High Liner Foods RBC Capital Markets Consumer & Retail Conference. May 30, 2018

Transcription

1 High Liner Foods 2018 RBC Capital Markets Consumer & Retail Conference May 30, 2018 Rod Hepponstall, President & CEO Paul Jewer, EVP & CFO Heather Keeler-Hurshman, VP Investor Relations

2 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 forwardlooking information. Additional information about these material factors or assumptions is contained in High Liner Foods Annual Report available on SEDAR ( and in the Investor Center section at High Liner Foods website ( 2

3 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

4 High Liner Foods Canadian public company since the 1960 s, TSX-listed in 1971 Current price CAD$10.62* Shares outstanding ~33.4 million * Market capitalization ~CAD$355 million * 52-week range CAD$ $19.95* Annual dividend CAD$0.58 per share** Current yield ~5.5% * Source: TSX May 25, 2018 ** Effective December 15,

5 Company Overview & Strategy

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7 Investment Thesis Why Seafood? 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 7

8 Investment Thesis Why High Liner Foods? 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 8

9 Business Overview Focused on the frozen seafood market in North America Geography Branding Channel Product Form 26% 24% 44% 39% 56% 61% 74% 76% US (incl. Mexico) Canada HLF Brands Other Foodservice Retail Value-added Other Based on 2017 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 9

10 Seafood is Complex We simplify the seafood category for our customers 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 10

11 Organic Growth Strategy Customer-focused, innovative seafood solutions 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 11

12 Organic Growth Strategy Focused on species diversification to aquaculture species experiencing stronger growth rates in North America 11.8% 9.0% 5.8% 14.2% 25.0% 19.6% Cod Shrimp Salmon Alaskan pollock Haddock Tilapia Other 14.6% Based on 2017 sales (in USD) Procure 30+ species of seafood from 20+ different countries 12

13 Consolidated Operations Three value-added seafood manufacturing facilities in North America New Bedford facility closed in Q 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 Lunenburg, NS (Can) Capacity p.a.: 50M LBS Current manufacturing footprint: aggregate production capacity of ~219 million LBS Ideal capacity ~ 85% to 90% to allow for seasonal demand surge Newport News, VA (US) Capacity p.a.: 88M LBS Portsmouth, NH (US) Capacity p.a.: 81M LBS 13

14 Corporate Social Responsibility The Company produced its first CSR report in 2017 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 14

15 Role of Acquisitions Acquisitions made in support our organic growth strategy 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 of between $75 million and $80 million 15

16 Q Financial Review

17 Sales in USD (millions) Sales in LBS (millions) Q Sales Sales in LBS and USD $350 $ $300 $ $250 $200 $150 $ $50 $ Sales in USD Sales LBS Sales volume increased 4.9 million LBS (5.9%) to 88.1 million LBS Excluding Rubicon (+7.9 million LBS), sales volume decreased 3.0 million LBS (3.6%) due to lower sales in our U.S. retail and foodservice businesses Sales revenue increased $43.5 million (15.8%) to $319.2 million Excluding Rubicon (+$42.1 million) and FX on the conversion of our CAD-denominated operations to USD, sales decreased $1.3 million (0.4%) due to product mix and lower sales volume, partially offset by price increases related to raw material cost increases 17

18 EBITDA (millions) EBITDA as a % of Sales Q EBITDA Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) $25 $22.3 $ % $20 $15 $10 8.1% 7.6% 15% 10% Standardized EBITDA* Adjusted EBITDA* Adjusted EBITDA as a % of Sales $5 $ % 0% * Please refer to the Company s MD&A for the 13 weeks ended March 31, 2018 for definitions of the non-ifrs financial measures Standardized EBITDA and Adjusted EBITDA Adjusted EBITDA increased $1.9 million (8.5%) to $24.2 million and decreased 50 basis points as a percentage of sales Excluding Rubicon (+$1.1 million) and FX on the conversion of our CAD-denominated operations to USD, Adjusted EBITDA increased $1.2 million (5.2%) due to the impact of price increases, lower corporate administrative and U.S. sales and marketing expenses, partially offset by lower sales volume, plant inefficiencies and increased distribution costs in our U.S. business Excluding Rubicon, Adjusted EBITDA was 8.4% of sales in Q

