High Liner Foods Reports Operating Results for the Fourth Quarter and Full Year of 2017

LUNENBURG, NS, Feb. 21, 2018 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner Foods", "High Liner" or "the Company"), the leading North American value-added frozen seafood company, today reported financial results for the thirteen and fifty-two weeks ended December 30, 2017. 

Today, the Board of Directors of the Company approved a quarterly dividend of CAD$0.145 per share on the Company's common shares payable on March 15, 2018 to holders of record on March 1, 20181.

The Company reports its financial results in U.S. dollars ("USD") and all amounts are reported in USD unless otherwise noted.  High Liner Foods' common shares trade on the Toronto Stock Exchange (TSX: HLF) and are quoted in Canadian dollars ("CAD").  HLF shares closed yesterday at CAD$13.732.

"Year-over-year reported sales and sales volume improved in the fourth quarter of 2017, bolstered further by the acquisition of Rubicon, however, gross profit and Adjusted EBITDA were below our expectations due to under performance across the business.  Both our Canadian and U.S operations experienced unfavourable changes to product mix and increased costs," said Henry Demone, Chairman and CEO of High Liner Foods.  "We are committed to improving performance in 2018 and plan to do this through actions on pricing, costs, supply chain effectiveness and product innovation."

Net income for the fourth quarter and Fiscal 2017 reflects a non-cash income tax recovery of $11.2 million attributable to the reduction in the U.S. federal corporate income tax rate from 35% to 21% that came into effect on January 1, 2018 under the Tax Cuts and Jobs Act ("U.S. Tax Reform") enacted on December 22, 2017, and was not attributable to any operational or market driven event.

Financial and operational highlights for the thirteen weeks ended December 30, 2017, or the fourth quarter of 2017, include (unless otherwise noted, all comparisons are relative to the thirteen weeks ended December 31, 2016, or fourth quarter of 20163):

  • Sales increased by $54.2 million to $263.0 million compared to $208.8 million;
  • Gross profit increased by $0.9 million to $44.5 million compared to $43.6 million;
  • Adjusted EBITDA4 decreased by $3.0 million to $13.1 million compared to $16.1 million;
  • Net income increased by $7.5 million to $14.2 million compared to $6.7 million and diluted earnings per share ("EPS") increased to $0.43 compared to $0.21;
  • Adjusted Net Income3 decreased by $2.2 million to $4.8 million compared to $7.0 million and Adjusted Diluted EPS3 decreased to $0.15 compared to $0.22; and
  • CAD-Equivalent Adjusted Diluted EPS3 decreased to CAD$0.19 compared to CAD$0.29.
  • Financial and operational highlights for the fifty-two weeks ended December 30, 2017, or Fiscal 2017, include (unless otherwise noted, all comparisons are relative to the fifty-two weeks ended December 31, 2016, or Fiscal 20162):
  • Sales increased by $98.8 million to $1,053.8 million compared to $955.0 million;
  • Gross profit decreased by $15.7 million to $186.1 million compared to $201.8 million;
  • Adjusted EBITDA decreased by $15.3 million to $66.1 million compared to $81.4 million;
  • Net income decreased by $0.6 million to $31.7 million and diluted EPS decreased to $0.97 compared to $1.04;
  • Adjusted Net Income decreased by $10.2 million to $30.1 million compared to $40.3 million and Adjusted Diluted EPS decreased to $0.93 compared to $1.29;
  • CAD-Equivalent Adjusted Diluted EPS decreased to CAD$1.21 compared to CAD$1.71; and
  • Including trailing twelve-month Adjusted EBITDA for the acquisition of Rubicon, net interest-bearing debt3 to rolling twelve-month Adjusted EBITDA was 5.6x at December 30, 2017 compared to 3.4x at the end of Fiscal 2016.

________________________________
1 The Company now offers the ability for its common shareholders to receive dividend payments through electronic funds transfers.  For more information, please refer to the "Other News" section of the Company's website.

2 Source: TSX February 20, 2018.

3 The operating results for the fifty-two weeks ended December 31, 2016 contain certain corrections of errors identified in previously reported amounts. Please refer to High Liner Foods' Audited Consolidated Financial Statements for the fifty-two weeks ended December 30, 2017 for further discussion.

4 Please refer to High Liner Foods' MD&A for the fifty-two weeks ended December 30, 2017 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".

 

The sale of our New Bedford scallop business on September 7, 2016 had the impact of lowering sales volume by 2.4 million pounds, sales by $31.4 million, gross profit by $1.3 million and Adjusted EBITDA by $0.3 million during 2017 compared to 2016.

