2020 was a year of hard work, collaboration and effort at High Liner Foods. The High Liner Foods team worked with a greater sense of purpose than ever before. Our employees rallied together to support our customers and ensure a steady flow of frozen seafood across North America. As consumers drew comfort in stocking their freezers amidst the pandemic, our team stepped up to the plate. Together, we quickly adjusted to new ways of working and pivoted to make bold decisions with our customers’ and consumers’ needs front of mind.
During this time, as in the normal course of business, health and safety was our top priority. Under the guidance of our Director of Environmental, Health & Safety and with counsel from health authorities and other experts in the field, we made significant additional investments in health and safety to ensure our production facilities, warehouses and offices were set up to help reduce the spread of COVID-19 and protect our teams. As you will read in this annual report, our investments of time and resources were significant and extended beyond processes, protocol and equipment to the very core of our culture and how we work together.
This is especially true with regard to our 786 employees working in our production facilities and warehouses. During a time of heightened anxiety, our frontline employees worked with care and consideration for each other and the resilience of our operations. Their hard work and tenacity made all the difference to our business in 2020. This annual report is dedicated, with enormous gratitude, to our frontline employees and their families — we appreciate each and every one of you. Thank you.
Our robust supply chain was the linchpin of our success
In addition to the incredible employee effort, we were fortunate to enter the crisis with the majority of the heavy lifting needed to strengthen the foundation of our business already completed. Of particular note, the supply chain optimization completed in 2019 as part of our critical initiatives allowed us to be extremely responsive to the ever-changing needs of our customers.
Throughout the year, we had a laser focus on solving our customers’ pain points and ensuring an agile and meaningful response. For our foodservice customers, we acted quickly to help food operators pivot to takeout options. We also seized the opportunity to tailor our value-added products, already a success in the retail space, to help operators save time and resources as they adapted to COVID-19 realities.
In our retail business, the reliability of food supply was the number one customer concern. We set the supply chain up for success with a focused portfolio of priority products and carefully managed capacity across our production facilities. This led to high order fill rates, very limited business disruption, deeper customer relationships and new business wins, all of which contributed to us delivering year-over-year improved financial performance.
Year-over-year EBITDA growth
I am proud to report that we ended the year delivering year-over-year Adjusted EBITDA(1) growth of $2.7 million, to $88.0 million, and we delivered record Adjusted EBITDA as a percentage of sales of 10.6%. We did so in spite of the pressures facing our foodservice business as a result of restaurant shutdowns.
Among the financial highlights of 2020 (as compared to Fiscal 2019):
Gross Profit as a percentage of sales increased 180 basis points to 21.5%;
Standardized Free Cash Flow(1) increased by $49.0 million to an inflow of $94.0 million reflecting favourable cash flows from operating activities; and
Our Net Debt(1) to Adjusted EBITDA ratio improved significantly, achieving our long-term target of 3x compared to 4.1x.
Together with the Board, we were particularly pleased to be able to increase the dividend by 40% to reflect our improving free cash flow. Our ability to increase the return of capital to shareholders indicates how far we have come as a business. Based on our improving performance, we can comfortably support the dividend increase while simultaneously investing in our business to fuel growth and continuing to reduce debt.
Opportunity ahead
Market conditions are ripe for growth for High Liner Foods. More than half a million new consumers have entered the frozen seafood category since the onset of the pandemic in March, at a time when our new product innovations are prominently displayed in the frozen food aisles of leading retailers across North America. Even with this growth, frozen seafood remains significantly underconsumed compared to other proteins, giving us a significant opportunity to grow — and disrupt — the market with our branded value-added seafood innovations and be ready to capitalize on the re-emergence of the foodservice industry.
Alaska Wild WingsTM/Fish WingsTM are an innovative, versatile meal and snacking option.
As consumers increasingly search for healthy, versatile proteins that can nourish their lives, our products, at a range of price points, not only deliver but showcase the potential to enjoy seafood at home. We intend to reimagine seafood for the market. In 2021, with the heavy lifting to strengthen the foundation of our business behind us, we are well positioned to go to market more aggressively supported by significant investments in marketing and the advancement of our people.
