High Liner Foods Q4 2018 Investor Presentation February 2019 - - PowerPoint PPT Presentation

February 2019

High Liner Foods

Q4 2018 Investor Presentation

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 Foods’Annual Report available on SEDAR (www.sedar.com) and in the Investor Center section at High Liner Foods’ website (www.highlinerfoods.com).

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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.

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Company Overview & Strategy

Our Business

• 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

Focused on the frozen seafood market in North America

76% 24%

Geography

US Canada 62% 38%

Branding

HLF Brands Other 57% 43%

Channel

Foodservice Retail 56% 44%

Product Form

Value-added Other Based on 2018 actual sales (in USD)

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(2017: 74% / 26%) (2017: 66% / 34%) (2017: 56% / 44%) (2017: 61% / 39%)

Market Offering

• 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

We simplify the seafood category for customers and consumers

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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.

Investment Thesis

• Healthy
• Versatile
• Attractive market

demographics

• Cross-category

growth potential

Why Seafood? Why High Liner Foods? Why Now?

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• Established market position
• North American scale
• Strong, global relationships

with customers, industry partners and suppliers – well positioned to lead, innovate and grow demand across species

• Upside potential with

return to organic growth by 2020

• New leadership and
• rganizational

structure

• Poised to execute

and unlock potential

Current Operating Environment

• HLF established in all growing

seafood categories, especially shrimp

• Customer and consumers hungry

for product innovation

• Significant room for operational

improvement

• Newly aligned organizational

structure will support “One High Liner Foods” culture to leverage scale and best practices to unlock potential

Opportunities Challenges

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• Pressure on pricing and tariffs
• Need to strengthen foundation of
• ur business and overall financial

health

• Executing 5 critical initiatives over

next 9 – 12 months to enable HLF to capitalize on market opportunities

Five Critical Initiatives

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1. Organizational realignment 2. Business simplification 3. Supply chain excellence 4. Rubicon alignment & growth 5. Profitable organic growth by 2020

Strategically sequenced to strengthen business foundation & drive growth >$10M

Net annualized run rate cost savings Stronger go-to-market platform Unlock existing value; and Create new value

• 1. Organizational Realignment

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BEFORE: High Liner’s Canadian and U.S. operations run as two separate businesses - inefficient, duplication of efforts, unable to leverage North American scale

ONE High Liner Foods

AFTER: Aligned by core function rather than geography; efficient structure, economies of scale and base to foster a unified, high- performing culture ONE High Liner Foods lays foundation for all other critical initiatives and return to profitable organic growth by 2020 RESULTS:

Q4 2018

Restructuring completed

14% $7M

Reduction to salaried employees net annualized run rate cost savings*

* One-time charge of $4.9M associated with the restructuring completed in Q4 2018 of which $3.5M was recognized in Q4 2018

• 2. Business Simplification

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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

High Liner’s growth through acquisitions has resulted in increasingly complex business

CURRENTLY: 1500+ products across 30+ species Plan in place for simplification of the portfolio MOVING FORWARD: Focus on most profitable products with fastest potential for growth Products where margins no longer make sense to be eliminated

• 3. Supply Chain Excellence

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High Liner will employ a cross-border supply chain operating system to ensure best practices and consistency to optimize its North America-wide operations

Centralizing, standardizing, and streamlining to create efficiencies and lower costs

CURRENTLY: New, integrated end-to-end supply chain structure led by newly appointed Chief Supply Chain Officer MOVING FORWARD: Further centralization and standardization Increasing efficiency of manufacturing activities Continuous improvement Operational excellence BEFORE: Supply chain fragmented, inefficient and costly

• 4. Rubicon Alignment & Growth

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• 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.

Cross pollination and greater alignment to capitalize on opportunity for growth in shrimp business

• 5. Profitable Organic Growth – 2020

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• 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,
• perators, and consumers based on actual demands driven by facts.

Critical Initiatives will pave the way for customer engagement and product and industry innovation

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.

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2018 Sales

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$1,053.8 $1,048.5 50 100 150 200 250 300 350 400 $0 $200 $400 $600 $800 $1,000 $1,200 2017 2018 Sales in USD (millions) Sales in USD Sales LBS

Sales in LBS and USD

284.0 291.8

• Sales volume decreased 7.8 million LBS (2.7%) to 284.0 million LBS

– Excluding additional volume from Rubicon (+7.5 million LBS) and returns associated with the product recall in 2017 (-2.4 million LBS), sales volume decreased by 17.7 million LBS (6.5%) due to lower sales in our Canadian retail business, U.S. foodservice and retail businesses, partially offset by our Canadian foodservice business.

• Sales revenue decreased $5.3 million (0.5%) to $1,053.8 million

– Excluding additional sales from Rubicon (+$35.1 million), the impact of the product recall in 2017 (-$8.8 million) and FX

• n the conversion of our CAD-denominated operations to USD, sales decreased $52.4 million (5.1%) due to the lower

sales volume, changes in product mix, partially offset by price increases related to raw material cost increases.

2018 EBITDA

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$66.1 $62.5 0% 5% 10% 15% 20% $0 $10 $20 $30 $40 $50 $60 $70 2017 2018 EBITDA as a % of Sales EBITDA (millions)

Standardized EBITDA* Adjusted EBITDA* Adjusted EBITDA as a % of Sales

* Please refer to the Company’s MD&A for the 52 weeks ended December 29, 2018 for definitions of the non-IFRS financial measures “Standardized EBITDA” and “Adjusted EBITDA”

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

6.3% 6.0%

• Adjusted EBITDA decreased $3.6 million (5.5%) to $62.5 million and decreased 30 basis points as a percentage of sales

– Excluding losses associated with the product recall in 2017 that have not been added back for the purpose of Adjusted EBITDA (-$2.3 million) and FX on the conversion of our CAD-denominated operations to USD, Adjusted EBITDA decreased by $4.4 million (6.3%) due to lower gross profit ($11.8 million) after adjusting for the losses associated with the 2017 product recall and an increase in distribution expenses ($3.0 million), partially offset by lower SG&A expenses ($10.1 million).

