and diluted earnings per share ("EPS") decreased to $0.41 per share compared to $0.51 per share; and
• Adjusted Net Income⁽¹⁾ increased by $1.0 million, or 7.1%, to $15.1 million compared to $14.1 million and Adjusted Diluted EPS⁽¹⁾ increased to $0.43 per share compared to $0.40 per share.

Q1 Operational Update 

The Company's foodservice business continues to rebound and demand from hospitality and institutional customers is increasing. High Liner Foods is taking all available steps to satisfy customer demand but is constrained by continuing global supply chain challenges, which impacted the Company's sales volumes by approximately 4 million pounds, or 5%, in the first quarter.

Like others in the industry, the Company is experiencing shipping delays and raw material supply issues due to global labour shortages, limited shipping container availability, and port congestion and shutdowns. By taking various steps to mitigate these supply challenges, the Company has reduced the impact on its performance and customers.

The Company took appropriate pricing actions during the quarter to offset additional costs incurred and to manage the inflationary environment. These pricing actions, along with favorable product mix due to increased branded and commodity sales, resulted in a 21.1% increase in net sales in the first quarter versus a year ago.

Despite the inflationary and cost sensitive environment, demand for the Company's retail products remains strong.

"We believe the quality, convenience, and variety of products and price points across our portfolio, especially related to value-add, will ensure sustained customer and consumer demand across foodservice and retail customers over the long term," said Mr. Hepponstall.

High Liner Foods continues to take prudent and proactive measures designed to protect the health and safety of its employees and mitigate 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 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 2, 2022 and April 3, 2021 are summarized in the following table:

Sales volume for the thirteen weeks ended April 2, 2022, or the first quarter of 2022, increased by 3.6 million pounds, or 5.2%, to 73.4 million pounds compared to 69.8 million pounds in the thirteen weeks ended April 3, 2021, or the first quarter of 2021. In our foodservice business, sales volume was higher due to the impact of fewer COVID-19 restrictions on the Company's foodservice customers in 2022 as compared to 2021, partially offset by the impact of global supply chain challenges on raw material supply to North America. The increase in sales volume in the first quarter of 2022 was also due to growing our retail business, and new business and new product sales in both foodservice and retail.

Sales in the first quarter of 2022 increased by $51.3 million, or 21.1%, to $294.7 million compared to $243.4 million in the same period in 2021, reflecting higher sales volumes mentioned above, favorable changes in sales mix and pricing actions related to inflationary increases on input costs. The impact of the Canadian dollar in the first quarter of 2022 compared to the first quarter of 2021 on the value of reported USD sales from our CAD-denominated operations was minimal relative to the conversion impact last year.

Gross profit in the first quarter of 2022 increased by $4.3 million to $62.0 million compared to $57.7 million in the same period in 2021 and gross profit as a percentage of sales decreased by 270 basis points to 21.0% compared to 23.7%. The increase in gross profit reflects the higher sales volume discussed previously and favorable changes in product mix, despite inflationary increases on input costs. The impact of the Canadian dollar on the the value of reported USD gross profit from our Canadian operations in 2022 was minimal relative to the conversion impact last year.

Adjusted EBITDA in the first quarter of 2022 increased by $0.5 million to $28.3 million compared to $27.8 million in the same period in 2021 and Adjusted EBITDA as a percentage of sales decreased to 9.6% compared to 11.4%. The increase in Adjusted EBITDA is a result of the increase in gross profit and decrease in net SG&A expenses, partially offset by the increase in distribution expenses.

Reported net income in the first quarter of 2022 decreased by $3.2 million to net income of $14.6 million (diluted EPS of $0.41) compared to $17.8 million (diluted EPS of $0.51) in the same period in 2021. The decrease in net income reflects an increase in finance costs primarily reflecting the one-time $7.8 million gain on modification of debt related to the debt refinancing completed in March 2021 that did not repeat in the current year. The higher finance costs were partially offset by an increase in Adjusted EBITDA and a decrease in share-based compensation expense and income tax expense.

Reported net income in the first quarter of 2022 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, share-based compensation and the gain on modification of debt in 2021, Adjusted Net Income in the first quarter of 2022 increased by $1.0 million or 7.1% to $15.1 million compared to $14.1 million in the same period in the prior year. Adjusted Diluted EPS increased $0.03 in the first quarter of 2022 to $0.43 as compared to $0.40 in the same period in the prior year.

