High Liner Foods. Q Investor Presentation. February 2019

Transcription

1 High Liner Foods Q Investor Presentation February 2019

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 Company Overview & Strategy

5 Our Business Focused on the frozen seafood market in North America Geography Branding Channel Product Form 24% 38% 43% 44% 62% 57% 56% 76% US Canada HLF Brands Other Foodservice Retail Value-added Other (2017: 74% / 26%) (2017: 66% / 34%) (2017: 56% / 44%) (2017: 61% / 39%) 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

6 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

7 Investment Thesis Why Seafood? Why High Liner Foods? Why Now? Healthy Versatile Attractive market demographics Cross-category growth potential 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 organizational structure Poised to execute and unlock potential 7

8 Current Operating Environment Opportunities HLF established in all growing seafood categories, especially shrimp Customer and consumers hungry for product innovation Significant room for operational improvement Challenges Pressure on pricing and tariffs Need to strengthen foundation of our business and overall financial health Executing 5 critical initiatives over next 9 12 months to enable HLF 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

9 Five Critical Initiatives Strategically sequenced to strengthen business foundation & drive growth 1. Organizational realignment 2. Business simplification >$10M Net annualized run rate cost savings 3. Supply chain excellence 4. Rubicon alignment & growth 5. Profitable organic growth by 2020 Stronger go-to-market platform Unlock existing value; and Create new value 9

10 1. Organizational Realignment ONE High Liner Foods BEFORE: High Liner s Canadian and U.S. operations run as two separate businesses - inefficient, duplication of efforts, unable to leverage North American scale AFTER: Aligned by core function rather than geography; efficient structure, economies of scale and base to foster a unified, highperforming culture RESULTS: Q Restructuring completed 14% $7M Reduction to salaried employees net annualized run rate cost 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 Q of which $3.5M was recognized in Q

11 2. Business Simplification High Liner s growth through acquisitions has resulted in increasingly complex business CURRENTLY: 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 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

12 3. Supply Chain Excellence Centralizing, standardizing, and streamlining to create efficiencies and lower costs BEFORE: Supply chain fragmented, inefficient and costly 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 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

13 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

14 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

15 2018 Financial Review

16 Product Recall Recovery An $8.5 million recovery of product recall losses from an ingredient supplier was recognized in Q 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

17 Sales in USD (millions) 2018 Sales Sales in LBS and USD $1,200 $1,000 $800 $1,053.8 $1, $ $400 $200 $ Sales in USD Sales LBS Sales volume decreased 7.8 million LBS (2.7%) to 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 on 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. 17

18 EBITDA (millions) EBITDA as a % of Sales 2018 EBITDA Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) $70 $60 $50 $40 $30 $66.1 $ % 15% 10% Standardized EBITDA* Adjusted EBITDA* Adjusted EBITDA as a % of Sales $20 $10 $0 6.3% 6.0% % 0% * 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 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). 18

19 EPS 2018 Earnings Per Share (EPS) $1.10 $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 $ $0.51 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

20 Debt Leverage Ratio Net Interest-Bearing Debt* to Trailing 12-Month Adjusted EBITDA* 6.0x 5.9x 5.8x 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** Dec 29/18 End of Fiscal 2018 Target * Please refer to the Company s MD&A for the 52 weeks ended December 29, 2018 for definitions of 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 This ratio is expected to be lower at the end of Fiscal

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 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. 21

22 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

23 Appendix

24 High Liner Foods Canadian public company since the 1960 s, TSX-listed in 1971 Current price CAD$6.84* Shares outstanding ~33.4 million * Market capitalization ~CAD$228 million * 52-week range CAD$ $13.79* Annual dividend CAD$0.58 per share** Current yield ~8.5% * Source: TSX February 22, 2019 ** Effective December 15,

25 High Liner Foods Almost 120 years of seafood expertise 24

26 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 26

27 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 27

28 Sales in USD (millions) Sales in LBS (millions) 10 Year Sales History Sales in LBS and USD 1, ,000 $1,053.8 $1, * Sales in USD Sales in LBS * New Bedford scallop business sold September 7,

29 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 $66.1 $ % 8% $50 6.3% 6.0% 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 29, 2018 for definitions of the non-ifrs financial measures Standardized EBITDA and Adjusted EBITDA 29

30 Diluted Earnings Per Share Return on Equity 10 Year EPS and ROE History Earnings Per Share (EPS) and Return on Equity (ROE) $ % $ % $1.25 $1.00 $ % 15% $0.75 $ % $ % $ % 5% $ Diluted EPS Adjusted Diluted EPS* Return on Equity* 0% * 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 30

31 Thank you.