Mr. Rod Hepponstall reports

HIGH LINER FOODS REPORTS OPERATING RESULTS FOR THE SECOND QUARTER OF 2023

High Liner Foods Inc. has released its financial results for the 13 and 26 weeks ended July 1, 2023.

"During the second quarter we once again delivered sales volume and dollar growth. Our food-service business continued to perform well and outpace the category in terms of growth," said High Liner Foods president and chief executive officer Rod Hepponstall. "However, softer consumer demand in the retail category and higher inventory levels across the frozen seafood industry continued in the quarter. This had an impact on our profitability during the quarter and together with higher inventory costs, led to a decline in adjusted EBITDA, compared with a period of markedly different market conditions a year ago."

Mr. Hepponstall added: "For the first half of the year, we generated in excess of $50-million in cash flow from operations and improved our leverage ratio to 3.3 times. With our stronger balance sheet and diversified portfolio and customer base, I am confident that we are well positioned to navigate headwinds, that will likely persist through the second half of the year. We continue to believe in the growth potential of our business and the category."

Mr. Hepponstall concluded: "At a challenging time globally for the category, as a market leader, we are continuing to invest and innovate despite market headwinds, and we are coupling these efforts with targeted and strategic promotions to support our customers and help us return to normalized inventory levels by the end of the year."

Key financial results, reported in United States dollars, for the 13 weeks ended July 1, 2023, or the second quarter of 2023, are as follows (unless otherwise noted, all comparisons are relative to the second quarter of 2022):

• Sales increased by $800,000, or 0.3 per cent, to $254.3-million compared with $253.5-million and sales volume increased by 0.6 million pounds, or 1.0 per cent, to 59.4 million pounds compared with 58.8 million pounds;
• Gross profit decreased by $4.3-million, or 7.6 per cent, to $52.0-million compared with $56.3-million, and gross profit as a percentage of sales decreased to 20.4 per cent compared with 22.2 per cent;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased by $3.3-million, or 13.0 per cent, to $22.0-million compared with $25.3-million, and adjusted EBITDA as a percentage of sales decreased to 8.7 per cent compared with 10.0 per cent;
• Net income decreased by $13.1-million, or 68.9 per cent, to $5.9-million compared with $19.0-million and diluted earnings per share (EPS) decreased to 17 cents per share, compared with 54 cents per share;
• Adjusted net income in the second quarter of 2023 and 2022 was $10.0-million and adjusted diluted EPS in the second quarter of 2023 and 2022 was 29 cents per share;
• Net debt to rolling-12-month adjusted EBITDA was 3.3 times at July 1, 2023, compared with 3.7 times at the end of fiscal 2022 and 3.0 times at July 2, 2022. This ratio increased during the second half of fiscal 2022 due to increased investment in inventory.

Key financial results, reported in U.S. dollars, for the 26 weeks ended July 1, 2023, or fiscal 2023, are as follows (unless otherwise noted, all comparisons are relative to the 26 weeks ended July 2, 2022, or fiscal 2022):

• Sales increased by $35.3-million, or 6.4 per cent, to $583.5-million compared with $548.2-million and sales volume increased by 4.3 million pounds, or 3.3 per cent, to 136.4 million pounds compared with 132.1 million pounds;
• Gross profit increased by $2.1-million, or 1.8 per cent, to $120.4-million compared with $118.3-million, while gross profit as a percentage of sales decreased to 20.6 per cent compared with 21.6 per cent;
• Adjusted EBITDA decreased by $500,000, or 0.9 per cent, to $53.2-million compared with $53.7-million, and adjusted EBITDA as a percentage of sales decreased to 9.1 per cent compared with 9.8 per cent;
• Net income decreased by $13.8-million, or 41.1 per cent, to $19.8-million compared with $33.6-million and diluted earnings per share (EPS) decreased to 57 cents per share compared with 96 cents per share;
• Adjusted net income increased by $1.4-million, or 5.6 per cent, to $26.5-million compared with $25.1-million and adjusted diluted EPS increased to 77 cents per share compared with 72 cents per share

Q2 operational update

In the company's food service business, High Liner delivered its ninth consecutive quarter of growth despite a slowdown within the category overall. The performance of High Liner Foods' food service business during the second quarter was anchored by the relative stability of non-commercial customers and increased contract manufacturing business. The company also performed well in casual dining and quick service restaurants and grew volumes as a result of newer product lines, new business and improved customer service levels.

