- Adjusted EBITDA of $85.3 million (USD) for Fiscal 2019, reflecting growth of 57% in Q4 and 37% for Full Year 2019 -

LUNENBURG, NS, Feb. 26, 2020 /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 fifty-two weeks ended December 28, 2019.

"I am pleased to report a strong finish to a transformative year for High Liner Foods," said Rod Hepponstall, President and CEO of High Liner Foods. "The significant improvement in Adjusted EBITDA in the fourth quarter speaks to the progress we have made throughout the year to drive profitability by re-focusing our portfolio on higher margin, value-added products and running a far more efficient and integrated operation."

"We are now well positioned to move into the next phase of our turnaround plan that will drive continuous improvement across the business, deliver additional cost savings and execute on our enhanced sales and marketing strategy. We are confident that this work will continue to lead to annual Adjusted EBITDA improvements and create the conditions for profitable, sustainable revenue growth," added Mr. Hepponstall.

Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended December 28, 2019, or the fourth quarter of 2019, are as follows (unless otherwise noted, all comparisons are relative to the fourth quarter of 2018):

• Adjusted EBITDA^1,2 increased by $6.8 million to $18.8 million compared to $12.0 million, and Adjusted EBITDA as a percentage of sales increased by 360 basis points to 8.5% compared to 4.9%;
• Sales decreased by $21.3 million to $221.6 million compared to $242.9 million;
• Gross profit increased by $4.2 million to $44.5 million compared to $40.3 million, and gross profit as a percentage of sales increased by 350 basis points to 20.1% compared to 16.6%; and
• Adjusted Net Income¹ increased by $3.5 million to $5.7 million ($0.17 Adjusted Diluted Earnings per Share ("EPS")¹) compared to $2.2 million ($0.07 Adjusted Diluted EPS).

Key financial results, reported in USD, for the fifty-two weeks ended December 28, 2019, or Fiscal 2019, are as follows (unless otherwise noted, all comparisons are relative to Fiscal 2018):

• Adjusted EBITDA² increased by $22.8 million to $85.3 million compared to $62.5 million, and Adjusted EBITDA as a percentage of sales increased by 310 basis points as a percentage of sales to 9.1% compared to 6.0%;
• Net Debt^1,2 improved by $14.0 million to $346.6 million compared to $360.6 million (excluding the transitional increase in lease liabilities upon the adoption of the new lease standard effective at the beginning of Fiscal 2019, Net Debt improved by $28.6 million);
• Net Debt to Adjusted EBITDA improved to 4.1x at December 28, 2019 compared to 5.8x at the end of Fiscal 2018;
• Sales decreased by $106.3 million to $942.2 million compared to $1,048.5 million;
• Gross profit decreased by $2.3 million to $185.9 million compared to $188.2 million and gross profit as a percentage of sales increased by 180 basis points to 19.7% compared to 17.9%; and
• Adjusted Net Income increased by $12.1 million to $29.1 million ($0.85 Adjusted Diluted EPS) compared to $17.0 million ($0.51 Adjusted Diluted EPS).

Debt Refinancing

As previously disclosed, during October 2019, the Company concluded the amendment of its working capital facility and the early refinancing of its term loan facility. The refinancing of the term loan facility was not assessed as a substantial modification, and as a result, the deferred finance costs related to the original facility continue to be amortized over the remaining term. In addition, the Company incurred further deferred finance costs on the amended facility of $6.1 million. As the net present value of the cash flows of the modified debt exceeded the carrying value of the original facility before the amendments, a modification loss of $11.0 million was recorded in finance costs on the consolidated statements of income during the thirteen and fifty-two weeks ended December 28, 2019³.

U.S. Tariffs

During December 2019, the Company received notice of approval of an exclusion request submitted to the United States Trade Representative ("USTR") regarding tariffs on certain goods imported to the U.S. from China. The exclusion applies to tariffs already incurred, or that would otherwise be incurred, on specific goods from September 24, 2018 to August 7, 2020 and may result in the recovery of tariffs previously paid by the Company. It is not possible at this time to estimate the timing or amount of any recovery.

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 fifty-two weeks ended December 28, 2019 and December 29, 2018 are summarized in the following table:

Sales volume for the fourth quarter of 2019 decreased by 6.4 million pounds (9.7%) to 59.7 million pounds compared to 66.1 million pounds in same period in 2018. The decrease in sales volume reflects lower sales volumes in our retail and foodservice businesses, including lower sales volume as a result of lost business in the latter half of Fiscal 2018 and the fourth quarter of Fiscal 2019 and the exit of low margin business, partially offset by new business and new product sales.

Sales in the fourth quarter of 2019 decreased by $21.3 million (8.8%) to $221.6 million compared to $242.9 million in the same period in 2018 due to the lower sales volumes discussed above and changes in sales mix, partially offset by price increases related to raw material cost increases.

Gross profit in the fourth quarter of 2019 increased by $4.2 million (10.5%) to $44.5 million compared to $40.3 million in the same period in 2018, and gross profit as a percentage of sales increased by 350 basis points to 20.1% compared to 16.6%. The increase in gross profit reflects the increase in sales prices discussed above, favourable product mix related to the exit of low margin business and improved plant efficiencies related to the Company's supply chain excellence initiatives. This was partially offset by the lower sales volume discussed above and raw material cost increases, including tariffs on certain species imported into the U.S. from China. The weaker Canadian dollar had the effect of decreasing the value of reported USD gross profit from our Canadian operations in 2019 by an amount consistent with the conversion impact last year.

