High Liner Foods Reports Operating Results for the First Quarter of 2021

 - Continued Gross Profit Gains and Debt Reduction; Foodservice Recovery Underway -

LUNENBURG, NS, May 18, 2021 /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 3, 2021.

"Our Q1 results demonstrate the continued resilience of our business, improving gross profit and the foodservice recovery that is underway," said Rod Hepponstall, President and CEO of High Liner Foods. "In both our retail and foodservice businesses, we are executing against our strategy and driving profitability gains as a percentage of sales. Our efforts to build a strong, integrated supply chain and a diversified portfolio has served us well during this time of heightened global supply challenges."

"With the ongoing improvement in cash flow, we are investing in our business to support our growth and provide additional capacity to support our most successful and sought-after products. During the quarter, we strengthened our balance sheet, further improved our leverage ratio, and with the repricing of our Term Loan Facility, generated savings of approximately $2.0 million in annual cash interest expenses."

Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended April 3, 2021, or the first quarter of 2021, are as follows (unless otherwise noted, all comparisons are relative to the first quarter of 2020):

  • Sales volume decreased by 7.5 million pounds, or 9.7%, to 69.8 million pounds compared to 77.3 million pounds, and sales decreased by $25.2 million, or 9.4%, to $243.4 million compared to $268.6 million, reflecting the impact of COVID-19 on the entire first quarter of 2021 compared to the last two weeks of the first quarter of 2020;
  • Gross profit as a percentage of sales increased to 23.7% compared to 21.9% and gross profit decreased by $1.1 million, or 1.9%, to $57.7 million compared to $58.8 million;
  • Adjusted EBITDA1 as a percentage of sales remained consistent with the prior year at 11.4% and Adjusted EBITDA decreased by $2.9 million, or 9.4%, to $27.8 million compared to $30.7 million;
  • Net Debt1 to rolling twelve-month Adjusted EBITDA improved to 2.9x at April 3, 2021 compared to 3.0x at the end of Fiscal 2020 and 4.2x at March 28, 2020;
  • Net income increased by $3.6 million, or 25.4%, to $17.8 million compared to $14.2 million and diluted earnings per share ("EPS") increased to $0.51 per share compared to $0.41 per share; and
  • Adjusted Net Income1 decreased by $0.2 million, or 1.4%, to $14.1 million compared to $14.3 million and Adjusted Diluted EPS1 decreased to $0.40 per share compared to $0.41 per share, reflecting the impact of COVID-19.

Q1 Operational Update 

Market conditions in High Liner Foods' retail and foodservice business in the first quarter of 2021 were markedly different from the same period in the first quarter of 2020. In retail, the surge in retail demand at the March 2020 start of the COVID-19 pandemic in North America was not repeated in March 2021. In foodservice, operators faced a full quarter of pandemic conditions during the first quarter of 2021, including closures and dining restrictions across North America, compared to a few weeks in the first quarter of 2020. 

As a result, sales volumes declined year-over-year in both retail and foodservice business. However, in foodservice, the Company delivered its strongest performance in Q1 since the onset of the pandemic, which is attributed to the foodservice recovery that is underway, coupled with strong operator relationships and a compelling product offering. The volume decline was partially offset by new business wins and new product sales.

Despite global supply challenges that are impacting the food manufacturing and processing industry as a whole, High Liner Foods' overall supply chain continued to be robust, and no significant supply chain issues impacted the Company's financial performance during the first quarter of 2021.

Employee safety is High Liner Foods' top priority and as the pandemic continues to evolve, the Company will implement any further measures designed to protect the health and safety of its employees and mitigate disruption to the Company's supply chain and operations.

_________________________

1

Please refer to High Liner Foods' Management's Discussion and Analysis ("MD&A") for the thirteen weeks ended April 3,
2021 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA", "Adjusted Net
Income", "Adjusted Diluted EPS" and "Net Debt".

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).

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 for the thirteen weeks ended April 3, 2021 and March 28, 2020 are summarized in the following table:



Thirteen weeks ended

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


April 3,
2021


March 28,
2020

Sales volume (millions of lbs)


69.8


77.3

Average foreign exchange rate (USD/CAD)


1.2657


1.3414

Sales


$

243,413


$

268,588

Gross profit


$

57,677


$

58,768

Gross profit as a percentage of sales


23.7 %


21.9 %

Adjusted EBITDA


$

27,803


$

30,705

Adjusted EBITDA as a percentage of sales


11.4 %


11.4 %

Net income


$

17,828


$

14,227

Diluted EPS


$

0.51


$

0.41

Adjusted Net Income


$

14,060


$

14,288

Adjusted Diluted EPS


$

0.40


$

0.41

Diluted weighted average number of shares outstanding


35,117


34,404

Sales volume for the first quarter of 2021 decreased by 7.5 million pounds to 69.8 million pounds compared to 77.3 million pounds in same period in 2020. In our foodservice business, sales volume was lower due to the impact of COVID-19 on our foodservice customers for the entire first quarter of 2021, whereas COVID-19 only impacted the first quarter of 2020 beginning in late March. In our retail business, sales volume was lower due to the surge in demand related to COVID-19 in the last two weeks of March 2020 that did not repeat during the first quarter of 2021. The decline in sales volume was partially offset by new business and new product sales.

