Annual Report
2019
A
ANNUAL REPORT 2019 2019 Financial Highlights (UNAUDITED)
(Amounts in USD 000s, except per share amounts, unless
otherwise noted)
Sales
Adjusted EBITDA(1)
Net income
Basic earnings per common share (“EPS”)
Diluted EPS
Adjusted net income(1)
Adjusted Basic EPS
Adjusted Diluted EPS(1)
Total assets
Gross capital expenditures
Shareholders’ equity
Book value per share
Dividends paid per share (CAD)
Operating Highlights
Sales volumes (000s of pounds)
Number of employees
$
$
$
$
$
$
$
$
$
$
$
$
$
2019
942,224
85,324
10,289
0.31
0.30
29,137
0.86
0.85
820,494
6,569
268,170
8.03
0.295
258,822
1,167
2018
% Change
$ 1,048,531
$
$
$
$
$
$
$
$
$
$
$
$
62,474
16,776
0.50
0.50
17,049
0.51
0.51
837,155
14,607
263,859
7.90
0.580
283,969
1,259
(10.1)%
36.6%
(38.7)%
(38.0)%
(40.0)%
70.9%
68.6%
66.7%
(2.0)%
(55.0)%
1.6%
1.6%
(49.1)%
(8.9)%
(7.3)%
Sales
Sales (in millions of USD)
Sales
Sales Volume (in millions of pounds)
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
$500
$700
$900
$1,100
$100
$200
$300
Sales vs Adjusted
Sales vs. Adjusted EBITDA(1) (in millions of USD)
Adjusted Diluted
Adjusted Diluted EPS(1) (in USD)
$500
$625
$750
$875
$1,000
$1,125
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
$0
$20
$40
$60
$80
$100
$0
$0.75
$1.50
Sales
Adjusted EBITDA
Sales
(1)
Please refer to the Non-IFRS Measures section of High Liner Foods' Management's Discussion and Analysis (”MD&A”) for the fifty-two weeks ended
December 28, 2019 for definitions of the non-IFRS financial measures used by the Company, including Adjusted EBITDA, Adjusted Net Income and Adjusted
2019
B
Diluted EPS.
2018
2017
2016
2015
$100
$205
$310
500000
625000
750000
875000
1000000
1125000
HIGH LINER FOODS
High Liner Foods: Great Tasting Seafood for a Better Life
Providing innovative solutions to a world looking for healthy,
easy to prepare, delicious seafood
We are inspiring North Americans to enjoy seafood like never before —
making it easier for them to buy and prepare one of the healthiest, most
sustainable sources of protein available — creating a simple yet powerful
platform for growth.
What’s inside
At a Glance 2
A Word from the CEO 4
One High Liner Foods 6
Advancing Our Plan in 2019 7
4
6
Sustainability at
High Liner Foods 10
Management’s Discussion
and Analysis 12
Financial Statements
and Notes 51
Corporate Information IBC
7
10
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.
1
ANNUAL REPORT 2019 HIGH LINER FOODS
At a Glance
High Liner Foods is a leading North American processor and
marketer of value-added frozen seafood to the foodservice and
retail trade. Our unified platform and well-known core brands
give us the unique ability to serve our customers with a variety
of value-added seafood that meets their diverse needs.
Our goal is to deliver the right product, to the right
customer at the right price.
We source seafood from around the
world. No matter where we source, our
requirements are the same: suppliers must
strive to catch or farm seafood responsibly,
protect against overfishing and limit impacts
on the natural environment. They’re also
expected to treat their employees well
and uphold high worker safety and social
standards.
Top sourcing
countries
Manufacturing
Offices
Distribution
2
ANNUAL REPORT 2019
Our Top Species
We have the scale
and global reach to
deliver the products
our customers and
consumers want.
Our top species by
percentage of 2019
purchases (in USD):
30.2% Cod
(Atlantic and Pacific)
21.7% Shrimp
13.2% Salmon
(Wild and Farmed)
11.1% Haddock
9.7% Pollock
6.0% Tilapia
3.3% Sole
KEY RETAIL BRANDS
KEY FOODSERVICE BRANDS
®
3
Rod Hepponstall,
President & Chief Executive Officer
We are working to inspire our
customers to not only choose
our products, but to choose our
products for new and different
eating occasions.
Dear valued shareholders,
2019 was a transformative year for our business.
Our financial performance reflects the significant progress we made to strengthen
every aspect of High Liner Foods in 2019. Of particular note, we increased
Adjusted EBITDA(1)(2) by $22.8 million, a 36.6% improvement over 2018; increased
Adjusted EBITDA as a percentage of sales by 310 basis points; and improved
our Net Debt(1) to Adjusted EBITDA ratio to 4.1x from 5.8x. We also successfully
completed an early refinancing of our debt, providing enhanced capacity and
flexibility to continue to turn around our business and deliver profitable and
sustainable revenue growth.
We advanced our turnaround and EBITDA growth plan in the face of significant
market and industry headwinds, contending with downward pressure on volume
and the impact of tariffs. We responded to these challenges by doubling down
on execution against our thoughtful critical initiative plan, focusing on the
factors within our control and working hard to reposition our business for long-
term sustainable value creation.
As a result, our business today is stronger in every respect. I am proud to report
that through the course of last year, we made major inroads to streamline and
simplify our business, remove complexity and spark award-winning innovation.
We changed the way we work to become far more efficient and focused. This
was all possible because we came together as one integrated North American
organization — One High Liner Foods.
With the heavy lifting of the first phase of our transformation behind us, we
enter Fiscal 2020 with momentum and clarity. We know we have more work to
do and have the right people and right plans in place to grow our market share
as a North American seafood leader. Our customers are looking for healthy,
easy to prepare, delicious seafood options and we are better positioned than
ever to deliver.
Coming together to leverage our scale
Our North American footprint is certainly a strategic advantage for High Liner Foods
but until now we haven’t been able to maximize these benefits. Realigning the
organization under one North American structure in late 2018 contributed cost
savings to our improved financial performance in 2019, along with many other
far-reaching and long-term benefits. By operating as ‘one’ — whether as a team
or a system — we are stronger and more efficient. We can better capitalize on
the benefits of our geographic reach, including being able to seize on cross-border
(1) Please refer to the Non-IFRS Measures section of High Liner Foods' MD&A for the fifty-two weeks
ended December 28, 2019 for definitions of the non-IFRS financial measures used by the Company,
including "Adjusted EBITDA" and "Net Debt".
(2) Adjusted EBITDA for the fifty-two weeks ended December 28, 2019 reflects the inclusion of $5.5 million
of the $8.5 million recovery received from the ingredient supplier in the first quarter of 2019 associated
with the 2017 product recall, and the impact of the new lease standard adopted at the beginning of
Fiscal 2019. Please refer to the Recent Developments section of High Liner Foods’ MD&A.
4
HIGH LINER FOODS Our customers are looking for
healthy, easy to prepare, delicious
seafood options and we are better
positioned than ever to deliver.
market opportunities to maximize
the revenue potential of our product
portfolio.
I know there are many more
opportunities like this ahead of us,
especially related to our shrimp
business. In 2019, we fully integrated
our Rubicon shrimp business into
High Liner Foods and started to
unlock the tremendous value we
see here by developing integrated
go-to-market and growth strategies.
Shrimp is one of the fastest growing
species in North America and one
of the greatest areas of growth
potential in our business, especially
when combined with our renewed
North American reach and investment
in value-added innovation.
Focusing our portfolio
In 2019, we significantly refocused
our portfolio by eliminating non-core
species and putting greater emphasis
on higher margin, value-added
products. We significantly trimmed
down the portfolio, eliminating a total
of 235 products and 8 species.
Our decisions to exit some business
naturally had a short-term impact
on volume, but we are confident
that a more focused, higher margin
portfolio will deliver significant longer-
term benefits. We will continue this
important work in 2020, advancing
our goal to consistently deliver the
right product, at the right price to
the right customer.
Driving supply
chain efficiencies
Our ability to extract the value
from a more focused portfolio and
integrated organization now rests
on the flexibility and efficiency
of our supply chain. Significant
improvements were made last year
to remove complexity and to lower
costs across procurement, our plants,
and transportation and warehousing.
We achieved this without customer
disruption while simultaneously
generating $9.8 million in cost savings
in 2019, with more to come in 2020.
In 2020, we will further improve
and optimize our end-to-end
supply chain, to not only maximize
efficiencies, but also to ensure that
we have the supply chain needed
to support the top-line growth that
we are confident lies ahead. We are
building the supply chain for the
business we are creating, not the
business we have today.
Leading the market
through innovation
We are working to inspire our
customers to not only choose our
products, but to choose our products
for new and different eating occasions
and to make more frequent repeat
purchases. In 2019, we launched a
number of award-winning seafood
innovations, including new products
that expanded seafood consumption
into the snacking category. Snacking
and seafood are two words not
traditionally associated with each
other, until now. Our haddock bite and
fish wing products are leading this new
category for seafood and prompting
customers, operators and consumers
to think about seafood in a new light.
5
We see tremendous potential for
incremental growth from value-
added innovation and recognize that
we are uniquely positioned to drive
innovation in the market thanks to the
valuable brand equity of High Liner.
We gave our namesake brand a fresh
new look in 2019, along with our
Captain High Liner. An icon in seafood
aisles across Canada, we were
delighted that the Captain’s new
look this year certainly turned some
heads, raising brand awareness and
injecting new life and energy into our
well loved and respected brand.
Revitalizing our brand was also
a fitting way to mark our 120th
anniversary this year. No doubt our
business today is unrecognizable
from the day we first opened our
doors to sell salt fish to the Nova
Scotian community of Lunenburg
back in 1899. And, thanks to the
tremendous team effort in 2019, our
business today is also fundamentally
changed from a year ago.
We are on the right track and I have
every confidence that continuous
improvement in 2020 will set us up
for further EBITDA growth in 2020,
and a return to profitable, sustainable
revenue growth.
Thank you for your continued support.
Rod Hepponstall
President & Chief Executive Officer
ANNUAL REPORT 2019 HIGH LINER FOODS
One High Liner Foods
Coming together as one integrated North American organization
was the critical first step in our turnaround plan. The impact has
been significant and spans all aspects of our strategy and the way
we do business today. The following comments from our team
capture the tangible and intangible benefits of our integration.
“ One HLF has impacted the whole
organization, especially the
logistics team. Our centralized
freight model makes everything
much more cohesive. Thanks to
‘mirror image’ processes in Canada
and the U.S., it’s much easier to
share best practices and work as
one team towards common goals.”
FRED PACE
Director, Storage and Distribution Services
“ One HLF removed roadblocks! We
are now set up to collaborate more
efficiently and benefit from all of
the expertise we have on our cross-
functional teams. One HLF has also
made life much easier — we no longer
have duplicate, differing processes
running in parallel. We are all on the
same page and it is showing in more
effective execution.”
BILL MANDY
Director, Project Management
“ One HLF has made it so much
easier for IT to effectively
engage with areas of the
business that were once
segmented. We can now move
much faster with implementing
company-wide process and
system improvements.”
TOM WALKER
Vice President, Information Technology
“ One HLF has created a greater
understanding of the cross-
functional collaboration required
to successfully execute on our
corporate objectives. It is allowing
us to more fully leverage the
collective expertise that exists
across the business to better
serve our customers.”
TANIA ALBANESE
Senior Director, National Accounts
North America
6
“ Thanks to One HLF we have
more direct and effective lines of
communication. This made a big
difference towards executing our
supply chain excellence work last
year. Coming together as one allowed
us to cover an enormous amount of
ground in a relatively short amount
of time and surfaced many synergies
that are benefiting the business today.”
ED SNOOK
General Manager, Lunenburg
“ As a relatively new employee, I was
excited to be joining an integrated
team focused on creating a high-
performance organization where
colleagues across the business
support and empower one another.
Working together unlocks our true
potential and is how we’ll achieve
our goal to be the #1 frozen seafood
company in North America!”
TOM RUPKEY
Vice President, Foodservice Sales
Advancing Our Plan in 2019
The execution of our critical initiative strategy in 2019
had a significant impact on our bottom-line financial
performance. As One High Liner Foods we were able
to move forward and execute on our critical initiatives
to simplify our business, drive efficiency and position
ourselves for profitable revenue growth.
Business simplification
A “less is more” philosophy guided our work to simplify our portfolio of seafood
products. We considered how we could achieve more (sales and profit) from
less (products, species and raw materials), all while lessening the burden on
our supply chain (driving efficiencies and cost savings).
“We have substantially overhauled our portfolio and are reaping the benefits
across the organization,” explains Paul Jewer, Executive Vice President & Chief
Financial Officer. “We are focusing on our most profitable products and have
let go of many lower margin, higher complexity products.”
“ We have substantially
overhauled our portfolio
and are reaping the
benefits across
the organization.”
Simplification is not just about the product portfolio — we are evaluating all of
our business processes to ensure simplification and optimization. “Our work in
this area will never be ‘done’, it is a constant process of refinement,” adds Jewer.
“Simplification is a journey not a destination and the progress we have made on
this journey is already serving us well.”
Paul Jewer, Executive Vice President
& Chief Financial Officer
High Liner Foods' focused product
portfolio delivers the right product,
to the right customer at the right price.
7
ANNUAL REPORT 2019 Supply chain excellence
“Our supply chain improvements
are driving higher margins and
greater profitability,” says Ron van
der Giesen, Senior Vice President,
Supply Chain. “But that is not all. As
a result of greater optimization and
efficiency, people, processes and
technology are able to work together
far more seamlessly to better serve
our customers.”
In 2020, we will drive continuous
improvement across our supply
chain, building on the detailed
analysis completed in 2019.
According to van der Giesen, “We
will continue to drive out further
complexity and surface incremental
cost savings. We will also work hand
in hand with our marketing and sales
teams to continue optimizing our
product portfolio, eliminating less
profitable products and harmonizing
raw materials, ingredients and
packaging, which will not only drive
further efficiency across the supply
chain, but across many other areas
of the business.”
Shrimp — a focus
area for growth
Shrimp is one of our core species.
We have integrated all aspects
of the Rubicon business into
High Liner Foods' operations and
can now start to extract the value
of having in-house expertise in this
sought-after species.
“Consumers love shrimp! It is one of
the fastest growing seafood species
out there and the opportunity for us
is significant given our value-adding
expertise,” says Craig Murray,
Senior Vice President, Marketing &
Innovation. “We are now well
positioned to sell shrimp to customers
across all channels and lead the
market in offering more value-added
shrimp products.”
High Liner Foods is poised to leverage
its in-house shrimp expertise to create
new eating occasions and value-added
products for this high growth species.
High Liner Foods is inspiring
consumers to choose seafood
more often as a healthy and
versatile protein.
“ Consumers love shrimp! It is one of the fastest
growing seafood species out there and the
opportunity for us is significant given our value-
adding expertise.”
Craig Murray, Senior Vice President, Marketing & Innovation
8
HIGH LINER FOODS product south of the border, and are
benefiting in a similar fashion as we
bring one of our most popular product
lines in Canada, Pan-Sear Selects, to
U.S. consumers.
The bottom line is that, as a result
of our significant progress in 2019,
we are now in a much better position
to create value for all of our
stakeholders. We expect ongoing
efforts to integrate, simplify and
drive efficiencies in 2020 will
continue to improve profitability and
position the business to return to
profitable and sustainable growth.
To help achieve this, we will continue
to cultivate a culture that supports
and challenges our people to do their
best work and grow professionally
in a high-performance environment.
We will invest in mutually beneficial
relationships with our customers
and suppliers and ensure sustainable
and responsible business practices.
And we will be relentless in our
efforts to continuously improve
our newly integrated platform so
that we can grow — and satisfy —
North America’s appetite for seafood
like never before.
2019 SUPPLIER OF
THE YEAR AWARD
in the Protein Category,
by Flanagan Foodservice
2019 SUPPLIER OF
THE YEAR AWARD
by ADL Foods
2019 SEAFOOD SUPPLIER
OF THE YEAR AWARD
by Reinhart Foodservice
Award-Winning Performance
2019 ALASKA SYMPHONY
OF SEAFOOD AWARD
in the Foodservice Category for
Alaska Wild Wings — Southern
Style, by Alaska Fisheries
Development Foundation, Inc.
(AFDF)
2019 STRATEGIC VENDOR
PARTNER OF THE YEAR AWARD
across All Food Categories,
by Sodexo Canada
2019 INNOVATIVE SUPPLIER
OF THE YEAR AWARD
by Performance Foodservice
Group (PFG)
2019 INNOVATIVE PRODUCT
OF THE YEAR AWARD
by the National Brand Marketing
Company for our GUINNESS®
Distinctive Seafood product line
Positioning for profitable
revenue growth
We are readying ourselves to
once again flex the muscle of our
North American scale and industry
leadership honed over decades —
and to pair this with modern
innovation. We are developing a
robust innovation pipeline —
a steady stream of new branded,
value-added products that tap
into market trends. And thanks to
our improved sales and marketing
execution, we will be able to bring
these higher margin products to
market more efficiently and with
greater impact.
“Innovation is fast becoming an
area of competitive advantage for
us,” says Murray. “We are pairing
consumer and market-driven data
with our own proprietary innovation
system to develop rapid prototypes
and swift evaluation. We can be
quick to seize on potential and move
on when it’s not right.”
We are also driving incremental
growth by creating a new category
for seafood and driving innovation
within it. Our seafood snacking
product launches, fish wings and
haddock bites, are appealing for
multiple eating occasions and are
aligned with a growing market for
shareable snacks and appetizers.
Our more integrated operation
allows us to take existing products
across the border with relative ease.
We were able, for example, to launch
our new snacking products on a
cross-border, multi-channel basis
and secure significant distribution
right out of the gate. Similarly, we
were able to successfully launch our
GUINNESS® Distinctive Seafood
product line in Canada because
of insights gleaned launching this
® The GUINNESS word and associated logos are trademarks
of Guinness & Co. and are used under licence.
9
ANNUAL REPORT 2019 Sustainability at High Liner Foods
We view sustainability as a common-sense approach to
business, and a process of ongoing engagement and continuous
improvement, which helps us build trust, mitigate risks, and
meet the needs and expectations of our customers, consumers
and other stakeholders — today and for generations to come.
As a global seafood leader, we work
hard to set and meet the highest
standards in our industry. We make
sure that we procure, produce and
distribute seafood in ways that are
good for the environment, good for
our business and partners, and good
for the customers and communities
we serve.
As we work to ensure the responsible
sourcing of seafood, we actively
engage in partnerships with a
diverse range of stakeholder groups
including government agencies,
trade associations, academia, non-
governmental organizations (NGO),
customers and consumers. We do
so to deepen our understanding
of the Environmental, Social and
Governance (ESG) issues impacting
our business and how we can act
collaboratively to mitigate risk and
make progress on shared goals.
We report back to stakeholders
on our specific sustainability
practices and goals in our dedicated
report available on our website at
highlinerfoods.com/sustainability.
10
Management’s
Discussion and Analysis
Consolidated Financial
Statements
Annual Report 2019
11
Introduction
Company Overview
Financial Objectives
Outlook
Recent Developments
Performance
Results by Quarter
Fourth Quarter
Business Acquisition, Integration and
Other Expense (Income)
Finance Costs
Income Taxes
Contingencies
Liquidity and Capital Resources
Related Party Transactions
Non-IFRS Financial Measures
Governance
Accounting Estimates and Standards
Risk Factors
Forward-Looking Information
12
13
14
16
16
18
22
23
25
25
25
26
26
31
32
36
37
40
49
Management’s Responsibility
Independent Auditor’s Report
Consolidated Statements of Financial Position
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Accumulated Other
Comprehensive Loss
Consolidated Statements of Changes
in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 Corporate information
Note 2 Statement of compliance and basis
for presentation
Note 3 Significant accounting policies
Note 4 Critical accounting estimates and judgments
Note 5 Product recall
Note 6 Accounts receivable
Note 7 Inventories
Note 8 Property, plant and equipment
Note 9 Right-of-use assets and lease liabilities
Note 10 Goodwill and intangible assets
Note 11 Bank loans
Note 12 Accounts payable and accrued liabilities
Note 13 Provisions
Note 14 Long-term debt
Note 15 Future employee benefits
Note 16 Share capital
Note 17 Share-based compensation
Note 18 Income tax
Note 19 Revenue from contracts with customers
Note 20 Earnings per share
Note 21 Changes in liabilities arising from
financing activities
Note 22 Guarantees and commitments
Note 23 Related party disclosures
Note 24 Geographic information
Note 25 Fair value measurement
Note 26 Capital management
Note 27 Financial risk management objectives
and policies
Note 28 Supplemental information
Historical Statements
51
52
54
55
56
56
57
58
59
59
59
59
72
73
74
74
75
76
77
79
79
80
80
81
84
85
88
90
90
90
91
91
92
92
95
95
99
100
12 HIGH LINER FOODS
Management’s Discussion and Analysis
For the fifty-two weeks ended December 28, 2019
(All amounts are in United States dollars unless otherwise stated)
Introduction
This Management’s Discussion and Analysis (“MD&A”), dated
February 26, 2020, relates to the financial condition and results
of operations of High Liner Foods Incorporated for the fifty-two
weeks ended December 28, 2019 (“Fiscal 2019”) compared to
the fifty-two weeks ended December 29, 2018 (“Fiscal 2018”).
Throughout this discussion, “We”, “Us”, “Our”, “Company” and
“High Liner Foods” refer to High Liner Foods Incorporated and
its businesses and subsidiaries.
This document should be read in conjunction with our 2019
Annual Report along with our Annual Audited Consolidated
Financial Statements (“Consolidated Financial Statements”)
as at and for the fifty-two weeks ended December 28, 2019,
prepared in accordance with International Financial Reporting
Standards (“IFRS”). The information contained in this
document, including forward-looking statements, is based on
information available to management as of February 26, 2020,
except as otherwise noted.
Comparability of Periods
The Company’s fiscal year-end floats, and ends on the
Saturday closest to December 31. The Company follows a
fifty-two week reporting cycle, which periodically necessitates
a fiscal year of fifty-three weeks. Fiscal years 2019, 2018 and
2017 were fifty-two weeks. When a fiscal year contains fifty-
three weeks, the reporting cycle is divided into four quarters
of thirteen weeks each except for the fourth quarter, which
is fourteen weeks in duration. Therefore, amounts presented
may not be entirely comparable.
Currency
All amounts in this MD&A are in United States dollars (“USD”),
unless otherwise noted. Although the functional currency of
High Liner Foods’ Canadian company (the “Parent”) is the
Canadian dollar (“CAD”), management believes the USD
presentation better reflects the Company’s overall business
activities and improves investors’ ability to compare the
Company’s consolidated financial results with other publicly
traded businesses in the packaged foods industry (most of
which are based in the United States (“U.S.”) and report in
USD) and should result in less volatility in reported sales and
income on the conversion into the presentation currency.