The Company's product recall announced in April of 2017 had the impact of: decreasing sales by $0.4 million and gross profit by $1.5 million in the fourth quarter of 2017 compared to the fourth quarter of 2016; and decreasing sales volume by 2.4 million pounds, sales by $8.8 million, gross profit by $13.5 million and Adjusted EBITDA by $2.0 million in Fiscal 2017 compared to Fiscal 2016.

The acquisition of Rubicon on May 30, 2017 had the impact of: increasing sales volume by 9.1 million pounds, sales by $50.1 million, gross profit by $6.1 million and Adjusted EBITDA by $1.9 million in the fourth quarter of 2017 compared to the fourth quarter of 2016; and increasing sales volume by 21.7 million pounds, sales by $117.1 million, gross profit by $14.0 million and Adjusted EBITDA by $3.8 million in Fiscal 2017 compared to Fiscal 2016.

Rubicon's contribution to Adjusted EBITDA in 2017 is significantly below the annual pro forma Adjusted EBITDA expected from this business when it was purchased due to raw material cost increases that have not been fully passed on to customers, along with lower than expected volumes, particularly in the fourth quarter of 2017.  While the Company expects Rubicon's product margins to improve in 2018, it anticipates sales volume declines will continue as one of its major customers continues to procure certain products directly from shrimp producers.  High Liner is focused on replacing this lost volume and leveraging Rubicon's capabilities in shrimp to grow shrimp sales across the rest of the Company's business, however similar Adjusted EBITDA performance is expected from Rubicon in 2018 as was experienced in 2017, except that 2018 will reflect a full year of contribution from this business compared to only seven months in 2017.

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).  The average USD/CAD exchange rates for the thirteen and fifty-two weeks ended December 30, 2017 were 1.2715 and 1.2983, respectively (1.3341 and 1.3248 for the thirteen and fifty-two weeks ended December 31, 2016, respectively.)

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.

The financial results for the thirteen and fifty-two weeks ended December 30, 2017 and December 31, 20162 are summarized in the following table:





Thirteen weeks ended

Fifty-two weeks ended

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

December 30, 
2017

December 31,
2016

December 30,
2017

December 31,
2016

Sales volume (millions of lbs)

71.6

62.4

291.8

277.3

Sales in domestic currency

$

280,917

$

229,580

$

1,131,733

$

1,036,229

Foreign exchange impact on sales

$

(17,895)

$

(20,787)

$

(77,887)

$

(81,243)

Sales in USD

$

263,022

$

208,793

$

1,053,846

$

954,986

Gross profit

$

44,504

$

43,632

$

186,079

$

201,807

Gross profit as a percentage of sales

16.9%

20.9%

17.7%

21.1%

Adjusted EBITDA in domestic currency

$

13,355

$

17,986

$

68,780

$

88,352

Foreign exchange impact on Adjusted EBITDA

$

(295)

$

(1,869)

$

(2,668)

$

(6,969)

Adjusted EBITDA

$

13,060

$

16,117

$

66,112

$

81,383

Adjusted EBITDA as a percentage of sales

5.0%

7.7%

6.3%

8.5%

Net income

$

14,227

$

6,658

$

31,653

$

32,284

Diluted EPS

$

0.43

$

0.21

$

0.97

$

1.04

Adjusted Net Income

$

4,849

$

6,969

$

30,142

$

40,284

Adjusted Diluted EPS

$

0.15

$

0.22

$

0.93

$

1.29

Diluted weighted average number of
shares outstanding

33,423

31,251

32,527

31,175

 

Sales volume for the fourth quarter of 2017 increased by 9.2 million pounds to 71.6 million pounds compared to 62.4 million pounds in same period in 2016 primarily due to higher sales volume in U.S. business driven by the acquisition of Rubicon which contributed 9.1 million pounds in the fourth quarter of 2017.

Excluding the impact of the acquisition of Rubicon, sales volume for the fourth quarter of 2017 increased by 0.1 million pounds, reflecting increases in our Canadian and U.S. foodservice businesses, partially offset by a decrease in our U.S. retail business.

Sales in the fourth quarter of 2017 increased by $54.2 million to $263.0 million compared to $208.8 million in the same period in 2016.  Excluding the impact of a stronger Canadian dollar on the translation of USD sales from the Company's CAD-denominated operations relative to the conversion impact last year (approximately $3.1 million), the impact of the addition of sales from Rubicon ($50.1 million) and the decrease in sales due to revising the estimated product recall returns ($0.4 million), sales increased by $1.4 million mainly due to price increases and a favourable change in product mix.

Gross profit in the fourth quarter of 2017 increased by $0.9 million to $44.5 million compared to $43.6 million in the same period in 2016 reflecting higher sales volumes, partially offset by a decrease in gross profit as a percentage of sales to 16.9% compared to 20.9%.  This increase in gross profit reflects the gross profit from Rubicon for the fourth quarter of 2017 ($6.1 million), partially offset by $1.5 million in further losses associated with the product recall recognized in the fourth quarter of 2017.

