- 49% Adjusted EBITDA Growth and $28.8 million Net Debt Reduction -

LUNENBURG, NS, Aug. 7, 2019 /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 thirteen and twenty-six weeks ended June 29, 2019.

Key financial results, reported in U.S. dollars, for the thirteen weeks ended June 29, 2019 or the second quarter of 2019 are as follows (unless otherwise noted, all comparisons are relative to the second quarter of 2018):

• Adjusted EBITDA¹ increased by $5.9 million to $17.9 million (8.0% of sales) compared to $12.0 million (4.9% of sales);
  
  
• Net debt¹ decreased by $28.8 million to $324.6 million compared to $353.4 million at the end of the first quarter of 2019;
  
  
• Including trailing twelve-month Adjusted EBITDA for the new lease standard adopted at the beginning of Fiscal 2019, net debt to rolling twelve-month Adjusted EBITDA was 4.1x at June 29, 2019 compared to 4.8x at March 30, 2019 and 5.8x at the end of Fiscal 2018;
  
  
• Sales decreased by $22.3 million to $223.0 million compared to $245.3 million;
  
  
• Gross profit decreased by $0.5 million to $42.8 million (19.2% of sales) compared to $43.3 million (17.7% of sales);
  
  
• Net income decreased by $1.9 million to $0.9 million compared to $2.8 million and diluted earnings per share (EPS) decreased to $0.03 compared to $0.08;
  
  
• Adjusted Net Income¹ increased by $0.9 million to $4.7 million compared to $3.8 million and Adjusted Diluted EPS increased to $0.13 compared to $0.11; and
  
  
• Net cash flows provided by operating activities increased by $10.5 million to $33.2 million compared to $22.7 million.

"Our results this quarter reflect the steps we have taken to reposition our portfolio to higher margin products and our ongoing transformation to a leaner, more efficient and integrated High Liner Foods. We continue to build a stronger balance sheet with lower debt and improved cash flow from operations," said Rod Hepponstall, President and CEO of High Liner Foods. "As a result of our considerable progress to date on our critical initiative plan, I am confident that we will deliver Adjusted EBITDA improvement in 2019 and 2020. We will stay the course with our plan, driving ahead with our productivity and optimization initiatives and continuing to focus on product innovation and repositioning our portfolio to generate sales growth over time."

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 and financial statements are reported in USD.

The financial results for the thirteen and twenty-six weeks ended June 29, 2019 and June 30, 2018 are summarized in the following table:

Sales volume for the second quarter of 2019 decreased by 5.1 million pounds, or 7.8%, to 60.4 million pounds compared to 65.5 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 a significant customer loss in the latter half of Fiscal 2018 and the exit of low margin business. This was partially offset by a later Easter in 2019 (April 21, 2019) compared to 2018 (April 1, 2018), which shifted some sales volume to the second quarter of 2019 compared to the same period last year.

Sales in the second quarter of 2019 decreased by $22.3 million to $223.0 million, or 9.1%, compared to $245.3 million in the same period in 2018 due to the lower sales volumes and unfavorable changes in sales mix, partially offset by price increases related to raw material cost increases and the later Easter in 2019 compared to 2018 mentioned above.

Gross profit in the second quarter of 2019 decreased by $0.5 million to $42.8 million compared to $43.3 million in the same period in 2018, while gross profit as a percentage of sales increased to 19.2% compared to 17.7%. The decrease in gross profit reflects the lower sales volume discussed above and raw material cost increases, partially due to tariffs on certain species imported into the U.S. from China. This was partially offset by sales price increases, favorable product mix related to the exit of low margin business and improved plant efficiencies partially related to the supply chain excellence initiatives. Additionally, the later Easter in 2019 (April 21, 2019) compared to 2018 (April 1, 2018) shifted the gross profit associated with some sales volume to the second quarter of 2019 compared to the same period last year, as mentioned previously. In addition, the weaker Canadian dollar had the effect of decreasing the value of reported USD gross profit from our Canadian operations in 2019 by approximately $0.5 million relative to the conversion impact last year.

Adjusted EBITDA in the second quarter of 2019 increased by $5.9 million, or 48.4%, to $17.9 million (8.0% of sales) compared to $12.0 million (4.9% of sales) in the same period in 2018. The increase in Adjusted EBITDA reflects the impact of the new lease standard adopted at the beginning of Fiscal 2019, and a decrease in distribution and selling, general and administrative expenses, partially offset by the lower gross profit discussed previously. 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 $0.3 million in second quarter of 2019 compared to $0.7 million in 2018.