For the purpose of presenting the Consolidated Financial
Statements in USD, CAD-denominated assets and liabilities
in the Parent’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 our balance
sheet and income statement. When the USD strengthens
(weakening CAD), the reported USD values of the Parent’s
CAD-denominated items decrease in the Consolidated
Financial Statements, and the opposite occurs when the
USD weakens (strengthening CAD).
In certain sections of this document, balance sheet and operating
items of the Parent are discussed in the CAD functional currency
(the “domestic currency” of the Parent) to eliminate the effect of
fluctuating foreign exchange rates used to translate the Parent’s
operations to the USD presentation currency.
Non-IFRS Financial Measures
Forward-Looking Statements
This document includes certain non-IFRS financial measures,
which we use as supplemental indicators of our 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 Non-IFRS Financial Measures
section starting on page 32 of this MD&A.
This MD&A includes statements that are forward looking. Our
actual results may be substantially different because of the risks
and uncertainties associated with our business and the general
economic environment. We discuss the principal risks of our
business in the Risk Factors section on page 40 of this MD&A.
We cannot provide any assurance that forecasted financial or
operational performance will actually be achieved, and if it is
achieved, we cannot provide assurance that it will result in an
increase in the Company’s share price. See the Forward-Looking
Information section on page 49 of this MD&A.
MD&A Annual Report 2019
13
Critical Initiatives
In 2018, the Company embarked on a significant undertaking
as represented by the five critical initiatives summarized
below to stabilize the business and create optimal conditions
for innovation, industry leadership and growth in support of
long-term value creation for stakeholders. At this time the
Company launched its critical initiative plan, and expected the
plan would achieve a minimum of $10.0 million in annualized
cost savings, on a run-rate basis. The first critical initiative
of organizational realignment was completed in November
2018 and generated net annualized run-rate cost savings of
$7.0 million (see the Recent Developments section on page 16
of this MD&A for further discussion).
During the second quarter of 2019, to complement existing work
and address anticipated headwinds facing the business, the
Company engaged consulting firm AlixPartners to help further
analyze and identify improvements associated with its supply
chain and other cost savings opportunities related to selling,
general and administrative expenses. As a result of expanding
the scope of the supply chain excellence critical initiative,
combined with the annual cost savings generated from the
organizational realignment, the Company expects a significant
increase in the total net annualized run-rate cost savings
associated with the overall critical initiative plan as compared to
the $10.0 million cost savings target initially disclosed.
The Company’s five critical initiatives were as follows and laid
the foundation for the strategic objectives High Liner Foods
will advance in 2020:
• Organizational Realignment: The Company made
important progress on this initiative throughout 2019
to realign the organization and create a “One High Liner
Foods” culture that improves efficiency and cuts costs,
facilitates knowledge sharing and organizational best
practices, and laid the foundation for the critical initiatives
that follow.
• Business Simplification: The Company has reduced
unnecessary complexity in its business to simplify its
product portfolio and focus the portfolio on the best of High
Liner Foods – in terms of margins, customer appeal and
growth potential. Although this has required certain product
eliminations in 2019 (235 products and 8 species), it has
enabled the Company to focus its resources on its most
profitable and desirable products.
Company Overview
High Liner Foods, through its predecessor companies, has
been in business since 1899 and has been a publicly traded
Canadian company since 1967, trading under the symbol
‘HLF’ on the Toronto Stock Exchange (“TSX”). We are a
leading North American processor and marketer of value-
added (i.e. processed) frozen seafood, producing a wide range
of products from breaded and battered items to seafood
entrées, that are sold to North American food retailers and
foodservice distributors. In addition, we are a major supplier of
commodity products in the North American market. The retail
channel includes grocery and club stores and our products
are sold throughout the U.S. and Canada under the High Liner,
Fisher Boy, Mirabel, Sea Cuisine and Catch of the Day labels. The
foodservice channel includes sales of seafood that is usually
eaten outside the home and our branded products are sold
through distributors to restaurants and institutions under the
High Liner, Mirabel, Icelandic Seafood(1) and FPI labels. The
Company is also a major supplier of private-label value-added
frozen premium seafood products to North American food
retailers and foodservice distributors.
We own and operate three food-processing plants located in
Lunenburg, Nova Scotia (“N.S.”), Portsmouth, New Hampshire,
and Newport News, Virginia.
Although our roots are in the Atlantic Canadian fishery, we
purchase all our seafood raw material and some finished goods
from around the world. From our headquarters in Lunenburg,
N.S., we have transformed our long and proud heritage into
global seafood expertise. We deliver on the expectations of
consumers by selling seafood products that respond to their
demands for sustainable, convenient, tasty and nutritious
seafood, at good value.
Additional information relating to High Liner Foods, including
our most recent Annual Information Form (“AIF”), is available
on SEDAR at www.sedar.com and in the Investor Center
section of the Company’s website at www.highlinerfoods.com.
(1) In December 2011, as part of our acquisition of the U.S. subsidiary of Icelandic
Group h.f., we acquired several brands and agreed to a seven-year royalty-
free licensing agreement with Icelandic Group for the use of the Icelandic
Seafood brand in the U.S., Canada and Mexico. In April 2018, the Company
executed a seven-year brand license agreement for the continued use of
the Icelandic Seafood brand in the U.S. and Canada with royalty payments
effective January 2019 (1.5% on net sales of products sold under the Icelandic
Seafood brand).
MD&A 14 HIGH LINER FOODS
• Supply Chain Excellence: The Company has built on efforts
to date to create one integrated supply chain by working
to develop a cross-border operating system, increasing
the efficiency of manufacturing activities through further
centralization and standardization, and improving sales
and operational planning. $9.8 million in cost savings were
realized in 2019 related to these activities including from
improved plant efficiency.
• Rubicon Shrimp Alignment and Growth: The Company has
worked to extract the value and synergies in this acquisition
that have yet to be fully realized. By fully integrating
the Rubicon shrimp business into High Liner Foods,
the Company is now better positioned to maximize the
opportunity for growth in shrimp, one of the fastest growing
species in North America.
• Profitable Organic Growth: The Company has invested in
product innovation, research and partnerships to strengthen
its customer engagement, shape consumer tastes and
drive demand for its seafood with the goal of returning to
profitable growth.
Following execution of its critical initiative plan in 2018
and 2019, High Liner Foods is a more profitable business.
Adjusted EBITDA growth in 2019 compared to 2018 reflects
cost savings and efficiency improvements resulting from the
critical initiatives (see the Performance section on page 18 of
this MD&A for further discussion).
In 2020, the Company plans to continue to turnaround the
business and reposition it for long-term sustainable value
creation. Building on a stronger foundation, continuous
improvement across the business in 2020 is expected to
deliver further growth in Adjusted EBITDA compared to
2019 and continue to reposition the business for a return
to profitable, sustainable revenue growth (see the Outlook
section on page 16 of this MD&A for further discussion). The
Company’s strategic objectives in 2020 focus on:
• Growing revenue from profitable value-added products
through improved sales and marketing execution,
ongoing portfolio management and accelerated product
innovation; and
• Further improving profitability through continued business
simplification, improved business processes and supply
chain optimization, including completing operating
efficiency and cost savings initiatives identified in 2019.
Financial Objectives
Our strategy is designed with the expectation of increasing
shareholder value. To help us focus on meeting investor
expectations, we use three key financial measures to gauge
our financial performance:
Fiscal 2019
Fiscal 2018
Return
On assets managed
On equity
Profitability
Adjusted EBITDA as a percentage
of sales
Financial strength
Net Debt to Adjusted EBITDA
ratio (times)
9.4%
8.8%
6.6%
5.8%
9.1%
6.0%
4.1x
5.8x
Each of these financial measures is further discussed below.
See the Non-IFRS Financial Measures section starting on
page 32 for further explanation of these measures.
Return on Assets Managed (“ROAM”)
2019
2018
2017
2016
2015
9.4%
6.6%
8.2%
12.1%
10.3%
0%
5%
10%
15
In 2019, Adjusted EBIT increased by $18.2 million, or 40.6%,
compared to 2018 and the thirteen-month rolling average
net assets managed decreased by $9.8 million, or 1.5%. The
combined impact of these changes was an increase in ROAM
from 6.6% at the end of Fiscal 2018 to 9.4% at the end of
Fiscal 2019.
The increase in Adjusted EBIT in 2019 is a result of the same
factors causing the $22.8 million increase in Adjusted EBITDA
in 2019 compared to 2018, as discussed in the Consolidated
Performance section on page 20 of this MD&A, and an
increase in depreciation and amortization expense primarily
related to the adoption of the new lease standard that was
effective at the beginning of Fiscal 2019 (see the Recent
Developments section on page 16 of this MD&A).
MD&A Annual Report 2019
15
The decrease in the average net assets managed in 2019
compared to 2018 is primarily due to a decrease in average
accounts receivable and inventories, partially offset by a
decrease in average accounts payable and accrued liabilities as
a result of the Company’s focus on working capital
management, and an increase in right-of-use assets related to
the adoption of the new lease standard during Fiscal 2019 as
discussed above.
Return on Equity (“ROE”)
In 2019, Adjusted EBITDA increased by $22.8 million, or
36.6%, compared to 2018 and sales decreased by
$106.3 million, or 10.1%. The combined impact of these
changes resulted in an increase in Adjusted EBITDA as a
percentage of sales from 6.0% in 2018 compared to 9.1% in
2019. The increase in Adjusted EBITDA is discussed in the
Consolidated Performance section on page 20 of this MD&A.
Net Debt to Adjusted EBITDA
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
8.8%
5.8%
12.1%
17.6%
17.2%
4.1x
5.8x
5.9x
3.1x
4.0x
0
2.5x
5.0x
7.5
Net Debt to Adjusted EBITDA is calculated as follows:
• Net Debt as defined in the Non-IFRS Financial Measures
section on page 32 of this MD&A, divided by:
• Adjusted EBITDA as defined in the Non-IFRS Financial
Measures section on page 32 of this MD&A.
During 2019, Net Debt decreased by $14.0 million and
Adjusted EBITDA increased by $22.8 million. The combined
impact of these changes was an improvement in Net Debt to
Adjusted EBITDA for 2019 compared to 2018. The change
in Net Debt is discussed on page 27 of this MD&A and the
change in Adjusted EBITDA is discussed on page 20 of this
MD&A. In the absence of any major acquisitions or strategic
initiatives requiring capital expenditures in 2020, we expect
this ratio will be lower at the end of Fiscal 2020.
0%
5%
10%
15%
20
In 2019, Adjusted Net Income less share-based compensation
expense increased by $8.1 million, or 50.8%, compared to
2018, and the thirteen-month rolling average common equity
decreased by $1.3 million, or 0.5%. The combined impact of
these changes resulted in an increase in ROE from 5.8% at the
end of Fiscal 2018 to 8.8% at the end of Fiscal 2019. The
increase in Adjusted Net Income in 2019 compared to 2018 is
discussed in the Consolidated Performance section on page 21 of
this MD&A.
Adjusted EBITDA as a Percentage of Sales
2019
2018
2017
2016
2015
9.1%
6.0%
6.3%
8.5%
7.6%
0
2.5%
5.0%
7.5%
10.0
Adjusted EBITDA as a percentage of sales is calculated
as follows:
• Adjusted EBITDA as defined in the Non-IFRS Financial
Measures section on page 32 of this MD&A, divided by:
• Sales as disclosed on the consolidated statements
of income.
MD&A 16 HIGH LINER FOODS
Outlook
High Liner Foods is confident that it will deliver year-over-year
annual Adjusted EBITDA growth in 2020 as the Company
benefits from the work completed in 2019 and drives
continuous improvements across the business. The Company
also expects that by the end of 2020, the impact of new
business and new product sales will return the Company to
profitable revenue growth.
Net Debt to Adjusted EBITDA is expected to continue
to improve in 2020 as a result of growth in Adjusted
EBITDA, improved cash flow management and the dividend
reduction announced in May of this year on the Company’s
common shares.
The Company currently purchases its seafood raw materials
and commodity products from 25 countries, including China.
Chinese processors are central to the Company’s supply
chain operating efficiently and, therefore, the Company is
closely monitoring the current coronavirus disease outbreak
(“COVID-19”) and reviewing options, should they be required,
to mitigate the impact of any prolonged disruption in supply
from any of its Chinese suppliers.
The Company will also continue to closely monitor
developments related to U.S. tariffs on seafood products
imported to the U.S. from China and any potential recovery
of previously paid tariffs.
Excluding any impact related to the current COVID-19
outbreak and U.S. tariffs on seafood products imported from
China, the pricing and supply of seafood raw materials for
the products sold by the Company are expected to remain
relatively stable throughout 2020.
Recent Developments
Organizational Realignment
During the fourth quarter of Fiscal 2018, the Company
announced an organizational realignment to optimize the
Company’s structure in order to take better advantage
of the Company’s North American scale. As a result, the
Company undertook significant reorganization of the internal
leadership and reporting structure. The reorganization is now
complete and the Company is arranged as a single frozen
seafood company that is focused on North America, rather
than focusing on separate geographical segments (U.S. and
Canada). As such, the Company has transitioned to a single
operating and reporting segment.
The 2018 organizational realignment resulted in a 14.0%
reduction of its salaried workforce. The Company has recognized
total short-term termination benefits of approximately
$4.8 million, of which $1.3 million was recognized during the
fifty-two weeks ended December 28, 2019, and $3.5 million was
recognized in the fourth quarter of 2018, as business acquisition,
integration and other expense (income) in the consolidated
statements of income. The full organizational realignment
undertaken in 2018 will generate approximately $7.0 million in
net annualized run rate cost savings.
Dividend and Capital Structure
After an extensive review of its capital allocation strategy, on
May 14, 2019, the Board of Directors (the “Board”) revised
the quarterly dividend to CAD$0.050 per common share
from CAD$0.145 per common share. The revised dividend
also frees up approximately $10 million in cash flow annually
to support the reduction and refinancing of debt to create a
stronger balance sheet.
Product Recall
In 2017, the Company announced a voluntary recall of certain
brands of breaded fish and seafood products sold in Canada and
the U.S. that may contain a milk allergen that was not declared
on the ingredient label and allergen statement. The Company
identified that the allergen had originated from ingredients
supplied by one of the Company’s ingredient suppliers. As a
result, during the fifty-two weeks ended December 30, 2017, the
Company recognized $13.5 million in net losses associated with
the product recall related to consumer refunds, customer fines,
the return of product to be re-worked or destroyed, and direct
incremental costs. These losses did not include any reduction
in earnings as a result of lost sales opportunities due to limited
product availability and customer shortages, or increased
production costs related to the interruption of production at
the Company’s facilities. During the third quarter of 2018, the
Company recognized an $8.5 million recovery associated with
the product recall losses from the ingredient supplier, which
was recognized as business acquisition, integration and other
expense (income) in the consolidated statements of income.
MD&A During the fifty-two weeks ended December 28, 2019, the
Company recognized an $8.5 million recovery associated with
the product recall losses from the ingredient supplier, which
was recognized as business acquisition, integration and other
expense (income) in the consolidated statements of income.
As a result, the Company has recovered the full $13.5 million
in losses recognized during the fifty-two weeks ended
December 30, 2017 related to consumer refunds, customer
fines, the return of product to be re-worked or destroyed, and
direct incremental costs, and an additional $3.5 million related
to lost sales opportunities and increased production costs. No
further expenses or recoveries are expected.
Adoption of IFRS 16, Leases
The Company has adopted the new lease standard, IFRS 16,
Leases (“IFRS 16”), effective December 30, 2018 using the
modified retrospective method, including the application of
certain practical expedients, and therefore the comparative
information for Fiscal 2018 has not been restated. The
implementation of IFRS 16 has resulted in additional assets
and liabilities on the consolidated statements of financial
position of approximately $14.6 million (see the Accounting
Estimates and Standards section on page 37 of this MD&A). In
addition, the nature of the expense related to these leases has
changed as IFRS 16 replaces the straight-line operating lease
expense with depreciation expense for right-of-use assets
and interest expense on the lease liabilities using the effective
interest method. Approximately $5.1 million, previously
accounted for as operating lease expense, is now accounted
for as $4.6 million of depreciation expense and $1.3 million of
finance costs for fifty-two weeks ended December 28, 2019.
The Company’s non-IFRS financial measures for Fiscal 2019
reflect the impact of IFRS 16, and prior periods have not been
adjusted, consistent with the modified retrospective method
(see the Non-IFRS Financial Measures section starting on
page 32 of this MD&A).
Board of Directors
The Chairman of the Board, Henry Demone, retired from the
Board following the conclusion of the Annual General Meeting
(“AGM”) on May 14, 2019. The Board appointed Robert Pace as
the new Chairman of the Board at that time.
Annual Report 2019
17
U.S. Tariffs
In September 2018, the U.S. Trade Representative (“USTR”)
commenced trade discussions with China which has resulted
in the following actions related to additional tariffs on goods
imported to the U.S.:
• Initial 10% tariff on certain Chinese imports effective
September 24, 2018 (“first action”);
• Increase to a 25% tariff on Chinese imports covered by the
first action effective May 10, 2019 for items entering the
U.S. on or after June 10, 2019; and
• Initial 15% tariff proposed on Chinese imports falling under
“List 4B” effective December 15, 2019 (“second action”),
pending further negotiations between the U.S. and China.
The 5% additional tariff proposed on certain Chinese imports
covered by the first action on August 23, 2019, which would
bring the total tariff to 30%, and the 15% tariff proposed on
certain Chinese imports covered by the second action, have
been postponed indefinitely.
The Company currently purchases its seafood raw materials
and commodity products from 25 countries, including from
the U.S., to meet U.S. consumer demand. A portion of this raw
material is imported into China for primary processing and
then exported to the U.S. for sale and secondary processing.
The Company has determined that the additional tariffs in the
first action impacted most notably haddock (excluding block),
tilapia and sole/flounder. The estimated annual run-rate
exposure of the 25% tariff on Chinese imports covered by the
first action is approximately $12.0 million, based on current
volume and raw material costs. However, the Company has
implemented plans, including pricing actions and other supply
chain initiatives, to mitigate the impact of these tariffs and
reduce the estimated impact to the Company.
During December 2019, the Company received notice of
approval of an exclusion request submitted to the USTR
regarding tariffs on certain goods imported to the U.S. from
China. The exclusion applies to tariffs already incurred, or
that would otherwise be incurred, on specific goods from
September 24, 2018 to August 7, 2020 and may result in the
recovery of tariffs previously paid by the Company. It is not
practicable at this time to estimate the timing or amount of
any recovery.
The Company will continue to monitor these developments
closely, particularly if further information becomes available
regarding potential additional tariffs or exclusions, or how the
previously announced tariffs and exclusions will impact the
Company.
MD&A 18 HIGH LINER FOODS
Refinancing of Term Loan Facility and Amendment of
Working Capital Facility
During October 2019, the Company announced the
amendment of its working capital facility (refer to Note 11
“Bank loans” to the Consolidated Financial Statements for
further information) and the early refinancing of its term loan
facility (refer to Note 14 “Long-term debt” to the Consolidated
Financial Statements for further information). The working
capital facility was amended by reducing the amount of the
facility from $180.0 million to $150.0 million and extending
the term from April 2021 to April 2023. The term loan facility
was reduced from $370.0 million to $300.0 million, the
term was extended from April 2021 to October 2026, and
the applicable interest rates for loans under the facility was
increased from LIBOR plus 3.25% (1.00% LIBOR floor) to
LIBOR plus 4.25% (1.00% LIBOR floor).
The refinancing of the term loan facility was not assessed
as a substantial modification, and as a result, the deferred
finance costs related to the original facility continue to be
amortized over the remaining term. In addition, the Company
incurred further deferred finance costs on the amended
facility of $6.1 million. As the net present value of the cash
flows of the modified debt exceeded the carrying value of
the original facility before the amendments, a modification
loss of $11.0 million was recorded in finance costs on the
consolidated statements of income during the fifty-two weeks
ended December 28, 2019.
Performance
As previously discussed, the Company undertook significant
reorganization of the internal leadership and reporting
structure. The reorganization is now complete and the
Company is arranged as a single, focused frozen seafood
company that is focused on North America, rather than
focusing on separate geographical segments (U.S. and
Canada). As such, the Company has transitioned to a single
operating and reporting segment (see Note 24 “Geographic
information” to the Consolidated Financial Statements) and
the following discussion and analysis of the Company’s
financial results focuses on the performance of the
consolidated operations.
Seasonality
Overall, the first quarter of the year is historically the
strongest for both sales and profit, and the second quarter
is the weakest. Both our retail and foodservice businesses
traditionally experience a strong first quarter due to retailers
and restaurants promoting seafood during the Lenten period.
As such, the timing of Lent can impact our quarterly results.
A significant percentage of advertising and promotional
activity is typically done in the first quarter. Customer-specific
promotional expenditures such as trade spending, listing
allowances and couponing are deducted from “Sales” and
non-customer-specific consumer marketing expenditures are
included in selling, general and administrative expenses.
Inventory levels fluctuate throughout the year, most notably
increasing to support strong sales periods such as the Lenten
period. In addition, the timing of ordering raw materials is
earlier than typically required in order to have adequate
quantities available during the seasonal closure of plants in
Asia during the Lunar New Year period. These events typically
result in significantly higher inventories in December, January,
February and March than during the rest of the year.
MD&A Consolidated Performance
The table below summarizes key consolidated financial information for the relevant periods.
Annual Report 2019
19
(in $000s, except sales volume, per share amounts,
percentage amounts, and exchange rates)
Sales volume (millions of lbs)
Average foreign exchange rate (USD/CAD)
Sales
Gross profit
Gross profit as a percentage of sales
Distribution expenses
Selling, general and administrative expenses
Adjusted EBITDA(1)
Adjusted EBITDA as a percentage of sales
Net income
Basic Earnings per Share ("EPS")
Diluted EPS
Adjusted Net Income(1)
Adjusted Basic EPS
Adjusted Diluted EPS(1)
Total assets
Total long-term financial liabilities
Dividends paid per common share (in CAD)
Fifty-two weeks ended
Fifty-two weeks ended
December 28,
2019
December 29,
2018
258.8
284.0
1.3273
$
1.2956
942,224
$ 1,048,531
185,860
$
188,157
19.7%
17.9%
45,759
90,019
85,324
9.1%
10,289
0.31
0.30
29,137
0.86
0.85
820,494
309,480
0.295
$
$
$
$
$
$
$
$
$
$
$
$
52,649
92,208
62,474
6.0%
16,776
0.50
0.50
17,049
0.51
0.51
837,155
333,871
0.580
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Change
(25.2)
December 30,
2017
291.8
0.0317
$
1.2983
(106,307)
$ 1,053,846
(2,297)
$
186,079
1.8%
17.7%
(6,890)
(2,189)
22,850
3.1%
(6,487)
(0.19)
(0.20)
12,088
0.35
0.34
(16,661)
(24,391)
(0.285)
$
$
$
$
$
$
$
$
$
$
$
$
49,827
99,449
66,112
6.3%
31,653
0.98
0.97
30,142
0.93
0.93
907,969
348,774
0.565
(1) See the Non-IFRS Financial Measures section starting on page 32 for further explanation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS.
