High Liner Foods Reports Operating Results for the Fourth Quarter and Full-Year of 2015

- Company also announces further consolidation of its manufacturing network -

LUNENBURG, NS, Feb. 17, 2016 /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 fifty-two weeks ended January 2, 2016.  All amounts are reported in U.S. dollars ("USD") unless otherwise noted.

The Company also announced it will cease value-added fish operations at its production facility in New Bedford, Massachusetts, to reduce excess capacity across its North American production network, thereby improving manufacturing efficiency and helping the Company achieve its supply chain optimization objectives. Its remaining facilities provide sufficient capacity to meet the Company's growth objectives going forward. This change does not impact the Company's scallop-processing operations which are also located at the New Bedford facility.

High Liner Foods' common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars ("CAD"), and closed yesterday at CAD$13.92.¹  The Company reports its financial results in USD and the average USD/CAD exchange rate was 1.3358 and 1.2791 for the thirteen and fifty-two weeks ended January 2, 2016, respectively (1.1356 and 1.1044 for the fourteen and fifty-three weeks ended January 3, 2015, respectively).

Due to the conversion of the Company's Canadian operations from CAD to USD for reporting purposes, to the extent the Canadian dollar continues to weaken against the U.S. dollar, the Company's USD-reported financial results will be unfavorably impacted.  Also, 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.

Today, the Board of Directors of the Company approved a quarterly dividend of CAD$0.12 per share on the Company's common shares payable on March 15, 2016 to holders of record on March 1, 2016.

Financial and operational highlights for Fiscal 2015 include (unless otherwise noted, all comparisons are relative to Fiscal 2014 which had fifty-three weeks compared to fifty-two weeks in Fiscal 2015):

• Sales as reported decreased by $50.1 million, or 4.8%, to $1,001.5 million compared to $1,051.6 million;
• Sales in domestic currency decreased by $9.7 million, or 0.9%, to $1,073.8 million compared to $1,083.5 million;
• Adjusted EBITDA² decreased by $5.1 million, or 6.1%, to $78.2 million compared to $83.3 million;
• Adjusted EBITDA in domestic currency decreased by $1.5 million, or 1.8%, to $83.9 million compared to $85.4 million;
• Reported net income decreased by $0.7 million, or 2.3%, to $29.6 million compared to $30.3 million and diluted earnings per share ("EPS") decreased by $0.02 to $0.95 compared to $0.97;
• Adjusted Net Income² decreased by $3.2 million, or 8.2%, to $35.6 million compared to $38.8 million; Adjusted Diluted EPS decreased by $0.10 to $1.14 compared to $1.24; and also CAD-Equivalent Adjusted Diluted EPS² increased by CAD$0.09 to CAD$1.46 compared to CAD$1.37); and
• Net interest-bearing debt to Adjusted EBITDA, calculated on a rolling twelve-month basis, improved to 4.0x at the end of the Fiscal 2015 compared to 4.4x at the end of Fiscal 2014.

Financial and operational highlights for the fourth quarter of 2015 (all comparisons are relative to the fourth quarter of 2014 which had fourteen weeks compared to thirteen weeks in 2015):

• Sales as reported decreased by $42.0 million, or 15.7%, to $224.9 million compared to $266.9 million;
• Sales in domestic currency decreased by $32.6 million, or 11.7%, to $244.9 million compared to $277.5 million;
• Adjusted EBITDA decreased by $2.6 million, or 12.7%, to $17.8 million compared to $20.4 million;
• Adjusted EBITDA in domestic currency decreased by $2.0 million, or 9.5%, to $19.1 million compared to $21.1 million;
• Reported net income increased by $1.4 million, or 25.0%, to $7.0 million compared to $5.6 million and diluted EPS increased $0.05 to $0.23 compared to $0.18; and
• Adjusted Net Income decreased by $1.0 million, or 11.0%, to $8.1 million compared to $9.1 million; Adjusted Diluted EPS decreased by $0.03 to $0.26 compared to $0.29; and also, CAD-Equivalent Adjusted Diluted EPS increased by CAD$0.02 to CAD$0.35 compared to CAD$0.33.

