High Liner Foods

- Fiscal 2016 Net Earnings increase 11.5% over prior year -

LUNENBURG, NS, Feb. 22, 2017 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner Foods" or "the Company"), the leading North American value-added frozen seafood company, today reported financial results for the fifty-two weeks ended December 31, 2016.  All amounts are reported in U.S. dollars ("USD") unless otherwise noted.

High Liner Foods' common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars ("CAD"), and closed yesterday at CAD$19.90¹.  The Company reports its financial results in USD and the average USD/CAD exchange rates for the thirteen and fifty-two weeks ended December 31, 2016 were 1.3341 and 1.3248, respectively (1.3358 and 1.2791 for the thirteen and fifty-two weeks ended January 2, 2016, respectively).

Due to the conversion of the Company's Canadian operations from CAD to USD for reporting purposes, to the extent the Canadian dollar weakens against the U.S. dollar, the Company's USD-reported financial results will be unfavorably impacted.  Also, 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 position are reported in USD.

Today, the Board of Directors of the Company approved a quarterly dividend of CAD$0.14 per share on the Company's common shares payable on March 15, 2017 to holders of record on March 3, 2017.

"We are pleased with 2016's financial results, particularly with the 11.5% increase achieved in net earnings despite a 2.5% decrease in annual sales volume that was due in part to the sale of our scallop business in the third quarter of 2016.  The improvement in net earnings reflects the impact of lower raw material prices and incremental supply chain optimization savings in 2016, along with lower finance costs as a result of using strong free cash flow in 2016 to lower debt levels," stated Keith Decker, President and CEO.  "In 2016, we completed the last of the planned activities associated with the supply chain optimization project.  Since launching this project in the third quarter of 2014, we've achieved pre-tax cost savings in excess of $20 million on an annual run-rate basis."

Financial and operational highlights for Fiscal 2016 include (unless otherwise noted, all comparisons are relative to Fiscal 2015):

• Sales as reported decreased by $45.5 million, or 4.5%, to $956.0 million compared to $1,001.5 million;
• Sales in domestic currency decreased by $36.5 million, or 3.4%, to $1,037.3 million compared to $1,073.8 million;
• Gross profit increased by $1.2 million, or 0.6%, to $202.8 million compared to $201.6 million;
• Adjusted EBITDA²increased by $4.2 million, or 5.4%, to $82.4 million compared to $78.2 million;
• Adjusted EBITDA in domestic currency increased by $5.5 million, or 6.6%, to $89.4 million compared to $83.9 million;
• Reported net income increased by $3.4 million, or 11.5%, to $33.0 million compared to $29.6 million and diluted earnings per share ("EPS") increased by $0.11 to $1.06 compared to $0.95;
• Adjusted Net Income² increased by $5.3 million, or 14.9% to $40.9 million compared to $35.6 million and Adjusted Diluted EPS² increased by $0.17 to $1.31 compared to $1.14;
• CAD-Equivalent Adjusted Diluted EPS² increased by CAD$0.28 to CAD$1.74 compared to CAD$1.46; and
• Net interest-bearing debt² to Adjusted EBITDA, calculated on a rolling twelve-month basis, improved to 3.1x at the end of Fiscal 2016 compared to 4.0x at the end of Fiscal 2015.

Financial and operational highlights for the fourth quarter of 2016 (unless otherwise noted, all comparisons are relative to the fourth quarter of 2015):

• Sales as reported decreased by $14.9 million, or 6.6%, to $210.0 million compared to $224.9 million;
• Sales in domestic currency decreased by $14.1 million, or 5.8%, to $230.8 million compared to $244.9 million;
• Gross profit decreased by $1.2 million, or 2.6%, to $44.9 million compared to $46.1 million;
• Adjusted EBITDA decreased by $0.4 million, or 2.2%, to $17.4 million compared to $17.8 million;
• Adjusted EBITDA in domestic currency increased by $0.1 million, or 0.5%, to $19.2 million compared to $19.1 million;
• Reported net income increased by $0.3 million, or 4.3%, to $7.3 million compared to $7.0 million and diluted EPS increased by $0.01 to $0.24 compared to $0.23; and
• Adjusted Net Income decreased by $0.5 million, or 6.2%, to $7.6 million compared to $8.1 million and Adjusted Diluted EPS decreased by $0.02 to $0.24 compared to $0.26; and
• CAD-Equivalent Adjusted Diluted EPS decreased by CAD$0.03 to CAD$0.32 compared to CAD$0.35.

The sale of our New Bedford scallop business on September 7, 2016 had the impact of lowering sales volume by 0.6 million pounds, sales as reported by $8.0 million and Adjusted EBITDA by $0.3 million in the fourth quarter of 2016 compared to the fourth quarter of 2015.

 

Financial Results

The financial results for the thirteen and fifty-two weeks ended December 31, 2016 and January 2, 2016 are summarized in the following table:

 

Sales volume decreased in the fourth quarter of 2016 by 3.8 million pounds, or 5.7%, to 62.4 million pounds, compared to 66.2 million pounds in same period in 2015 due to lower sales volume in our U.S. retail and foodservice businesses, including the decline in scallop sales volume as a result of the sale of the New Bedford facility.