SALES
Sales volume in 2019 decreased by 25.2 million pounds, or
8.9%, to 258.8 million pounds compared to 284.0 million
pounds in 2018 due to lower sales volumes in our retail and
foodservice businesses, including lower sales volume as a result
of lost business in the latter half of Fiscal 2018 and the fourth
quarter of Fiscal 2019, and the exit of low margin business,
partially offset by new business and new product sales.
Sales in 2019 decreased by $106.3 million, or 10.1%, to
$942.2 million compared to $1,048.5 million in 2018. The
decrease in sales reflects the lower sales volumes mentioned
above and changes in sales mix, partially offset by price
increases related to raw material cost increases. In addition,
the weaker Canadian dollar in 2019 compared to 2018
decreased the value of reported USD sales from our CAD-
denominated operations by approximately $5.8 million
relative to the conversion impact last year.
GROSS PROFIT
Gross profit decreased in 2019 by $2.3 million, or 1.2%,
to $185.9 million compared to $188.2 million in 2018,
while gross profit as a percentage of sales increased to
19.7% compared to 17.9% in 2018. The decrease in gross
profit reflects the lower sales volume discussed above and
raw material cost increases, including tariffs on certain
species imported into the U.S. from China (see the Recent
Developments section on page 16 of this MD&A). This
decrease was partially offset by sales price increases,
favourable product mix related to the exit of the low margin
business and improved plant efficiencies partially related to
supply chain excellence initiatives (see the Company Overview
section on page 13 of this MD&A).
In addition, the weaker Canadian dollar decreased the value
of reported USD gross profit from our Canadian operations in
2019 by approximately $1.3 million relative to the conversion
impact last year.
MD&A
20 HIGH LINER FOODS
DISTRIBUTION EXPENSES
Distribution expenses, consisting of freight and storage,
decreased in 2019 by $6.8 million to $45.8 million compared
to $52.6 million in 2018 primarily reflecting the lower sales
volume mentioned previously and savings associated
with supply chain excellence initiatives (see the Company
Overview section on page 13 of this MD&A), partially offset
by increased depreciation expense related to the adoption of
the new lease standard that was effective at the beginning
of Fiscal 2019 (see the Recent Developments section on
page 16 of this MD&A). As a percentage of sales, distribution
expenses decreased to 4.9% in 2019 compared to 5.0%
in 2018.
SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) EXPENSES
(Amounts in $000s)
Fifty-two weeks ended
December 28,
2019
December 29,
2018
SG&A expenses, as reported
$
90,019
$
92,208
Less:
Share-based compensation
expense(1)
Depreciation and amortization
expense(1)
7,084
10,779
1,188
9,441
SG&A expenses, net
$
72,156
$
81,579
SG&A expenses, net as a
percentage of sales
7.7%
7.8%
(1) Represents share-based compensation expense and depreciation and
amortization expense that is allocated to SG&A only. The remaining expense is
allocated to cost of sales and distribution expenses.
SG&A expenses decreased by $2.2 million to $90.0 million in
2019 as compared to $92.2 million in 2018. SG&A expenses
included share-based compensation expense of $7.1 million
in 2019 compared to $1.2 million in 2018, primarily due to
the issuance of stock options and cash-settled awards and a
higher share price at the end of 2019 compared to 2018. SG&A
expenses also included depreciation and amortization expense
of $10.8 million in 2019 compared to $9.4 million in 2018. This
increase was primarily related to adoption of the new lease
standard that was effective at the beginning of Fiscal 2019 (see
the Recent Developments section on page 16 of this MD&A).
Excluding share-based compensation and depreciation and
amortization expenses, SG&A expenses decreased in 2019
by $9.4 million to $72.2 million compared to $81.6 million
in 2018, due to lower salaries and benefits related to the
organizational realignment (see the Company Overview section
on page 13 of this MD&A), lower consumer marketing and
administrative expenditures associated with cost saving
initiatives and lower variable selling costs largely related to
the lower sales volume mentioned previously. As a percentage
of sales, SG&A excluding share-based compensation and
depreciation and amortization expense decreased to 7.7% in
2019 compared to 7.8% in 2018.
ADJUSTED EBITDA
We refer to Adjusted EBITDA throughout this MD&A
in discussing our results for the fifty-two weeks ended
December 28, 2019. See the Non-IFRS Financial Measures
section on page 32 for further explanation of this
non-IFRS measure.
Consolidated Adjusted EBITDA increased in 2019 by
$22.8 million, or 36.6%, to $85.3 million compared to
$62.5 million in 2018. The increase in Adjusted EBITDA
reflects the inclusion of $5.5 million of the $8.5 million
recovery received from the ingredient supplier in the first
quarter of 2019 associated with the 2017 product recall
(see the Recent Developments section on page 16 of this
MD&A), the impact of the new lease standard adopted at the
beginning of Fiscal 2019 (see the Recent Developments section
on page 16 of this MD&A) and the decrease in distribution
and net SG&A expenses, partially offset by the lower gross
profit, all discussed previously. The remaining recovery
received from the ingredient supplier of $3.0 million (of the
total $8.5 million) and the $8.5 million recovery received
in the third quarter of 2018 were excluded from Adjusted
EBITDA, consistent with the treatment in Fiscal 2017 when
the related $11.5 million in product recall costs were added
back or excluded for the purpose of Adjusted EBITDA.
The impact of converting our CAD-denominated operations
and corporate activities to our USD presentation currency
decreased the value of reported Adjusted EBITDA in USD by
$4.8 million in 2019 compared to $4.3 million in 2018.
MD&A
Annual Report 2019 21
NET INCOME
We refer to Adjusted Net Income and Adjusted Diluted EPS
throughout this MD&A. See the Non-IFRS Financial Measures
section starting on page 32 for further explanation of these
non-IFRS measures.
Net income decreased in 2019 by $6.5 million, or 38.7%,
to $10.3 million ($0.30 per diluted share) compared to
$16.8 million ($0.50 per diluted share) in 2018. The decrease
in net income reflects an increase in finance costs primarily
reflecting the loss on modification of debt related to the
debt refinancing completed in October 2019 (see the Recent
Developments section on page 16 of this MD&A), costs
associated with the Company’s critical initiatives, and the
increase in share-based compensation and depreciation and
amortization expenses discussed previously, partially offset
by the increase in Adjusted EBITDA discussed previously, a
decrease in short-term termination benefits associated with
the organizational realignment announced in November 2018,
and lower income tax expense as discussed in the Income
Taxes section on page 25 of this MD&A.
In 2019, net income included “business acquisition,
integration and other expense (income)” (as explained in the
Business Acquisition, Integration and Other Expense (Income)
section on page 25 of this MD&A) related to the product
recall recovery, short-term termination benefits and the costs
associated with the Company’s critical initiatives mentioned
above, and other non-cash expenses. In 2018, net income
included “business acquisition, integration and other expense
(income)” related to the product recall recovery in the third
quarter of 2018, short-term termination benefits as a result
of restructuring activities and other non-cash expenses.
Excluding the impact of these non-routine items or other non-
cash expenses and the loss on modification of debt related
to the debt refinancing completed in October 2019 (see
the Recent Developments section on page 16 of this MD&A),
and including the $3.0 million product recall recovery
excluded from Adjusted EBITDA, Adjusted Net Income in
2019 increased by $12.1 million, or 70.9%, to $29.1 million
compared to $17.0 million in 2018.
Adjusted Diluted EPS increased by $0.34 to $0.85 in 2019
compared to $0.51 in 2018.
MD&A 22 HIGH LINER FOODS
Results by Quarter
The following table provides summarized financial information for the last eight quarters:
FISCAL 2019
(Amounts in $000s, except per share amounts)
Sales
Adjusted EBITDA(1)
Net Income
Basic EPS
Diluted EPS
Adjusted Net Income(1)
Adjusted Basic EPS
Adjusted Diluted EPS(1)
Dividends paid per common share (in CAD)
Net non-cash working capital(2)
FISCAL 2018
(Amounts in $000s, except per share amounts)
Sales
Adjusted EBITDA(1)
Net Income
Basic EPS
Diluted EPS
Adjusted Net Income(1)
Adjusted Basic EPS
Adjusted Diluted EPS(1)
Dividends paid per common share (in CAD)
Net non-cash working capital(2)
First
quarter
277,424
32,215
14,762
0.44
0.43
14,925
0.44
0.44
0.145
230,412
First
quarter
319,184
24,221
10,251
0.31
0.31
10,703
0.32
0.32
0.145
244,764
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Second
quarter
223,034
17,883
946
0.03
0.03
4,680
0.14
0.13
0.050
209,791
Second
quarter
245,312
12,050
2,804
0.08
0.08
3,766
0.11
0.11
0.145
227,935
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Third
quarter
220,141
16,455
(2,400)
(0.07)
(0.07)
3,857
0.11
0.11
0.050
201,289
Third
quarter
241,157
14,235
4,531
0.13
0.13
412
0.01
0.01
0.145
233,916
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Fourth
quarter
221,625
18,771
(3,019)
(0.09)
(0.09)
5,675
0.17
0.17
0.050
239,176
$
$
$
$
$
$
$
$
$
$
Full
year
942,224
85,324
10,289
0.31
0.30
29,137
0.86
0.85
0.295
239,176
Fourth
quarter
Full
year
242,878
$ 1,048,531
11,968
(810)
(0.02)
(0.02)
2,169
0.07
0.07
0.145
227,223
$
$
$
$
$
$
$
$
$
62,474
16,776
0.50
0.50
17,049
0.51
0.51
0.580
227,223
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) See the Non-IFRS Financial Measures section starting on page 32 for further explanation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS.
(2) Net non-cash working capital comprises accounts receivable, inventories and prepaid expenses, less accounts payable and accrued liabilities, contract liability and provisions.
MD&A Fourth Quarter
Consolidated Performance
(in $000s, except sales volume, per share amounts,
percentage amounts and exchange rates)
Sales volume (millions of lbs)
Average foreign exchange rate (USD/CAD)
Sales
Gross profit
Gross profit as a percentage of sales
Distribution expenses
Selling, general and administrative expenses
Adjusted EBITDA(1)
Adjusted EBITDA as a percentage of sales
Net (loss) income
Basic EPS
Diluted EPS
Adjusted Net Income(1)
Adjusted EPS
Adjusted Diluted EPS(1)
Annual Report 2019 23
Thirteen weeks ended
Thirteen weeks ended
December 28,
2019
December 29,
2018
59.7
1.3206
221,625
44,502
20.1%
11,384
18,577
18,771
8.5%
(3,019)
(0.09)
(0.09)
5,675
0.17
0.17
$
$
$
$
$
$
$
$
$
$
$
$
66.1
1.3197
242,878
40,287
16.6%
12,125
20,959
11,968
4.9%
(810)
(0.02)
(0.02)
2,169
0.07
0.07
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Change
(6.4)
0.0009
(21,253)
4,215
3.5%
(741)
(2,382)
6,803
3.6%
(2,209)
(0.07)
(0.07)
3,506
0.10
0.10
December 30,
2017
71.6
1.2715
263,022
44,504
16.9%
13,328
24,609
13,060
5.0%
14,227
0.43
0.43
4,849
0.15
0.15
$
$
$
$
$
$
$
$
$
$
$
$
(1) See the Non-IFRS Financial Measures section starting on page 32 for further explanation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS.
SALES
Sales volume for the fourth quarter of 2019 decreased by
6.4 million pounds, or 9.7%, to 59.7 million pounds compared
to 66.1 million pounds in the same period in 2018 due to
lower sales volumes in our retail and foodservice businesses,
including lower sales volume as a result of lost business in the
latter half of Fiscal 2018 and the fourth quarter of Fiscal 2019
and the exit of low margin business, partially offset by new
business and new product sales.
Sales in the fourth quarter of 2019 decreased by $21.3 million,
or 8.8%, to $221.6 million compared to $242.9 million in
the same period last year. The decrease in sales reflects the
lower sales volumes discussed above and changes in sales
mix, partially offset by price increases related to raw material
cost increases. In addition, the weaker Canadian dollar in the
fourth quarter of 2019 compared to the same quarter of 2018
decreased the value of USD sales from our CAD-denominated
operations by approximately $0.1 million relative to the
conversion impact last year.
GROSS PROFIT
Gross profit increased in the fourth quarter of 2019 by
$4.2 million, or 10.5%, to $44.5 million compared to
$40.3 million in 2018 and gross profit as a percentage of
sales increased to 20.1% compared to 16.6%. The increase
in gross profit reflects the increase in sales prices discussed
above, favourable product mix related to the exit of low
margin business and improved plant efficiencies related to
the Company’s supply chain excellence initiatives (see the
Company Overview section on page 13 of this MD&A). This
was partially offset by the lower sales volume discussed
above and raw material cost increases, including tariffs on
certain species imported into the U.S. from China (see the
Recent Developments section on page 16 of this MD&A).
In addition, the weaker Canadian dollar decreased the value
of reported USD gross profit from our Canadian operations
in 2019 by an amount consistent with the conversion impact
last year.
MD&A 24 HIGH LINER FOODS
DISTRIBUTION EXPENSES
Distribution expenses, consisting of freight and storage,
decreased in the fourth quarter of 2019 by $0.7 million to
$11.4 million compared to $12.1 million in the same period in
2018, primarily reflecting the lower sales volume mentioned
previously and savings associated with supply chain
excellence initiatives (see the Company Overview section
on page 13 of this MD&A), partially offset by increased
depreciation expense related to the adoption of the new
lease standard that was effective at the beginning of Fiscal
2019 (see the Recent Developments section on page 16 of this
MD&A). As a percentage of sales, these expenses increased
to 5.1% in the fourth quarter of 2019 compared to 5.0% in the
same period in 2018.
SG&A EXPENSES
SG&A expenses decreased in the fourth quarter of 2019 by
$2.4 million to $18.6 million compared to $21.0 million in
the same period last year. SG&A expenses included share-
based compensation recovery of $1.5 million in the fourth
quarter of 2019 compared to share-based compensation
expense of $0.2 million for the same period in 2018, primarily
due to a decrease in share price over the fourth quarter of
2019, partially offset by the vesting of cash-settled units.
SG&A expenses also included depreciation and amortization
expense of $2.6 million in the fourth quarter of 2019 and
$2.4 million in the same period of 2018. This increase was
primarily related to the adoption of the new lease standard
that was effective at the beginning of Fiscal 2019 (see the
Recent Developments section on page 16 of this MD&A).
Excluding share-based compensation and depreciation
and amortization expenses, SG&A expenses decreased in
the fourth quarter of 2019 by $0.9 million to $17.5 million
compared to $18.4 million in the same period last year, due to
lower consumer marketing and administrative expenditures
associated with cost saving initiatives and lower variable
selling costs largely related to the lower sales volume
mentioned previously. As a percentage of sales, SG&A
excluding share-based compensation and depreciation and
amortization expense increased to 7.9% in the fourth quarter
of 2019 compared to 7.6% in the same period last year.
ADJUSTED EBITDA
Consolidated Adjusted EBITDA increased in the fourth
quarter of 2019 by $6.8 million, or 56.8%, to $18.8 million
compared to $12.0 million in 2018. The increase in Adjusted
EBITDA reflects the impact of the new lease standard adopted
at the beginning of Fiscal 2019 (see the Recent Developments
section on page 16 of this MD&A), the increase in gross profit
and the decrease in distribution and net SG&A expenses, all
discussed previously.
The impact of converting our CAD-denominated operations
and corporate activities to our USD presentation currency
decreased the value of reported Adjusted EBITDA in USD
by $2.2 million in the fourth quarter of 2019 compared to
$1.7 million in 2018.
NET LOSS
Net loss increased in the fourth quarter of 2019 by
$2.2 million, or 272.7%, to a net loss of $3.0 million
($0.09 loss per diluted share) compared to a net loss of
$0.8 million ($0.02 loss per diluted share) in the same period
in 2018. The increase in net loss reflects an increase in finance
costs primarily reflecting the loss on modification of debt
related to the debt refinancing completed in October 2019
(see the Recent Developments section on page 16 of this
MD&A) and the increase in depreciation and amortization
expenses discussed previously, partially offset by a decrease
in short-term termination benefits associated with the
organizational realignment announced in November 2018, the
decrease in share-based compensation expenses discussed
previously, and the increase in Adjusted EBITDA.
In 2019, net loss included “business acquisition, integration
and other expense (income)” (as explained in the Business
Acquisition, Integration and Other Expense (Income) section on
page 25 of this MD&A) related to the costs associated with
the Company’s critical initiatives mentioned above, and other
non-cash expenses. In 2018, net loss included “business
acquisition, integration and other expense (income)” related
to short-term termination benefits as a result of restructuring
activities, and other non-cash expenses. Excluding the impact
of these non-routine or other non-cash expenses and the
loss on modification of debt related to the debt refinancing
completed in October 2019 (see the Recent Developments
section on page 16 of this MD&A), Adjusted Net Income
in the fourth quarter of 2019 increased by $3.5 million, or
161.6%, to $5.7 million compared to $2.2 million in the same
period in 2018.
Correspondingly, Adjusted Diluted EPS increased by $0.10 to
$0.17 compared to $0.07 in the fourth quarter of 2018.
MD&A
Annual Report 2019 25
Business Acquisition, Integration and Other Expense (Income)
The Company reports expenses associated with business acquisition and integration activities, and certain other non-routine
costs separately in its consolidated statements of income as follows:
(Amounts in $000s)
Thirteen weeks ended
Fifty-two weeks ended
December 28,
2019
December 29,
2018
December 28,
2019
December 29,
2018
Business acquisition, integration and other expense (income)
$
2,559
$
3,631
$
1,572
$
(2,471)
Business acquisition, integration and other expense (income)
for the fifty-two weeks ended December 28, 2019 included
the recognition of the $8.5 million recovery associated with
the 2017 product recall from the ingredient supplier, largely
offset by short-term termination benefits resulting from the
organizational realignment initiated in November 2018 of
$1.3 million (see the Recent Developments section on page 16
of this MD&A), costs of $6.6 million related to the Company’s
critical initiatives (see the Company Overview on page 13 of
this MD&A), and other non-routine expenses.
For the fifty-two weeks ended December 29, 2018, business
acquisition, integration and other expense (income) included
the recognition of an $8.5 million recovery associated with
the 2017 product recall from the ingredient supplier, partially
offset by short-term termination benefits resulting from
restructuring activities in the first three quarters of 2018 and
the organizational realignment initiated in November 2018 of
$3.5 million. See the Recent Developments section on page 16
of this MD&A for further discussion.
Finance Costs
The following table shows the various components of the Company’s finance costs:
(Amounts in $000s)
Interest paid in cash during the period
Change in cash interest accrued during the period
Total interest to be paid in cash
Modification loss related to debt refinancing activities(1)
Interest expense on lease liabilities(2)
Deferred financing cost amortization
Total finance costs
Thirteen weeks ended
Fifty-two weeks ended
December 28,
2019
December 29,
2018
December 28,
2019
December 29,
2018
$
5,098
$
5,229
$
20,173
$
19,917
(286)
4,812
10,969
376
427
344
5,573
—
—
215
(648)
19,525
10,969
1,447
1,071
812
20,729
—
—
874
$
16,584
$
5,788
$
33,012
$
21,603
(1) The thirteen and fifty-two weeks ended December 28, 2019 include a loss on the modification of debt related to the debt refinancing completed in October 2019 (see
the Recent Developments section on page 16 of this MD&A).
(2) During the thirteen and fifty-two weeks ended December 28, 2019, interest expense included additional expense primarily related to the adoption of the new lease standard
that was effective the beginning of Fiscal 2019 (see the Recent Developments section on page 16 of this MD&A).
Finance costs were $10.8 million higher in the fourth quarter
of 2019 and $11.4 million higher in the fifty-two weeks ended
December 28, 2019 compared to the same periods last year.
The increase in the fifty-two weeks ended December 28,
2019 was due to a loss on the modification of debt related
to the debt refinancing completed in October 2019 (see
the Recent Developments section on page 16 of this MD&A),
higher interest rates and interest expense on lease liabilities
related to the adoption of the new lease standard effective the
beginning of Fiscal 2019 (see the Recent Developments section
on page 16 of this MD&A). This increase was partially offset
by lower average Net Debt during 2019 compared to 2018.
Income Taxes
High Liner Foods’ effective income tax rate for the year ended
December 28, 2019 was 29.2% compared to 26.6% in 2018. In
the fourth quarter of 2019, the effective tax rate was a recovery of
34.5% compared to a recovery of 67.8% in the fourth quarter of
2018. The higher effective tax rate for the year and quarter ended
December 28, 2019 compared to the same period last year was
attributable to reduced interest expense deductibility associated
with the Company’s tax-efficient financing structure due to a
valuation allowance. The applicable statutory rates in Canada
and the U.S. were 29.2% and 27.6%, respectively.
See Note 18 “Income tax” to the Consolidated Financial
Statements for full information with respect to income taxes.
MD&A 26 HIGH LINER FOODS
Contingencies
The Company has no material outstanding contingencies.
Liquidity and Capital Resources
The Company’s balance sheet is affected by foreign
currency fluctuations, the effect of which is discussed in
the Introduction section on page 12 of this MD&A (under
the heading “Currency”) and in the Foreign Currency risk
discussion on page 46 (in the Risk Factors section).
Our capital management practices are described in
Note 26 “Capital management” to the 2019 Consolidated
Financial Statements.
Working Capital Credit Facility
The Company entered into a $180.0 million asset-based
working capital credit facility (the “Facility”) in November 2010
with the Royal Bank of Canada as Administrative and Collateral
agent. During October 2019, the Company announced the
amendment of its working capital facility which resulted in a
reduction of the amount of the facility to $150.0 million and an
extension of the term from April 2021 to April 2023.
The rates provided by the working capital credit facility are
noted in the following table, based on the “Average Adjusted
Aggregate Availability” as defined in the credit agreement.
The Company’s borrowing rates as of December 28, 2019 are
also noted in the following table.
