High Liner Foods Q4 2018 Investor Presentation February 2019
Disclaimer Certain statements made in this presentation are forward-looking and are subject to important risks, uncertainties and assumptions concerning future conditions that may ultimately prove to be inaccurate and may differ materially from actual future events or results. Actual results or events may differ materially from those predicted. Certain material factors or assumptions were applied in drawing the conclusions as reflected in the forward- looking information. Additional information about these material factors or assumptions is contained in High Liner F oods’ Annual Report available on SEDAR (www.sedar.com) and in the Investor Center section at High Liner F oods’ website (www.highlinerfoods.com). 2
Presentation Notes Presentation Currency High Liner Foods (“the Company”) reports its financial statements in USD, however, its common shares are listed on the Toronto Stock Exchange (“TSX”) and are quoted in CAD. References in this presentation to share price, dividends and market capitalization are also in CAD. Non-IFRS Measures This document includes certain non-IFRS financial measures which the Company uses as supplemental indicators of its operating performance and financial position, as well as for internal planning purposes. These non-IFRS measures do not have any standardized meaning as 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. Non-IFRS financial measures are defined and reconciled to the most directly comparable IFRS measures in the Company’s MD&A. 3
Company Overview & Strategy
Our Business Focused on the frozen seafood market in North America Geography Branding Channel Product Form 24% 38% 43% 44% 56% 57% 62% 76% Value-added Other US Canada Foodservice Retail HLF Brands Other (2017: 61% / 39%) (2017: 56% / 44%) (2017: 74% / 26%) (2017: 66% / 34%) Based on 2018 actual sales (in USD) • The North American leader in value-added frozen seafood • In Canada, #1 market position in retail and largest foodservice supplier • In the US, estimated #2 in retail value-added (including private label) on a volume basis and the leading supplier of value-added products in foodservice 5
Market Offering We simplify the seafood category for customers and consumers • Global supply chain with a diverse but focused number of commercial species • People believe preparing seafood is difficult and time consuming – it doesn’t have to be • By leveraging the full extent of our seafood expertise, from procurement through to preparation, our customers can be confident in serving quality, delicious seafood With the customer at the center of all we do, we are on a mission to drive seafood consumption by providing innovative solutions to a world looking for healthy, easy to prepare, delicious seafood options. 6
Investment Thesis Why Seafood? Why High Liner Foods? Why Now? • • • Healthy Established market position Upside potential with return to organic • • Versatile North American scale growth by 2020 • • • Attractive market Strong, global relationships New leadership and demographics with customers, industry organizational partners and suppliers – well structure • Cross-category positioned to lead, innovate growth potential • and grow demand across Poised to execute species and unlock potential 7
Current Operating Environment Opportunities Challenges • • HLF established in all growing Pressure on pricing and tariffs seafood categories, especially • Need to strengthen foundation of shrimp our business and overall financial • Customer and consumers hungry health for product innovation • Executing 5 critical initiatives over • next 9 – 12 months to enable HLF Significant room for operational improvement to capitalize on market opportunities • Newly aligned organizational structure will support “One High Liner Foods” culture to leverage scale and best practices to unlock potential 8
Five Critical Initiatives Strategically sequenced to strengthen business foundation & drive growth >$10M 1. Organizational realignment Net annualized run rate cost 2. Business simplification savings 3. Supply chain excellence Stronger go-to-market platform 4. Rubicon alignment & growth Unlock 5. Profitable organic growth by 2020 existing value; and Create new value 9
1. Organizational Realignment ONE High Liner Foods BEFORE: AFTER: High Liner’s Canadian and U.S. operations Aligned by core function rather than run as two separate businesses - geography; efficient structure, economies of inefficient, duplication of efforts, unable to scale and base to foster a unified, high- leverage North American scale performing culture RESULTS: Q4 2018 14% $7M Restructuring Reduction to net annualized completed salaried run rate cost employees savings* ONE High Liner Foods lays foundation for all other critical initiatives and return to profitable organic growth by 2020 * One-time charge of $4.9M associated with the restructuring completed in Q4 2018 of which $3.5M was recognized in Q4 2018 10
2. Business Simplification High Liner’s growth through acquisitions has resulted in increasingly complex business CURRENTLY: MOVING FORWARD: 1500+ products across 30+ species Focus on most profitable products with fastest potential for growth Plan in place for simplification of the Products where margins no longer make sense to portfolio be eliminated Simplifying portfolio reduces complexity from procurement to manufacturing to marketing and sales, creates efficiencies, lower costs and frees up resources to develop and innovate the most profitable products 11
3. Supply Chain Excellence Centralizing, standardizing, and streamlining to create efficiencies and lower costs BEFORE: CURRENTLY: MOVING FORWARD: Supply chain fragmented, New, integrated end-to-end Further centralization and standardization inefficient and costly supply chain structure led Increasing efficiency of manufacturing by newly appointed Chief activities Supply Chain Officer Continuous improvement Operational excellence High Liner will employ a cross-border supply chain operating system to ensure best practices and consistency to optimize its North America-wide operations 12
4. Rubicon Alignment & Growth Cross pollination and greater alignment to capitalize on opportunity for growth in shrimp business • Rubicon provides unparalleled expertise in shrimp – second fastest growth category in seafood • High Liner needs closer alignment with Rubicon to extract that value and synergies • Opportunity for High Liner to learn from Rubicon and Rubicon to learn from High Liner • Senior High Liner Foodservice Sales Executive placed at Rubicon to grow shrimp opportunity • In Q4, integrated and streamlined shrimp purchasing process across both Rubicon and High Liner; High Liner now able to leverage Rubicon’s expertise in cross-selling shrimp to existing High Liner customers. 13
5. Profitable Organic Growth – 2020 Critical Initiatives will pave the way for customer engagement and product and industry innovation • Work is underway now: • Implementing High Liner Integrated Planning process to support and drive sales and marketing teams, allowing us to plan better and manage resources more effectively and efficiently. • Aligning compensation plans for entire workforce to the execution of critical initiatives and business objectives. • Investing in product innovation and demonstrating market leadership by helping shape consumer tastes and demand for High Liner’s seafood. • Optimizing High Liner’s product portfolio on a North American basis, introducing successful products sold in Canada into the US market. • Collaborating with industry leading suppliers and industry partners to ensure High Liner has on-trend and industry-leading innovation. • Revising High Liner’s approach to promotional activities and trade spending to improve return. • Incorporating data analytics to offer the right products and promotions for distributors, operators, and consumers based on actual demands driven by facts. 14
2018 Financial Review
Product Recall Recovery • An $8.5 million recovery of product recall losses from an ingredient supplier was recognized in Q3 2018 related to the Company's product recall announced in April 2017 • This recovery was recognized as business acquisition, integration and other (income) expense in the consolidated statements of income and has been excluded for the purposes of Adjusted EBITDA and Adjusted Net Income • Subsequent to Fiscal 2018 year-end, the Company recovered an additional $8.5 million from the ingredient supplier, for a total recovery of $17.0 million. This additional recovery will be recognized during Q1 2019, in accordance with IFRS. • As a result, the Company has fully recovered the $13.5 million in losses recognized during Fiscal 2017 related to the product recall and an additional $3.5 million related to business disruption. • No further recoveries are expected. 16
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