Mr. Paul Jewer reports

HIGH LINER FOODS REPORTS OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR 2023

High Liner Foods Inc. has released its financial results for the 52 weeks ended Dec. 30, 2023.

"In fiscal 2023, we generated the highest free cash flow in our history and took the opportunity to significantly reduce debt, invest in our business and return capital to our shareholders," said Paul Jewer, president and chief executive officer for High Liner Foods. "While our Q4 results were below the potential of our business due to the ongoing challenges posed by the macroeconomic environment, we are confident that the underlying fundamentals of our business and our strategy remain sound."

Mr. Jewer added: "In the year ahead, we will continue to deliver on our proven strategy of offering customers and consumers quality and choice across a range of price points to drive improved financial performance. We believe in the long-term market opportunity of frozen seafood as a healthy and sustainable source of protein, and we are well positioned to support our customers in driving category recovery through the course of the year ahead. We are similarly well positioned to invest in our own growth and are excited about the opportunities afforded by our balance sheet strength, ongoing diversification and scale."

Key financial results, reported in U.S. dollars, for the 52 weeks ended Dec. 30, 2023, or fiscal 2023, are as follows (unless otherwise noted, all comparisons are with the 52 weeks ended Dec. 31, 2022, or fiscal 2022):

• Sales volume increased by 6.1 million pounds, or 2.4 per cent, to 257.0 million pounds, compared with 250.9 million pounds and sales increased by $10.6-million, or 1.0 per cent, to $1,080.3-million, compared with $1,069.7-million.
• Gross profit decreased by $11.2-million, or 4.9 per cent, to $218.7-million, compared with $229.9-million, while gross profit as a percentage of sales decreased to 20.2 per cent, compared with 21.5 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) decreased by $8.8-million, or 8.5 per cent, to $95.1-million, compared with $103.9-million, and adjusted EBITDA as a percentage of sales (1) decreased to 8.8 per cent, compared with 9.7 per cent.
• Net income decreased by $23.0-million, or 42.0 per cent, to $31.7-million, compared with $54.7-million, and diluted earnings per share (EPS) decreased to 93 cents per share, compared with $1.56 per share.
• Adjusted net income (1) decreased by $13.0-million, or 25.1 per cent, to $38.7-million, compared with $51.7-million, and adjusted diluted EPS (1) decreased to $1.14 per share, compared with $1.48 per share.
• Cash flows from operations increased by $255.5-million, or 335.3 per cent, to an inflow of $179.3-million, compared with an outflow of $76.2-million.

Key financial results, reported in U.S. dollars, for the 13 weeks ended Dec. 30, 2023, or the fourth quarter of 2023, are as follows (unless otherwise noted, all comparisons are with the fourth quarter of 2022):

• Sales volume increased by 1.2 million pounds, or 2.1 per cent, to 59.6 million pounds, compared with 58.4 million pounds, and sales decreased by $13.2-million, or 5.3 per cent, to $237.1-million, compared with $250.3-million.
• Gross profit decreased by $6.1-million, or 11.1 per cent, to $48.7-million, compared with $54.8-million, and gross profit as a percentage of sales decreased to 20.5 per cent, compared with 21.9 per cent.
• Adjusted EBITDA (1) decreased by $3.5-million, or 13.8 per cent, to $21.9-million, compared with $25.4-million, and adjusted EBITDA as a percentage of sales decreased to 9.2 per cent, compared with 10.1 per cent.
• Net income decreased by $4.7-million, or 42.3 per cent, to $6.4-million, compared with $11.1-million, and diluted earnings per share (EPS) decreased to 20 cents per share, compared with 32 cents per share.
• Adjusted net income (1) decreased by $5.0-million, or 40.7 per cent, to $7.3-million, compared with $12.3-million, and adjusted diluted EPS (1) decreased to 23 cents per share, compared with 35 cents per share.
• Cash flows from operations increased by $122.7-million, or 219.9 per cent, to an inflow of $66.9-million, compared with an outflow of $55.8-million.
• Net debt (1) to rolling-12-month adjusted EBITDA (1) was 2.6 times at Dec. 30, 2023, compared with 3.7 times at the end of fiscal 2022 and 3.0 times at end of fiscal 2021. This ratio increased during the second half of fiscal 2022 due to a planned increased investment in inventory.

Financial results and operational update

For the purpose of presenting the consolidated financial statements in U.S. 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.

(1) This is a non-IFRS (international financial reporting standards) financial measure. For more information on non-IFRS financial measures, see the section on non-IFRS financial measures in the company's fourth quarter 2023 management's discussion and analysis (Q4 2023 MD&A).

The financial results in U.S. dollars for the 13 and 52 weeks ended Dec. 30, 2023, and Dec. 31, 2022, are summarized in an attached table.

Sales volume for the 13 weeks ended Dec. 30, 2023, or the fourth quarter of 2023, increased by 1.2 million pounds, or 2.1 per cent, to 59.6 million pounds, compared with 58.4 million pounds in the 13 weeks ended Dec. 31, 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 and improved customer service levels. This was partially offset by lower sales volume in the company's retail business due to the continued impact of inflation. This resulted from softer demand for protein, including seafood product as consumers switch to lower cost alternatives.