Per credit agreement
As at December 28, 2019
Canadian Prime Rate revolving loans, Canadian Prime Rate revolving and U.S. Prime Rate
revolving loans, at their respective rates
Bankers' Acceptances ("BA") revolving loans, at BA rates
LIBOR revolving loans at LIBOR, at their respective rates
Letters of credit, with fees of
Standby fees, required to be paid on the unutilized facility, of
Average short-term borrowings outstanding during 2019
were $24.4 million compared to $46.8 million in 2018. This
$22.4 million decrease in average short-term borrowings
primarily reflects increased debt repayments due to higher
cash flow provided by operations, decreased average working
capital requirements during 2019 as compared to 2018, and
decreased dividend payments related to the reduction of the
quarterly dividend on the Company’s common shares (see
the Dividends section on page 28 of this MD&A). Average
short-term borrowings outstanding during 2018 were higher
than 2017 as a result of increased borrowings due to the
acquisition of Rubicon in May 2017, increased working capital
requirements and reduced cash flow provided by operations
in the latter half of 2017, partially offset by higher debt
repayments in the latter half of 2018.
At the end of the fourth quarter of 2019, the Company
had $99.4 million (December 29, 2018: $118.2 million) of
unused borrowing capacity, taking into account both margin
calculations and the total line availability. Included in this
amount are letters of credit, which reduce the availability under
the working capital credit facility. On December 28, 2019,
letters of credit and standby letters of credit were outstanding
in the amount of $12.6 million (December 29, 2018: $15.4
million) to support raw material purchases and to secure
certain contractual obligations, including those related to the
Company’s Supplemental Executive Retirement Plan (“SERP”).
plus 0.00% to 0.25%
plus 1.25% to 1.75%
plus 1.25% to 1.75%
1.25% to 1.75%
0.25%
plus 0.00%
plus 1.25%
plus 1.25%
1.25%
0.25%
The facility is asset-based and collateralized by the
Company’s inventories, accounts receivable and other
personal property in North America, subject to a first charge
on brands, trade names and related intangibles under the
Company’s term loan facility. A second charge over the
Company’s property, plant and equipment is also in place.
Additional details regarding the Company’s working capital
credit facility are provided in Note 11 “Bank loans”.
In the absence of any major acquisitions, voluntary term
loan repayments or capital expenditures, we expect average
short-term borrowings by the end of 2020 to be consistent
with 2019, and we believe the asset-based working capital
credit facility should be sufficient to fund all of the Company’s
anticipated cash requirements.
Term Loan Facility
As at December 28, 2019, the Company had a $300.0 million
term loan facility with an interest rate of 4.25% plus LIBOR
(LIBOR floor of 1.00%), maturing in October 2026. During
October 2019, the Company announced the early refinancing
of its term loan facility. The term loan facility was reduced
from $370.0 million to $300.0 million, the term was extended
from April 2021 to October 2026, and the applicable interest
rate for loans under the facility was increased from LIBOR plus
3.25% (1.00% LIBOR floor) to LIBOR plus 4.25% (LIBOR floor
of 1.00%).
MD&A Annual Report 2019 27
Prior to the October 2019 refinancing, quarterly repayments
of $0.9 million were required on the term loan as regularly
scheduled principal repayments. Under the October 2019
refinanced term loan agreement, quarterly repayments
of $1.9 million are required on the term loan as regularly
scheduled repayments. On an annual basis, based on a
leverage test, additional prepayments (“mandatory excess
cash flow prepayments”) could be required of up to 50% of
the previous year’s defined excess cash flow. Per the loan
agreement, mandatory excess cash flow prepayments and
voluntary repayments will be applied to future regularly
scheduled principal repayments.
During the first quarter of 2019, a mandatory prepayment
of $13.7 million was made due to excess cash flows in 2018.
During the fourth quarter of 2019, the principal amount
outstanding of $324.0 million was reduced by $24.0 million to
$300.0 million as a part of the term loan facility refinancing.
As at December 28, 2019, the Company had a mandatory
prepayment of $12.6 million due in 2020 related to excess cash
flows in 2019.
Substantially all tangible and intangible assets (excluding
working capital) of the Company are pledged as collateral for
the term loan.
During the fifty-two weeks ended December 28, 2019, the Company had the following interest rate swaps outstanding to hedge
interest rate risk resulting from the term loan facility:
Effective date
Maturity date
Receive floating rate
Pay fixed rate
Designated in a formal hedging relationship:
Notional amount
(millions)
December 31, 2014
March 4, 2015
April 4, 2016
January 4, 2018
December 31, 2019
3-month LIBOR (floor 1.0%)
2.1700% $
March 4, 2020
3-month LIBOR (floor 1.0%)
1.9150% $
April 24, 2021
3-month LIBOR (floor 1.0%)
1.6700% $
April 24, 2021
3-month LIBOR (floor 1.0%)
2.2200% $
20.0
25.0
40.0
80.0
MD&A). This was offset by a lower cash balance on hand as
at December 28, 2019 as compared to December 29, 2018,
and the transitional increase in lease liabilities upon the
adoption of the new lease standard effective at the beginning
of Fiscal 2019 (see the Recent Developments section on
page 16 of this MD&A).
Including the impact of the new lease standard since adoption
(December 30, 2018), Net Debt to rolling twelve-month
Adjusted EBITDA (see the Non-IFRS Financial Measures
section on page 32 of this MD&A for further discussion of
Adjusted EBITDA) was 4.1x at December 28, 2019 compared
to 5.8x at the end of Fiscal 2018. In the absence of any
major acquisitions or strategic initiatives requiring capital
expenditures in 2020, we expect this ratio will be lower at the
end of Fiscal 2020.
As of December 28, 2019, the combined impact of the
interest rate swaps listed above effectively fix the interest rate
on $165.0 million of the $300.0 million face value of the term
loan and the remaining portion of the debt continues to be
at variable interest rates. As such, we expect that there will
be fluctuations in interest expense due to changes in interest
rates when LIBOR is higher than the embedded floor of 1.0%.
Additional details regarding the Company’s term loan are
provided in Note 14 “Long-term debt” to the Consolidated
Financial Statements.
Net Debt
The Company’s Net Debt (as calculated in the Non-IFRS
Financial Measures section on page 32 of this MD&A) is
comprised of the working capital credit and term loan
facilities (excluding deferred finance costs and modification
losses) and lease liabilities, less cash. Net Debt decreased
by $14.0 million to $346.6 million at December 28, 2019
compared to $360.6 million at December 29, 2018, reflecting
higher debt repayments in 2019 as described above due
to higher cash flows from operations in 2019, lower capital
expenditures, and lower dividend payments related to
the reduction of the quarterly dividend on the Company’s
common shares (see the Dividends section on page 28 of this
MD&A 28 HIGH LINER FOODS
Capital Structure
At December 28, 2019, Net Debt was 56.3% of total capitalization compared to 58.0% at December 29, 2018.
(Amounts in $000s)
Net Debt(1)
Shareholders' equity
Unrealized losses (gains) on derivative financial instruments included in AOCI
Total capitalization
Net debt as percentage of total capitalization
December 28,
2019
December 29,
2018
$
346,592
$
360,642
268,170
396
263,859
(2,215)
$
615,158
$
622,286
56.3%
58.0%
(1) The Company has adopted the new lease standard, IFRS 16, Leases, effective December 30, 2018, which has resulted in additional lease liabilities of $14.6 million
(see the Recent Developments section on page 16 of this MD&A). IFRS 16 was applied using the modified retrospective method, and as a result, the comparative
information for Fiscal 2018 has not been restated. Therefore, these lease liabilities are only included in the Company’s Net Debt balance as at December 28, 2019,
increasing Net Debt by $11.4 million. Net Debt, excluding the impact of IFRS 16, would be 55.5% of total capitalization as at December 28, 2019.
Using our December 28, 2019 market capitalization
of $210.3 million, based on a share price of CAD$8.23
(USD$6.30 equivalent), instead of the book value of equity,
Net Debt as a percentage of total capitalization increases
to 62.2%.
Normal Course Issuer Bid
In January 2018, we filed a new NCIB (“2018 NCIB”) to
purchase up to 150,000 common shares. The 2018 NCIB
terminated on February 1, 2019. During the fifty-two weeks
ended December 28, 2019 there were no purchases under this
plan. As at February 26, 2020, the Company has not filed a
new NCIB.
The Company established an automatic securities purchase
plan for the common shares of the Company for all the bids
listed above with a termination date coinciding with the NCIB
termination date. The preceding plan also constitutes an
“automatic plan” for purposes of applicable Canadian Securities
Legislation and have been approved by the TSX.
Dividends
In May 2019, after an extensive review of its capital allocation
strategy, the Board elected to revise the quarterly dividend
to CAD$0.050 per common share from CAD$0.145
per common share applicable on a prospective basis,
commencing with the Company’s Q2 2019 quarterly dividend.
This revision has brought the dividend back in line with the
Company’s previously disclosed guidance for the dividend to
provide a payout of 30–35% of trailing Adjusted Diluted EPS
(see the Non-IFRS Financial Measures section on page 32 of
this MD&A) relative to 2018 and Q1 2019 financial results.
The revised dividend also frees up approximately $10.0 million
in cash flow annually to support the reduction of debt to
create a stronger balance sheet.
As shown in the following table, the quarterly dividend on the
Company’s common shares decreased one time during the
last two fiscal years. The quarterly dividends paid in the last
two years were as follows:
Dividend record date
December 1, 2019
September 1, 2019
June 1, 2019
March 7, 2019
December 1, 2018
September 1, 2018
June 1, 2018
March 1, 2018
Quarterly
dividend CAD
$
0.050
0.050
0.050
0.145
0.145
0.145
0.145
0.145
Dividends and NCIBs are subject to restrictions as follows:
• Under the working capital credit facility, Average Adjusted
Aggregate Availability, as defined in the credit agreement,
must be $18.8 million or higher, and was $110.3 million on
December 28, 2019, and NCIBs are subject to an annual
limit of $10.0 million with a provision to carry forward
unused amounts subject to a maximum of $20.0 million
per annum; and
• Under the term loan facility, dividends cannot exceed
$17.5 million per year. This amount increases to the greater
of $25.0 million per year or 32.5% of EBITDA as defined in
the loan agreement when the defined total leverage ratio
is below 4.0x. The defined total leverage ratio was 4.1x on
December 28, 2019. NCIBs are subject to an annual limit of
$10.0 million under the term loan facility.
On February 26, 2020, the Directors approved a quarterly
dividend of CAD$0.050 per share on the Company’s common
shares payable on March 15, 2020 to holders of record on
March 4, 2020. These dividends are “eligible dividends” for
Canadian income tax purposes.
MD&A
Annual Report 2019 29
Disclosure of Outstanding Share Data
On February 26, 2020, 33,383,481 common shares and 1,711,416 options were outstanding. The options are exercisable on a
one-for-one basis for common shares of the Company.
Cash Flow
(Amounts in $000s)
Thirteen weeks ended
Fifty-two weeks ended
December 28,
2019
December 29,
2018
December 28,
2019
December 29,
2018
Net cash flows (used in) provided by operating activities
$
(24,092)
$
4,646
(1,812)
(298)
9,964
1,826
(3,541)
(1,068)
$
51,606
$
56,933
(50,705)
(6,569)
(756)
(36,942)
(13,842)
(1,319)
$
(21,556)
$
7,181
$
(6,424)
$
4,830
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities were $7.3 million higher
in 2019 compared to the same period last year. The increase
in 2019 was due to lower capital expenditures related to
property, plant and equipment and intangible assets.
Standardized Free Cash Flow (see the Non-IFRS Financial
Measures section on page 32 for further explanation of
Standardized Free Cash Flow) for the rolling twelve months
ended December 28, 2019 increased by $2.0 million to an
inflow of $45.0 million compared to an inflow of $43.0 million
for the twelve months ended December 29, 2018. This
increase reflects lower capital expenditures and higher
cash flows from operating activities, including interest and
income taxes, partially offset by an unfavourable change in
non-cash working capital during the twelve months ended
December 28, 2019 as compared to the twelve months
ended December 29, 2018.
Net cash flows provided by (used in) financing activities
Net cash flows used in investing activities
Foreign exchange decrease on cash
Net change in cash during the period
Cash was $3.1 million at December 28, 2019, compared to
$9.6 million at December 29, 2018. The decrease in cash for
the fifty-two weeks ended December 28, 2019 is discussed
further below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operating activities were $5.3 million lower
in 2019 compared to the same period last year. The decrease
in 2019 was due to unfavourable changes in net non-cash
working capital, higher interest payments, and lower income
tax refunds, partially offset by higher cash flows from
earnings. The unfavourable changes in net non-cash working
capital are the result of unfavourable changes in inventories,
accounts receivable and provisions, partially offset by
favourable changes in prepaid expenses and accounts payable
and accrued liabilities.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities were $13.8 million lower
in 2019 compared to the same period last year. The decrease
in 2019 was due to higher long-term debt and deferred
finance cost repayments related to an excess cash flow
payment in the first quarter of 2019 and payments incurred
as a part of the debt refinancing completed in October 2019
(see the Recent Developments section on page 16 of this
MD&A), and higher lease liability repayments related to the
adoption of the new lease standard that was effective at
the beginning of Fiscal 2019 (see the Recent Developments
section on page 16 of this MD&A). This was partially offset by
decreased dividend payments related to the reduction of the
quarterly dividend on the Company’s common shares (see the
Dividends section on page 28 of this MD&A) and an increase
in bank loans in 2019 compared to a decrease in 2018.
MD&A 30 HIGH LINER FOODS
Net Non-Cash Working Capital
(Amounts in $000s)
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Provisions
Net non-cash working capital
Net non-cash working capital consists of accounts receivable,
inventories and prepaid expenses, less accounts payable and
accrued liabilities, and provisions. Net non-cash working capital
increased by $12.0 million to $239.2 million at December 28,
2019 as compared to $227.2 million at December 29, 2018,
primarily reflecting lower accounts payable and accrued
liabilities, partially offset by decreased inventories.
Our working capital requirements fluctuate during the year,
usually peaking between December and March as our
inventory is the highest at that time. Going forward, we expect
the trend of inventory peaking between December and March
to continue, and believe we have enough availability on our
working capital credit facility to finance our working capital
requirements throughout 2020.
Capital Expenditures
Capital expenditures (including computer software) were
$1.8 million and $6.6 million during the fourth quarter and
fifty-two weeks ended December 28, 2019 respectively,
as compared to capital expenditures of $3.7 million and
$14.6 million during the fourth quarter and fifty-two weeks
ended December 29, 2018, respectively. Capital expenditures
were lower in 2019 due to the non-reoccurring capital
expenditures incurred in the first half of 2018 related to
improvements in the Company’s enterprise-wide business
management system.
Excluding strategic initiatives that may arise, management
expects that capital expenditures in 2020 will be
approximately $15.0 million and funded by cash generated
from operations and short-term borrowings.
December 28,
2019
December 29,
2018
Change
$
85,089
$
84,873
$
216
294,913
4,322
301,411
4,333
(144,819)
(161,934)
(329)
(1,460)
(6,498)
(11)
17,115
1,131
$
239,176
$
227,223
$
11,953
Other Liquidity Items
SHARE-BASED COMPENSATION AWARDS
Share-based compensation expense increased to $7.1 million
in 2019 compared to $1.2 million in 2018 and is non-cash
until unit holders exercise the awards. The change in
share-based compensation is discussed on page 20 of this
MD&A. Additional details regarding the Company’s share-
based compensation are provided in Note 17 “Share-based
compensation” to the Consolidated Financial Statements.
During 2019, unit holders exercised Restricted Share Units
(“RSUs”) and Deferred Share Units (“DSUs”) and received
cash in the amount of $0.4 million (2018: $0.2 million). The
liability for share-based compensation awards at the end of
Fiscal 2019 was $7.9 million compared to $1.7 million at the
end of Fiscal 2018.
Any options exercised in shares are cash positive or cash
neutral if the holder elects to use the cashless exercise
method under the plan. Cash received from options exercised
for shares during 2019 was $nil (2018: $nil).
DEFINED BENEFIT PENSION PLANS
The Company’s defined benefit pension plans can impact
the Company’s cash flow requirements and liquidity. In 2019,
the defined benefit pension expense for accounting purposes
was $1.3 million (2018: $1.3 million) and the annual cash
contributions were consistent with the 2019 accounting
expense (2018: $0.1 million lower). For 2020, we expect
cash contributions to be approximately CAD$1.4 million and
the defined benefit pension expense to be approximately
CAD$1.4 million. We have more than adequate availability
under our working capital credit facility to make the required
future cash contributions to our defined benefit pension plans.
As well, we have a SERP liability for accounting purposes of
$6.8 million that is secured by a letter of credit in the amount
of $9.5 million.
MD&A Annual Report 2019 31
Contractual Obligations
Contractual obligations relating to our bank loans, long-term debt, lease liabilities, purchase obligations and other long-term
liabilities as at December 28, 2019 were as follows:
(Amounts in $000s)
Bank loans
Long-term debt
Lease liabilities
Purchase obligations
Total contractual obligations
Payments due by period
Total
Less than
1 year
1–5 Years
Thereafter
$
37,956
$
37,956
$
— $
—
416,058
14,186
100,083
36,064
5,504
94,947
112,565
267,429
7,911
5,136
771
—
$
568,283
$
174,471
$
125,612
$
268,200
Purchase obligations are for the purchase of seafood and
other non-seafood inputs, including flour, paper products and
frying oils. See the Procurement risk section on page 42 and
the Foreign Currency section on page 46 of this MD&A for
further details.
Financial Instruments and Risk Management
The Company has exposure to the following risks as a result
of its use of financial instruments: foreign currency risk,
interest rate risk, credit risk and liquidity risk. The Company
enters into interest rate swaps, foreign currency contracts,
and insurance contracts to manage these risks that arise
from the Company’s operations and its sources of financing,
in accordance with a written policy that is reviewed and
approved by the Audit Committee of the Board of Directors.
The policy prohibits the use of derivative financial instruments
for trading or speculative purposes.
Readers are directed to Note 25 “Fair value measurement”
of the Consolidated Financial Statements for a complete
description of the Company’s use of derivative financial
instruments and their impact on the financial results, and to
Note 27 “Financial risk management objectives and policies” of
the 2019 annual consolidated financial statements for further
discussion of the Company’s financial risks and policies
Related Party Transactions
The Company’s business is carried on through the Parent
company, High Liner Foods Incorporated, and wholly owned
operating subsidiaries, High Liner Foods (USA) Incorporated
and High Liner Foods, útibú á Íslandi. High Liner Foods, útibú
á Íslandi has a subsidiary in Thailand. High Liner Foods (USA)
Incorporated’s wholly owned subsidiaries include: ISF (USA),
LLC; and Rubicon Resources, LLC. These companies purchase
and/or sell inventory between them, and do so in the normal
course of operations. The companies lend and borrow money
between them, and periodically, capital assets are transferred
between companies. High Liner Foods Incorporated buys
the seafood for all of the subsidiaries, and also provides
management, procurement and information technology
services to the subsidiaries. On consolidation, revenue, costs,
gains or losses, and all intercompany balances are eliminated.
In addition to transactions between the Parent and
subsidiaries, High Liner Foods may enter into certain
transactions and agreements in the normal course of business
with certain other related parties (see Note 23 “Related
party disclosures” to the Consolidated Financial Statements).
Transactions with these parties are measured at the exchange
amount, which is the amount of consideration established and
agreed to by the related parties.
MD&A 32 HIGH LINER FOODS
The Company had related party transactions with a company
controlled by a strategic advisor of Rubicon. Effective the
beginning of the second quarter of 2019, this company ceased
to be a related party in accordance with IFRS. Total sales to
related parties for the fifty-two weeks ended December 28,
2019 were $0.3 million (fifty-two weeks ended December 29,
2018: $0.9 million). The Company leased an office building
from a related party at an amount which approximated the
fair market value that would be incurred if leased from a third
party. Effective the beginning of the second quarter of 2019,
the lessor ceased to be a related party in accordance with
IFRS. The aggregate payments under the lease, which are
measured at the exchange amount, were $0.2 million during
the fifty-two weeks ended December 28, 2019 (fifty-two
weeks ended December 29, 2018: $0.7 million).
Non-IFRS Financial Measures
The Company uses the following non-IFRS financial measures
in this MD&A to explain the following financial results:
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization (“Adjusted EBITDA”); Adjusted Earnings before
Interest and Taxes (“Adjusted EBIT”); Adjusted Net Income;
Adjusted Diluted Earnings per Share (“Adjusted Diluted EPS”);
Standardized Free Cash Flow; Net Debt; Return on Assets
Managed; and Return on Equity.
Adjusted EBITDA
Adjusted EBITDA follows the October 2008 “General
Principles and Guidance for Reporting EBITDA and Free Cash
Flow” issued by the Chartered Professional Accountants
of Canada (“CPA Canada”) and is earnings before interest,
taxes, depreciation and amortization adjusted for items that
are not considered representative of ongoing operational
activities of the business. The related margin is defined as
Adjusted EBITDA divided by net sales (“Adjusted EBITDA as a
percentage of sales”), where net sales is defined as “Sales” on
the consolidated statements of income.
We use Adjusted EBITDA (and Adjusted EBITDA as a
percentage of sales) as a performance measure as it
approximates cash generated from operations before capital
expenditures and changes in working capital, and it excludes
the impact of expenses and recoveries associated with certain
non-routine items that are not considered representative of
the ongoing operational activities, as discussed above, and
share-based compensation expense related to the Company’s
share price. We believe investors and analysts also use
Adjusted EBITDA (and Adjusted EBITDA as a percentage
of sales) to evaluate the performance of our business. The
most directly comparable IFRS measure to Adjusted EBTIDA
is “Results from operating activities” on the consolidated
statements of income. Adjusted EBITDA is also useful when
comparing companies, as it eliminates the differences in
earnings that are due to how a company is financed. Also,
for the purpose of certain covenants on our credit facilities,
“EBITDA” is based on Adjusted EBITDA, with further
adjustments as defined in the Company’s credit agreements.
The following table reconciles our Adjusted EBITDA
with measures that are found in our Consolidated
Financial Statements.
Thirteen
weeks ended
December 28,
2019
Thirteen
weeks ended
December 29,
2018
$
(3,019)
$
(810)
5,678
16,584
(1,589)
17,654
4,464
5,788
(1,705)
7,737
(Amounts in $000s)
Net income
Add back (deduct):
Depreciation and amortization
expense(1)
Financing costs(2)
Income tax recovery
Standardized EBITDA
Add back (deduct):
Business acquisition, integration and
other expenses (income)(3)
2,559
3,631
Impairment of property, plant
and equipment
Loss on disposal of assets
Share-based compensation
(recovery) expense
6
61
(1,509)
299
112
189
Adjusted EBITDA
$
18,771
$
11,968
MD&A Annual Report 2019 33
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
$
10,289
$
16,776
Adjusted EBIT
Adjusted EBIT is Adjusted EBITDA less depreciation and
amortization expense. Corporate incentives and management
analysis of the business are based on Adjusted EBIT. The
following tables reconcile Adjusted EBITDA to Adjusted EBIT.
