High Liner Foods

 - Company announces increased quarterly dividend of 15.4% -

LUNENBURG, NS, Nov. 8, 2023 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner Foods" or "the Company"), a leading North American value-added frozen seafood company, today announced financial results for the thirteen and thirty-nine weeks ended September 30, 2023.

"We continued to deliver year-over-year volume growth in the third quarter driven by market share gains across our foodservice and Canadian retail business and continued strong execution in priority growth segments and increased market share," said Paul Jewer, Interim Chief Executive Officer for High Liner Foods. "However, the pricing and promotional activity required to support sales in the current economic climate, along with the impact of ongoing industry-wide elevated inventory levels, led to a decline in Adjusted EBITDA for the quarter. Looking ahead, the steps we are taking to enhance our value offering and drive efficiencies across our operations will allow us to mitigate the impact of external headwinds on our business as we move into 2024."  

Mr. Jewer added, "Our balance sheet strengthened during the quarter with reduced leverage to 3.1x as a result of significant cash flow from our operations of $54 million. We will continue to focus on improving cash flow and utilize the benefits of our diversification, scale, and relationships to support our customers and create the conditions for continued profitable growth for our business."

Dividend Increase

The Company's Board of Directors approved a quarterly dividend of CAD$0.15 per share on the Company's common shares, payable on December 15, 2023 to holders of record on December 1, 2023. The quarterly dividend of CAD$0.15 per share represents a CAD $0.02 cents increase from the CAD$0.13 per share quarterly dividend paid during the third quarter of 2023 and reflects the Board's continued confidence in the Company's operations.

"The dividend increase announced today recognizes the Company's strong cash flow position." said Robert Pace, Chair of the Board of Directors.

Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended September 30, 2023, or the third quarter of 2023, are as follows (unless otherwise noted, all comparisons are relative to the third quarter of 2022): 

• Sales volume increased by 0.6 million pounds, or 1.0%, to 61.0 million pounds compared to 60.4 million pounds and sales decreased by $11.5 million, or 4.2%, to $259.7 million compared to $271.2 million;
• Gross profit decreased by $7.1 million, or 12.5%, to $49.6 million compared to $56.7 million, and gross profit as a percentage of sales decreased to 19.1% compared to 20.9%;
• Adjusted EBITDA⁽¹⁾ decreased by $4.8 million, or 19.4%, to $20.0 million compared to $24.8 million, and Adjusted EBITDA as a percentage of sales decreased to 7.7% compared to 9.1%;
• Net income decreased by $4.5 million, or 45.0%, to $5.5 million compared to $10.0 million and diluted earnings per share ("EPS") decreased to $0.16 per share, compared to $0.28 per share;
• Adjusted Net Income⁽¹⁾ decreased by $9.4 million, or 65.7% to $4.9 million compared to $14.3 million and Adjusted Diluted EPS⁽¹⁾ decreased to $0.14 per share compared to $0.41 per share; and
• Net Debt⁽¹⁾ to Rolling Twelve-Month Adjusted EBITDA⁽¹⁾ was 3.1x at September 30, 2023 compared to 3.7x at the end of Fiscal 2022 and 3.2x at October 1, 2022. This ratio increased during the second half of Fiscal 2022 due to increased investment in inventory.

Key financial results, reported in U.S. dollars ("USD"), for the thirty-nine weeks ended September 30, 2023, or Fiscal 2023, are as follows (unless otherwise noted, all comparisons are relative to the thirty-nine weeks ended October 1, 2022, or "Fiscal 2022"):

• Sales volume increased by 4.9 million pounds, or 2.5%, to 197.4 million pounds compared to 192.5 million pounds and sales increased by $23.8 million, or 2.9%, to $843.2 million compared to $819.4 million;
• Gross profit decreased by $5.1 million, or 2.9%, to $170.0 million compared to $175.1 million, while gross profit as a percentage of sales decreased to 20.2% compared to 21.4%;
• Adjusted EBITDA⁽¹⁾ decreased by $5.3 million, or 6.8%, to $73.2 million compared to $78.5 million, and Adjusted EBITDA as a percentage of sales⁽¹⁾ decreased to 8.7% compared to 9.6%;
• Net income decreased by $18.3 million, or 42.0%, to $25.3 million compared to $43.6 million and diluted earnings per share ("EPS") decreased to $0.73 per share compared to $1.24 per share; and
• Adjusted Net Income⁽¹⁾ decreased by $8.0 million, or 20.3%, to $31.4 million compared to $39.4 million and Adjusted Diluted EPS⁽¹⁾ decreased to $0.91 per share compared to $1.12 per share.

