High Liner Foods

- High Liner and Icelandic USA Acquisition now operating under single ERP platform; debt reduced by $47.8 million in first three quarters of 2012 -

LUNENBURG, NS, Nov. 8, 2012 /CNW/ - High Liner Foods Incorporated (TSX: HLF; HLF.A), the leading North American value-added frozen seafood company, today reported financial results for the thirteen and thirty-nine weeks ended September 29, 2012.  All amounts are reported in Canadian dollars.

Financial and operational highlights for the third quarter and first thirty-nine weeks of 2012 include (all comparisons are relative to the third quarter and first thirty-nine weeks of 2011, unless otherwise noted):

• Sales for the third quarter increased by 35.3% to $218.8 million from $161.7 million;
• Reported net income for the third quarter, including one-time costs of the Icelandic USA Acquisition, of $2.2 million (diluted earnings per share ("EPS") of $0.14) compared with $6.7 million (diluted EPS of $0.44); $5.0 million (diluted EPS of $0.32) for the first thirty-nine weeks of 2012 compared with $21.2 million (diluted EPS of $1.38);
• Adjusted EBITDA¹ for the third quarter increased by 78.3% to $21.6 million from $12.1 million; $69.7 million for the first thirty-nine weeks of 2012 compared with $41.3 million;
• Adjusted Net Income² of $7.9 million (Adjusted diluted EPS³ of $0.51) for the third quarter compared with $6.3 million (Adjusted diluted EPS of $0.41); $27.4 million (Adjusted diluted EPS of $1.78) for the first thirty-nine weeks of 2012 compared with $21.7 million (Adjusted diluted EPS of $1.41);
• Interest-bearing debt reduced by $47.8 million in the first thirty-nine weeks of 2012;
• The integration of Icelandic USA Acquisition continues to progress ahead of schedule.

"As we continue the process of integrating the Icelandic USA Acquisition operations with ours, we are pleased to report another strong quarter that saw sales and Adjusted EBITDA grow by 35.3% and 78.3%, respectively," said Henry Demone, president and CEO.  "The increases were largely due to the addition of the Icelandic USA Acquisition, which had a robust 5.9% year-over-year sales growth on a pro forma basis that assumes the Icelandic USA Acquisition had been part of our operations for the same quarter in 2011.  Our non-Icelandic USA sales declined by 4.8% due to a variety of reasons.   Overall, Adjusted EBITDA growth remained strong at 18.4% on a pro forma basis.  EBITDA growth was also positively affected by lower seafood input costs, which we previously forecasted would begin to show a favourable contribution to profitability in the third quarter.  With regard to the Icelandic USA Acquisition integration, we are pleased that we have maintained our pace ahead of plan, and that High Liner is now operating under one enterprise resource planning (ERP) system. We now project synergies from the Icelandic USA acquisition of at least $18 million, the high end of our original estimate of $16 - $18 million."

Financial Results

Nearly 70% of the Company's operations, assets, and liabilities, are denominated in U.S. dollars or are impacted by the Canadian/U.S. dollar exchange rate.  As such, foreign currency fluctuations affect the reported values of individual lines on the Company's balance sheet and income statement.

(in thousands except per share amounts, unless otherwise noted)	Thirteen weeks ended Sept. 29, 2012	Thirteen weeks ended  Oct. 1, 2011	Thirty-nine weeks ended Sept. 29, 2012	Thirty-nine weeks ended Oct. 1, 2011
Sales in million pounds	64.3	47.8	212.4	149.4
Sales in domestic currency	$219,496	$163,298	$724,780	$498,085
Foreign exchange impact	$(741)	$(1,581)	$723	$(5,975)
Sales in Canadian dollars	$218,755	$161,717	$725,503	$492,110
Adjusted EBITDA	$21,609	$12,120	$69,683	$41,332
Net income	$2,186	$6,695	$4,959	$21,200
Adjusted net income	$7,918	$6,261	$27449	$21,702
EPS (Diluted)	$0.14	$0.44	$0.32	$1.38
Adjusted EPS (Diluted)	$0.51	$0.41	$1.78	$1.41
Average Shares Outstanding (Diluted)	15,441	15,312	15,426	15,358