22,455
33,012
4,235
69,991
17,771
21,603
6,090
62,240
(Amounts in $000s)
Adjusted EBITDA
Less:
Thirteen
weeks ended
December 28,
2019
Thirteen
weeks ended
December 29,
2018
$
18,771
$
11,968
7,105
(2,471)
Depreciation and amortization
expense(1)
5,678
Adjusted EBIT
$
13,093
$
4,464
7,504
(Amounts in $000s)
Net income
Add back (deduct):
Depreciation and amortization
expense(1)
Financing costs(2)
Income tax expense
Standardized EBITDA
Add back (deduct):
Business acquisition, integration and
other expenses (income)(3)
Impairment of property, plant and
equipment
Loss on disposal of assets
Share-based compensation expense
974
130
7,124
1,302
166
1,237
Adjusted EBITDA
$
85,324
$
62,474
(1) The thirteen and fifty-two weeks ended December 28, 2019 include additional
depreciation and amortization expense primarily related to the adoption of the
new lease standard that was effective the beginning of Fiscal 2019 (see the
Recent Developments section on page 16 of this MD&A).
(Amounts in $000s)
Adjusted EBITDA
Less:
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
$
85,324
$
62,474
(2) The thirteen and fifty-two weeks ended December 28, 2019 include a loss on
the modification of debt related to the debt refinancing completed in October
2019 (see the Recent Developments section on page 16 of this MD&A).
(3) The fifty-two weeks ended December 28, 2019 includes short-term termination
benefits incurred as part of the organizational realignment (see the Recent
Developments section on page 16 of this MD&A) and costs related to the
Company’s critical initiatives (see the Company Overview section on page 13
of this MD&A). Additionally, the fifty-two weeks ended December 28, 2019
includes $3.0 million of the $8.5 million product recall recovery received from
the ingredient supplier in the first quarter of 2019, and the fifty-two weeks
ended December 29, 2018 includes the $8.5 million recovery received from the
ingredient supplier in the third quarter of 2018 (see the Recent Developments
section on page 16 of this MD&A).
Depreciation and amortization
expense(1)
Adjusted EBIT
22,455
$
62,869
$
17,771
44,703
(1) During the fifty-two weeks ended December 29, 2018, depreciation and
amortization expense included additional expense primarily related to the
adoption of the new lease standard that was effective the beginning of Fiscal
2019 (see the Recent Developments section on page 16 of this MD&A).
Adjusted Net Income and Adjusted Diluted EPS
Adjusted Net Income is net income adjusted for the after-
tax impact of items which are not representative of ongoing
operational activities of the business and certain non-cash
expenses or income. Adjusted Diluted EPS is Adjusted Net
Income divided by the average diluted number of shares
outstanding.
We use Adjusted Net Income and Adjusted Diluted EPS to
assess the performance of our business without the effects of
the above-mentioned items, and we believe our investors and
analysts also use these measures. We exclude these items
because they affect the comparability of our financial results
and could potentially distort the analysis of trends in business
performance. The most comparable IFRS financial measures
are net income and EPS.
MD&A 34 HIGH LINER FOODS
The table below reconciles our Adjusted Net Income with measures that are found in our Consolidated Financial Statements:
Net income
Add back (deduct):
Business acquisition, integration and other expenses (income)(1)
Impairment of property, plant and equipment
Share-based compensation (recovery) expense
Modification loss on debt refinancing activities(2)
Tax impact of reconciling items
Adjusted Net Income
Average shares for the period (000s)
Net income
Add back (deduct):
Business acquisition, integration and other expenses (income)(1)
Impairment of property, plant and equipment
Share-based compensation expense
Modification loss on debt refinancing activities(2)
Tax impact of reconciling items
Adjusted Net Income
Average shares for the period (000s)
Thirteen weeks ended
December 28, 2019
Thirteen weeks ended
December 29, 2018
$000s
Diluted EPS
$000s
Diluted EPS
$
(3,019)
$
(0.09)
$
(810)
$
(0.02)
2,559
6
(1,509)
10,969
(3,331)
0.08
—
(0.04)
0.32
(0.10)
3,631
299
189
—
(1,140)
$
5,675
$
0.17
$
2,169
$
33,796
0.10
0.01
0.01
—
(0.03)
0.07
33,675
Fifty-two weeks ended
December 28, 2019
Fifty-two weeks ended
December 29, 2018
$000s
Diluted EPS
$000s
Diluted EPS
$
10,289
$
0.30
$
16,776
$
0.50
(2,471)
(0.07)
7,105
974
7,124
10,969
(7,324)
0.21
0.03
0.21
0.32
(0.21)
1,302
1,237
—
205
$
29,137
$
0.85
$
17,049
$
34,195
0.04
0.03
—
0.01
0.51
33,619
(1) The fifty-two weeks ended December 28, 2019 includes short-term termination benefits incurred as part of the organizational realignment (see the Recent
Developments section on page 16 of this MD&A) and costs related to the Company’s critical initiatives (see the Company Overview section on page 13 of this
MD&A). Additionally, the fifty-two weeks ended December 28, 2019 includes $3.0 million of the $8.5 million product recall recovery received from the ingredient
supplier in the first quarter of 2019, and the fifty-two weeks ended December 29, 2018 includes the $8.5 million recovery received from the ingredient supplier in the
third quarter of 2018 (see the Recent Developments section on page 16 of this MD&A).
(2) The thirteen and fifty-two weeks ended December 28, 2019 includes a loss on the modification of debt related to the debt refinancing completed in October 2019 (see
the Recent Developments section on page 16 of this MD&A).
CAD-Equivalent Adjusted Diluted EPS
CAD-Equivalent Adjusted Diluted EPS is Adjusted Diluted
EPS, as defined above, converted to CAD using the average
USD/CAD exchange rate for the period. High Liner Foods’
common shares trade on the TSX and are quoted in CAD.
The CAD-Equivalent Adjusted Diluted EPS is provided for
the purpose of calculating financial ratios, like share price-to-
Adjusted Diluted EPS
Average foreign exchange rate for the period
CAD-Equivalent Adjusted Diluted EPS
earnings ratio, where investors should take into consideration
that the Company’s share price and dividend rate are reported
in CAD and its earnings and financial position are reported
in USD. This measure is included for illustrative purposes
only, and would not equal the Adjusted Diluted EPS in CAD
that would result if the Company’s Consolidated Financial
Statements were presented in CAD.
Thirteen weeks ended
Fifty-two weeks ended
December 28,
2019
December 29,
2018
December 28,
2019
December 29,
2018
$
$
0.17
1.3206
0.22
$
$
0.07
1.3197
0.09
$
$
0.85
1.3273
1.13
$
$
0.51
1.2956
0.66
MD&A Annual Report 2019 35
Standardized Free Cash Flow
Standardized Free Cash Flow follows the October 2008
“General Principles and Guidance for Reporting EBITDA
and Free Cash Flow” issued by CPA Canada and is cash
flow from operating activities less capital expenditures (net
of investment tax credits) as reported in the consolidated
statements of cash flows. The capital expenditures related
to business acquisitions are not deducted from Standardized
Free Cash Flow.
We believe Standardized Free Cash Flow is an important
indicator of financial strength and performance of our
business because it shows how much cash is available to
pay dividends, repay debt (including lease liabilities) and
reinvest in the Company. We believe investors and analysts
use Standardized Free Cash Flow to value our business and
its underlying assets. The most comparable IFRS financial
measure is “cash flows from operating activities” in the
consolidated statements of cash flows.
The table below reconciles our Standardized Free Cash Flow calculated on a rolling twelve-month basis, with measures that are
in accordance with IFRS and as reported in the consolidated statements of cash flows.
(Amounts in $000s)
Net change in non-cash working capital items
Cash flow from operating activities, including interest and income taxes
Cash flow from operating activities
Less: total capital expenditures, net of investment tax credits
Standardized Free Cash Flow
Net Debt
Net Debt is calculated as the sum of bank loans, long-term
debt and lease liabilities, less cash.
We consider Net Debt to be an important indicator of our
Company’s financial leverage because it represents the
amount of debt that is not covered by available cash. We
believe investors and analysts use Net Debt to determine the
Company’s financial leverage. Net Debt has no comparable
IFRS financial measure, but rather is calculated using several
asset and liability items in the consolidated statements of
financial position.
Twelve months ended
December 28,
2019
December 29,
2018
Change
$
(9,144)
$
4,441
$
(13,585)
60,750
51,606
(6,569)
52,492
56,933
(13,961)
$
45,037
$
42,972
$
8,258
(5,327)
7,392
2,065
The following table reconciles Net Debt to IFRS measures
reported as at the end of the indicated periods.
(Amounts in $000s)
Current bank loans
Add-back: deferred finance costs
included in current bank loans
Total current bank loans
Long-term debt
Current portion of long-term debt
Add-back: deferred finance costs
included in long-term debt
Less: loss on modification of debt(1)
Total term loan debt
Long-term portion of lease liabilities
Current portion of lease liabilities
Total lease liabilities(2)
Less: cash
Net Debt
December 28,
2019
December 29,
2018
$
37,546
$
31,152
410
37,956
289,020
14,511
7,073
(10,604)
300,000
7,198
4,582
11,780
(3,144)
353
31,505
322,674
13,655
1,597
—
337,926
407
372
779
(9,568)
$
346,592
$
360,642
(1) The fifty-two weeks ended December 28, 2019 reflects a loss on the
modification of debt related to the debt refinancing completed in October
2019 (see the Recent Developments section on page 16 of this MD&A) that
has been excluded from the calculation of Net Debt as it does not represent
expected cash outflows from term loan debt.
(2) The Company has adopted the new lease standard, IFRS 16, Leases, which has
resulted in additional lease liabilities of $14.6 million effective December 30,
2018 (see the Recent Developments section on page 16 of this MD&A).
IFRS 16 was applied using the modified retrospective method and as a result,
the comparative information for Fiscal 2018 has not been restated. Therefore
these lease liabilities are only included in the Company’s Net Debt balance as at
December 28, 2019, where IFRS 16 has increased Net Debt by $11.4 million.
MD&A 36 HIGH LINER FOODS
Return on Assets Managed
ROAM is Adjusted EBIT divided by average assets managed
(calculated using the average net assets month-end
balance for each of the preceding thirteen months, where
“net assets managed” includes all assets, except for future
employee benefits, deferred income taxes and other certain
financial assets, less accounts payable and accrued liabilities,
and provisions).
We believe investors and analysts use ROAM as an indicator
of how efficiently the Company is using its assets to generate
earnings. ROAM has no comparable IFRS financial measure,
but rather is calculated using several asset items in the
consolidated statements of financial position.
The table below reconciles our average net assets, calculated
on a rolling thirteen-month basis, with Adjusted EBIT (which
is reconciled to IFRS measures on page 33 of this MD&A).
(Amounts in $000s)
Adjusted EBIT
Thirteen-month rolling average
net assets
ROAM
Return on Equity
December 28,
2019
December 29,
2018
$
62,869
$
44,703
666,522
676,343
9.4%
6.6%
ROE is calculated as Adjusted Net Income, less share-based
compensation expense, divided by average common equity
(calculated using the common equity month-end balance
for each of the preceding thirteen months, comprised of
common shares, contributed surplus, retained earnings, and
accumulated other comprehensive income).
We believe investors and analysts use ROE as an indicator of
how efficiently the Company is managing the equity provided
by shareholders. ROE has no comparable IFRS financial
measure, but rather is calculated using average equity from
the consolidated statements of financial position.
The table below reconciles our average common equity
calculated on a rolling thirteen-month basis, with Adjusted
Net Income (which is reconciled to IFRS measures on page 33
of this MD&A).
(Amounts in $000s)
Adjusted Net Income
Less: share-based compensation
expense, net of tax(1)
Thirteen-month rolling average
common equity
ROE
December 28,
2019
December 29,
2018
$
29,137
$
17,049
5,196
23,941
1,176
15,873
271,663
272,952
8.8%
5.8%
(1) Net of tax expense of $1.9 million and $0.1 million during the fifty-two weeks
ended December 28, 2019 and December 29, 2018, respectively.
Governance
Our 2019 Management Information Circular, to be filed in
connection with our Annual General Meeting of Shareholders
on May 12, 2020, includes full details of our governance
structures and processes.
We maintain a set of disclosure controls and procedures
(“DC&P”) designed to ensure that information required
to be disclosed in filings made pursuant to National
Instrument 52-109, Certification of Disclosure in Issuers’ Annual
and Interim Filings, is recorded, processed, summarized and
reported within the time periods specified in the Canadian
Securities Administrators’ rules and forms.
Our Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) have evaluated the design and effectiveness of our
DC&P as of December 28, 2019. They have concluded that
our current DC&P are designed to provide, and do operate to
provide, reasonable assurance that: (a) information required
to be disclosed by the Company in its annual filings or other
reports filed or submitted by it under applicable securities
legislation is recorded, processed, summarized and reported
within the prescribed time periods; and (b) material information
regarding the Company is accumulated and communicated to
the Company’s management, including its CEO and CFO, to
allow timely decisions regarding required disclosure.
In addition, our CEO and CFO have designed or caused to be
designed under their supervision, ICFR, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes.
Furthermore, our CEO and CFO have evaluated, or caused to
be evaluated under their supervision, the effectiveness of the
design and operation of ICFR at the fiscal year-end and have
concluded that our current ICFR was effective at the fiscal year-
end based on that evaluation.
MD&A Annual Report 2019 37
There has been no change in the Company’s ICFR during 2019
that has materially affected, or is reasonably likely to materially
affect, the Company’s ICFR.
Accounting Estimates and Standards
Critical Accounting Estimates
The preparation of the Company’s Consolidated Financial
Statements requires management to make critical judgments,
estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities, and
the disclosure of contingent liabilities, at the reporting date.
On an ongoing basis, management evaluates its judgments,
estimates and assumptions using historical experience and
various other factors it believes to be reasonable under the
given circumstances. Actual outcomes may differ from these
estimates under different assumptions and conditions that
could require a material adjustment to the reported carrying
amounts in the future.
The most significant estimates made by management include
the following:
IMPAIRMENT OF NON-FINANCIAL ASSETS
The Company’s estimate of the recoverable amount for
the purpose of impairment testing requires management
to make assumptions regarding future cash flows before
taxes. Future cash flows are estimated based on multi-year
extrapolation of the most recent historical actual results and/
or budgets, and a terminal value calculated by discounting
the final year in perpetuity. The future cash flows are then
discounted to their present value using an appropriate
discount rate that incorporates a risk premium specific to
the North American business. Further details, including the
manner in which the Company identifies its CGU, and the key
assumptions used in determining the recoverable amount,
are disclosed in Note 10 “Goodwill and intangible assets” to the
Consolidated Financial Statements.
FUTURE EMPLOYEE BENEFITS
The cost of the defined benefit pension plan and other
post-employment benefits and the present value of the
defined benefit obligation are determined using actuarial
valuations. An actuarial valuation involves making various
assumptions, including the discount rate, future salary
increases, mortality rates and future pension increases. In
determining the appropriate discount rate, management
considers the interest rates of high-quality corporate bonds
that are denominated in the currency in which the benefits
will be paid and that have terms to maturity approximating
the terms of the related pension liability. Interest income on
plan assets is a component of the return on plan assets and is
determined by multiplying the fair value of the plan assets by
the discount rate. See Note 15 “Future employee benefits” to the
Consolidated Financial Statements for certain assumptions
made with respect to future employee benefits.
INCOME TAXES
The Company is subject to income tax in various jurisdictions.
Significant judgment is required to determine the consolidated
tax provision. The tax rates and tax laws used to compute
income tax are those that are enacted or substantively
enacted at the reporting date in the countries where the
Company operates and generates taxable income.
There are transactions and calculations during the ordinary
course of business for which the ultimate tax determination
is uncertain. The Company maintains provisions for uncertain
tax positions that are believed to appropriately reflect the
risk with respect to tax matters under active discussion,
audit, dispute or appeal with tax authorities, or which are
otherwise considered to involve uncertainty. These provisions
for uncertain tax positions are made using the best estimate
of the amount expected to be paid based on a qualitative
assessment of all relevant factors. The Company reviews the
adequacy of these provisions at each reporting date; however,
it is possible that at some future date, an additional liability
could result from audits by taxing authorities. Where the final
tax outcome of these matters is different from the amounts
that were initially recorded, such differences will affect the tax
provisions in the period in which such determination is made.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Where the fair value of financial assets and financial liabilities
recorded in the consolidated statements of financial position
cannot be derived from active markets, their fair value
is determined using valuation techniques including the
discounted cash flow model. The inputs to these models are
taken from observable markets where possible, but where
this is not feasible, a degree of estimation is required in
establishing fair values. The estimates include considerations
of inputs such as liquidity risk, credit risk and volatility.
Changes in these inputs could affect the reported fair value of
financial instruments.
SALES AND MARKETING ACCRUALS
The Company estimates variable consideration to determine
the costs associated with the sale of product to be allocated
to certain variable sales and marketing expenses, including
volume rebates and other sales volume discounts, coupon
redemption costs, costs incurred related to damages and
other trade marketing programs. The Company’s estimates
include consideration of historical data and trends, combined
with future expectations of sales volume, with estimates
being reviewed on a frequent basis for reasonability.
MD&A 38 HIGH LINER FOODS
Accounting Standards
High Liner Foods reports its financial results using IFRS. Our
detailed accounting policies are included in the Notes to the
Consolidated Financial Statements.
As disclosed in Note 3 “Significant accounting policies” to
the Consolidated Financial Statements for the period ended
December 28, 2019, we adopted the following new standards
and amendments that were effective for annual periods
beginning on January 1, 2019 and that the Company has
adopted on December 30, 2018:
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16, Leases, which replaces
IAS 17, Leases, and its associated interpretive guidance. The
new standard eliminates the distinction between operating
and finance leases, bringing most leases on-balance sheet for
lessees under a single model, unless an election is made to
exclude a lease with a lease term of 12 months or less or the
lease is for a low-value asset. A lessee recognizes a right-of-
use (“ROU”) asset representing the Company’s right to use the
underlying asset and a lease liability representing the obligation
to make lease payments. Lessor accounting, however, remains
largely unchanged and the distinction between operating and
finance leases is retained.
The Company has elected to adopt the standard using the
modified retrospective method and therefore the comparative
information for Fiscal 2018 has not been restated. The
Company has recognized new assets and liabilities for all
leases that were previously classified as operating leases,
other than those that were excluded due to the elected
practical expedients. The Company applied the following
practical expedients upon transition:
• The previous determination pursuant to IAS 17 and IFRIC 4,
Determining Whether an Arrangement Contains a Lease, of
whether a contract is a lease has been maintained for
existing contracts;
• The Company has exercised the option not to apply the
new recognition requirements to short-term leases with
a term of 12 months or less (and no purchase option) and
leases of low-value assets;
• For the purpose of initial measurement of the right-of-use
assets as at December 30, 2018, initial direct costs were
not taken into account; and
• The Company has elected not to separate non-lease
components from lease components and will account for
identified components as a single lease component.
As at December 30, 2018, the Company recognized additional
assets and liabilities on the consolidated statements of financial
position of $14.6 million (see Note 9). In addition, the nature
of the expense related to these leases has changed as IFRS
16 replaces the straight-line operating lease expense with
depreciation expense for right-of-use assets and interest expense
on the lease liabilities using the effective interest method.
The following table reconciles the operating lease payments as at December 29, 2018 to the lease liabilities recognized as at
December 30, 2018:
(Amounts in $000s)
Minimum lease payments under operating leases as at December 29, 2018
Recognition exemption for
Short-term leases
Leases of low-value assets
Reasonably certain extension options
Variable non-lease components(1)
Lease obligation as at December 30, 2018 (gross, without discounting)
Effect from discounting at the incremental borrowing rate as at December 30, 2018(2)
Liabilities recognized based on the initial application of IFRS 16 as at December 30, 2018
Current portion of lease liabilities as at December 29, 2018
Long-term lease liabilities as of December 29, 2018
Total lease liabilities as of December 30, 2018
Lease
liabilities
$
20,186
(24)
(15)
423
(2,653)
17,917
(3,347)
14,570
372
407
272,952
$
15,349
(1) Total payments related to variable non-lease components were $0.5 million during the fifty-two weeks ended December 28, 2019.
(2) The weighted-average incremental borrowing rate (“IBR”) for lease liabilities initially recognized as of December 30, 2018 was 10%. If the Company’s IBR changed by
1%, the lease liabilities initially recognized would change by approximately $0.4 million.
MD&A Annual Report 2019 39
IFRIC Interpretation 23, Uncertainty over Income Tax Treatment
In June 2017, the International Accounting Standards Board
(IASB) issued IFRIC Interpretation 23, Uncertainty over
Income Tax Treatments (the “Interpretation”), to address
the accounting for income taxes when treatments involve
uncertainty that affects the application of IAS 12, Income Taxes
(“IAS 12”). The Interpretation does not apply to taxes or levies
outside the scope of IAS 12, nor does it specifically include
requirements relating to interest and penalties associated
with uncertain tax treatments. The Interpretation specifically
addresses the following:
• Whether an entity considers uncertain tax treatments
separately;
• The assumptions an entity makes about the examination of
tax treatments by taxation authorities;
• How an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax
rates; and
• How an entity considers changes in facts and
circumstances.
The Interpretation is effective for annual reporting periods
beginning on or after January 1, 2019. The Interpretation had
no impact on the Consolidated Financial Statements, therefore
the Company was able to implement the Interpretation
retrospectively without the use of hindsight.
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT
YET EFFECTIVE
The standards, amendments and interpretations that have been
issued, but are not yet effective, up to the date of issuance of
these financial statements are disclosed below. The Company
intends to adopt these standards when they become effective.
IFRS 3, Business Combinations
In October 2018, the IASB issued amendments to the
definition of a business in IFRS 3, Business Combinations. The
amendments are intended to assist entities in determining
whether a transaction should be accounted for as a business
combination or as an asset acquisition. The amendments
apply to transactions that are either business combinations or
asset acquisitions for which the acquisition date is on or after
January 1, 2020, with early adoption permitted. The Company
will apply the interpretation from the effective date.
ACCOUNTING POLICY
At inception, the Company assesses whether a contract is or
contains a lease which involves the exercise of judgment. The
Company has elected not to separate lease and non-lease
components for its right-of-use assets. The Company has
elected not to recognize ROU assets and lease liabilities for
leases where the total lease term is less than 12 months, or
for a lease of low value. The payments for these leases will
be recognized on a straight-line basis over the lease term as
operating expenses.