I am confident that even as we navigate an uncertain, challenging and evolving market in Fiscal 2021, we will be able to advance our strategy to generate top-line growth, supported by continued Adjusted EBITDA gains. As you will read in the Opportunity Ahead section of this annual report, our large unprocessed seafood business gives us a significant competitive advantage, and we intend to leverage this scale to grow our branded value-added seafood business.
Moving forward with purpose
As we shift to ‘playing offence’ in the market, we will do so grounded in a strong sense of our wider purpose in society and with employee, environmental, social and governance (EESG) issues front of mind. We embark on 2021 with a new purpose statement “to reimagine seafood to nourish life” which accurately captures the work of the organization over the past year and our potential for the future. As we live our purpose, we will invest in an inclusive, equitable and diverse workplace that creates rewarding career opportunities for our people and ensures we continue to have the right people in the right roles to drive our business forward. We will continue to advance our sustainability goals, support our local communities and hold ourselves to the highest standards of governance. These are all attributes we hold true. Sustainability, responsibility, flexibility and resilience have been hallmarks of High Liner Foods for over 120 years. I am committed to ensuring that in Fiscal 2021, just as in the past fiscal year, we continue to reflect these values as we create long-term value for you, our shareholders.
I am grateful for your ongoing support.
Sincerely,
Rod Hepponstall President and CEO
(1) Please refer to the Non-IFRS Measures section of High Liner Foods' Management’s Discussion and Analysis ("MD&A") for the fifty-three weeks ended January 2, 2021 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA", "Net Debt", and "Standardized Free Cash Flow".
Highlights
At High Liner Foods, our purpose is Reimagining Seafood to Nourish Life while having a positive impact on our employees, consumers, customers, communities and our planet. As we create value for our stakeholders, we will build on our 121-year history with a passion for the future.
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(1) See the Non-IFRS Financial Measures section of High Liner Foods’ MD&A for the fifty-three weeks ended January 2, 2021 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA" and "Adjusted Diluted EPS".
Business Review
Who We Are
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 foodservice distributors. High Liner Foods is a publicly traded Canadian company, trading under the symbol HLF on the Toronto Stock Exchange.
Sustainability
Sustainability at High Liner Foods
We are passionate about being a leader in providing delicious, healthy, and sustainably sourced and produced seafood. That passion shapes our strategy and guides our actions. We also believe that it is essential to our long-term success as a valued partner, a preferred employer, a trusted supplier and a growing, profitable business. Operating sustainably, in accordance with our values, defines our company and our culture and is embedded in the way we serve our customers, consumers and our communities.
When the COVID-19 pandemic hit North America in early March, High Liner Foods brought together a multi-disciplinary team from all corners of the business to safeguard our frontline employees as much as possible. The team worked quickly to ensure that High Liner Foods’ health and safety policies and procedures were robust and aligned with evolving health authority guidelines and industry best practices.
The following comments from our team provide some insight into the many different ways our people worked together to ensure safety, protect the essential work of our frontline workers and surface the most valuable lessons.
Staying ahead of the curve
In early 2020, before COVID-19 erupted in North America, High Liner Foods was already monitoring the situation unfolding internationally. Behind the scenes, teams were meeting daily to assess how COVID-19 might impact the supply chain or other business operations. Pre-emptive measures were set in place, so that when the reality of the pandemic moved closer to home, teams were ready to ‘flex’ and switch into high gear.
“We made really quick decisions very early on and the Executive Leadership Team met with me daily to ask what I needed and how they could support,” said Erika Pouliot, Director of Environmental, Health and Safety. “We acted quickly, purchasing masks well before it became mandatory, and took time to listen and draw on the experience of other larger food manufacturers and of course health authorities and experts in both the U.S. and Canada. This comprehensive approach helped us to implement enhanced safety measures and protocols quickly by drawing on best practices and tailoring them to our unique circumstances.”