High Liner Foods' retail business continues to be impacted by softer demand for protein, including seafood products as consumers switch to lower-cost meal solutions. The company is focused on targeted promotions to drive sales and demonstrate value of seafood as a healthy, affordable protein.

Demand in both businesses was also impacted by the earlier timing of lent compared with the prior year.

Financial results

For the purpose of presenting the consolidated financial statements in United States dollars, Canadian-dollar-denominated assets and liabilities in the company's operations are converted using the exchange rate at the reporting date, and revenue and expenses are converted at the average exchange rate of the month in which the transaction occurs. As such, foreign currency fluctuations affect the reported values of individual lines on the company's balance sheet and income statement. When the U.S. dollar strengthens (weakening Canadian dollar), the reported U.S. dollar values of the parent's Canadian-dollar-denominated items decrease in the consolidated financial statements, and the opposite occurs when the U.S. dollar weakens (strengthening Canadian dollar).

Investors are reminded for purposes of calculating financial ratios, including dividend payout and share price-to-earnings ratios, to take into consideration that the company's share price and dividend rate are reported in Canadian dollars and its earnings, EPS and financial statements are reported in U.S. dollars.

The financial results in U.S. dollars for the 13 and 26 weeks ended July 1, 2023, and July 2, 2022, are summarized in the attached table.

Sales volume for the 13 weeks ended July 1, 2023, or the second quarter of 2023, increased by 0.6 million pounds, or 1.0 per cent, to 59.4 million pounds compared with 58.8 million pounds in the 13 weeks ended July 2, 2022, or the second quarter of 2022 due to higher volume in the company's food service business, partially offset by lower volume in the company's retail business. In the company's food service business, sales volume was higher due to increased contract manufacturing business, increased sales in newer product lines and improved customer service levels. The company achieved strong service levels during the second quarter of 2023, as compared with the second quarter of 2022 due to the increased investment in working capital in the latter part of fiscal 2022 to mitigate the impact of the global supply chain challenges. This was partially offset by lower sales volume in the company's retail business due to the impact of inflation. This resulted from softer demand for protein, including seafood product as consumers switch to lower-cost alternatives. In addition, easter occurring eight days earlier in 2023 compared with 2022 resulted in lower sales volume in the second quarter of 2023 compared with the same period last year.

Sales in the second quarter of 2023 increased by $800,000, or 0.3 per cent, to $254.3-million compared with $253.5-million in the same period in 2022, reflecting higher sales volumes mentioned previously and pricing actions implemented during fiscal 2022 and the first quarter of 2023 to mitigate inflationary increases on input costs, partially offset by changes in sales mix. The weaker Canadian dollar in the first half of 2023 compared with the same quarter of 2022 decreased the value of reported United States sales from the company's Canadian-dollar-denominated operations by approximately $3.2-million relative to the conversion impact last year.

Gross profit in the second quarter of 2023 decreased by $4.3-million to $52.0-million compared with $56.3-million in the same period in 2022 and gross profit as a percentage of sales decreased by 180 basis points to 20.4 per cent compared with 22.2 per cent. The decrease in gross profit reflects changes in product mix, higher carrying costs associated with higher inventory and some inefficiencies at the company's plants as a result of the company slowing down production due to higher inventory levels and softer consumer demand, discussed previously. The decrease in gross profit was partially offset by the inflationary-pricing actions and the increase in sales volume. In addition, the weaker Canadian dollar decreased the value of reported United States dollar gross profit from the company's Canadian-dollar-denominated operations by approximately $700,000 relative to the conversion impact last year.

Adjusted EBITDA in the second quarter of 2023 decreased by $3.3-million to $22.0-million compared with $25.3-million in the same period in 2022 and adjusted EBITDA as a percentage of sales decreased to 8.7 per cent compared with 10.0 per cent. The decrease reflects the decrease in gross profit, partially offset by the decrease in net SG&A expenses.