Sales in the fourth quarter of 2023 decreased by $13.2-million, or 5.3 per cent, to $237.1-million, compared with $250.3-million in the same period in 2022, reflecting changes in sales mix and lower pricing most notably on some of the company's commodity products during the fourth quarter of fiscal 2023, compared with the inflationary environment in the same period last year. This decrease was partially offset by higher sales volumes mentioned previously. The weaker Canadian dollar in 2023, compared with the same quarter of 2022, decreased the value of reported U.S.-dollar sales from the company's Canadian-dollar-denominated operations by approximately $200,000 relative to the conversion impact last year.

Gross profit in the fourth quarter of 2023 decreased by $6.1-million to $48.7-million, compared with $54.8-million in the same period in 2022, and gross profit as a percentage of sales decreased by 140 basis points to 20.5 per cent, compared with 21.9 per cent. The decrease in gross profit reflects changes in product mix, lower pricing on some of the company's commodity products and some inefficiencies at the company's plants. The decrease in gross profit was partially offset by the increase in sales volume, discussed previously. In addition, the weaker Canadian dollar decreased the value of reported U.S.-dollar gross profit from the company's Canadian-dollar-denominated operations by nominal amounts relative to the conversion impact last year.

Adjusted EBITDA in the fourth quarter of 2023 decreased by $3.5-million to $21.9-million, compared with $25.4-million in the same period in 2022, and adjusted EBITDA as a percentage of sales decreased to 9.2 per cent, compared with 10.1 per cent. The decrease reflects the decrease in gross profit, partially offset by the decrease in distribution costs and net SG&A (selling, general and administrative) expenses.

Reported net income in the fourth quarter of 2023 decreased by $4.7-million to net income of $6.4-million (diluted EPS of 20 cents), compared with $11.1-million (diluted EPS of 32 cents) in the same period in 2022. The decrease in net income was due to the decrease in adjusted EBITDA, an increase in depreciation and amortization costs, and income taxes in the fourth quarter of 2023, compared with the same period last year, partially offset by lower finance costs.

Reported net income in the fourth 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, and share-based compensation, adjusted net income in the fiscal 2023 decreased by $5.0-million, or 40.7 per cent, to $7.3-million, compared with $12.3-million in 2022, and adjusted diluted EPS decreased 12 cents in the fiscal 2023 to 23 cents, as compared with 35 cents in 2022.

Net cash flows provided by (used in) operating activities in the fourth quarter of 2023 increased by $122.7-million to an inflow of $66.9-million, compared with an outflow of $55.8-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 and higher interest paid. Capital expenditures were $19.0-million in 2023, compared with $20.7-million in the prior year, reflecting the continued significant investment in the business.

Net debt decreased by $135.6-million to $249.9-million at Dec. 30, 2023, compared with $385.5-million at Dec. 31, 2022, reflecting lower bank loans and lower long-term debt, partially offset by higher lease liabilities as at Dec. 30, 2023, as compared with Dec. 31, 2022.

Net debt to rolling-12-month adjusted EBITDA was 2.6 times at Dec. 30, 2023, compared with 3.7 times at the end of fiscal 2022 and 3.0 times at Jan. 1, 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 working capital in fiscal 2022 and inflation in raw materials. In the absence of any major acquisitions or unplanned capital expenditures in 2024, the company expects this ratio to continue to be lower than the company's long-term target of 3.0 times at the end of fiscal 2024.

Outlook

"Over all, I am optimistic about the outlook for our business in 2024 and beyond," said Mr. Jewer. "We have a proven strategy and are building a track record of consistent execution. We have the financial strength and discipline needed to withstand the near-term challenges of our operating environment, including category volume declines, while our focus on profitable growth positions us well to generate adjusted EBITDA growth and continued strong free cash flow in 2024."

With a strong balance sheet, High Liner Foods 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 return capital to shareholders. High Liner will continue to carefully manage capital resources and anticipates $20-million to $25-million in capital expenditures in fiscal 2024 to continue to maintain, upgrade and modernize its asset base.

While the company anticipates that operating conditions will improve through the course of the fiscal year, additional challenges in the geopolitical and economic environment may impact the timeline for improvements to its financial performance and its growth agenda.

Dividend

Today, the company's board of directors approved a quarterly dividend of 15 Canadian cents per share on the company's common shares, payable on March 15, 2024, to holders of record on March 1, 2023. These dividends are considered eligible dividends for Canadian income tax purposes.

Conference call

The company will host a conference call on Thursday, Feb. 22, 2024, at 10 a.m. ET (11 a.m. AT), during which Mr. Jewer, Deepak Bhandari, interim chief financial officer, and Anthony Rasetta, chief commercial officer, will discuss the financial results for the fourth 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 Friday, March 22, 2024, at 12 a.m. ET. To access the archived conference call, dial 1-888-390-0541 and enter the replay entry code 820534 followed by the pound key.

A live audio webcast of the conference call will be available on the company's 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 audited consolidated financial statements and MD&A as at and for the 52 weeks ended Dec. 30, 2023, were filed concurrently on SEDAR+ with this news release and are also available on the company's website.

Non-IFRS measures

The company reports its financial results in accordance with IFRS. Included in this media release are the following non-IFRS financial measures: adjusted EBITDA, adjusted EBITDA as a percentage of net sales, adjusted net income, adjusted diluted EPS, net debt and net debt to rolling-12-month adjusted EBITDA.

The company believes these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the company for the reasons outlined below. These measures do not have any standardized meaning as prescribed by IFRS and therefore may not be comparable with 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.

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.

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