Sales in the first quarter of 2021 decreased by $25.2 million to $243.4 million compared to $268.6 million in the same period in 2020 due to the lower sales volumes mentioned above partially offset by changes in sales mix. In addition, the stronger Canadian dollar in the first quarter of 2021 compared to the first quarter of 2020 increased the value of reported USD sales from our CAD-denominated operations by approximately $3.2 million relative to the conversion impact last year.

Gross profit in the first quarter of 2021 decreased by $1.1 million to $57.7 million compared to $58.8 million in the same period in 2020 and gross profit as a percentage of sales increased by 180 basis points to 23.7% compared to 21.9%. The decrease in gross profit reflects the decrease in sales volume discussed above, partially offset by favorable changes in product mix reflected in the improved gross profit as a percentage of sales. In addition, the stronger Canadian dollar increased the value of reported USD gross profit from our Canadian operations in 2021 by approximately $0.9 million relative to the conversion impact last year.

Adjusted EBITDA in the first quarter of 2021 decreased by $2.9 million to $27.8 million compared to $30.7 million in the same period in 2020 and Adjusted EBITDA as a percentage remained consistent with the prior year at 11.4%. The decrease in Adjusted EBITDA is a result of the decrease in gross profit, and an increase in distribution expenses and SG&A expenses due to higher consumer marketing expenditures related to advertising in the U.S. retail business.

Reported net income in the first quarter of 2021 increased by $3.6 million to net income of $17.8 million (diluted EPS of $0.51) compared to $14.2 million (diluted EPS of $0.41) in the same period in 2020. The increase in net income reflects a decrease in finance costs primarily reflecting the gain on modification of debt related to the debt refinancing completed in March 2021 and a decrease in income tax expense, partially offset by the decrease in Adjusted EBITDA and an increase in share-based compensation expense.

Reported net income in the first quarter of 2021 included an expense of $0.3 million related to certain non-routine expenses classified as "business acquisition, integration and other expense compared to an expense of $0.5 million in the same period in 2020. Excluding the impact of these non-routine items, other non-cash expenses, share-based compensation and the gain on modification of debt in the first quarter of 2021, Adjusted Net Income in the first quarter of 2021 decreased by $0.2 million or 1.4% to $14.1 million compared to $14.3 million in the same period last year. Correspondingly, Adjusted Diluted EPS decreased by $0.01 to $0.40 compared to 0.41 in the same period last year.

Net cash flows provided by operating activities in the first quarter of 2021 increased by $24.6 million to an inflow of $26.6 million compared to an inflow of $2.0 million in the same period in 2020 favorable changes in net non-cash working capital, partially offset by lower cash flows from operations. The favorable changes in net non-cash working capital are the result of more favorable changes in accounts payable and accrued liabilities and accounts receivable, partially offset by less favorable changes in inventories.

Net Debt decreased by $23.2 million to $244.8 million at April 3, 2021 compared to $268.0 million at the end of Fiscal 2020, primarily reflecting repayments of long-term debt during the first quarter of 2021.

Net Debt to Adjusted EBITDA improved to 2.9x at April 3, 2021 compared to 3.0x at the end of Fiscal 2020. In the absence of any major acquisitions or unplanned capital expenditures in 2021, we expect this ratio to remain below the Company's long-term target of 3.0x at the end of Fiscal 2021.

Outlook

"We continue to operate in unprecedented times with ongoing uncertainty related to consumer behaviour, supply and demand dynamics and government restrictions. That said, we are seeing promising signs with foodservice recovery and remain confident that the execution of our strategy will enable us to continue on our path to profitability and growth," said Rod Hepponstall, President and CEO of High Liner Foods.

The Company is currently facing some global supply challenges that are largely due to macro-economic and pandemic related issues outside of the Company's control. High Liner Foods is managing the impact of the supply chain issues by drawing on the scale of its global supply chain and the diversification of specie, product, procurement and strong customer and supplier relationships to support its position. Despite these challenges, High Liner Foods remains confident in its ability to continue to drive Adjusted EBITDA growth in 2021.

With a strong balance sheet and further improved cash flow, the Company is well equipped to invest in the business, with anticipated capital expenditures of approximately $20.0 million in Fiscal 2021, an increase over the average capital investment in the business over the past three years as the Company sought to conserve cash and strengthen its financial position.

Furthermore, the Company remains confident in its liquidity position as a result of its prudent cash management, early refinancing of debt in late 2019 and the term loan facility repricing in March 2021 that is expected to save the Company approximately $2.0 million in annual cash interest expense at current borrowings and LIBOR rates. The Company does not have any impending debt maturities and will continue to utilize its $150.0 million working capital credit facility if required. The Company currently has no borrowings on this facility.

Dividend

Today, the Company's Board of Directors approved a quarterly dividend of CAD$0.070 per share on the Company's common shares, payable on June 15, 2021 to holders of record on June 1, 2021.

Conference Call

The Company will host a conference call on Tuesday, May 18, 2021, 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 2021. 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 Tuesday, May 25, 2021 at midnight (ET). To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 8565124.

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.

The Company's Unaudited Condensed Interim Consolidated Financial Statements and MD&A as at and for the thirteen weeks ended April 3, 2021 were filed concurrently on SEDAR with this news release and are also available at www.highlinerfoods.com.

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.

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 April 3, 2021, the Risk Factors section of our 2020 Annual Report and the Risk Factors section of our 2020 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 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; 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; 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.

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 and Net Debt. Please refer to the Company's MD&A for the thirteen weeks ended April 3, 2021 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 Unaudited Condensed Interim 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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