Early on in the pandemic, High Liner Foods invested in enhanced safety measures for its plants and warehouses with installed temperature scanners, screening measures, signage, directional markers and partitions, hired extra personnel to help with the monitoring of physical distancing, increased cleaning of high-touch points, and ensured frequent clear communications, training and support for managers and their teams.
“Of course, there was a learning curve for all of us and many difficult moments, but overall quick action (with course correction as needed) allowed us to preserve the trust and confidence of our employees,” explained Pouliot. By responding quickly, the organization was able to stay ahead of the curve by procuring supplies that were in scarce demand and protecting the health of our teams.
“Throughout this process, I really felt like we pulled together; we were all focused on the same thing. We worked on a common goal and shared best practices. I’m confident we will take that momentum and collaboration into 2021.”
Acting fast helped secure supplies
Amidst much uncertainty at the start of the pandemic, High Liner Foods rose to the challenge quickly. The purchasing team secured new technologies and supplies aimed to increase safety within the facilities and ensure operations could continue. These investments put into place safeguards that will continue to be used as part of our ongoing commitment to provide a safe working environment for all employees.
Investing in safety
“In order to keep operations going, it was very important to get out the door fast and make decisions very quickly. Being nimble helped us achieve this and stay ahead of the game,” said Marcio Menquini, Director of Purchasing.
Essential work on the front line
High Liner Foods has more than 786 employees working on the front line throughout its 5 facilities and warehouses. Our essential workers have played a huge role in keeping supply chains moving throughout the pandemic — and we are hugely grateful for their hard work and perseverance. Here are some insights from our team on the front line:
Kathy Kritikos has seen a lot of changes in the past 40 years since starting at the Portsmouth plant. When she first started, everything was packed by hand. Today, she works as a machine operator, running the packaging equipment. While the pandemic posed unique challenges, she feels confident in how the company reacted right from the start, including installing dividers and setting up safety protocols.
“When you experience an intensive event, it galvanizes a team much more quickly. Although we were challenged with conventional timelines, we were able to achieve our goals. Our teams now have the attitude that anything is possible.”
“When the pandemic hit, it was a very difficult time and I’m really proud of how the company handled it. We faced disruption right at the beginning, and it was amazing to see the support and resources we received from corporate. I feel like we were very aggressive in being proactive and we set a very high bar. We want our employees to feel safe and to have confidence that we’re doing the right thing and providing the best protection and information available.”
“We created processes throughout the warehouses that made it possible to continue operations while ensuring employee safety is the top priority. This included introducing digital processing for all transactions, so there’s no passing of paperwork. As a result of this automation, we enhanced safety and added efficiencies.”
“What was most engaging to me was hearing how all the cross-functional teams came together and learned from each other. It made us come together stronger as a team — and by that, I mean from executive leadership, operations leadership, and down to the plant level. It was an invaluable growing experience for everyone.”
“We focused on making purchases in ways that would enable us to continue operating. It was important for us to develop those safety protocols, because as essential workers, we needed to keep the food supply chain going. This really paid off in a couple of ways: it ensured the continuity of our operations and it deepened trust with our people and our customers.”
“I grew with the company. I have seen the company grow, for the better, with more technology. You can’t stop the pandemic, but I feel like the company is on top of it. I feel safe at work.”
“Management communicates with us about any changes and updates. We use a face mask and shield and we follow the six feet distance. There’s hand sanitizer everywhere and people are always washing their hands.
But of course, it’s a challenging time. For me, I’m careful. I feel good. From what I hear from other places, they’re doing a good job here, and it makes me feel safer coming to work.”
“I think the company’s doing a good job. They take our temperature and have signs up and stagger groups in the break room, to prevent having too many inside at one time. In the warehouse, I can stay away from people, which is another thing that helps me feel safe coming to work.”