Reported net income in the second quarter of 2019 decreased by $1.9 million, or 66.3%, to $0.9 million (diluted EPS of $0.03) compared to $2.8 million (diluted EPS of $0.08) in the same period last year. The decrease in net income reflects higher income taxes, termination benefits associated with the organizational realignment announced in November 2018, consulting fees related to the Company's critical initiatives and higher depreciation and amortization expense, partially offset by the increase in Adjusted EBITDA discussed above.

In the second quarter of 2019, net income included "business acquisition, integration and other expense (income)" related to termination benefits associated with the organizational realignment and consulting fees mentioned above, and other non-cash expenses. In 2018, net income included "business acquisition, integration and other expense (income)" related to other non-cash expenses. Excluding the impact of these non-routine and other non-cash expenses, Adjusted Net Income in the second quarter of 2019 increased by $0.9 million, or 24.3%, to $4.7 million (Adjusted Diluted EPS of $0.13) compared to $3.8 million (Adjusted Diluted EPS of $0.11) in the same period last year.

Net cash flows provided by operating activities in the second quarter of 2019 increased by $10.5 million to $33.2 million compared to $22.7 million in the same period in 2018 primarily reflecting more favourable results from operations and favourable changes in net non-cash working capital, partially offset by higher interest payments.

Net debt decreased by $36.0 million to $324.6 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 $50.6 million.

Including trailing twelve-month Adjusted EBITDA for the new lease standard, net debt to rolling twelve-month Adjusted EBITDA was 4.1x at June 29, 2019 compared to 5.8x at the end of Fiscal 2018. Including the impact of the new lease standard since adoption only (December 30, 2018), net debt to rolling twelve-month Adjusted EBITDA was 4.2x at June 29, 2019. In the absence of any major acquisitions or strategic initiatives requiring capital expenditures in 2019, we expect this ratio will continue to improve throughout Fiscal 2019; however, not to same degree as was experienced in the first half of 2019 given increased working capital requirements in advance of the Lenten period.

Outlook

Management is confident that execution against the critical initiative plan will continue to deliver year-over-year Adjusted EBITDA improvement in 2019 and 2020. We expect debt reduction to continue as a result of improved cash flow management and the dividend reduction announced last quarter on the Company's common shares, but not to the same degree as was experienced in the first half of 2019 given increased working capital requirements in advance of the Lenten period.

U.S. import tariffs increased from 10% to 25% effective May 10, 2019. As currently implemented, these tariffs apply only to limited species sold by High Liner Foods and as a result of our mitigation activities, are not expected to have a significant financial impact. In addition, in May 2019 the U.S. Administration proposed 25% tariffs on virtually all remaining Chinese imports ("List 4" tariffs), with no effective date. On August 1, 2019, the U.S. President proposed to decrease the List 4 tariffs from 25% to 10%, with an effective date of September 1, 2019, pending further negotiations between the U.S. and China. The Company is monitoring whether the proposed 10% tariff on List 4 products imported from China will apply to additional species sold by High Liner Foods.

Conference Call

The Company will host a conference call on Wednesday, August 7, 2019, 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 second 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, August 14, 2019 at midnight (ET). To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 6085715.

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 and twenty-six weeks ended 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 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 and Sea Cuisine 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: future growth strategies and their impact on the Company's market share and shareholder value; anticipated financial performance including earning trends and growth; 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;  our ability to develop new and innovative products that result in increased sales and market share; increased demand for our products whether due to the recognition of health benefits of seafood or otherwise; changes in costs for seafood and other raw materials; any proposed disposal of assets and/or operations; increases or decreases in processing costs; the USD/CAD exchange rate; percentage of sales from our brands; expectations with regards to sales volume, earnings, product margins, product innovations, brand development and anticipated financial performance; competitor reactions to Company strategies and actions; impact of price increases or decreases on future profitability; sufficiency of working capital facilities; future income tax rates; the expected timing and amount of recovery associated with product recall costs; our ability to  successfully integrate the acquisition of Rubicon Resources, LLC; levels of accretion and synergy and earnings growth related to Rubicon; the expected amount and timing of integration activities related to acquisitions; expected and improved leverage levels, and expected net interest-bearing debt to Adjusted EBITDA; and statements under the heading "Outlook" including expected demand, sales of new product, the efficiency of our plant production, U.S. tariffs on certain seafood products imported from China, and expected amount and timing of cost savings related to the Company's critical initiatives. 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 by tax authorities; the impact of the U.S. Administration's tariffs on certain seafood products; 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, and Net Debt. Please refer to the Company's MD&A for the thirteen and twenty-six weeks ended June 29, 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 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 [email protected].

SOURCE High Liner Foods Incorporated

View original content: http://www.newswire.ca/en/releases/archive/August2019/07/c6644.html