Lease assets are capitalized at the commencement date of
the lease and ROU assets are initially measured based on the
present value of the lease payments, plus initial direct costs
incurred when entering into the lease and lease payments made
at or before the commencement date, less any lease incentives
received. The ROU assets are depreciated over the shorter of
the lease term or the estimated useful life of the underlying
asset. An impairment review is undertaken for any ROU asset
that shows indicators of impairment and an impairment loss is
recognized against the ROU asset that is impaired.
The lease liability is measured at the present value of the
fixed and eligible variable lease payments that depend on
an index or rate, net of any lease incentives at the initial
measurement date. When the lease contains an extension
or purchase option that the Company considers reasonably
certain to be exercised, the cost of the option is included
in the lease payments. The present value of the lease
payments is determined using the discount rate representing
the Company’s incremental borrowing rate on the lease
commencement date, adjusted for the applicable currency of
the lease contract, similar tenor and nature of the asset being
leased. The variable lease payments that do not depend on
an index or a rate are recognized as expense in the period in
which the event or condition that triggers the payment occurs.
IAS 19, Employee Benefits
In February 2018, the IASB issued amendments to IAS 19,
Employee Benefits (“IAS 19”), which addresses the accounting
when a plan amendment, curtailment or settlement occurs
during the reporting period. The current service cost and
net interest for the remainder of the period after the plan
amendment, curtailment or settlement should reflect the
updated actuarial assumptions after such an event. The
amendments apply to plan amendments, curtailments, or
settlements that occur on or after January 1, 2019, with
early adoption permitted. The Company has adopted the
amendments to IAS 19 on a prospective basis, which had no
impact on the Consolidated Financial Statements.
MD&A 40 HIGH LINER FOODS
IFRS 9, Financial Instruments, IAS 39, Financial Instruments:
Recognition and Measurement and IFRS 7, Financial Instruments:
Disclosures, Interest Rate Benchmark Reform
In September 2019, the IASB issued amendments to IFRS 9,
Financial Instruments, IAS 39, Financial Instruments: Recognition
and Measurement and IFRS 7, Financial Instruments: Disclosures,
Interest Rate Benchmark Reform, which concludes phase one
of its work to respond to the effects of the Interbank Offered
Rates (“IBOR”) reform on financial reporting. The amendments
provide temporary reliefs which enable hedge accounting
to continue during the period of uncertainty before the
replacement of an existing interest rate benchmark with an
alternative nearly risk-free rate (“RFR”). The amendments are
effective for annual periods beginning on or after January 1,
2020 and must be applied retrospectively.
The amendments include a number of reliefs that apply to all
hedging relationships that are directly affected by the interest
rate benchmark reform. A hedging relationship is affected if
the reform gives rise to uncertainties about the timing and/or
amount of benchmark-based cash flows of the hedged item or
hedging instrument. The first three reliefs provide for:
• The assessment of whether a forecast transaction
(or component thereof) is highly probable;
• Assessing when to reclassify the amount in the cash
flow hedge reserve to profit and loss; and
• The assessment of the economic relationship between
the hedged item and the hedging instrument.
The amendments also introduce specific disclosure
requirements for hedging relationships to which the reliefs are
applied. The Company is currently evaluating the impact of
these amendments on its Consolidated Financial Statements.
IAS 1, Presentation of Financial Statements, and IAS 8, Accounting
Policies, Changes in Accounting Estimates and Errors, Amendments
to the Definition of Material
In October 2018, the IASB issued amendments to IAS 1,
Presentation of Financial Statements, and IAS 8, Accounting
Policies, Changes in Accounting Estimates and Errors, to align
the definition of “material” across the standards and to clarify
certain aspects of the definition. The new definition states that,
“Information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make on
the basis of those financial statements, which provide financial
information about a specific reporting entity.”
The amendments clarify that materiality will depend on the
nature or magnitude of information, or both. An entity will need
to assess whether the information, either individually or in
combination with other information, is material in the context
of the financial statements. The amendments are effective
for annual reporting periods beginning on or after January 1,
2020 and must be applied prospectively, with early adoption
permitted. The Company will apply the amendments from the
effective date.
IAS 1, Presentation of Financial Statements
In January 2020, the IASB issued amendments to IAS 1,
Presentation of Financial Statements, to clarify that the
classification of liabilities as current or non-current should be
based on rights that are in existence at the end of the reporting
period and is unaffected by expectations about whether or not
an entity will exercise their right to defer settlement of a liability.
The amendments further clarify that settlement refers to the
transfer to the counterparty of cash, equity instruments, other
assets or services.
The amendments are effective for annual reporting periods
beginning on or after January 1, 2022 and must be applied
retrospectively. The Company is currently evaluating the impact
of these amendments on its Consolidated Financial Statements
and will apply the amendments from the effective date.
Risk Factors
High Liner Foods is exposed to a number of risks in the normal
course of business that have the potential to affect operating
performance. The Company takes a strategic approach to risk
management. To achieve a return on investment, we have
designed an enterprise-wide approach, overseen by the senior
management of the Company and reported to the Board, to
identify, prioritize and manage risk effectively and consistently
across the organization.
While risk management is part of the Company’s transactional,
operational and strategic decisions, as well as the Company’s
overall management approach, risk management does not
guarantee that events or circumstances will not occur which
could have a material adverse impact on the Company’s
financial condition and performance.
Food Safety
At High Liner Foods, food safety is our top priority. Our brand
equity and reputation are inextricably linked to the quality and
safety of our food products. We must be vigilant in ensuring
our products are safe and comply with all applicable laws
and regulations. Customers expect consistently safe, quality
products and their expectations are unwavering regardless of the
commodity or complexity of the supply chain. Consumers are
increasingly better informed about conscientious food choices.
MD&A Annual Report 2019 41
The Company’s processing plants have all the required State,
Provincial and/or Federal licenses to operate and are certified
to the Global Food Safety Initiatives (“GFSI”) and Safe Quality
Foods (“SQF”) standards, meaning our processing plants have
passed a rigorous quality and food safety system audit that
is internationally recognized and globally benchmarked. The
GSFI certification enables the Company to supply our wide
range of products to some of the industry’s most discerning
customers. This annual certification process helps drive
improvement across the organization, critical for maintaining
customer and consumer confidence.
In Canada, certain food businesses, including seafood-
processing plants, are required to adopt a Preventative
Control Plan (“PCP”) under the recently implemented Safe
Food for Canadians Act and Regulations. These requirements
cover the regulatory and safety aspects of food processing
and importing in Canada and have been developed by
the Canadian Food Inspection Agency (“CFIA”) based on
global best practices. This plan must also include a hazard
analysis that describes how hazards will be controlled and/
or eliminated. High Liner Foods’ PCP and processing facilities
are regularly inspected and audited by the CFIA and remain in
good standing.
In the United States, the Company’s plants produce product
in accordance with standards set forth by the U.S. Food and
Drug Administration’s (“FDA”) and the U.S. Department
of Agriculture (“USDA”). The regulatory requirements for
seafood processing (and importing) in the United States are
very specific for fish and fishery products and all plants are
required to operate with current seafood Hazard Analysis
Critical Control Point (“HACCP”) programs. Our plants are
regularly inspected and audited by our regulatory partners in
the U.S. and remain in good standing.
In addition, our suppliers’ plants outside of North America must
demonstrate compliance for imported products in accordance
with the guidelines set forth in the FDA seafood HACCP. All
of the Company’s non-North American suppliers operate
with HACCP approved plans and are required to adhere to
newly strengthened FDA and Canadian CFIA importation
requirements focusing on food safety and traceability. In
addition, all purchases are subject to risk based quality
review and inspection by the Company’s own trained quality
inspectors. We have strict specifications for suppliers of both
raw material and finished goods to ensure that procured goods
are of the same quality and consistency as products processed
in our own plants. High Liner Foods has offices in Qingdao,
China; Bangkok, Thailand; and Reykjavik, Iceland and employs
full-time procurement and food safety and quality experts to
oversee procurement activities around the world. This oversight
includes production monitoring and finished product inspection
at the source before shipment to North America. We also
maintain strict Supplier Approval and Audit Standards. Through
audit procedures, all food suppliers are required to meet our
quality control and safety standards, which, in many instances,
are higher than regulatory standards. All product is inspected to
assure consumers that High Liner Foods’ quality is consistent,
regardless of source or origin.
In order to maintain compliance with the various and ever
changing regulatory, industry and customer requirements
and expectations, we employ a Food Safety and Quality
Assurance team comprised of highly qualified, trained and
experienced personnel including food scientists, quality
technicians, quality and food safety auditors, and labelling
and nutritional professionals. High Liner Foods has retained
independent auditors to add an additional level of scrutiny
to our food safety programs and has robust audit policies
and processes that are consistently applied throughout the
Company. Audit processes are implemented and all personnel
are adequately trained. Quality and food safety activities also
include state-of-the-art product specification and traceability
systems. We are continuously evaluating and updating our
internal operating standards to keep pace with the industry
expectations and to support improved performance and
greater success.
Product Recall
The Company is subject to risks that affect the food
industry in general, including risks posed by food spoilage,
accidental contamination, product tampering, consumer
product liability, and the potential costs and disruptions of
a product recall. The Company actively manages these risks
by maintaining strict and rigorous controls and processes
in its manufacturing facilities and distribution systems and
by maintaining prudent levels of insurance. However, the
Company cannot assure that such systems, even when
working effectively, will eliminate the risks related to food
safety. The Company could be required to recall certain of its
products in the event of contamination or adverse test results
or as precautionary measures. There is also a risk that not all
of the product subject to the recall will be properly identified,
or that the recall will not be successful or not be enacted in
a timely manner. Any product contamination could subject
the Company to product liability claims, adverse publicity and
government scrutiny, investigation or intervention, resulting
in increased costs and decreased sales. Many of these costs
and losses are not covered by insurance. Any of these events
could have a material adverse impact on the Company’s
financial condition and results of operations.
The Company initiated a product recall during Fiscal 2017. See
the Recent Developments section on page 16 of this MD&A.
MD&A 42 HIGH LINER FOODS
Procurement
Availability of Seafood and Non-Seafood Goods
Our business depends upon the procurement of frozen raw
seafood materials and finished goods on world markets. In
2019, the Company purchased approximately 189 million
pounds of seafood, with an approximate value of $554.0
million. Seafood and other food input markets are global with
values expressed in USD. In 2019, we bought approximately
30 species of seafood from 25 countries around the world.
There are no formal hedging mechanisms in the seafood
market. Prices can fluctuate due to changes in the balance
between supply and demand over which the Company
has little or no control. Weather, quota changes, disease,
geopolitical issues, including economic sanctions, tariffs
and trade barriers, and other environmental impacts in key
fisheries can affect supply. Changes in the relative values of
currency can change the demand from a particular country
whose currency has risen or fallen as compared to the U.S.
dollar. The increasing middle class and government policies
in emerging economies, as well as demand from health-
conscious consumers, affect demand as well.
Raw material costs in Canada are affected by the Canadian
and U.S. dollar exchange rates. A strong Canadian dollar
offsets increases in the U.S. dollar cost of raw materials for
our Canadian operations, and conversely, when the Canadian
dollar weakens, it increases our costs. We hedge exposures
to currency changes and enter into annual supply contracts
when possible. All foreign currency hedging activities are
carried out in accordance with the Company’s formal “Price
Risk Management Policy,” under the oversight of the Audit
Committee of the Board of Directors.
Our broad product line and customer base, along with
geographically diverse procurement operations, help us
mitigate changes in the cost of our raw materials. In addition,
product formulation changes, long-term relationships with
suppliers, and price changes to customers are all important
factors in our ability to manage supply of necessary products.
We purchase frozen raw material and finished goods
originating from many different areas of the world and ensure,
to the extent possible, that our supplier base is diverse to
ensure no over-reliance on any source. Our strategy is to
always have at least two suppliers of seafood products where
possible.
There can be no assurance that disruptions in supply will not
occur, nor can there be any assurance that all or part of any
increased costs experienced by the Company from time to
time can be passed along to consumers of the Company’s
products directly or in a timely manner.
Historically, North American markets have consumed less
seafood per capita than certain Asian and European markets.
If increased global seafood demand results in materially higher
prices, North American consumers may be less likely to
consume amounts historically consistent with their share of the
global seafood market, which may adversely affect the financial
results of High Liner Foods due to its North American focus.
The Company expects demand for seafood to grow from
current levels as the global economy, and particularly the BRIC
and Southeast Asian economies, improve. In general, we expect
the supply of wild-caught seafood in our core species to be
stable over the long term. We anticipate new seafood demand
will be supplied primarily from aquaculture. Currently, four of
the top seven species consumed in North America (shrimp,
salmon, tilapia and pangasius) are partly or totally supplied
by aquaculture and approximately 34% of the Company’s
procurement by value is related to aquaculture products. To the
extent there are unexpected declines in our core products of
wild-caught seafood, or aquaculture is unable to supply future
demand, prices may increase materially, which may have a
negative impact on the Company’s results.
The Company has made the strategic decision not to be
vertically integrated for several reasons, including the large
amount of capital that would be involved and expected returns
on such capital. However, in the event supply shortages of
certain seafood, or trade barriers to acquiring seafood as a
result of economic sanctions or otherwise, results in difficulty
procuring species, the financial results of High Liner Foods may
be adversely affected.
In addition, the Company purchases non-seafood goods and
ingredients from a limited number of suppliers as a result of
consolidation within the industries in which these suppliers
operate in North America and other major markets. Furthermore,
issues with suppliers regarding pricing or performance of
the goods they supply or the inability of suppliers to supply
the required volumes of such goods and services in a timely
manner could impact the Company’s financial condition and
performance. Any such impact will depend on the effectiveness
of the Company’s contingency plan.
Seafood Production from Asia
For more than a decade, many seafood companies, including
High Liner Foods, have diverted production of certain primary
produced products to Asia, and China in particular. Asian
processing plants are able to produce many high-quality
seafood products at a lower cost than is possible in North
America and in other more developed countries. These plants
MD&A are also able to achieve a better yield on raw material due
to the use of more manual processes. We work closely with
selected Asian suppliers and have made it possible for these
suppliers to meet our exacting quality and manufacturing
standards. In turn, we have access to the variety and volume
of seafood products, including a significant amount of wild-
caught product from the Atlantic and Pacific Oceans, that
we need to fulfil our brand strategy. These suppliers are
central to our supply chain operating efficiently, and thus, any
adverse changes in the operations of such suppliers, including
the effects of pandemic (including COVID-19) or any other
serious health concern, or our commercial relationships with
such suppliers, may adversely affect the Company’s results.
In particular, if the current COVID-19 outbreak continues
and results in a prolonged period of travel, commercial, and
other similar restrictions, High Liner Foods could experience
global supply disruptions. If the Company experiences supply
disruptions, it may not be able to develop alternate sourcing
quickly, which may adversely affect the Company’s results.
Non-Seafood Commodities
Our operating costs are affected by price changes in
commodities such as crude oil, wheat, corn, paper products
and frying oils. To minimize our risk, the Company’s “Price
Risk Management Policy” dictates the use of fixed pricing with
suppliers whenever possible but allows the use of hedging
with derivative instruments if deemed prudent. Throughout
2019 and 2018, the Company has managed this risk through
contracts with suppliers.
Crude oil prices, which influence fuel surcharges from freight
suppliers, increased during 2019 compared to 2018. World
commodity prices for flour, soy and canola oils, imported
ingredients in many of the Company’s products, increased
throughout 2019 compared to 2018. The price of corrugated
and folded carton, which is used in packaging, remained
consistent in 2019. The Company currently has fixed price
contracts with suppliers relating to our 2020 commodity
purchase requirements and any additional amounts will be
negotiated and fixed as necessary.
Customer Consolidation
We sell the majority of our products to food distributors and
large food retailers, including supercenters and club stores,
in North America. As the retail grocery and foodservice
trades continue to consolidate and grow more sophisticated,
the Company is required to adjust to changes in purchasing
practices and changing customer requirements to remain
competitive. Failure to do so could result in losing sales
Annual Report 2019 43
volumes and market share. The Company’s net sales and
profitability could also be affected by deterioration in the
financial condition of, or other adverse developments in, the
relationship with one or more of its major customers. Any
of these events could have a material adverse effect on the
Company’s financial condition and results of operations.
Consolidation of customers is expected to result in some
consolidation of suppliers in the U.S. seafood industry. The
supply of seafood, especially in the U.S. foodservice market,
is highly fragmented. Consolidation is needed to reduce costs
and increase service levels to keep pace with the expectation
of customers.
We are focusing efforts on brand strength, new products,
procurement activities and customer service to ensure
we outperform competitors. Consolidation makes it more
important to achieve and maintain a brand leadership
position, as consolidators move towards centralized buying
and streamlined procurement. We are in a good position to
meet these demands, since we offer quality, popular products
under leading brands and have the ability to meet the
customer service expectations of the major retailers.
Competition Risk
High Liner Foods competes with a number of food
manufacturers and distributors and its competition varies
by distribution method, product category and geographic
market. Some of High Liner Foods’ competitors have greater
financial and other resources than it does and/or may have
access to labour or products that are not available to High
Liner Foods. In addition, High Liner Foods’ competitors may
be able to better withstand market volatility. There can be no
assurance that High Liner Foods’ principal competitors will
not be successful in capturing, or that new competitors will
not emerge and capture, a share of the Company’s present or
potential customer base and/or market share.
In addition, High Liner Foods and its financial results may be
significantly adversely affected if High Liner Foods’ suppliers
become competitors, if its customers decide to source their
own food products, or if one or more of High Liner Foods’
competitors were to merge with another of its competitors.
Competitors may also establish or strengthen relationships
with parties with whom High Liner Foods has relationships,
thereby limiting its ability to sell certain products. Disruptions
in High Liner Foods’ business caused by such events could
have a material adverse effect on its results of operations and
financial condition.
MD&A 44 HIGH LINER FOODS
Geopolitical Risk
The Company’s operations are currently conducted in North
America and, as such, the Company’s operations are exposed
to various levels of political, economic and other risks and
uncertainties. These risks and uncertainties vary for each
country and include, but are not limited to: fluctuations
in currency exchange rates; inflation rates; labour unrest;
terrorism; civil commotion and unrest; global pandemic
(including COVID-19); changes in taxation policies; restrictions
on foreign exchange and repatriation; changing political
conditions and social unrest; changes in trade agreements;
economic sanctions, tariffs and other trade barriers.
Changes, if any, in trade agreements or policies, or shifts
in political attitude, could adversely affect the Company’s
operations or profitability. Operations may be affected in
varying degrees by government regulations including, but not
limited to, export controls, income taxes, foreign investment,
and environmental legislation.
In 2017, the U.S. Tax Reform resulted in significant changes
to tax legislation in the United States and certain aspects of
the U.S. Tax Reform are still subject to interpretation which
could impact the results of operations, financial condition and
cash flows of the Company (see the Income Taxes section on
page 25 of this MD&A).
In 2018, the USTR commenced certain trade actions,
including imposing tariffs on certain goods imported from
China, including some of the species the Company imports
from China. The Company has implemented plans, including
pricing actions and other supply chain initiatives, to mitigate
the impact of these tariffs and reduce the estimated impact
to the Company’s operations. However, the Company cannot
control the duration or depth of such actions, which may
increase product costs and reduce profitability, and potentially
decrease the competitiveness of its products.
During December 2019, the Company received notice of
approval of an exclusion request submitted to the USTR
regarding tariffs on certain goods imported to the U.S. from
China. The exclusion applies to tariffs already incurred, or
that would otherwise be incurred, on specific goods from
September 24, 2018 to August 7, 2020 and may result in the
recovery of tariffs previously paid by the Company. It is not
practicable at this time to estimate the timing or amount of
any recovery. Trade discussions between the USTR and China
are ongoing, which may impact the timing and amount of
recoveries related to these exclusions and have a material,
adverse effect on results of operations, financial condition and
cash flows of the Company.
The Company will continue to monitor these developments
closely, particularly if further information becomes
available regarding potential additional tariffs or exclusions,
or how the previously announced tariffs and exclusions
will impact the Company.
The occurrence and the extent of these various factors and
uncertainties cannot be accurately predicted and could
have a material adverse effect on the Company’s operations
and profitability.
Sustainability, Corporate Responsibility and Public Opinion
The success and growth of our business relies heavily upon
our ability to use our position in the marketplace to protect,
preserve and manage the natural resources essential for our
business in a sustainable manner. Sustainability is a core value
that supports all sectors of our business and has positioned
the Company for organic growth into the future.
High Liner Foods made a public sustainability commitment
in late 2010 to source its seafood from “certified sustainable
or responsible” fisheries and aquaculture by the end of 2013.
The Company was substantially successful in fulfilling the
commitment it made in late 2010 and is now recognized
as a global leader in driving best practice improvements in
wild fisheries and aquaculture. Customers will continue to
demand product solutions that are innovative, high quality
and responsibly sourced. To the extent we fail to meet these
customer expectations, or customer expectations in this
regard change, operational results and brand equity may be
adversely affected. Credible sustainability certifications have
become a required tool to validate industry-driven wild fishery
and aquaculture improvements. Environmental advocacy
groups will continue to promote use of credible certification
schemes to define sustainable wild fisheries and aquaculture.
In 2015, the Company implemented a social compliance
program with seafood suppliers which outlines acceptable
standards for the treatment of all suppliers’ employees involved
in the production of seafood product for our Company.
Corporate Social Responsibility (“CSR”) is a term used to refer
to the set of voluntary actions companies take to mitigate
the social and environmental impacts of their operations
on society. CSR is significant in the seafood industry as
seen through the multiplication of private initiatives such
as certification programs, sourcing commitments and
improvement projects. Many of the issues addressed through
CSR in seafood occur in the downstream end of seafood
supply chains and include sustainable fish stocks, social
aspects such as working conditions and fair wages, and
transparency. High Liner Foods has continued its leadership
position with the preparation of CSR reports in 2017 and 2018
that disclose many of the improvement efforts underway.
MD&A Annual Report 2019 45
High Liner Foods’ business and operations are subject
to environmental laws and regulations, including those
relating to permitting requirements, wastewater discharges,
air emissions (greenhouse gases and other), releases of
hazardous substances and remediation of contaminated
sites. The Company believes that its operations are in
compliance, in all material respects, with environmental laws
and regulations. Compliance with these laws and regulations
requires that the Company continue to incur operating
and maintenance costs and capital expenditures, including
to control potential impacts of its operations on local
communities. Future events such as changes in environmental
laws and regulations or more vigorous regulatory enforcement
policies could have a material adverse effect on the
Company’s financial position and could require additional
expenditures to achieve or maintain compliance.
In the short term, enhanced policies related to sustainability,
environmental and social compliance both within High
Liner Foods and its supply chain may add to the Company’s
operating costs. A long-term benefit is now being realized
through the stabilization of most global wild fishery stocks
and continued increase in aquaculture growth that now
supplies more than 50% of the global seafood demand.
