High Liner Foods Q3 2018 Investor Presentation August 2018 - - PowerPoint PPT Presentation

August 2018

High Liner Foods

Q3 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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High Liner Foods

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

* Source: TSX August 14, 2018 ** Effective December 15, 2017

Current price CAD$7.09* Shares outstanding ~33.4 million* Market capitalization ~CAD$237 million* 52-week range CAD$7.09 - $15.67* Annual dividend CAD$0.58 per share** Current yield ~8.2%

Company Overview & Strategy

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Investment Thesis

• Healthy protein – for humans and the planet
• North Americans, on average, consume substantially less seafood than suggested in

recommended dietary guidelines

• Long-term growth influenced by North America’s demographics – a growing and aging

population, with an increasing focus on eating healthier

• Industry focus has primarily been on supply of seafood and not on increasing consumer

demand

• Versatility – 100+ commercial species and multiple eating formats make for endless

possibilities when it comes to preparing and enjoying seafood

• Seafood industry in North America is highly-fragmented

Why Seafood?

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Investment Thesis

• North American leader in value-added frozen seafood, with almost 120 years of seafood

expertise

• Broad market reach and market-leading brands
• Customer-focused, innovative and responsible
• Global seafood procurement and frozen food logistics expertise
• Consolidated manufacturing footprint
• Strong free cash flow from operations support dividends and market consolidation
• Track record of growth through acquisitions and adaptability

Why High Liner Foods?

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Business Overview

• 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

74% 26%

Geography

US (incl. Mexico) Canada 76% 24%

Branding

HLF Brands Other 56% 44%

Channel

Foodservice Retail 61% 39%

Product Form

Value-added Other Based on 2017 actual sales (in USD)

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Seafood is Complex

• Global supply chain with 100+ commercial

species

• People believe preparing seafood is

difficult and time consuming

• 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 our customers

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Organic Growth Strategy

• Product development efforts are focused on what today’s seafood consumer wants when selecting

seafood products and appealing to Millennials in a more meaningful way

• Innovation must be a core competency and an ingrained part of our culture
• Adopted Innovation Engineering in 2016 to help align innovation strategy across all departments

Customer-focused, innovative seafood solutions

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Organic Growth Strategy

Focused on species diversification to aquaculture species experiencing stronger growth rates in North America

24.9% 18.4% 14.6% 14.2% 9.0% 6.5% 12.4% Cod Shrimp Salmon Alaskan pollock Haddock Tilapia Other

• Procure 30+ species of seafood from 20+ different countries

Based on 2017 sales (in USD)

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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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• The Company’s last two acquisitions were to expedite species diversification to include more Atlantic salmon

and warm water shrimp, two aquaculture species experiencing the greatest growth rates in the marketplace – Rubicon Resources, an importer and distributor of frozen shrimp products in the U.S. private-label retail market, was acquired May 30, 2017 for $100.6 million reflecting pre-acquisition annual sales of $234

million and pro forma EBITDA of $16 million

– Atlantic Trading, an importer and distributor of frozen Atlantic salmon products in the U.S. private-label retail market, was acquired November 7, 2014 for $17.9 million reflecting pre-acquisition annual sales

• f between $75 million and $80 million

Role of Acquisitions

Acquisitions made in support our organic growth strategy

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Q2 YTD 2018 Financial Review

Q2 YTD 2018 Sales

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$508.1 $564.5 50 100 150 200 250 300 $0 $100 $200 $300 $400 $500 $600 $700 2017 2018 Sales in LBS (millions) Sales in USD (millions) Sales in USD Sales LBS

Sales in LBS and USD

153.6 146.6

• Sales volume increased 7.0 million LBS (4.8%) to 153.6 million LBS

– Excluding additional volume from Rubicon (+11.4 million LBS) and returns associated with the product recall in 2017 (-2.5 million LBS), sales volume decreased by 6.9 million LBS (4.7%) due to lower sales in our U.S. foodservice and retail businesses and Canadian retail business.

• Sales revenue increased $56.4 million (11.1%) to $564.5 million

– Excluding additional sales from Rubicon (+$59.5 million), the impact of the product recall in 2017 (-$9.1 million) and FX

• n the conversion of our CAD-denominated operations to USD, sales decreased $18.2 million (3.3%) due to the lower

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

Q2 YTD 2018 EBITDA

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$35.8 $36.3 0% 5% 10% 15% 20% $0 $5 $10 $15 $20 $25 $30 $35 $40 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 26 weeks ended June 30, 2018 for definitions of the non-IFRS financial measures “Standardized EBITDA” and “Adjusted EBITDA”

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

7.0% 6.4%

• Adjusted EBITDA increased $0.5 million (1.5%) to $36.3 million and decreased 60 basis points as a percentage of sales

– Excluding additional contributions from Rubicon (+$0.8 million), losses associated with the product recall in 2017 that have not been added back for the purpose of Adjusted EBTIDA (-$2.9 million) and FX on the conversion of our CAD- denominated operations to USD, Adjusted EBITDA decreased by $5.9 million (13.9%) due to lower sales (as explained