Excluding the impact of the recall, the acquisition of Rubicon, gross profit decreased by $3.7 million to $39.9 million (18.7% as a percentage of sales) compared to $43.5 million (20.9% as a percentage of sales) in the same period of 2016 reflecting the impact of unfavourable product mix changes and raw material cost increases, partially offset by some improvement in the efficiency of our plants.  In addition, the stronger Canadian dollar had the effect of increasing the value of reported USD gross profit from our Canadian operations in 2017 by approximately $0.6 million relative to the conversion impact last year.

Adjusted EBITDA in the fourth quarter of 2017 decreased by $3.0 million to $13.1 million (5.0% of sales) compared to $16.1 million (7.7% of sales) in the same period in 2016.  Excluding the impact of converting our CAD-denominated operations and corporate activities to our USD presentation currency (a decrease of $0.3 million in 2017 and $1.9 million in 2016), Adjusted EBITDA decreased by $4.6 million reflecting increases in distribution and SG&A expenses, offset by the higher gross profit mentioned previously that is further increased by $1.5 million in losses related to the product recall which have been added back for the purpose of Adjusted EBITDA as they relate to destroyed product and direct incremental costs incurred by the Company related to consumer refunds and customer fines.  Adjusted EBITDA was positively affected by the acquisition of Rubicon, which contributed $1.9 million to Adjusted EBITDA in the fourth quarter of 2017.

Reported net income in the fourth quarter of 2017 increased by $7.5 million to $14.2 million (diluted EPS of $0.43) compared to $6.7 million (diluted EPS of $0.21) in the same period last year.  The increase in net income reflects the income tax recovery related to the reduction in the federal corporate income tax rate in the U.S., that became effective January 1, 2018, partially offset by the decrease in Adjusted EBITDA mentioned previously and an increase in depreciation and finance costs.

In 2017, net income included "business acquisition, integration and other expenses" related to business development activities, termination benefits associated with restructuring activities, losses related to the product recall previously mentioned, and other non-cash expenses.  In 2016, net income included "business acquisition, integration and other expenses" related to accelerated depreciation on equipment and impairment of property, plant and equipment as part of the cessation of New Bedford plant operations, and other non-cash expenses.  Excluding the impact of these non-routine or non-cash expenses and the impact of the U.S. Tax Reform, Adjusted Net Income in the fourth quarter of 2017 decreased by $2.2 million to $4.8 million (Adjusted Diluted EPS of $0.15) compared to $7.0 million (Adjusted Diluted EPS of $0.22) in the same period last year.

Net cash flows (used in) provided by operating activities in the fourth quarter of 2017 decreased by $38.0 million to an outflow of $23.3 million compared to an inflow of $14.7 million in the same period in 2016 primarily reflecting less favourable results from operations and a less favourable change in net non-cash working capital.

Including trailing twelve-month Adjusted EBITDA for the acquisition of Rubicon, net interest-bearing debt to rolling twelve-month Adjusted EBITDA was 5.6x at December 30, 2017 compared to 3.4x at the end of Fiscal 2016.

Outlook

"Areas of increased focus in 2018 to improve financial performance continue to include improving pricing methodologies, lowering fixed costs, further increasing the effectiveness of our supply chain and product innovation, and simplifying our business.  We believe these actions will contribute to year-over-year improvements in Adjusted EBITDA in 2018, and combined with debt repayment, and in the absence of any acquisitions or strategic initiatives requiring capital expenditure, our net interest-bearing debt to rolling twelve-month Adjusted EBITDA ratio is expected to improve to below 4.5x by the end of 2018," concluded Mr. Demone.

Conference Call

The Company's Audited Consolidated Financial Statements and MD&A as at and for the fifty-two weeks ended December 30, 2017 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 21, 2018, at 2:00 p.m. ET (3:00 p.m. AT) during which Henry Demone, Chairman and and CEO, and Paul Jewer, Executive Vice President and CFO, will discuss the financial results for the fourth quarter and Fiscal 2017 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, February 28, 2018 at midnight (ET).  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 4678428.

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 & Co. 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 including earning trends and growth; 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 ; the expected timing and amount of costs associated with product recalls; our ability to  successfully integrate the proposed acquisition of Rubicon Resources, LLC; our ability to develop new and innovative products that result in increased sales and market share; expected leverage levels and expected net interest-bearing debt to Adjusted EBITDA; and statements under the heading "Outlook" including expected demand, sales of new product and the efficiency of our plant production.  These statements are based on a number of factors and assumptions including, but not limited to: seafood and other ingredient 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 the interpretation of the U.S. Tax Reform rules by tax authorities; 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 30, 2017 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@highlinerfoods.com.

SOURCE High Liner Foods Incorporated

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