Adjusted EBITDA in the fourth quarter of 2019 increased by $6.8 million (56.8%) to $18.8 million compared to $12.0 million in the same period in 2018, and Adjusted EBITDA as a percentage of sales increased by 360 basis points to 8.5% compared to 4.9%. The increase in Adjusted EBITDA reflects the impact of the new lease standard adopted at the beginning of Fiscal 20192, the increase in gross profit discussed previously and a decrease in distribution and net selling, general and administrative expenses. 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 $2.2 million in the fourth quarter of 2019 compared to $1.7 million in the same period in 2018.

Reported net loss in the fourth quarter of 2019 increased by $2.2 million to a net loss of $3.0 million (loss per diluted share of $0.09) compared to a loss of $0.8 million (loss per diluted share of $0.02) in the same period in 2018. The increase in net loss reflects an increase in finance costs primarily reflecting the loss on modification of debt related to the debt refinancing completed in October 2019³ and an increase in depreciation and amortization expenses, partially offset by a decrease in short-term termination benefits associated with the organizational realignment announced in November 2018, a decrease in stock-based compensation expense due to a decrease in share price over the fourth quarter of 2019, and the increase in Adjusted EBITDA discussed above.

In the fourth quarter of 2019, net loss included "business acquisition, integration and other expense (income)" related to the costs associated with the Company's critical initiatives, and other non-cash expenses. In 2018, net loss included "business acquisition, integration and other expense (income)" related to short-term termination benefits as a result of restructuring activities, and other non-cash expenses. Excluding the impact of these non-routine or other non-cash expenses and the loss on modification of debt related to the debt refinancing completed in October 2019³, Adjusted Net Income in the fourth quarter of 2019 increased by $3.5 million to $5.7 million (Adjusted Diluted EPS of $0.17) compared to $2.2 million (Adjusted Diluted EPS of 0.07) in 2018.

Net cash flows provided by operating activities in the fourth quarter of 2019 decreased by $34.1 million to an outflow of $24.1 million compared to an inflow of $10.0 million in the same period in 2018 primarily reflecting unfavourable changes in net non-cash working capital and lower tax refunds, partially offset by lower interest payments and increased cash flows from operations.

Net Debt at December 28, 2019 improved by $14.0 million to $346.6 million compared to $360.6 million at the end of Fiscal 2018. Excluding the transitional increase in lease liabilities upon the adoption of the new lease standard effective at the beginning of Fiscal 2019, Net Debt decreased by $28.6 million during Fiscal 2019.

Including the impact of the new lease standard since adoption only (December 30, 2018), Net Debt to Adjusted EBITDA was 4.1x at December 28, 2019 compared to 5.8x at the end of Fiscal 2018. In the absence of any major acquisitions or strategic initiatives requiring capital expenditures in 2020, we expect this ratio will be lower at the end of Fiscal 2020.

Outlook

"We are confident that we will deliver year-over-year annual Adjusted EBITDA growth in 2020 as we benefit from the work completed in 2019 and drive continuous improvements across the business," said Mr. Hepponstall. "We also expect that by the end of 2020, the impact of new business and new product sales will return the Company to profitable revenue growth."

Net Debt to Adjusted EBITDA is expected to continue to improve in 2020 as a result of growth in Adjusted EBITDA, improved cash flow management and the dividend reduction announced in May of this year on the Company's common shares.

The Company currently purchases its seafood raw materials and commodity products from 25 countries, including China. Chinese processors are central to the Company's supply chain operating efficiently and, therefore, it is closely monitoring the current coronavirus disease outbreak ("COVID-19") and reviewing options, should they be required, to mitigate the impact of any prolonged disruption in supply from any of the Company's Chinese suppliers.

The Company will also continue to closely monitor developments related to U.S. tariffs on seafood products imported to the U.S. from China and any potential recovery of previously paid tariffs.

Excluding any impact related to the current COVID-19 outbreak and U.S. tariffs on seafood products imported from China, the pricing and supply of seafood raw materials for the products sold by the Company are expected to remain relatively stable throughout 2020.

Dividend

Today, the Company's Board of Directors approved a quarterly dividend of CAD$0.05 per share on the Company's common shares, payable on March 15, 2020 to holders of record on March 4, 2020.

Conference Call

The Company will host a conference call on Wednesday, February 26, 2020, at 12:00 p.m. ET (1:00 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 fourth quarter of 2019. 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 4, 2020 at midnight (ET). To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 8358567.

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 Audited Consolidated Financial Statements and MD&A as at and for the fifty-two weeks ended December 28, 2019 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, Canada and Mexico 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 2019 Annual Report and the Risk Factors section of our 2019 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 same; the impact of the USTR 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 marketplace; 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; compliance with debt covenants; the availability of adequate levels of insurance; adverse weather conditions and natural disasters; and management retention and development. 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 fifty-two weeks ended December 28, 2019 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 Audited Consolidated Financial Statements.

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 fifty-two weeks ended December 28, 2019 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 Audited Consolidated Financial Statements.

For further information about the Company, please visit our website at www.highlinerfoods.com or send an e-mail to [email protected].

SOURCE High Liner Foods Incorporated

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