• n previous page), unfavorable changes in product mix, plant inefficiencies (in the U.S.) and higher distribution costs,

partially offset by lower SG&A expenses. – Excluding Rubicon, Adjusted EBITDA was 7.2% of sales in Q2 YTD 2018

Q2 YTD 2018 Earnings Per Share (EPS)

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$0.53 $0.43 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 2017 2018 EPS Reported Diluted EPS Adjusted Diluted EPS*

* Please refer to the Company’s MD&A for the 26 weeks ended June 30, 2018 for definitions of the non-IFRS financial measure “Adjusted Diluted EPS”

• Diluted Adjusted EPS decreased $0.10 (18.9%) to $0.43

– Adjusted net income decreased $2.4 million (14.2%) to $14.5 million reflecting increased depreciation and amortization expense, finance costs and income tax expense, partially offset by increased Adjusted EBITDA – 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 5.6x 5.6x 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** June 30/18 End of Q2 2018* Target

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This ratio is expected to improve throughout 2018 as free cash flow is used to reduce debt

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

* Please refer to the Company’s MD&A for the 26 weeks ended June 30, 2018 for definitions of the non-IFRS financial measures “Net Interest-Bearing Debt” and “Adjusted EBITDA” ** Includes trailing 12-Month Adjusted EBITDA for Rubicon which was purchased on May 30, 2017

Dividend History

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10 year cumulative average growth rate (CAGR) of 18%

* 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

2018 Outlook

• Organizational priorities for the next 12 to 18 will focus on creating a more efficient company and

improving performance: – Organizational realignment (will be completed in 2018) – Optimize structure by aligning the Company by core function, instead of by geography, to take better advantage of its North American scale – More efficient cost structure with minimum $10 million in annualized cost savings expected related to this initiative, starting in 2019 – Profitable organic growth – Business simplification – Supply chain excellence – Integrate and grow the Rubicon business (acquired May 2017)

• There are areas of the business where additional investment will be required to ensure the Company

has the right expertise, processes and tools required to capitalize on market opportunities.

• Through the business objectives identified above, the Company will also work to mitigate the impact of

higher raw material and supply chain costs.

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2018 Outlook

• On July 11, 2018 the U.S. Administration announced proposed 25% tariffs on certain seafood

imported into the U.S. from China – The proposed tariffs could impact seafood purchased by the Company and the industry overall, as a significant volume of seafood consumed in the U.S. is imported to meet U.S. consumer demand. – High Liner Foods does not support tariffs that increase the cost of seafood for U.S. consumers. – The proposed tariffs are currently open for public comment until September 6th, 2018 and the hearing on these proposed tariffs is scheduled to start between the 20th and 23rd of August. – The Company currently purchases its seafood raw materials from more than 20 countries around the world, including from the U.S., to meet U.S. consumer demand. A portion of this raw material is imported into China for primary processing and then exported to the U.S. for sale and secondary processing. – The Company will continue to monitor these developments closely, particularly as further information becomes available on what products could be impacted by these proposed tariffs and how these proposed tariffs would be implemented.

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Appendix

Almost 120 years of seafood expertise

High Liner Foods

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Significant Items in 2017 Impacting Financial Results

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Product Recall, Acquisition of Rubicon and U.S. Tax Reform

Item Impact on Year-Over-Year Financial Results Product recall initiated in April 2017

• Decreased sales by $8.1 million (2.4 million LBS)
• Decreased gross profit by $13.5 million and Adjusted EBITDA* by $2.0 million

($11.5 million of the realized losses were added back for purposes of Adjusted EBITDA)

• Additional impact related to lost sales opportunities and increased production costs

Rubicon Resources acquired

• n May 30, 2017
• Purchased for $100.6 million (reflecting $234 million and pro forma EBITDA of $16

million) financed 75% with the Company’s term loan facility and 25% with 2.4 million HLF shares issued to Rubicon’s previous owners

• Increased sales by $117.1 million (21.7 million LBS)
• Increased gross profit by $14.0 million and Adjusted EBITDA* by $3.8 million

U.S. Tax Reform enacted December 22, 2017

• Decreased net deferred tax liability at December 30, 2017 and increased net

income by $11.2 million

• No impact on Adjusted Net Income*

* Please refer to the Company’s MD&A for the 52 weeks ended December 30, 2017 for definitions of the non-IFRS financial measures “Adjusted EBITDA” and “Adjusted Net Income”

10 Year Sales History

100 200 300 400 500 600 200 400 600 800 1,000 1,200 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017 Sales in LBS (millions) Sales in USD (millions) Sales in USD Sales in LBS * New Bedford scallop business sold September 7, 2016 $955.0 $1,053.8

Sales in LBS and USD

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277.3 291.8

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 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017 EBITDA as a % of Sales EBITDA (millions) Standard EBITDA** Adjusted EBITDA** Adjusted EBITDA as a Percentage of Sales

8.5% $81.4 $66.1 6.3%

* New Bedford scallop business sold September 7, 2016 ** Please refer to the Company’s MD&A for the 52 weeks ended December 30, 2017 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 30, 2017 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

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Return on Equity Diluted Earnings Per Share

Diluted EPS Adjusted Diluted EPS* Return on Equity* 17.6% $1.29 12.1% $0.93

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Thank you.