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Investor PresentationsDecember 2013
Henry Demone, CEOKelly Nelson, CFO
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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's annual MD&A and is available on SEDAR (www.sedar.com).
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Presentation CurrenciesCAD presentation:
• High Liner Foods is traded on the Toronto Stock Exchange and references to stock price, dividends and market cap are presented in CAD
USD presentation:• Effective with the company’s 2012 annual report, all financial
statements are presented in USD
• 2010, 2011 and 2012 are fully converted and restated under IFRS rules to USD
• Previous years Canadian GAAP statements are converted from CAD at the annual period end and average USD/CAD exchange rates and remain under Canadian GAAP
Company Overview
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TSX Listings DataTSX symbol1 HLF
Recent price2 $41.99
52-week range2 $27.62 - $41.99
Shares outstanding ~15.25M
Total market cap ~$640M
Quarterly dividend3 $0.19
Current yield3 1.8%
1 Public company since the 1960’s; listed on the TSX in 19712 Source: TSX November 25, 20133 Effective November 7, 2013
HLF Three Year Share Price History2
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High Liner Foods Corporate History
1 Acquired FPI’s North American marketing and manufacturing businesses2 In 2005, Icelandic and Samband of Iceland merged3 Acquired on October 1, 2013 (see Slide 26)
2013Today’s
High Liner Foods
1926High Liner
brand created
1992 Northern
Cod moratorium
2003/04 High Liner
sells its fishing assets
2007 FPI
acquisition1
2011 Icelandic
USAacquisition2
2010 Viking
acquisition
1899WC Smith founded (salt fish)
1945National
Sea Products created
1999Name
change to High Liner
Foods
2013 American
Pride Seafoods
acquisition3
1986 Fisher Boy acquisition
1982 Commodore private label acquisition
Business Profile
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61%
39%
Product Form
Value Added Other
74%
26%
Branded
HFL Brands Other
* The charts above reflect the Company’s business profile on a proforma basis after its acquisition of American Pride Seafoods on October 1, 2013 (see Slide 26).
Business Profile (cont’d)…
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70%
30%
Geography
USA (incl. Mexico)Canada
69%
31%
Retail / Food Service
Food Service Retail
* The charts above reflect the Company’s business profile on a proforma basis after its acquisition of American Pride Seafoods on October 1, 2013 (see Slide 26).
Our Business Model
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Broadest market reach in industry
Market leading brands
Diversified global procurement
Frozen food logistics expertise
Innovative product development
Food Service Business Overview
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Leading foodservice brands• High Liner, FPI, Icelandic, Viking,
America Pride Seafoods
Strengths• Cover all segments: chain
restaurants, food service distributors, healthcare and education
• Diverse product line• Private label• Dominant supplier position• Leading innovation
Examples of key customers• Food distributors: Sysco, US Foods,
GFS, Reinhart, PFG• Restaurant chains: Arby’s, Carl’s JR,
Long John Silver’s, MacDonald’s• Other: Nestle, Omaha Steaks,
Schwann’s
Retail Business Overview
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Leading retail brands • High Liner, Sea Cuisine, Fisher
Boy
Strengths• Sell to all retailers• Sell to every area of store• Recognized brands• Private label• Leading innovation
Examples of key customers• Grocery: Walmart, Target, Whole
Foods, Safeway, Kroger, Sobey’s, Loblaw
• Club: Costco, Sam’s, BJ’s
Rationalized Production Capacity
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• Low manufacturing footprint; recently closed 2 of 6 plants:
• November 2012 – closed plant in Burin, Nfld
• January 2013 - closed plant in Danvers, MA
• As part of the American Pride Seafood acquisition on October 1, 2013, we acquired a plant in New Bedford, MA, bring our plant count to 5
Lunenburg, NS (Canada)
Capacity p.a.: 40m lbs
Utilization: 81%
Malden, MA (USA)1
Capacity p.a.: 41m lbs
Utilization: 32%
Newport News, VA (USA)
Capacity p.a.: 90m lbs
Utilization: 89%
Portsmouth, NH (USA)
Capacity p.a.: 72m lbs
Utilization: 95%
New Bedford, MA (USA)
Capacity p.a.: 87m lbs
Utilization: 61%
1 The plant in Malden is a leased facility
Financial Review
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Fiscal 2012 Highlights
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Financial highlights:• Strong growth in adjusted EBITDA and adjusted EPS• Created value for shareholders – increased share price / dividends
Operational highlights:• The Icelandic USA acquisition which was completed in Dec 2011 and fully
integrated by Nov 2012 • The expected annual synergies are approximately $18M and at the high end of the
original estimate of $16M to $18M. • Plant consolidation was completed with the closure of two plants Nov 2012 / Jan
2013 - some issues still remaining as we implement the new manufacturing footprint
Recognition for new products:• Voted Best New Product by Canadian Living in the “Frozen Fish / Prepared Meal
Category” for 4 years in a row for High Liner’s Pan Sear, Market Cuts and Flame Savours products
The North American leader in value-added frozen seafood
Vision achieved during a milestone year
1515
Sales Growth (US$ millions)
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2006 2007 2008 2009 2010 2011 2012
$943M
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EBITDA Growth (US$ millions)
$0
$20
$40
$60
$80
$100
$120
2006 2007 2008 2009 2010 2011 2012
$91.7M
Standardized EBITDA: Earnings before interest, taxes, depreciation and amortization as reported in the Company’s annual audited financial statements
Partially Adjusted EBITDA: Standardized EBITDA as defined above, adjusted to exclude the impact of impairment of property, plant and equipment; business acquisition and integration expenses; gains or losses on disposal of assets; and the increase in cost of goods sold relating to inventory acquired as part of a business acquisition and recorded above its book value as part of the fair value reporting requirements of purchase price accounting
Adjusted EBITDA: Partially Adjusted EBITDA as defined above, further adjusted to exclude the impact of non-cash stock compensation expense
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Proj.