The Company estimates the benefit associated with an additional week of operations in the fourth quarter of 2014 was 5.5 million pounds of sales volume, $20.0 million of sales in domestic currency and $1.6 million of Adjusted EBITDA in domestic currency.

"As expected, we only started to realize the benefit of raw material cost savings towards the end of the fourth quarter of 2015 and therefore, previous raw material cost increases, along with the weaker Canadian dollar, continued to have a negative impact on year-over-year financial performance.  However, we are pleased that the fourth quarter's results reflect operational improvements, including increased benefit from supply chain optimization activities.  This helped to offset the impact of lower product margins and Adjusted EBITDA margin in domestic currency increased as a percentage of sales compared to the fourth quarter of 2014," stated Keith Decker, President and CEO.

Mr. Decker continued, "In 2015, we made good progress on optimizing our supply chain and sufficiently increased capacity at our Lunenburg, Portsmouth and Newport News facilities such that they are able, collectively, to absorb the production of our New Bedford facility and still provide sufficient capacity to meet our growth objectives going forward.  The decision to cease the value-added fish operations in New Bedford is necessary to ensure High Liner Foods' continued ability to compete and grow.  We recognize this is a very difficult day for the employees impacted in New Bedford and want to thank them for their contribution to the American Pride business and High Liner Foods."

The New Bedford plant is currently the Company's most underutilized manufacturing facility with annual production of approximately 40 million pounds.  This production will be transferred to the Company's remaining facilities by the end of the third quarter of 2016 and will require that we increase our workforce at those facilities.  The value-added fish operation at New Bedford currently employs 35 salaried employees and 167 hourly workers.  There are 25 additional employees working at the New Bedford facility in the Company's scallop business, which are not affected by today's announcement.  The Company is assessing the opportunities associated with this line of its business.

The annual ongoing pre-tax reduction in operating costs (which represents an increase in earnings before interest, taxes, depreciation and amortization, or EBITDA) resulting from this consolidation is estimated to be approximately $7.0 million, with a nominal amount of this to be realized in the last quarter of 2016.  The Company expects to incur approximately $5.0 million in pre-tax one-time costs relating to the transfer of assets, cessation of employment at the New Bedford plant, write-down of inventories and other costs, but is unable to estimate the full impact this transaction will have on its financial statements given the uncertainty regarding the long-term plan for the scallop business.  As at January 2, 2016, the net book value of equipment associated with the value-added fish operations at the New Bedford facility was approximately $6.1 million.

Financial Results

The financial results for the thirteen and fifty-two weeks ended January 2, 2016 and the fourteen and fifty-three weeks ended January 3, 2015 are summarized in the following table:

Sales volume decreased for the fourth quarter of 2015 by 10.4 million pounds, or 13.6%, to 66.2 million pounds, compared to 76.6 million pounds in the same period last year reflecting lower volumes from both our U.S. and Canadian operations, due in part to an additional week of sales in the fourth quarter of 2014.  Also, significant price increases have been passed on to customers over the past year to recover increased costs, due in part to the weak Canadian dollar, which management believes has had an adverse effect on sales volume.

Sales decreased for the fourth quarter of 2015 by $42.0 million, or 15.7%, to $224.9 million, compared to $266.9 million for the same period in 2014.  Approximately 69% of the Company's operations, including sales, are denominated in USD.  The weaker Canadian dollar in the fourth quarter of 2015 compared to the same quarter in 2014 decreased the value of reported USD sales of the Company's CAD-denominated operations approximately $10.5 million relative to the conversion impact last year.

Sales in domestic currency decreased in the fourth quarter of 2015 by $32.6 million, or 11.7%, to $244.9 million compared to $277.5 million in 2014 due to lower sales volume, partially offset by the impact of price increases, net of increased promotional spending.  Promotional spending was higher in the fourth quarter of 2015 compared to the same period last year in an effort to improve sales volume trends.