Net cash flows (used in) provided by operating activities in the first quarter of 2022 decreased by $46.3 million to an outflow of $19.7 million compared to an inflow of $26.6 million in the same period in 2021 due to unfavorable changes in non-cash working capital, partially offset by lower interest and income taxes paid.

Net Debt increased by $24.1 million to $295.2 million at the end of the first quarter of 2022 as compared to $271.0 million at January 1, 2022, primarily reflecting higher bank loans on April 2, 2022 as compared to the fourth quarter of 2021 and lower cash, partially offset by lower lease liabilities.

Net Debt to Rolling Twelve-Month Adjusted EBITDA was 3.2x at April 2, 2022 compared to 3.0x at the end of Fiscal 2021, reflecting the investment in seasonal working capital and inflation in raw materials. In the absence of any major acquisitions or unplanned capital expenditures in 2022, we expect this ratio to be below the Company's long-term target of 3.0x at the end of Fiscal 2022.

Events After the Reporting Period

Amendment of working capital facility
On April 28, 2022, the Company amended its working capital facility (refer to Note 4 "Bank loans" to the Consolidated Financial Statements) to extend the term from April 2023 to April 2027. The amendment also includes a necessary update from LIBOR to Secured Overnight Financing Rate ("SOFR") based loans.

Insurance proceeds
During Fiscal 2020, High Liner Foods filed a lawsuit in California Superior Court against Mr. Brian Wynn relating to misrepresentations the Company alleges Mr. Wynn made during the due diligence process for the acquisition of Rubicon Resources LLC ("Rubicon"). The Company is claiming a number of remedies, including rescission, disgorgement and damages. After filing the claim against Mr. Wynn, High Liner Foods also filed a claim under the Representations and Warranty insurance policy that was procured by High Liner Foods to provide coverage for breaches of the representations made by Rubicon and Mr. Wynn when it acquired Rubicon. During Fiscal 2021, the Company filed its arbitration demand and the arbitration is proceeding. The Company cannot predict the outcome of the legal proceedings against Mr. Wynn, nor the amount of likely recovery from Mr. Wynn, however the insurer, under the Representations and Warranty insurance policy, has agreed that there were breaches of the representations made by Mr. Wynn resulting in damages in excess of the policy limit. Accordingly, subsequent to the end of the quarter, the insurer has agreed to pay $10 million under the Representation and Warranty insurance policy, subject to the insurer's rights of subrogation against Mr. Wynn.

Outlook

"I am confident that we will continue to grow sales and generate year-over-year Adjusted EBITDA growth in Fiscal 2022 as we execute on our strategy to be the leader in branded, value-added seafood in North America," said Mr. Hepponstall.

Demand for the Company's products remains strong, however, like others in the industry, the Company is navigating global supply challenges exacerbated by the invasion of Ukraine, inflationary pressures on raw material and ongoing uncertainty related to the COVID-19 pandemic. High Liner Foods is well-positioned to mitigate ongoing supply challenges by drawing on the scale of our global supply chain, the diversification of species, product and procurement, and strong customer and supplier relationships to support our position.

With a strong balance sheet and cash flow, the Company is well equipped to navigate current market conditions and invest in the business. The Company anticipates capital expenditures of approximately $25.0 million in Fiscal 2022, as we modernize our asset base, explore automation opportunities and maintain and upgrade our facilities.

With the extension of our $150.0 million working capital credit facility until April 2027, the Company does not have any impending debt maturities and we remain confident in our liquidity position. High Liner Foods expects the Net Debt to Rolling Twelve-Month Adjusted EBITDA ratio to be below the Company's long-term target of 3.0x at the end of Fiscal 2022.

Dividend

Today, the Company's Board of Directors approved a quarterly dividend of CAD$0.10 per share on the Company's common shares, payable on June 15, 2022 to holders of record on June 1, 2022. These dividends are considered "eligible dividends" for Canadian income tax purposes.

Conference Call

The Company will host a conference call on Wednesday, May 11, 2022, 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 2022. 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 Wednesday, May 18, 2022 at midnight (ET). To access the archived conference call, dial 1-888-390-0541 and enter the replay entry code 373940#.

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 2, 2022 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.

Rolling Twelve-Month 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.

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.

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, the Risk Factors section of our 2021 Annual Report and the Risk Factors section of our 2021 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 workplan, 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 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.

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 investor@highlinerfoods.com. 

SOURCE High Liner Foods Incorporated