Operating costs are beginning to decrease through
more efficient use of energy, water, reduction of waste,
transportation systems and through a rigorous continuous
improvement process.
Growth (Other Than by Acquisition)
A key component of High Liner Foods’ growth strategy is
organic or internal growth by
• Delivering profitable and sustainable revenue growth
through the sale of existing high margin products;
• Eliminating under-performing products to maximize
our portfolio;
• Expanding into new markets and high margin products; and
• Investing in continuous improvement in our plants and
our organization to improve efficiencies and simplify
the business.
There can be no assurance that the Company will be
successful in growing its business or in managing its growth
in a manner consistent with this strategy. Furthermore,
successful expansion may place a significant strain on key
personnel of High Liner Foods, from a retention perspective,
as well as on its operations, financial resources and other
resources. The Company’s ability to manage growth will
also depend in part on its ability to continue to grow and
enhance its information systems in a timely fashion. It must
also manage succession planning for personnel across
the organization to support such growth. Any inability to
properly manage growth could result in cancellation of
customer orders, as well as increased operating costs, and
correspondingly, could have an adverse effect on High Liner
Foods’ financial results.
In addition, the success of the Company depends in part
on the Company’s ability to respond to market trends and
produce innovative products that anticipate and respond
to the changing tastes and dietary habits of consumers.
From time to time certain products are deemed more or less
healthy and this can impact consumer buying patterns. The
Company’s failure to anticipate, identify, or react to these
changes or to innovate could result in declining demand and
prices for the Company’s products, which in turn could have a
material adverse effect on the Company’s financial condition
and results of operations.
Acquisition and Integration Risk
A component of the Company’s strategy is to pursue
acquisition opportunities to support sales and earnings
growth and further species diversification. While
management intends to be careful in selecting businesses
to acquire, acquisitions inherently involve a number of risks,
including, but not limited to, the possibility that the Company
pays more than the acquired assets are worth; the additional
expense associated with completing an acquisition; the
potential loss of customers of the particular business; the
difficulty of assimilating the operations and personnel of the
acquired business; the challenge of implementing uniform
standards, controls procedures and policies throughout the
acquired business; the inability to integrate, train, retain and
motivate key personnel of the acquired business; the potential
disruption to the Company’s ongoing business and the
distraction of management from the Company’s day-to-day
operations; the inability to incorporate acquired businesses
successfully into the Company’s existing operations; and the
potential impairment of relationships with the Company’s
employees, suppliers and customers. If any one or more of
such risks materialize, they could have a material adverse
effect on the Company’s business, financial condition, liquidity
and operating results.
In addition, the Company may not be able to maintain the
levels of operating efficiency that the acquired company had
achieved or might have achieved had it not been acquired
by the Company. Successful integration of the acquired
company’s operations would depend upon the Company’s
ability to manage those operations and to eliminate redundant
and excess costs. As a result of difficulties associated with
combining operations, the Company may not be able to
MD&A 46 HIGH LINER FOODS
achieve the cost savings and other benefits that it expected
to achieve with the acquisition. Any difficulties in this
process could disrupt the Company’s ongoing business,
distract its management, result in the loss of key personnel
or customers, increase its expenses and otherwise materially
adversely affect the Company’s business, financial condition,
liquidity and operating results. Further, inherent in any
acquisition, there is risk of liabilities and contingencies that
the Company may not discover in its due diligence prior to the
consummation of a particular acquisition, and the Company
may not be indemnified for some or all of these liabilities
and contingencies. The discovery of any material liabilities or
contingencies in any acquisition could also have a material
adverse effect on the Company’s business, financial condition,
liquidity and operating results.
Employment Matters
The Company and its subsidiaries have approximately
1,200 full-time and part-time employees, which include
salaried and union employees, some of whom are covered
by collective agreements. These employees are located in
various jurisdictions, each such jurisdiction having differing
employment laws. While the Company maintains systems
and procedures to comply with the applicable requirements,
there is a risk that failures or lapses by individual managers
could result in a violation or cause of action that could have a
material adverse effect on the Company’s financial condition
and results of operations. Furthermore, if a collective
agreement covering a significant number of employees or
involving certain key employees were to expire or otherwise
cease to have effect leading to a work stoppage, there
can be no assurance that such work stoppage would not
have a material adverse effect on the Company’s financial
condition and results of operations. The Company’s success
is also dependent on its ability to recruit and retain qualified
personnel. The loss of one or more key personnel could have a
material adverse effect on the Company’s financial condition
and results of operations.
Credit Risk
The Company grants credit to its customers in the normal
course of business. Credit valuations are performed on a
regular basis and the financial statements take into account an
allowance for expected credit losses. The Company believes it
has low exposure to concentration of credit risk with respect
to accounts receivable from customers due to its large and
diverse customer base. Although we insure our accounts
receivable risk, our impairment losses related to receivables
have historically been insignificant. As of the filing of this report,
we are not aware of any customer that is in financial trouble
that would result in a material loss to the Company and our
receivables are substantially current at year-end.
Foreign Currency
High Liner Foods reports its results in USD to reduce volatility caused by changes in the USD to CAD exchange rate. The
Company’s results of operations and financial condition are both affected by foreign currency fluctuations in a number of ways.
The table below summarizes the effects of foreign exchange on our operations in their functional currency:
Currency
CAD
CAD
Euro
Euro
Strength
Strong
Weak
Strong
Weak
Asian currencies
Strong
Asian currencies Weak
USD
USD
Strong
Weak
Impact on High Liner Foods
Results in a reduction in the cost of inputs for the Canadian operations in CAD. Competitive activity may
result in some selling price declines on unprocessed product.
Results in an increase in the cost of inputs for the Canadian operations in CAD. Justified cost increases are
usually accepted by customers. If prices rise too sharply there may be a volume decline until consumers
become accustomed to the new level of pricing.
Results in increased demand from Europe for seafood supplies and may increase prices in USD.
Results in decreased demand from Europe for seafood supplies and may decrease prices in USD.
Results in higher cost for seafood related to Asian-domestic inputs such as labour and overheads of primary
producers. As well, increased demand may result from domestic Asian markets increasing USD prices.
Justified cost increases are usually accepted by customers. If prices rise too sharply, there may be a volume
decline until consumers become accustomed to the new level of pricing.
Results in lower cost for seafood related to Asian-domestic inputs such as labour and overheads of primary
producers. As well, decreased demand may result from domestic Asian markets, decreasing USD prices.
Competitive activity may result in some selling price declines on unprocessed product.
As in most commodities, a strong USD usually decreases input costs in USD, as suppliers in countries not
using the USD need less USD to receive the same amount in domestic currency. In Canadian operations, it
increases input costs in CAD.
As in most commodities, a weak USD usually increases input costs in USD, as suppliers in countries not
using the USD need more USD to receive the same amount in domestic currency. In Canadian operations, it
decreases input costs in CAD.
MD&A Annual Report 2019 47
The value of the USD compared to other world currencies
has an impact on many commodities, including seafood,
packaging, flour-based products, cooking oil and
transportation costs that are either sold in USD or have USD-
input costs. This is because many producing countries do
not use the USD as their functional currency and, therefore,
changes in the value of the USD means that producers in
other countries need less or more USD to obtain the same
amount in their domestic currency. Changes in the value of
the CAD by itself against the USD simply result in an increase
or decrease in the CAD cost of inputs.
The Policy excludes certain products where the price in the
marketplace moves up or down with changes in the CAD
cost of the product. Approximately $60.0-80.0 million of the
USD purchases of the Parent are part of the hedging program
annually and are usually hedged between 40.0% and 75.0%
of the next twelve months of forecasted purchases. We are
currently forecasting purchases of $51.7 million to be hedged
in 2020 and of this amount, 70.0% are currently hedged.
Details on the hedges in place as at December 28, 2019
are included in Note 25 “Fair value measurement” to the
Consolidated Financial Statements.
For products sold in Canada, most raw material is
purchased in USD and flour-based ingredients, cooking oils
and transportation costs all have significant commodity
components that are traded in USD. However, labour,
packaging and ingredient conversion costs, overheads and
SG&A costs are incurred in CAD. A strengthening CAD
decreases the cost of these inputs and vice versa in the
Canadian operation’s domestic currency. When the value
of the CAD changes, competitive factors on commodity
products, primarily raw frozen shellfish and groundfish,
especially in our Canadian foodservice business, force us to
react when competitors use a lower CAD cost of imported
products to decrease prices and, therefore, pass on the cost
decrease to customers. An increasing CAD cost usually
results in higher selling prices to Canadian customers.
The Parent has a CAD functional currency, meaning that all
transactions are recorded in CAD. However, as we report
in USD, the results of the Parent are converted into USD for
external reporting purposes. As such, fluctuations in exchange
rates impact the translated value of the Parent’s sales, costs
and expenses when translated to USD.
Although High Liner Foods reports in USD, our Canadian
operations continue to be managed in CAD. Therefore, in
accordance with the Company’s “Price Risk Management
Policy” (the “Policy”), we undertake hedging activities, buying
USD forward and using various derivative products. To
reduce our exposure to the USD on the more price inelastic
items, the Policy allows us to hedge forward a maximum of
15 months of purchases; at 70-90% of exposure for the first
three months, 55-85% for the next three months, 30-75%
for the next three months, 10-60% for the next three months,
and 0-60% for the last three months. The lower end of these
ranges is required to be hedged by the Policy, with the upper
ranges allowed if management believes the situation warrants
a higher level of purchases to be hedged. Variations from the
Policy require the approval of the Audit Committee.
Liquidity Risk
The ability of the Company to secure short-term and long-
term financing on terms acceptable to the Company is critical
to fund business growth and manage its liquidity.
Our primary sources of working capital are cash flows from
operations and borrowings under our credit facilities. We
actively manage our relationships with our lenders and have
adequate credit facilities in place until April 2023, when the
working capital credit facility expires. The failure or inability of
the Company to secure short-term and long-term financing
in the future on terms that are commercially reasonable and
acceptable to the Company could have a significant adverse
impact on the Company’s financial position and opportunities
for growth.
The Company monitors its risk to a shortage of funds using
a detailed budgeting process that identifies financing needs
for the next twelve months as well as models that look out
five years. Working capital and cash balances are monitored
daily and a procurement system provides information
on commitments. This process projects cash flows from
operations. The Company’s objective is to maintain a balance
between continuity of funding and flexibility through the use
of bank overdrafts, letters of credit, bank loans, notes payable
and lease liabilities. The Company’s objective is that not more
than 50% of borrowings should mature in the next twelve-
month period.
At December 28, 2019, less than 6% of our debt will mature in
the next twelve-month period based on the carrying value of
borrowings reflected in the Consolidated Financial Statements.
Our long-term debt is described in Note 14 “Long-term debt” to
the Consolidated Financial Statements. At December 28, 2019
and at the date of this document, we are in compliance with all
covenants and terms of our banking facilities.
MD&A 48 HIGH LINER FOODS
Uncertainty of Dividend Payments
Payment of dividends may be impacted by factors that can
have a material adverse effect on High Liner Foods’ business,
results of operations, cash flows, financial position or prospects
and which could impact its liquidity and ability to declare and
pay dividends (whether at current levels, revised levels or at
all). Payment of dividends is also dependent on, among other
things, the ability of the Company to generate sufficient cash
flows, the financial requirements of High Liner Foods, and
applicable solvency tests and contractual restrictions (whether
under credit agreements or other contracts).
As the payment of dividends is subject to the discretion of
the Company’s Board of Directors, the Company’s dividend
policy could change at any time if the Board determines that a
change is in the best interests of the Company.
Pension Plan Assets and Liabilities
In the normal course of business, the Company provides
post-retirement pension benefits to its employees under
both defined contribution and defined benefit pension plan
arrangements. The funded status of the plans significantly
affects the net periodic benefit costs of the Company’s pension
plans and the ongoing funding requirements of those plans.
Among other factors, changes in interest rates, mortality rates,
early retirement rates, and the market value of plan assets
can affect the level of plan funding required, increase the
Company’s future funding requirements, and cause volatility
in the net periodic pension cost as well as the Company’s
financial results. Any increase in pension expense or funding
requirements could have a material adverse impact on the
Company’s financial condition and results of operations.
The asset mix of our defined benefit pension plans was
established with the objective of reducing the volatility of the
plan’s anticipated funded position. This has resulted in investing
part of the portfolio in fixed income assets with a duration
similar to that of the pension obligations. The latest actuarial
valuations of these two plans were performed during Fiscal
2016 and Fiscal 2017 and showed: combined going concern
surpluses of CAD$2.9 million; one plan had a solvency deficit
of CAD$1.4 million; and the other plan had a solvency deficit of
CAD$3.4 million.
Information Technology and Cybersecurity Risk
High Liner Foods relies on information technology systems
and network infrastructure in all areas of operations and is
therefore exposed to an increasing number of sophisticated
cybersecurity threats. The methods used to obtain
unauthorized access, disable or degrade service or sabotage
systems are constantly evolving. A cybersecurity attack and
a breach of sensitive information could disrupt systems and
services and compromise the Company’s financial position
or brands, and/or otherwise adversely affect the ability to
achieve its strategic objectives.
The Company maintains policies, processes and procedures
to address capabilities, performance, security and availability
including resiliency and disaster recovery for systems,
infrastructure and data. Security protocols, along with
corporate information security policies, address compliance
with information security standards, including those relating
to information belonging to the Company’s customers and
employees. The Company actively monitors, manages and
continues to enhance its ability to mitigate cyber risk through
its enterprise-wide programs.
The implementation of major information technology projects
carries with it various risks, including the risk of realization
of benefits, that must be mitigated by disciplined change
management and governance processes. The Company
has a business process optimization team staffed with
knowledgeable internal resources (supplemented by external
resources as needed) that is responsible for implementing the
various initiatives.
Adverse Weather Conditions and Natural Disasters
Physical risks resulting from climate change can be event-
driven (acute) or long-term (chronic) shifts in climate patterns
that may have financial implications for the Company, including
direct damage to the Company’s assets and indirect impact to
the Company’s supply chain. Various seafood species and non-
seafood products are vulnerable to adverse weather conditions
and natural disasters, including windstorms, hurricanes,
floods, droughts, fires, temperature extremes and earthquakes,
some of which are common but difficult to predict. Severe
weather conditions may occur with higher frequency or may
be less predictable in the future due to the effects of climate
change. Such adverse weather conditions could impact both
the availability and the quality of seafood and non-seafood
products procured by the Company and prevent or impair the
Company’s ability to procure and sell products as planned.
These factors can increase cost, decrease our sales, and lead
to additional expenditures, which may have a material adverse
effect on the Company’s business, financial condition and
results from operations.
MD&A Annual Report 2019 49
Forward-Looking Information
This MD&A contains forward-looking statements within
the meaning of securities laws. In particular, these forward-
looking statements are based on a variety of factors and
assumptions that are discussed throughout this document.
In addition, these statements and expectations concerning
the performance of our business in general are based on
a number of factors and assumptions including, but not
limited to: availability, demand and prices of raw materials,
energy and supplies; the condition of the Canadian and
American economies; product pricing; foreign exchange rates,
especially the rate of exchange of the CAD to the USD; our
ability to attract and retain customers; our operating costs
and improvement to operating efficiencies; interest rates;
continued access to capital; the competitive environment
and related market conditions; and the general assumption
that none of the risks identified below or elsewhere in this
document will materialize.
Specific forward-looking statements in this document
include, but are not limited to: statements with respect to:
future growth strategies and their impact on the Company’s
market share and shareholder value; anticipated financial
performance, including earnings trends and growth;
achievement, and timing of achievement, of strategic goals
and publicly stated financial targets, including to increase
our market share, acquire and integrate other businesses
and reduce our operating and supply chain costs; and our
ability to develop new and innovative products that result in
increased sales and market share; increased demand for our
products whether due to the recognition of the health benefits
of seafood or otherwise; changes in costs for seafood and
other raw materials; any proposed disposal of assets and/
or operations; increases or decreases in processing costs;
the USD/CAD exchange rate; percentage of sales from our
brands; expectations with regards to sales volume, earnings,
product margins, product innovations, brand development
and anticipated financial performance; competitor reaction
to Company strategies and actions; impact of price increases
or decreases on future profitability; sufficiency of working
capital facilities; future income tax rates; levels of accretion
and synergy and earnings growth relating to Rubicon; the
expected amount and timing of integration activities related
to acquisitions; expected leverage levels and expected Net
Debt to Adjusted EBITDA; statements under the “outlook”
heading including expected demand, sales of new product,
the efficiency of our plant production and U.S. tariffs on
certain seafood products imported from China; expected
amount and timing of cost savings related to the optimization
of the Company’s structure; decreased leverage in the future;
estimated capital spending; future inventory trends and
seasonality; market forces and the maintenance of existing
customer and supplier relationships; availability of credit
facilities; our projection of excess cash flow and minimum
repayments under the Company’s long-term loan facility;
expected decreases in debt-to-capitalization ratio; dividend
payments; and amount and timing of the capital expenditures
in excess of normal requirements to allow the movement of
production between plants.
Forward-looking statements can generally be identified by
the use of the conditional tense, the words “may”, “should”,
“would”, “could”, “believe”, “plan”, “expect”, “intend”,
“anticipate”, “estimate”, “foresee”, “objective”, “goal”, “remain”
or “continue” or the negative of these terms or variations
of them or words and expressions of similar nature. Actual
results could differ materially from the conclusion, forecast
or projection stated in such forward-looking information.
As a result, we cannot guarantee that any forward-looking
statements will materialize. Assumptions, expectations
and estimates made in the preparation of forward-looking
statements and risks that could cause our actual results to
differ materially from our current expectations are discussed
in detail in the Company’s materials filed with the Canadian
securities regulatory authorities from time to time, including the
Risk Factors section of this MD&A and the Risk Factors section
of our most recent AIF. The risks and uncertainties that may
affect the operations, performance, development and results
of High Liner Foods’ business include, but are not limited to,
the following factors: compliance with food safety laws and
regulations; timely identification of and response to events
that could lead to a product recall; volatility in the CAD/USD
exchange rate; competitive developments including increases
in overseas seafood production and industry consolidation;
availability and price of seafood raw materials and finished
goods and the impact of geopolitical events (and related
economic sanctions) on same; the impact of the USTR’s tariffs
on certain seafood products; costs of commodity products and
other production inputs, and the ability to pass cost increases
on to customers; successful integration of acquired operations;
potential increases in maintenance and operating costs;
shifts in market demands for seafood; performance of new
products launched and existing products in the marketplace;
changes in laws and regulations, including environmental,
taxation and regulatory requirements; technology changes
with respect to production and other equipment and software
MD&A 50 HIGH LINER FOODS
programs; enterprise resource planning system risk; adverse
impacts of cybersecurity attacks or breach of sensitive
information; supplier fulfillment of contractual agreements and
obligations; competitor reactions; High Liner Foods’ ability to
generate adequate cash flow or to finance its future business
requirements through outside sources; credit risk associated
with receivables from customers; volatility associated with
the funding status of the Company’s post-retirement pension
benefits; compliance with debt covenants; the availability of
adequate levels of insurance; adverse weather conditions and
natural disasters; and management retention and development.
Forward-looking information is based on management’s
current estimates, expectations and assumptions, which we
believe are reasonable as of the current date. You should not
place undue importance on forward-looking information and
should not rely upon this information as of any other date.
Except as required under applicable securities laws, we do
not undertake to update these forward-looking statements,
whether written or oral, that may be made from time to time
by us or on our behalf, whether as a result of new information,
future events or otherwise.
MD&A Annual Report 2019 51
Management’s Responsibility
To the Shareholders of High Liner Foods Incorporated
The Management of High Liner Foods Incorporated includes corporate executives, operating and financial managers and other
personnel working full-time on Company business. The statements have been prepared in accordance with generally accepted
accounting principles consistently applied, using management’s best estimates and judgments, where appropriate. The financial
information elsewhere in this report is consistent with the statements.
Management has established a system of internal control that it believes provides a reasonable assurance that, in all material
respects, assets are maintained and accounted for in accordance with management’s authorization and transactions are recorded
accurately on the Company’s books and records. The Company’s internal audit program is designed for constant evaluation of the
adequacy and effectiveness of the internal controls. Audits measure adherence to established policies and procedures.
The Audit Committee of the Board of Directors is composed of four outside directors. The Committee meets periodically with
management, the internal auditor and independent chartered professional accountants to review the work of each and to
satisfy itself that the respective parties are properly discharging their responsibilities. The independent chartered professional
accountants and the internal auditor have full and free access to the Audit Committee at any time. In addition, the Audit
Committee reports its findings to the Board of Directors, which reviews and approves the consolidated financial statements.
Dated February 26, 2020
(Signed)
P.A. Jewer, FCPA, FCA
Executive Vice President and Chief Financial Officer
52 HIGH LINER FOODS
Independent Auditor’s Report
To the shareholders of High Liner Foods Incorporated
OPINION
We have audited the consolidated financial statements of High Liner Foods Incorporated [the “Company”], which comprise
the consolidated statements of financial position as at December 28, 2019 and December 29, 2018, and the consolidated
statements of income, consolidated statements of comprehensive income, consolidated statements of accumulated other
comprehensive loss, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows
for the fifty-two weeks then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as at December 28, 2019 and December 29, 2018, and its consolidated financial performance
and its consolidated cash flows for the fifty-two weeks then ended in accordance with International Financial Reporting
Standards [“IFRSs”].
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our
report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
OTHER INFORMATION
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in
doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in
this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will
perform on this other information, we conclude there is a material misstatement of other information, we are required to report
that fact to those charged with governance.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Annual Report 2019 53
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision
and performance of the Company audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Sonya Fraser.