Adjusted EBITDA decreased for the fourth quarter of 2015 by $2.6 million, or 12.7%, to $17.8 million compared to $20.4 million for the same period in 2014.  The impact of converting our CAD-denominated operations and Corporate to the USD presentation currency decreased the value of reported Adjusted EBITDA in USD by $1.4 million in fourth quarter of 2015 compared to $0.6 million in 2014, primarily due to the weaker Canadian dollar in 2015.

In domestic currency, Adjusted EBITDA decreased in the fourth quarter of 2015 by $2.0 million, or 9.5%, to $19.1 million (7.9% of sales) compared to $21.1 million (7.7% of sales) in 2014.  The decrease in Adjusted EBITDA reflects lower sales volume, partially offset by higher Adjusted EBITDA as a percentage of sales.  Adjusted EBITDA as a percentage of sales was higher mainly due to supply optimization savings realized in the second half of 2015, lower fuel costs and lower Selling, General and Administrative ("SG&A") expenses, including lower sales commission and incentive expenses, along with savings related to restructuring activities. The favourable impact of these items was partially offset by increased costs not fully recovered through price increases.

Net income increased in the fourth quarter of 2015 by $1.4 million, or 25.0%, to $7.0 million ($0.23 per diluted share) compared to $5.6 million ($0.18 per diluted share) in the fourth quarter last year.  The increase in net income reflects lower unusual and one-time costs and lower finance costs, partially offset by lower Adjusted EBITDA as explained above and higher income tax expense.  Lower one-time costs reflect fees paid in fourth quarter of 2014 related to supply chain optimization activities and the write-off of assets in the same period related to the cessation of operations at a previously leased plant in Malden, MA.

Excluding the after-tax impact of certain items, including one-time acquisition, integration and other unusual or non-routine expenses, non-cash expense related to marking-to-market interest rate swaps not designated for hedge accounting and share-based compensation expense, Adjusted Net Income was $8.1 million (Adjusted Diluted EPS of $0.26) in the fourth quarter of 2015 compared to $9.1 million (Adjusted Diluted EPS of $0.29) in the fourth quarter of 2014. 

Net cash flows provided by operating activities increased in the fourth quarter of 2015 by $11.3 million to $15.8 million compared to $4.5 million in the same period last year, primarily reflecting increased cash flows from changes in net non-cash working capital.

Outlook

Mr. Decker stated, "In 2016, our primary focus will continue to be on increasing sales volume and managing costs to improve earnings.  We do not, however, expect to see volume growth on a year-over-year comparative basis until after the first quarter, due in part to a shortened promotional period associated with Lent in 2016 compared to 2015.  Efforts to increase volume will continue to be supported by lower seafood raw material prices."

"We will complete outstanding supply chain optimization activities in 2016, including the transfer of New Bedford's value-added fish production to our other facilities, to achieve the full benefit associated with these activities which we continue to believe will be a minimum of $20 million in annual costs savings on a run-rate basis, to be achieved by the end of 2016," concluded Mr. Decker.

Conference Call

The Company's Audited Consolidated Financial Statements and MD&A as at and for the fifty-two weeks ended January 2, 2016 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 17, 2016, at 2:00 p.m. ET (3:00 p.m. AT) during which Keith Decker, President and CEO and Paul Jewer, Executive VP & CFO will discuss the fourth quarter and Fiscal 2015 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 24, 2016 at midnight (ET).  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 26010177.

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 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; 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 including, without limitation, related to the cessation of value added fish processing operations at our New Bedford facility and the related one-time costs and balance sheet implications of same; and our ability to develop new and innovative products that result in increased sales and market share.  These statements are based on a number of factors and assumptions including, but not limited to: seafood 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 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 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 CAD-Equivalent Adjusted Diluted EPS.  Please refer to the Company's MD&A for the thirteen and fifty-two weeks ended January 2, 2016 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.

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1} Source: TSX February 16, 2016.
² Please refer to High Liner Foods' MD&A for the fifty-two weeks ended January 2, 2016 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA", "Adjusted Net Income", "Adjusted Diluted EPS" and "CAD-Equivalent Adjusted Diluted EPS".

SOURCE High Liner Foods Incorporated