Reported net income in the second quarter of 2023 decreased by $13.1-million to net income of $5.9-million (diluted EPS of 17 cents) compared with $19.0-million (diluted EPS of 54 cents) in the same period in 2022 due to the inclusion of $10.0-million of insurance proceeds in business acquisition, integration and other expense (income) during the second quarter of 2022. The decrease in net income was also due to the decrease in adjusted EBITDA, and an increase in finance costs in the second quarter of 2023 compared with the same period last year, partially offset by lower income taxes.

Reported net income in the second quarter of 2023 and 2022 included certain non-routine expenses classified as "business acquisition, integration and other expense (income)." Excluding the impact of these non-routine items or other non-cash expenses, share-based compensation, and the insurance proceeds adjusted net income in the second quarter of 2023 and 2022 was $10.0-million and adjusted diluted EPS in the second quarter of 2023 and 2022 was 29 cents per share.

Net cash flows provided by (used in) operating activities in the second quarter of 2023 increased by $36.1-million to an inflow of $45.4-million compared with an inflow of $9.3-million in the same period in 2022 due to favourable changes in non-cash working capital balances, partially offset by lower cash flows provided by operations primarily due to the $10.0-million of insurance proceeds received in the second quarter of 2022 and higher interest paid during the second quarter of 2023. Capital expenditures were $9.1-million in the first half of 2023 compared with $5.1-million in the prior year reflecting the continued investment in the business.

Net debt decreased by $41.4-million to $344.1-million at July 1, 2023, as compared with $385.5-million at Dec. 31, 2022, reflecting lower bank loans, lower long-term debt and lower lease liabilities as at July 1, 2023, as compared with Dec. 31, 2022.

Net debt to rolling 12-month adjusted EBITDA was 3.3 times at July 1, 2023, compared with 3.7 times at the end of fiscal 2022 and 3.0 times at July 2, 2022. Net debt to rolling 12-month adjusted EBITDA increased during the second half of fiscal 2022 primarily as a result of increased investment in seasonal working capital in fiscal 2022 and inflation in raw materials. In the absence of any major acquisitions or unplanned capital expenditures in 2023, the company expects this ratio to be in line with the company's long-term target of 3.0 times at the end of fiscal 2023.

Outlook

"We remain confident in the outlook for our business," said MR. Hepponstall. "While we can expect that current headwinds will put pressure on our business through the second half of the year, we continue to believe that we will end the year with year-over-year adjusted EBITDA growth, while generating significant cash flow from operations and improving our leverage ratio to our long-term target of 3.0 times."

The company has a strong balance sheet and is well equipped to invest in organic growth, explore opportunities for transformative growth through potential M&A (merger and acquisition) activities to build shareholder value and continue to grow the dividend over time.

Dividend

Today, the company's board of directors approved a quarterly dividend of 13 cents per share on the company's common shares, payable on Sept. 15, 2023, to holders of record on Sept. 1, 2023. These dividends are considered eligible dividends for Canadian income tax purposes.

Conference call

The company will host a conference call on Thursday, Aug. 10, 2023, at 9 a.m. ET (10 a.m. AT) during which Rod Hepponstall, president and chief executive officer, Paul Jewer, executive vice-president and chief financial officer, and Anthony Rasetta, chief commercial officer, will discuss the financial results for the second quarter of 2023. To access the conference call by telephone, dial 416-764-8659 or 1-888-664-6392. Please connect approximately 10 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay by telephone until Sunday, Sept. 10, 2023, at midnight ET. To access the archived conference call, dial 1-888-390-0541 and enter the replay entry code 804727 followed by the pound key.

A live audio webcast of the conference call will be available at the company website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.

The company's unaudited condensed interim consolidated financial statements and MD&A (management discussion and analysis) as at and for the 13 and 26 weeks ended July 1, 2023, were filed concurrently on SEDAR+ with this news release and are also available at the company's website.

About High Liner Foods Inc.

High Liner Foods is a leading North American processor and marketer of value-added frozen seafood. High Liner Foods' retail-branded products are sold throughout the United States and Canada under the High Liner, Fisher Boy, Mirabel, Sea Cuisine and Catch of the Day labels, and are available in most grocery and club stores. The company also sells branded products to restaurants and institutions under the High Liner, Mirabel, Icelandic Seafood and FPI labels, and is a major supplier of private label value-added seafood products to North American food retailers and food service distributors. High Liner Foods is a publicly traded Canadian company, trading under the symbol HLF on the Toronto Stock Exchange.

We seek Safe Harbor.