Dividend History (Cdn$)
Common shares up to September 15, 2007; Common and Non-Voting shares from December 15, 2007 to December 17, 2012; Common shares from December 18, 2012 to present
Annual Dividends per Share
10-year CAGR: 30.4%Current run rate: $0.76
$0.70
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Q3 YTD 2013 Highlights
Sales
• Lower overall sales volume in 2013• Weak sales being experienced by the U.S. restaurant industry as a whole• An earlier Lent this year resulted in a shorter selling period in 2013• Lower private label retail sales in the U.S. and Canada• Higher branded retail sales in the U.S. and Canada offset some of the impact
• Decreases in certain seafood commodity prices led to a reduction in the selling prices for some products in 2013
• An unfavourable change in the FX rate used to convert CAD-denominated sales to USD for reporting purposes
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Sales decreased $28M to $697M in 2013
Despite continued pressure on sales in 2013, the overall profitability of the Company has improved
Q3 YTD 2013 Highlights (cont’d)…
Adjusted EBITDA (as defined on slides 16 and 22)
• $10M of this decrease occurred in Q1 and has been partially mitigated with increased Adjusted EBITDA in Q2 and Q3
• Synergies realized from integrating the Icelandic USA acquisition and lower commodity prices on certain species had a positive impact on Adjusted EBITDA
• Adjusted EBITDA negatively impacted by:• Lower sales• Competitive pressures in Q1 negatively impacting margins on certain products
where the Company had to reduce commodity selling prices more rapidly than the applicable decline in cost for these products
• Increased operating and distribution expenses related to activities associated with the expedited closure of our Danvers plant in Q1 and relocating U.S. food service distribution to Newport News
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Adjusted EBITDA decreased $7M to $63M in 2013
Q3 YTD 2013 Highlights (cont’d)…
Adjusted Net Income (as defined on Slide 23)
• Significant savings in interest costs resulting from favourable amendments made to the Company’s debt in February 2013
• Lower depreciation charges reflect the closure of plant in Danvers
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Adjusted Net Income increased $2M to $29M in 2013
Q3 YTD 2013 - Financial Review
Sales as Reported (in domestic currency, $ millions)
468.9 491.5
233.0 233.3
$0
$100
$200
$300
$400
$500
$600
$700
$800
2013 2012US Canada
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$701.9 $724.8
$56.6
$42.4
$58.1$64.5$62.7
$69.7
$0$10$20$30$40$50$60$70$80
2013 2012
EBITDA (in US$ millions)
Q3 YTD 2013 - Financial Review (cont’d)…
Standardized EBITDA: Earnings before interest, taxes, depreciation and amortization as reported in the Company’s annual audited financial statements
Partially Adjusted EBITDA: Standardized EBITDA as defined above, adjusted to exclude the impact of impairment of property, plant and equipment; business acquisition and integration expenses; gains or losses on disposal of assets; and the increase in cost of goods sold relating to inventory acquired as part of a business acquisition and recorded above its book value as part of the fair value reporting requirements of purchase price accounting
Adjusted EBITDA: Partially Adjusted EBITDA as defined above, further adjusted to exclude the impact of non-cash stock compensation expense
$1.45
$0.32
$1.60$1.46
$1.88 $1.78
$0.00
$0.50
$1.00
$1.50
$2.00
2013 2012
Diluted EPSQ3 YTD 2013 – Financial Review (cont’d)…
Diluted EPS: Net income as reported the Company’s annual audited financial statements divided by the average diluted number of shares
Partially Adjusted Diluted EPS: Diluted EPS as defined above, with the Company’s reported net income adjusted to exclude theimpact of impairment of property, plant and equipment; business acquisition and integration expenses; gains or losses on disposal of assets; the increase in cost of goods sold relating to inventory acquired as part of a business acquisition and recorded above its book value as part of the fair value reporting requirements of purchase price accounting; non-cash expense from revaluing an embedded derivative associated with the long-term debt LIBOR floor; marking to market an interest rate swap related to the embedded derivative; the write-off of deferred financing charges on the re-pricing of the Term Loan; and withholding tax related to inter-company dividends.