Sales for the third quarter increased to $218.8 million from $161.7 million for the same period a year ago.  The 35.3% increase in sales was achieved as a result of the Icelandic USA Acquisition.  The weaker Canadian dollar relative to the same periods last year resulted in an increase in the value of reported sales. Sales in domestic currency, which excludes the impact of currency translation, were $219.5 million compared with $163.3 million for the third quarter of 2011.  Total sales volume increased by 34.6% to 64.3 million pounds.  The Icelandic USA Acquisition accounted for 39.4% of volume growth, offset by a 4.8% decline in pre-Icelandic USA volume.  For comparison purposes, assuming that the acquired Icelandic USA operations had been part of High Liner's operations in the comparable period in 2011, total sales declined by 1.9% while total sales pounds declined by 3.5%; however, year to date, total sales increased by 4.1% while total sales volume was flat.  The decline during the third quarter for the pre-Icelandic USA operations was due to a variety of reasons, not related to the Icelandic USA acquisition.

Adjusted EBITDA for the third quarter increased by 78.3% to $21.6 million, or 9.9% of sales, from $12.1 million, or 7.5% of sales, for the same period in 2011.  The increase in Adjusted EBITDA was due to higher sales volumes resulting from the Icelandic USA Acquisition and lower seafood and other input costs. For comparison purposes, assuming that the acquired business had been part of High Liner's U.S. operations in the third quarter of 2011, Adjusted EBITDA increased by 18.4% year over year. Synergies achieved in the quarter were $2.6 million and year to date total $5.6 million.

Net income for the quarter was $2.2 million (diluted EPS of $0.14) compared with net income of $6.7 million (diluted EPS of $0.44) for the third quarter of 2011.  As in the previous two quarters, net income was negatively impacted by after-tax one-time integration costs related to the Icelandic USA acquisition expensed during the quarter as well as additional depreciation on property to be disposed of as part of the acquisition.  As well, the significant increase in the value of High Liner's stock increased stock compensation expense in the quarter by $3.3 million ($5.3 million higher for the first thirty-nine weeks of 2012). Excluding the one-time integration costs, the additional depreciation, the non-cash expense from revaluing an embedded derivative and interest rate swap associated with the long-term debt, and stock-based compensation expense, Adjusted net income was $7.9 million (Adjusted diluted EPS of $0.51) compared with $6.3 million (Adjusted diluted EPS of $0.41) for the same quarter in 2011.

Free cash flow⁴ was $40.9 million for the rolling four quarters ended September 29, 2012.  Cash flow generated from operations, as well as the seasonal reduction in working capital, allowed the Company to reduce interest-bearing debt by $47.8 million.  This, combined with a stronger Canadian dollar, decreased total interest-bearing debt from $379.9 million at December 31, 2011 to $320.9 million at September 29, 2012.

Dividends

Today, the Board of Directors of the Company approved a quarterly dividend of $0.11 per Common and Non-Voting Equity Share payable on December 15, 2012 to shareholders of record on December 1, 2012. 

Outlook

"The Icelandic USA Acquisition was accretive on an adjusted basis for both the third quarter and year to date, and we continue to expect it to be accretive for the full year," said Mr. Demone.  "As we have maintained an accelerated pace of integrating our U.S. operations with Icelandic USA's, we expect to benefit from the synergies earlier than anticipated and further solidify our leadership position in the North American frozen seafood food service market.  Our Canadian retail operations continue to remain strong and we expect this performance to be sustained into next year.  We began to see the benefits of lower seafood input costs during the third quarter, which we project to continue into the fourth, quarter and into 2013, as seafood costs are expected to remain favorable.  Lower seafood costs will reduce our commodity sales as we pass on some of these lower product costs to customers.  Lower commodity product costs should increase margins and profitability. All these factors considered, we are optimistic about our operating performance for the full year and beyond."