19 EPS Q Earnings Per Share (EPS) $0.40 $0.30 $0.20 $0.10 $0.35 $0.32 Reported Diluted EPS Adjusted Diluted EPS* * Please refer to the Company s MD&A for the 13 weeks ended March 31, 2018 for definitions of the non-ifrs financial measure Adjusted Diluted EPS $ Diluted Adjusted EPS decreased $0.03 (8.6%) to $0.32 Adjusted net income decreased $0.1 million (0.9%) to $10.7 million reflecting increased depreciation and amortization expense and finance costs, 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 19

20 Debt Leverage Ratio Net Interest-Bearing Debt* to Trailing 12-Month Adjusted EBITDA* 6.0x 5.6x 5.6x 5.0x 4.0x 3.0x 3.1x 3.7x 3.0x 2.0x 1.0x 0.0x Dec 31/16 End of Fiscal 2016 Apr 1/17 End of Q Dec 30/17 End of Fiscal 2017** Mar 31/18 End of Q1 2018** Target * Please refer to the Company s MD&A for the 13 weeks ended March 31, 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 This ratio is expected to improve throughout 2018 as free cash flow is used to reduce debt 20

21 Annual Dividend Paid per Share ($CAD) Dividend History Quarterly dividend on common shares commenced in 2013 $0.600 $0.400 $0.350 $0.410 $0.465 $0.520 $0.565 $0.580 $0.200 $0.135 $0.165 $0.195 $0.210 $ * 2018** * 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 10 year cumulative average growth rate (CAGR) of 18% 21

22 2018 Outlook Areas of increased focus in 2018 to mitigate the impact of higher raw material costs and improve financial performance include: Improving pricing methodologies Lowering fixed costs Further increasing the effectiveness of our supply chain and product innovation Simplifying our business Rubicon: Performance in 2017 was significantly lower than expected when acquired (see Slide 25) due to: Raw material cost increases not fully passed to customers Lower volume related to a major customer s initiative to procure certain products directly from shrimp producers Product margins are expected to improve in 2018, but sales volume declines will continue due to the customer s direct sourcing initiative We are focused on replacing this lost volume and leveraging Rubicon s capabilities to grow shrimp sales across the rest of the business 22

23 Appendix

24 High Liner Foods Almost 120 years of seafood expertise 24

25 Significant Items in 2017 Impacting Financial Results Product Recall, Acquisition of Rubicon and U.S. Tax Reform Item Product recall initiated in April 2017 Rubicon Resources acquired on May 30, 2017 U.S. Tax Reform enacted December 22, 2017 Impact on Year-Over-Year Financial Results 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 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 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 25

26 Sales in USD (millions) Sales in LBS (millions) 10 Year Sales History Sales in LBS and USD 1,200 1,000 $955.0 $1, * Sales in USD Sales in LBS * New Bedford scallop business sold September 7,

27 EBITDA (millions) EBITDA as a % of Sales 10 Year EBITDA History Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) $100 12% $90 $80 $70 $60 $50 $ % $ % 10% 8% 6% $40 $30 4% $20 $10 2% $ * % Standard EBITDA** Adjusted EBITDA** Adjusted EBITDA as a Percentage of Sales * 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 27

28 Diluted Earnings Per Share Return on Equity 10 Year EPS and ROE History Earnings Per Share (EPS) and Return on Equity (ROE) $ % $1.50 $ % $1.25 $ % $ % 15% $0.75 $ % 10% $0.25 5% $ Diluted EPS Adjusted Diluted EPS* Return on Equity* 0% * 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 28

29 Thank you.