Adjusted Diluted EPS: Partially Adjusted Diluted EPS as defined above, with the Company’s reported net income further adjusted to exclude the impact of non-cash stock compensation expense. The adjusted net income used in this calculation is referred to as “Adjusted Net Income”.
2013 cost savings: $4.7M cash; $6.2M total or $0.30 per share
Q1 2013 Debt Amendments
Term loan ($233M)• Reduced rates 5.5% + 1.50 LIBOR floor to 3.5% + 1.25 LIBOR floor
• Less restrictive financial covenants
• More room for dividends
• More flexible for acquisitions
ABL ($180M working capital facility)• Improved pricing grid
• More flexible for acquisitions
• Currently borrowing $75M to $90M against this line, which was used to finance the acquisition of American Pride Seafoods on October 1, 2013
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Estimated annual free cash flow of $40M to $50M
Deleveraging
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4.40x
3.40x 3.16x3.54x
< 3.0x
0.00x
1.00x
2.00x
3.00x
4.00x
5.00x
Dec 31/11 Pro Forma Icelandic
Dec 29/122 Sep 28/13 Oct 1/13 Pro Forma
American Pride Seafoods
Target
Net interest-bearing debt / Adjusted EBITDA1
1 Adjusted EBITDA as defined on Slides 16 and 22
American Pride Acquisition
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• Paid $34.5M on October 1, 2013, for American Pride’s net assets, excluding Accounts Receivables valued at $15M
• Financed with our ABL facility.
• Plant and operations based out of New Bedford, MA
• Value-added, frozen seafood business, primarily selling to the food service market, targeting national accounts and the non-commercial market segments
• Also has significant scallop processing business, making High Liner a major player in this business
• 2012 sales of $190M
• Acquisition expected to be modestly accretive to earnings in 2014
• Integration will be delayed until post-Lent 2014
Outlook• Restoring plant throughputs in the U.S. so that the full synergies related to closing
the Danvers plant are realized is a priority.
• We believe we are well positioned for sales volumes to improve as US restaurant sales improve.
• We remain focused on our strategic goals as evidenced by acquisition of American Pride Seafoods on October 1, 2013.
• Continued cost increases for shrimp and haddock may adversely affect volumes as well as margins for certain products during the balance of 2013 and into 2014.
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Vision & Growth Strategy
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Our Vision
The leading frozen seafood supplier in North America
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Industry Drivers
Long-term growth influenced by strong North American demographics
An aging, health-conscious
population
45+ years of age account for half of seafood
consumption
Health benefits tied to eating fish
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• Fisheries recovering around the world largely due to the sustainability efforts over the last 10 years by most seafood nations
• Growth from aquaculture species
• Long-term demand growth still greater than supply
• Short-term cost declines but long-term fundamentals signal increasing costs
• Seafood cost increasing less than other proteins
Industry Drivers (cont’d)…
2013 Strategic Goals
1. Profitable growth
• Icelandic USA synergies
• Organic growth
• Acquisitions
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$150M Adjusted EBITDA by 2015 (proforma basis)
2013 Strategic Goals (cont’d)…
2. Supply chain excellence
• Optimize our systems in:
• Procurement and purchasing
• Inventory management
• Product rationalization
• Shipping and warehousing
• Contribute $20M to $25M to 2015 EBITDA target
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2013 Strategic Goals (cont’d)…
3. Sustainable sourcing
• Source all seafood from certified or responsible fisheries and aquaculture farms by the end of 2013
Investment Rationale
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Leading Processor in
North America
Strong Customer
Relationships
Unique Global Sourcing
Network and Expertise
Attractive Financial
Profile and Strong Free Cash Flow Generation
Competitively Advantaged
North American Platform
Management Team with
Strong Track Record of Successful Acquisitions
Questions?
Heather Keeler-Hurshman, Director Investor Relations