Supplemental Financial Information

This news release is not in any way a substitute for reading High Liner's financial statements, including notes to the financial statements, and Management's Discussion and Analysis.  The Company's Fiscal Third Quarter Interim Financial Statements, which includes the Statements of Financial Position, Income, Comprehensive Income, Changes in Shareholders' Equity, Cash Flows and notes, can be viewed in the Investor Information section of the High Liner Foods website at http://www.highlinerfoods.com/en/home/investorinformation/quarterlyreports.aspx

Conference Call

High Liner will host a conference call on Friday, November 9, at 10:30 a.m. ET (11:30 a.m. AT) to discuss its third quarter financial results.  To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191.  Please connect approximately ten minutes prior to the beginning of the call to ensure participation.  The conference call will be archived for replay by telephone until Friday, November 16, 2012 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 48345826.

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.

About High Liner Foods Incorporated

High Liner Foods Incorporated is the leading North American processor and marketer of prepared, value-added frozen seafood.  High Liner's branded products are sold throughout the United States, Canada and Mexico under the High Liner, Fisher Boy, Mirabel, Sea Cuisine and Royal Sea labels, and are available in most grocery and club stores.  The Company also sells its products under the High Liner, FPI, Mirabel, Viking, Icelandic Seafood, Samband of Iceland, Seastar, and Seaside brands to restaurants and institutions, and is the major supplier of private label seafood products to North American food retailers and food service distributors.  High Liner Foods is a publicly traded Canadian company, trading under the symbols HLF and HLF.A 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", "would", "believe", "plan", "expect", "intend", "anticipate", "estimate", "foresee", "objective" 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: our market position; continued success in integrating the Icelandic USA acquisition; realization of near term and on-going annual synergies from combining operations; continued operating strength in the US; growth in our food service and retail operations; continuation of third quarter momentum throughout 2012; continued implementation of strategic initiatives; cost improvements; lower raw material costs in the last quarter of 2012 and into 2013; and our enhanced purchasing power, expanded distribution and cost reduction efforts delivering further operating improvements this year.  These statements are based on a number of factors and assumptions including, but not limited to: availability, demand and prices of raw materials, energy and supplies; the condition of the Canadian and United States economies; product pricing; foreign exchange rates, especially the rate of exchange of the Canadian dollar to the U.S. dollar; our ability to attract and retain customers and  our operating costs; timing of plant closures and the amount and timing of the related one-time cash expense; amount and timing of the write-down of plant and equipment; amount and timing of the annual ongoing reduction in operating costs resulting from the plant consolidation; amount and timing of the capital expenditures in excess of normal requirements to allow the movement of production between plants; and timing and final number of layoffs from plant closures.  The statements are not a guarantee of future performance.  By their nature, forward-looking statements involve uncertainties and risks that the forecasts and targets will not be 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 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 Earnings per Share and Free Cash Flow.

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@highlinerfoodinc.com.

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1	Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization, excluding impairment of property, plant and equipment, business acquisition and integration expenses, stock compensation expense, gains or losses on disposal of assets, and the increase in cost of goods sold relating to inventory acquired from the Icelandic USA and Viking Acquisitions, above its historical cost, as part of the fair value requirements of purchase price accounting.
2	Adjusted net income is net income excluding the after-tax impairment of property, plant and equipment, business acquisition and integration expenses, stock compensation expense, the increase in cost of goods sold relating to inventory acquired from the Icelandic USA and Viking Acquisitions, non-cash expense from revaluing an embedded derivative associated with the long-term debt, as the interest rate is not less than LIBOR of 1.5%, which is currently greater than prevailing interest rates, marking to market an interest rate swap related to the embedded derivative and withholding tax related inter-company dividends.
3	Adjusted EPS is Adjusted net income, as defined, divided by the average diluted number of shares.
4	The definition of Free cash flow follows the general principles and guidance for Standardized Cash Flow issued by the Canadian Institute of Chartered Accountants, which is cash flow from operating activities less purchase of property, plant and equipment (net of investment tax credits), as reported on the Consolidated Statement of Cash Flows.

 

SOURCE: High Liner Foods Incorporated

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