Sales decreased in the fourth quarter of 2016 by $14.9 million, or 6.6%, to $210.0 million compared to $224.9 million in the same period in 2015.  Approximately 68% of the Company's operations, including sales, are denominated in USD.  The slightly stronger Canadian dollar in the fourth quarter of 2016 compared to the fourth quarter of 2015 increased the value of USD sales from the Company's CAD-denominated operations by approximately $0.1 million relative to the conversion impact last year.

In domestic currency, sales decreased in the fourth quarter of 2016 by $14.1 million, or 5.8%, to $230.8 million compared to $244.9 million in the same period in 2015 due to the lower U.S. sales volume and the impact on product mix of lower demand for traditional breaded and battered frozen seafood products, which we were unable to offset with sales from our new frozen seafood products that align with emerging consumer trends and preferences.

Gross profit decreased in the fourth quarter of 2016 by $1.2 million, or 2.6%, to $44.9 million compared to $46.1 million in the same period in 2015 reflecting an increase in gross profit as a percentage of sales, partially offset by lower sales volumes.  As a percentage of sales, gross profit increased by 90 basis points to 21.4% compared to 20.5% primarily due to lower raw material costs and higher supply chain optimization savings realized in the period.

Adjusted EBITDA decreased in the fourth quarter of 2016 by $0.4 million, or 2.2%, to $17.4 million compared to $17.8 million in the same period in 2015.  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 $1.9 million in the fourth quarter of 2016 compared to $1.4 million in the same period in 2015.

In domestic currency, Adjusted EBITDA increased in the fourth quarter of 2016 by $0.1 million, or 0.5%, to $19.2 million (8.3% of sales) compared to $19.1 million (7.8% of sales) in the same period in 2015.  The increase in Adjusted EBITDA reflects a reduction in distribution expenses and selling, general and administration ("SG&A") expenses, largely offset by the lower gross profit.

Net income increased in the fourth quarter of 2016 by $0.3 million, or 4.3%, to $7.3 million (diluted EPS of $0.24) compared to $7.0 million (diluted EPS of $0.23) in the same period in 2015.  The increase in net income reflects a decrease in finance costs and share-based compensation expense, partially offset by the decrease in Adjusted EBITDA as explained above, and higher income tax expense.

Adjusted Net Income excludes the after-tax impact of certain items, including business acquisition, integration and other expenses and other non-cash expenses related to: accelerated depreciation on equipment as part of the disposal of the New Bedford facility; share-based compensation expense; and marking-to-market an interest rate swap not designated for hedge accounting.  Adjusted Net Income decreased in the fourth quarter of 2016 by $0.5 million, or 6.2%, to $7.6 million (Adjusted Diluted EPS of $0.24) compared to $8.1 million (Adjusted Diluted EPS of $0.26) in the same period in 2015.

Net cash flows provided by operating activities decreased in the fourth quarter of 2016 by $1.1 million to $14.7 million compared to $15.8 million in the same period in 2015, due to: decreased cash flow from non-cash working capital and higher income tax payments, partially offset by more favourable results from operations and lower interest payments.

Net interest-bearing debt to Adjusted EBITDA, calculated on a rolling twelve-month basis, improved to 3.1x at the end of Fiscal 2016 compared 3.0x at the end of the third quarter of 2016 and 4.0x at the end of Fiscal 2015 reflecting the repayment of debt with cash flow provided by operating activities.

Outlook

"We expect the trend of lower demand for frozen breaded and battered seafood products will continue into 2017 and that we will not return to volume growth until our new product sales can offset the decline that the traditional breaded and battered category is experiencing.  Innovation activities and new product offerings in 2017 will focus on bringing new customers to the frozen seafood category through the introduction of new frozen seafood products that align with emerging consumer trends and preferences.  After completing our supply chain optimization project and improving our debt-to-Adjusted EBITDA ratio in 2016, we are well positioned for product innovation and further acquisition opportunities to support sales and earnings growth and further species diversification," concluded Mr. Decker.

Conference Call

The Company's Consolidated Financial Statements and MD&A as at and for the fifty-two weeks ended December 31, 2016 were filed concurrently on SEDAR with this news release and are also available at www.highlinerfoods.com.

The Company will host a conference call on Wednesday, February 22, 2017, at 2:00 p.m. ET (3:00 p.m. AT) during which Keith Decker, President and CEO and Paul Jewer, Executive Vice President and CFO will discuss the  fourth quarter and Fiscal 2016 financial results.  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 1, 2017 at midnight (ET).  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 56156120.

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 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 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: anticipated financial performance; changes to sales volume, margins and input costs, including raw material prices; 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 including, without limitation, related to the cessation of value- added fish processing operations at our New Bedford facility and the related one-time costs and balance sheet implications of same; and our ability to develop new and innovative products that result in increased sales and market share.  These statements are based on a number of factors and assumptions including, but not limited to: seafood 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 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 31, 2016 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 investor@highlinerfoodinc.com.

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¹ Source: TSX February 21, 2017.
² Please refer to High Liner Foods' MD&A for the fifty-two weeks ended December 31, 2016 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA", "Adjusted Net Income", "Adjusted Diluted EPS", "CAD-Equivalent Adjusted Diluted EPS" and "Net Interest-Bearing Debt".

SOURCE High Liner Foods Incorporated

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