“I think High Liner Foods dealt with the pandemic really well and put procedures in place very quickly and effectively. It has been comforting to be able to come to work and continue to get a paycheque and not have to worry about my financial situation. I feel very fortunate for that.”
“I think the company did a good job putting systematic procedures in place, ensuring that COVID-19 stays out. It’s equally important to note that the workers came in every day, followed all the procedures and did a great job to prevent COVID-19 from entering the workplace. It was definitely a joint effort on both sides. There were a lot of nervous people at the start but everybody did their job and did it well. This is, in all honesty, the best group of people I’ve ever worked with, so I fully trust that they’re following procedures and we’re all working together to stay safe.”
We are passionate about being a leader in providing delicious, healthy, and sustainably sourced and produced seafood. That passion shapes our strategy and guides our actions. We also believe that it is essential to our long-term success as a valued partner, a preferred employer, a trusted supplier and a growing, profitable business. Operating sustainably, in accordance with our values, defines our company and our culture and is embedded in the way we serve our customers, consumers and our communities.
High Liner Foods continues to build a culture based upon continuous improvement in everything we do including our commitment to employee, environmental, social and governance (EESG) issues. As we seek to further embed sustainability across our operations, we will focus on reducing our energy footprint and ensuring energy efficiency is a key theme in all future capital expansions and upgrades. We will continue to work with industry partners to enhance the sustainability of our supply chain. Our efforts will include supporting a sustainable wild-caught fishery, while fostering the sustainable aquaculture sector which will be essential to meet global demand for affordable seafood protein.
We report back to stakeholders on our specific sustainability practices and goals in our dedicated report available on our website at highlinerfoods.com/sustainability.
High Liner Foods is strategically positioned to grow its branded value-added seafood business and has its sights set on becoming the North American leader in this segment. Customers, consumers and foodservice operators are hungry for the healthy and versatile protein seafood offers and especially our branded value-added seafood products.
We believe that accelerated value-added growth is the path to drive improved margins and create long-term, sustainable shareholder value.
Given the size and scale of our large unprocessed seafood business, High Liner Foods is strategically and competitively positioned to leverage this scale to grow the higher margin, sought-after branded value-added products. In 2021, we will continue to leverage our unprocessed business to create a solid base to enable overall growth, while driving profitability across the business, as we also:
continue to expand the distribution of our current branded value-added products and roll out an exciting new pipeline of product innovations to retail and foodservice customers;
increase investment in marketing, including, for the first time, direct to consumer marketing focused on growing the branded value-added segment;
continue to simplify our portfolio and seek opportunities to harmonize ingredients;
further optimize our supply chain to drive efficiency and maintain industry-leading order fill rates; and
ensure first-class sales execution, supported by continuous improvement initiatives across all aspects of the business.
Providing healthy and appealing seafood options at home
We will continue to expand the eating occasions for seafood just as we
have done with the launch of our on-trend snacking products such as our
Fish Wings/Alaska Wild Wings and value-added shrimp items. With increased marketing dollars at work, we intend to capitalize on the increasing consumer desire for alternate proteins and desire for nutritious and affordable options to nourish their families.
Supporting the re-emergence of foodservice
High Liner Foods is well positioned to drive more value-added seafood menu placements. We will continue to innovate and seek to capitalize on the anticipated increased consumer demand for seafood when restaurant dining returns in full force to North America.
“We will be bold in accelerating category growth and brand loyalty through a powerful combination of best-in-class sales execution with retailers and insight-based marketing campaigns and innovation with consumers.”
“ Building our own relationship with the end consumer through enhanced marketing initiatives is a very exciting shift which has the potential for us to help reimagine seafood on dinner tables across North America.”
“Research shows us that seafood is one of the most craved menu items — and there’s significant pent-up demand in the Foodservice channel. We launched a lot of innovation in foodservice in 2020 and introduced segment solutions to support Grab and Go home delivery and ease back-of-house prep challenges. In 2020, we supported our customers through the pandemic; now it’s time to play offence and drive a robust recovery. We are excited about our growth opportunity in 2021.”