2018 Earnings Per Share (EPS)

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$0.93 $0.51 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 $1.10 2017 2018 EPS Reported Diluted EPS Adjusted Diluted EPS*

* Please refer to the Company’s MD&A for the 52 weeks ended December 29, 2018 for definitions of the non-IFRS financial measure “Adjusted Diluted EPS”

• Diluted Adjusted EPS decreased $0.42 (45.2%) to $0.51

– Adjusted net income decreased $13.1 million (43.5%) to $17.0 million reflecting decreased Adjusted EBITDA, increased depreciation and amortization expense, finance costs and income tax expense. – The decrease in Adjusted Diluted EPS also reflects an increase in the weighted average number of shares outstanding as a result of 2.4 million shares being issued as part of the Rubicon acquisition to its previous owners in May 2017

Debt Leverage Ratio

3.1x 3.7x 5.9x 5.8x 3.0x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x Dec 31/16 End of Fiscal 2016 Apr 1/17 End of Q1 2017 Dec 30/17 End of Fiscal 2017** Dec 29/18 End of Fiscal 2018 Target

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This ratio is expected to be lower at the end of Fiscal 2019

Net Interest-Bearing Debt* to Trailing 12-Month Adjusted EBITDA*

* Please refer to the Company’s MD&A for the 52 weeks ended December 29, 2018 for definitions

• f the non-IFRS financial measures “Net Interest-Bearing Debt” and “Adjusted EBITDA”

** Does not include trailing 12-Month Adjusted EBITDA for Rubicon which was purchased on May 30, 2017

Dividend History

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On November 8, 2018, the Board announced that it has commenced a review of its capital structure to determine the prudent use of capital and will provide an update on its review when the Company reports its financial results for the first quarter of 2019 in May.

* Reflects Q1/Q2/Q3 dividend of CAD$0.140 per share and a Q4 dividend of CAD$0.145 per share ** Reflects the current annual dividend rate of CAD$0.58 per share $0.135 $0.165 $0.195 $0.210 $0.350 $0.410 $0.465 $0.520 $0.565 $0.580 $0.000 $0.200 $0.400 $0.600 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018** Annual Dividend Paid per Share ($CAD)

Quarterly dividend on common shares commenced in 2013

2019 Outlook

High Liner continues to advise shareholders that until it successfully executes its critical initiatives over the next nine to twelve months, it is likely to continue to face pressure on its financial results due to a number of internal and external factors. Longer term, the Company expects its financial performance to improve and targets a return to profitable growth by 2020.

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Appendix

High Liner Foods

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Canadian public company since the 1960’s, TSX-listed in 1971

* Source: TSX February 22, 2019 ** Effective December 15, 2018

Current price CAD$6.84* Shares outstanding ~33.4 million* Market capitalization ~CAD$228 million* 52-week range CAD$6.19 - $13.79* Annual dividend CAD$0.58 per share** Current yield ~8.5%

Almost 120 years of seafood expertise

High Liner Foods

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Consolidated Operations

• New Bedford facility closed in Q3 2016

marking the last significant initiative planned as part of a multi-year supply chain optimization project

• Lower demand for traditional breaded and

battered products reduces plant efficiency

• Current manufacturing footprint:

aggregate production capacity of ~219 million LBS

• Ideal capacity ~ 85% to 90% to allow for

seasonal demand surge

Three value-added seafood manufacturing facilities in North America

Lunenburg, NS (Can) Capacity p.a.: 50M LBS Portsmouth, NH (US) Capacity p.a.: 81M LBS Newport News, VA (US) Capacity p.a.: 88M LBS

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Corporate Social Responsibility

• Committed to sourcing all our seafood from “certified sustainable or responsible” fisheries and

aquaculture

• Recognized as a global leader in driving best practice improvements in wild fisheries and aquaculture

The Company produced its first CSR report in 2017

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100 200 300 400 500 600 200 400 600 800 1,000 1,200 2009 2010 2011 2012 2013 2014 2015 2016* 2017 2018 Sales in LBS (millions) Sales in USD (millions) Sales in USD Sales in LBS

10 Year Sales History

* New Bedford scallop business sold September 7, 2016 $1,053.8

Sales in LBS and USD

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291.8 284.0 $1,048.5

10 Year EBITDA History

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

0% 2% 4% 6% 8% 10% 12% $- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2009 2010 2011 2012 2013 2014 2015 2016* 2017 2018 EBITDA as a % of Sales EBITDA (millions) Standard EBITDA** Adjusted EBITDA** Adjusted EBITDA as a Percentage of Sales

6.3% $66.1 $62.5 6.0%

* New Bedford scallop business sold September 7, 2016 ** Please refer to the Company’s MD&A for the 52 weeks ended December 29, 2018 for definitions of the non-IFRS financial measures “Standardized EBITDA” and “Adjusted EBITDA”

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10 Year EPS and ROE History

Earnings Per Share (EPS) and Return on Equity (ROE)

* Please refer to the Company’s MD&A for the 52 weeks ended December 29, 2018 for definitions of the non-IFRS financial measures “Adjusted EBITDA” and “ROE”

0% 5% 10% 15% 20% 25% 30% $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 $1.75

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Return on Equity Diluted Earnings Per Share

Diluted EPS Adjusted Diluted EPS* Return on Equity* 12.1% $0.93 6.2% $0.51

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Thank you.