Q3 Operational Update 

In the third quarter, the Company's foodservice business continued to deliver both market share gains and net sales growth. The consistent performance in an increasingly dynamic market is a result of broad-based gains across channels and species; executional excellence in priority growth segments of long-term care, quick service restaurants and casual dining; as well as a focused portfolio of branded and value-added customer solutions. The strength of High Liner Foods' foodservice business continued to be supported by growth in our contract manufacturing and successful targeted promotions and partnerships.

High Liner Foods' retail business continued to be impacted by the slowdown in frozen seafood, protein categories and the grocery channel overall across North America driven by inflationary pressures on consumer spending. The Company grew market share in Canada and maintained market share in the US.

High Liner Foods is working closely with customers to invest in supporting category growth and offer targeted customer promotions to demonstrate the value and versatility of frozen seafood to consumers.

Operationally, the Company's supply chain remains resilient in the face of geopolitical pressures. However, the Company has identified scope for improvements to plant efficiencies, and is focused on ensuring appropriate alignment between operations, inventory, and product mix to tighten efficiency and improve margins.

"We are taking all available steps to support our customers and consumers with a diversified portfolio of healthy and affordable proteins. We are also continuing to refine our offering and ensure that we support our enhanced sales approach and profitability with optimization of our plant operations," Mr. Jewer concluded.

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 and thirty-nine weeks ended September 30, 2023 and October 1, 2022 are summarized in the following table:

Sales volume for the thirteen weeks ended September 30, 2023, or the third quarter of 2023, increased by 0.6 million pounds, or 1.0%, to 61.0 million pounds compared to 60.4 million pounds in the thirteen weeks ended October 1, 2022 due to higher volume in our foodservice business, partially offset by lower volume in our retail business. In our foodservice business, sales volume was higher due to increased contract manufacturing business, increased sales in newer product lines, and improved customer service levels. The Company achieved strong service levels during the third quarter of 2023, as compared to the third quarter of 2022 due to the increased investment in working capital in the latter part of Fiscal 2022 to mitigate the impact of the global supply chain challenges. This was partially offset by lower sales volume in our retail business due to the continued impact of inflation. This resulted from softer demand for protein, including seafood product as consumers switch to lower cost alternatives.

Sales in the third quarter of 2023 decreased by $11.5 million, or 4.2%, to $259.7 million compared to $271.2 million in the same period in 2022, reflecting changes in sales mix and sharper pricing most notably on some of our commodity products during the third quarter of fiscal 2023 compared to the inflationary environment in the same period last year. This decrease was partially offset by higher sales volumes mentioned previously and some inflationary-pricing actions implemented during the last quarter of Fiscal 2022 and the first quarter of 2023 which remained in effect during the third quarter of Fiscal 2023. The weaker Canadian dollar in the first three quarters of 2023 compared to the same quarter of 2022 decreased the value of reported USD sales from our CAD-denominated operations by approximately $1.7 million relative to the conversion impact last year.

Gross profit in the third quarter of 2023 decreased by $7.1 million to $49.6 million compared to $56.7 million in the same period in 2022 and gross profit as a percentage of sales decreased by 180 basis points to 19.1% compared to 20.9%. The decrease in gross profit reflects changes in product mix, higher carrying costs associated with higher inventory including sharper pricing on some of our commodity products and some inefficiencies at our plants. The decrease in gross profit was partially offset by the increase in sales volume and inflationary-pricing actions on some products, both discussed previously. In addition, the weaker Canadian dollar decreased the value of reported USD gross profit from our CAD-denominated operations by approximately $0.3 million relative to the conversion impact last year.

Adjusted EBITDA in the third quarter of 2023 decreased by $4.8 million to $20.0 million compared to $24.8 million in the same period in 2022 and Adjusted EBITDA as a percentage of sales decreased to 7.7% compared to 9.1%. The decrease reflects the decrease in gross profit, partially offset by the decrease in distribution costs and net SG&A expenses.

Reported net income in the third quarter of 2023 decreased by $4.5 million to net income of $5.5 million (diluted EPS of $0.16) compared to $10.0 million (diluted EPS of $0.28) in the same period in 2022. The decrease in net income was due to the decrease in Adjusted EBITDA, an increase in finance costs and income taxes in the third quarter of 2023 compared to the same period last year, partially offset by lower share-based compensation expense.

Reported net income in the third quarter of 2023 and 2022 included certain non-routine expenses classified as "business acquisition, integration and other expense (income)." Excluding the impact of these non-routine items or other non-cash expenses, and share-based compensation, Adjusted Net Income in the third quarter of 2023 decreased by $9.4 million, or 65.7% to $4.9 million compared to $14.3 million in the same period in the prior year and Adjusted Diluted EPS decreased $0.27 in the third quarter of 2023 to $0.14 as compared to $0.41 in the same period in the prior year.

Net cash flows provided by (used in) operating activities in the third quarter of 2023 increased by $63.9 million to an inflow of $54.0 million compared to an outflow of $9.9 million in the same period in 2022 due to favourable changes in non-cash working capital balances, partially offset by lower cash flows provided by operations, and higher interest paid during the third quarter of 2023. Capital expenditures were $13.1 million in the first three quarters of 2023 compared to $11.8 million in the prior year reflecting the continued significant investment in the business.

Net Debt decreased by $80.7 million to $304.8 million at September 30, 2023 compared to $385.5 million at December 31, 2022, reflecting lower bank loans and lower long-term debt, partially offset by higher lease liabilities as at September 30, 2023, as compared to December 31, 2022.

Net Debt to Rolling Twelve-Month Adjusted EBITDA was 3.1x at September 30, 2023 compared to 3.7x at the end of Fiscal 2022 and 3.2x at October 1, 2022.  Net Debt to Rolling Twelve-Months Adjusted EBITDA increased during the second half of Fiscal 2022 primarily as a result of increased investment in working capital in Fiscal 2022 and inflation in raw materials. In the absence of any major acquisitions or unplanned capital expenditures in 2023, we expect this ratio to be in line with the Company's long-term target of 3.0x at the end of Fiscal 2023.

Outlook 

The Company remains confident in the long-term outlook for the business and its ability to navigate current macro-economic challenges. However, the Company anticipates that economic conditions impacting consumer spending patterns with respect to frozen seafood will continue to impact results in the short-term.

As a result, High Liner Foods no longer anticipates year-over-year Adjusted EBITDA growth for fiscal 2023. The Company will continue to focus on improving working capital and generating cash flow from operations. The Company maintains its confidence in achieving the long-term leverage ratio of 3.0x.

The Company has a strong balance sheet and is well equipped to invest in organic growth, explore opportunities for transformative growth through potential M&A activities to build shareholder value and continue to grow the dividend.

Conference Call

The Company will host a conference call on Thursday, November 9, 2023, at 10:00 a.m. ET (11:00 a.m. AT) during which Paul Jewer, Interim Chief Executive Officer and Anthony Rasetta, Chief Commercial Officer, will discuss the financial results for the third quarter of 2023. 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 Sunday, December 10, 2023 at midnight (ET). To access the archived conference call, dial 1-888-390-0541 and enter the replay entry code 874664#.

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 and thirty-nine weeks ended September 30, 2023 were filed concurrently on SEDAR Plus 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. For the thirty-nine weeks ended October 1, 2022, Adjusted EBITDA also excludes the $10.0 million in insurance proceeds. 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. For the thirty-nine weeks ended October 1, 2022, Adjusted Net Income also excludes the $10.0 million in insurance proceeds. 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 and thirty-nine weeks ended September 30, 2023, the Risk Factors section of our 2022 MD&A and the Risk Factors section of our 2022 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 work plan, carbon reduction initiatives and potential failure to meet such carbon reduction targets; the uncertainty of final results related to litigation and/or arbitration, including net amounts to be received by the Company and whether such amounts may be subject to subrogation rights by applicable insurers; 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 implementation and/or expansion of related sanctions policies; and the potential impact of a pandemic outbreak of a contagious illness, such as 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@highlinerfoodinc.com. 

SOURCE High Liner Foods Incorporated

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