Chartered Professional Accountants
Halifax, Canada
February 26, 2020
54 HIGH LINER FOODS
54 HIGH LINER FOODS
Consolidated Statements of Financial Position
(in thousands of United States dollars)
ASSETS
Current assets
Cash
Accounts receivable
Income taxes receivable
Other financial assets
Inventories
Prepaid expenses
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Deferred income taxes
Other receivables and assets
Intangible assets
Goodwill
Total non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Bank loans
Accounts payable and accrued liabilities
Contract liability
Provisions
Other current financial liabilities
Other current liabilities
Income taxes payable
Current portion of long-term debt
Current portion of lease liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Other long-term financial liabilities
Other long-term liabilities
Long-term lease liabilities
Deferred income taxes
Future employee benefits
Total non-current liabilities
Total liabilities
Shareholders’ equity
Common shares
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to the Consolidated Financial Statements
Notes
December 28,
2019
December 29,
2018
6
25
7
8
9
18
25
10
10
$
3,144
85,089
3,494
236
294,913
4,322
391,198
108,986
11,792
2,134
34
148,893
157,457
429,296
$
9,568
84,873
6,411
2,504
301,411
4,333
409,100
114,371
—
7
1,013
155,594
157,070
428,055
11, 14
$
820,494
$
837,155
11
12
19
13
25
14
9
14
25
9
18
15
16
$
37,546
$
31,152
141,238
3,581
329
861
4,881
2,102
14,511
4,582
209,631
157,162
4,772
1,460
78
245
585
13,655
372
209,481
289,020
322,674
292
3,031
7,198
30,182
12,970
342,693
552,324
112,887
16,028
162,773
(23,518)
268,170
5
1,493
407
28,451
10,785
363,815
573,296
112,887
15,357
161,377
(25,762)
263,859
$
820,494
$
837,155
Notes to the Consolidated Financial Statements Consolidated Statements of Income
Annual Report 2018 55
Annual Report 2019 55
(in thousands of United States dollars, except per share amounts)
Sales
Cost of sales
Gross profit
Distribution expenses
Selling, general and administrative expenses
Impairment of property, plant and equipment
Business acquisition, integration and other expense (income)
Results from operating activities
Finance costs
Income before income taxes
Income taxes
Current
Deferred
Income tax expense
Net income
Earnings per common share
Basic
Diluted
Weighted average number of shares outstanding
Basic
Diluted
See accompanying notes to the Consolidated Financial Statements
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
$
942,224
$ 1,048,531
756,364
185,860
45,759
90,019
974
1,572
47,536
33,012
14,524
3,356
879
4,235
860,374
188,157
52,649
92,208
1,302
(2,471)
44,469
21,603
22,866
1,583
4,507
6,090
$
10,289
$
16,776
$
$
0.31
0.30
$
$
0.50
0.50
33,801,217
34,195,365
33,617,203
33,618,919
Notes
19
8
5, 15
28
18
18
20
20
20
20
Notes to the Consolidated Financial Statements 56 HIGH LINER FOODS
56 HIGH LINER FOODS
Consolidated Statements of Comprehensive Income
(in thousands of United States dollars)
Net income
Other comprehensive income (loss), net of income tax
Other comprehensive income (loss) to be reclassified to net income:
Gain (loss) on hedge of net investment in foreign operations
(Loss) gain on translation of net investment in foreign operations
Translation impact on Canadian dollar denominated non-AOCI items
Translation impact on Canadian dollar denominated AOCI items
Total exchange gains (losses) on translation of foreign operations and Canadian dollar denominated items
Effective portion of changes in fair value of cash flow hedges
Net change in fair value of cash flow hedges transferred to carrying amount of hedged item
Net change in fair value of cash flow hedges transferred to income
Translation impact on Canadian dollar denominated AOCI items
Total exchange (losses) gains on cash flow hedges
Net other comprehensive gain (loss) to be reclassified to net income
Other comprehensive (loss) income not to be reclassified to net income
Defined benefit plan actuarial (losses) gains
Other comprehensive income (loss), net of income tax
Total comprehensive income
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
$
10,289
$
16,776
13,644
(16,548)
8,735
(976)
4,855
(1,818)
(698)
(486)
391
(2,611)
2,244
(1,469)
775
(25,160)
35,067
(21,793)
1,608
(10,278)
3,494
(533)
(181)
(785)
1,995
(8,283)
107
(8,176)
$
11,064
$
8,600
Consolidated Statements of Accumulated
Other Comprehensive Loss
(in thousands of United States dollars)
Balance at December 29, 2018
Total exchange gains on translation of foreign operations and Canadian dollar
denominated items
Total exchange losses on cash flow hedges
Balance at December 28, 2019
Balance at December 30, 2017
Total exchange losses on translation of foreign operations and Canadian dollar
denominated items
Total exchange gains on cash flow hedges
Balance at December 29, 2018
See accompanying notes to the Consolidated Financial Statements
Foreign
currency
translation
differences
Net exchange
differences
on cash flow
hedges
Total
accumulated
other
comprehensive
(loss) income
$
(27,977)
$
2,215
$
(25,762)
$
$
4,855
—
(23,122)
(17,699)
(10,278)
—
$
$
$
(27,977)
$
—
(2,611)
(396)
220
—
1,995
2,215
$
$
4,855
(2,611)
(23,518)
(17,479)
(10,278)
1,995
$
(25,762)
Notes to the Consolidated Financial Statements Annual Report 2018 57
Annual Report 2019 57
Consolidated Statements of Changes in
Shareholders’ Equity
(in thousands of United States dollars)
Common
shares
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
loss
Total
Balance at December 29, 2018
Other comprehensive income
Net income
Common share dividends
Share-based compensation
Balance at December 28, 2019
Balance at December 30, 2017
Other comprehensive loss
Net income
Common share dividends
Share-based compensation
Balance at December 29, 2018
See accompanying notes to the Consolidated Financial Statements
$
112,887
$
15,357
$
161,377
$
(25,762)
$
263,859
—
—
—
—
$
$
112,887
112,835
$
$
—
—
—
52
—
—
—
671
16,028
14,354
—
—
—
1,003
$
$
(1,469)
10,289
(7,424)
—
162,773
159,157
107
16,776
(14,663)
—
2,244
—
—
—
$
$
(23,518)
(17,479)
(8,283)
$
$
—
—
—
775
10,289
(7,424)
671
268,170
268,867
(8,176)
16,776
(14,663)
1,055
$
112,887
$
15,357
$
161,377
$
(25,762)
$
263,859
Notes to the Consolidated Financial Statements 58 HIGH LINER FOODS
58 HIGH LINER FOODS
Consolidated Statements of Cash Flows
(in thousands of United States dollars)
Cash flows provided by (used in):
Operating activities
Net income
Adjustments to net income not involving cash from operations:
Depreciation and amortization
Share-based compensation expense
Loss on asset disposals and impairment
Future employee benefits contribution, net of expense
Finance costs
Income tax expense
Unrealized foreign exchange loss (gain)
Cash flows provided by operations before changes in non-cash working capital, interest and
income taxes refunded (paid)
Changes in non-cash working capital balances:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Provisions
Net change in non-cash working capital balances
Interest paid
Income taxes refunded
Net cash flows provided by operating activities
Financing activities
Increase (decrease) in bank loans
Repayment of lease liabilities
Repayment of long-term debt
Deferred finance costs
Common share dividends paid
Options exercised for shares
Net cash flows used in financing activities
Investing activities
Purchase of property, plant and equipment, net of investment tax credits, and intangible assets
Net proceeds on disposal of assets
Net cash flows used in investing activities
Foreign exchange decrease on cash
Net change in cash during the period
Cash, beginning of period
Cash, end of period
See accompanying notes to the Consolidated Financial Statements
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
Notes
28
17
8
28
18
21
21
21
21
$
10,289
$
16,776
22,455
7,124
1,292
(25)
33,012
4,235
1,020
17,771
1,237
1,565
(84)
21,603
6,090
(311)
79,402
64,647
212
10,095
95
(18,388)
(1,158)
(9,144)
(20,173)
1,521
51,606
6,638
(5,649)
(37,926)
(6,344)
(7,424)
—
(50,705)
(6,569)
—
(6,569)
(756)
(6,424)
9,568
3,144
$
5,666
44,561
(1,030)
(45,977)
1,221
4,441
(19,917)
7,762
56,933
(21,380)
(598)
—
(325)
(14,663)
24
(36,942)
(13,961)
119
(13,842)
(1,319)
4,830
4,738
9,568
$
Notes to the Consolidated Financial Statements Annual Report 2019 59
Notes to the Consolidated Financial Statements
In United States dollars, unless otherwise noted
1. Corporate information
High Liner Foods Incorporated (the “Company” or “High Liner Foods”) is a company incorporated and domiciled in Canada.
The address of the Company’s registered office is 100 Battery Point, P.O. Box 910, Lunenburg, Nova Scotia, B0J 2C0. The
Consolidated Financial Statements (“Consolidated Financial Statements”) of the Company as at and for the fifty-two weeks
ended December 28, 2019, comprise High Liner Foods’ Canadian company (the “Parent”) and its subsidiaries (herein together
referred to as the “Company” or “High Liner Foods”). The Company is primarily involved in the processing and marketing of
prepared and packaged frozen seafood products.
These Consolidated Financial Statements were authorized for issue in accordance with a resolution of the Company’s Board of
Directors on February 26, 2020.
2. Statement of compliance and basis for presentation
These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These Consolidated Financial Statements have been prepared on the historical-cost basis except for derivative financial instruments,
financial instruments at fair value through profit or loss, and liabilities for cash-settled share-based compensation payment
arrangements, which are measured at fair value, and the defined benefit employee future benefit liability, which is recognized as the
net total of the plan assets plus unrecognized past-service costs and the present value of the defined benefit obligation.
3. Significant accounting policies
(a) Basis of consolidation
These Consolidated Financial Statements comprise the financial statements of the Company and its subsidiaries as at
December 28, 2019. Control is achieved when the Company is exposed, or has rights, to direct the activities that significantly
affect the returns from its involvement with the investee. The Company reassesses whether or not it controls an investee on an
ongoing basis.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company
loses control of the subsidiary. When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies in line with the Company’s accounting policies. All intercompany balances, equity, income, expenses and
cash flows are eliminated in full on consolidation.
(b) Foreign currency
FUNCTIONAL AND PRESENTATION CURRENCY
The Company determines its functional currency based on the currency of the primary economic environment in which it
operates. The Parent’s functional currency is the Canadian dollar (“CAD”), while the functional currencies of its subsidiaries
are the CAD and the United States dollar (“USD”). The Company has chosen a USD presentation currency for its Consolidated
Financial Statements because the USD better reflects the Company’s overall business activities and improves investors’ ability
to compare the Company’s consolidated financial results with other publicly traded businesses in the packaged foods industry
(most of which are based in the United States (“U.S.”) and report in USD) and should result in less volatility in reported sales
and income on the conversion to the presentation currency.
The Company follows the requirements set out in IAS 21, The Effects of Change in Foreign Exchange Rates, to translate to the
presentation currency. The assets and liabilities of the Parent are translated to USD at the exchange rate as at the reporting
date, and the income and expenses of the Parent are translated to USD at the monthly average exchange rates of the reporting
period. Foreign currency differences are recognized in other comprehensive income (“OCI”).
Notes to the Consolidated Financial Statements 60 HIGH LINER FOODS
TRANSLATION OF TRANSACTIONS AND BALANCES INTO THE FUNCTIONAL CURRENCY
Transactions in currencies other than the functional currency (“foreign currencies”) are translated to the respective functional
currencies of the Parent and its subsidiaries at the exchange rates prevailing at the dates of the transactions. At the end of
each reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate
prevailing at that date. Foreign currency non-monetary items that are measured in terms of historical cost are not retranslated.
Foreign currency non-monetary items that are measured at fair value are retranslated to the functional currency at the exchange
rate at the date that the fair value was determined.
Differences arising on settlement or translation of monetary items are recognized in the consolidated statements of income
with the exception of monetary items that are designated as part of the hedge of the Company’s net investment in a foreign
operation. The latter exchange differences are recognized in OCI, to the extent the hedge is effective, until the net investment
is disposed of or the hedge is ineffective, at which time the cumulative amount is reclassified to profit or loss. Tax charges and
credits attributable to exchange differences on those monetary items are also recorded in OCI.
(c) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred measured at acquisition date fair value, and the amount of any non-controlling interests in the
acquiree. For each business combination, the Company elects whether to measure the non-controlling interests in the acquiree
at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Any contingent consideration to be transferred by the Company will be recognized at fair value at the acquisition date.
Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9, Financial
Instruments (“IFRS 9”), is measured at fair value with changes in fair value recognized in the consolidated statements of income.
If the contingent consideration is not within the scope of IFRS 9, it is measured in accordance with the appropriate IFRS.
When the Company acquires a business, it assesses the financial assets and financial liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as
at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Acquisition-
related costs are expensed as incurred and included in business acquisition, integration and other expenses in the consolidated
statements of income.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount
recognized for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities
assumed. After initial recognition, goodwill is not amortized, and is measured at cost less any accumulated impairment losses.
(d) Non-current assets held for sale and discontinued operations
The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered
principally through a sale transaction rather than through continuing use. Assets held for sale are measured at the lower of their
carrying amount and fair value less costs to sell (“FVLCS”). For the asset to be classified as held for sale, the sale must be highly
probable and the asset or disposal group must be available for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of
classification. Property, plant and equipment and intangible assets are not depreciated or amortized once classified as held for sale.
(e) Cash
Cash includes cash on hand and demand deposits with initial and remaining maturity of three months or less. Cash does not
include any restricted cash.
Notes to the Consolidated Financial Statements Annual Report 2019 61
(f) Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of manufactured inventories is based on the
first-in first-out method. The cost of procured finished goods and unprocessed raw material inventory is based on weighted
average cost. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses. The cost of inventories includes expenditures incurred in acquiring the inventories, production
or conversion costs, and other costs incurred in bringing the inventories to their existing location and condition. In the case
of manufactured inventories and semi-finished materials, cost includes an appropriate share of production overheads based
on normal operating capacity. Cost may also include transfers from OCI of any gain or loss on qualifying cash flow hedges of
foreign currency related to purchases of inventories.
(g) Property, plant and equipment
Property, plant and equipment is recorded at cost less accumulated depreciation and accumulated impairment losses, if any.
The initial cost of an asset comprises its purchase price or construction cost, any expenditures directly attributable to bringing
the asset into operation, and the present value of the expected cost for decommissioning the asset after its use, if the recognition
criteria for a provision are met. The cost of self-constructed assets includes the cost of materials, direct labour, other costs directly
attributable to bringing the assets to a working condition for their intended use, and costs of dismantling and removing the items
and restoring the site on which they are located. Borrowing costs directly attributable to the acquisition, construction or production
of a qualifying asset are eligible for capitalization under the cost of the asset. Cost may also include transfers from OCI of any gain
or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount when it is probable that future economic benefits associated
with the asset will flow to the Company, and the costs can be measured reliably. This would include costs related to the
refurbishment or replacement of major components of the asset, when the refurbishment results in a significant extension in
the physical life of the component, and in which case, the carrying amount of the replaced part is derecognized. The costs of the
day-to-day maintenance of property, plant and equipment are expensed as incurred in the consolidated statements of income.
Gains or losses from the derecognition of an asset are measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the consolidated statements of income when the asset is derecognized.
The cost of property, plant and equipment, less any residual value, is allocated over the estimated useful life of the asset on
a straight-line basis. Depreciation is recognized on a straight-line basis as this most closely reflects the expected pattern of
consumption of the future economic benefits embodied in the asset. Leasehold improvements are depreciated over the shorter
of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the
lease term. Land is not depreciated.
The estimated useful lives applicable to each category of property, plant and equipment, except for land, for the current and
comparative periods are as follows:
Buildings
Furniture, fixtures and production equipment
Computer equipment and vehicles
20–40 years
10–25 years
4–10 years
When components of an item of property, plant and equipment have different useful lives than those noted above, they are
accounted for as separate items of property, plant and equipment. The estimated useful lives, depreciation methods, and residual
values are reviewed annually, with any changes in estimate being accounted for prospectively from the date of the change.
Notes to the Consolidated Financial Statements 62 HIGH LINER FOODS
(h) Right-of-use assets and lease liabilities
The Company adopted IFRS 16, Leases (“IFRS 16”), with an initial application date of December 30, 2018 (see Note 3(t)). Right-
of-use (“ROU”) assets are recorded at the present value of the lease payments, plus initial direct costs incurred when entering
into the lease and lease payments made at or before the commencement date, less any lease incentives received. The ROU
assets are depreciated over the shorter of the lease term or the estimated useful life of the underlying asset. An impairment
review is undertaken for any ROU asset that shows indicators of impairment and an impairment loss is recognized against the
ROU asset that is impaired.
Lease liabilities are recorded at the present value of the fixed and eligible variable lease payments that depend on an index or
rate, net of any lease incentives at the initial measurement date. When the lease contains an extension or purchase option that
the Company considers reasonably certain to be exercised, the cost of the option is included in the lease payments. The present
value of the lease payments is determined using the discount rate representing the Company’s incremental borrowing rate on
the lease commencement date, adjusted for the applicable currency of the lease contract, similar tenor and nature of the asset
being leased. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period in
which the event or condition that triggers the payment occurs.
At inception of a contract, the Company assesses whether the contract is or contains a lease which involves the exercise of
judgment. The Company has elected not to separate lease and non-lease components for its ROU assets. The Company has
elected not to recognize ROU assets and lease liabilities for leases where the total lease term is less than 12 months, or for a lease
of low value. The payments for these leases will be recognized on a straight-line basis over the lease term as operating expenses.
(i) Intangible assets
Intangible assets acquired separately are measured at cost on initial recognition. Intangible assets acquired in a business
combination are recorded at fair value on the date of acquisition. Subsequent to initial recognition, intangible assets are carried
at cost less accumulated amortization and accumulated impairment losses, if applicable.
The useful lives of intangible assets are assessed to be either finite or indefinite.
• Intangible assets with finite lives are amortized over their useful or economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an
intangible asset with a finite useful life are reviewed at least at each financial year-end.
• Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually at the CGU level. The
useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment
continues to be supportable. Certain brands acquired through business combinations have no foreseeable limit to the period
over which the assets are expected to generate net cash flows and are therefore determined to have indefinite useful lives.
The estimated useful lives applicable to each category of intangible assets for the current and comparative periods are as follows:
Brands
Customer and supplier relationships
Computer software
Indefinite lived brands
2–8 years
10–25 years
3–15 years
Indefinite, subject to impairment testing annually
Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset
are accounted for by changing the amortization period or method, as appropriate, and accounted for prospectively from the
date of the change.
The amortization expense on intangible assets with finite lives is recognized in the consolidated statements of income in the
expense category consistent with the function of the intangible asset. Gains or losses from the derecognition of an intangible
asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are
recognized in the consolidated statements of income when the asset is derecognized.
Notes to the Consolidated Financial Statements Annual Report 2019 63
(j) Impairment
NON-FINANCIAL ASSETS
The carrying amounts of non-financial assets, excluding inventories and deferred income tax assets, are reviewed for
impairment at each reporting date, or whenever events or changes in circumstances indicate the carrying amounts may not
be recoverable. If there are indicators of impairment, a review is undertaken to determine whether the carrying amounts are in
excess of their recoverable amounts. Reviews are undertaken on an asset-by-asset basis, except where the recoverable amount
for an individual asset cannot be determined, in which case the review is undertaken at a CGU level.
On an annual basis, the Company evaluates the carrying amount of the North American CGU to determine whether such
carrying amount may be impaired. To accomplish this, the Company compares the recoverable amount of the CGU to its
carrying amount. This evaluation is performed more frequently if there is an indication that the CGU may be impaired.
The Company estimates the non-financial asset’s recoverable amount for the purpose of impairment testing using the higher of
its FVLCS and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU
is considered impaired and is written down to its recoverable amount. The excess of the carrying amount over the recoverable
amount is considered an impairment loss and is recognized in the consolidated statements of income. With respect to CGUs,
impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce
the carrying amounts of the other assets in the CGU on a pro-rata basis.
In determining FVLCS, an appropriate valuation model is used. These calculations are corroborated by the use of valuation
multiples, quoted share prices and other available fair value indicators.
For non-financial assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication
that previous impairment losses may no longer exist or may have decreased. If such an indication exists, the Company
estimates the recoverable amount of the asset or CGU. A previously recognized impairment loss is reversed only if there
has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognized. The impairment loss to be reversed in the consolidated statements of income is limited to the recoverable amount,
but not beyond the carrying amount, net of depreciation or amortization, that would have arisen if the prior impairment loss had
not been recognized.
FINANCIAL ASSETS
The Company recognizes an allowance for expected credit losses (“ECL”) for all financial assets not held at fair value through
profit and loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and
all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate
(“EIR”). The expected cash flows include cash flows from the sale, collateral held and other credit enhancements that are
integral to the contractual terms.
In relation to trade receivables, the Company records ECLs on the entire accounts receivable balance. The Company applies the
simplified approach and calculates the lifetime ECLs based on an established provision matrix that considers the Company’s
historical credit loss experience, adjusted for forward-looking factors specific to the Company’s customers and the economic
environment. The carrying amount of the asset or group of assets is reduced through use of an ECL account and the loss is
recognized in the consolidated statements of income. The gross carrying amount of a financial asset is written off to the extent
that there is no realistic prospect of recovery.
(k) Provisions, contingent liabilities and contingent assets
All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. In those cases where the possible
outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized.
When the Company expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset, but
only when the reimbursement is virtually certain. The expense relating to a provision is presented in the consolidated statements of
income net of any reimbursement, when the reimbursement is realized in the same reporting period as the related expense.
Possible inflows of economic benefits to the Company are considered contingent assets when the possible inflows become
virtually certain.
Notes to the Consolidated Financial Statements 64 HIGH LINER FOODS
Restructuring provisions are recognized only when the Company has a constructive obligation, which is when: (i) there is a detailed
formal plan that identifies the business or part of the business concerned, the location and number of employees affected, the
expenditures that will be undertaken, and the timing of when the plan will be implemented; and (ii) the employees affected have
been notified of the plan’s main features.
(l) Future employee benefits
DEFINED BENEFIT PENSION PLANS (“DBPP”)
For DBPPs and other post-employment benefits, the net periodic pension expense is actuarially determined on an annual basis
by independent actuaries using the projected-unit-credit method pro-rated on service and management’s best estimate of
expected salary escalation and retirement ages of employees.
The determination of benefit expense requires assumptions such as the discount rate to measure the obligation, the projected
age of employees upon retirement, the expected rate of future compensation increases and the expected mortality rate of
pensioners. The total past-service cost arising from plan amendments is recognized immediately in the consolidated statements
of income. The present value of the defined benefit obligation (“DBO”) is determined by discounting the estimated future
cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits
will be paid and that have terms to maturity approximating the terms of the related pension liability. All actuarial gains and
losses that arise in calculating the present value of the DBO and the fair value of plan assets are recognized immediately in
the consolidated statements of comprehensive income. For funded plans, surpluses are recognized only to the extent that the
surplus is considered recoverable. Recoverability is primarily based on the extent to which the Company can unilaterally reduce
future contributions to the plan.
Fair value is based on market price information, and in the case of quoted securities, is the published bid price. The value of any
defined benefit asset recognized is restricted to the present value of any economic benefits available in the form of refunds from
the plan or reductions in the future contributions to the plan.
DEFINED CONTRIBUTION PENSION PLANS (“DCPP”)
A DCPP is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no
legal or constructive obligation to pay further amounts. Obligations for contributions to DCPPs are recognized as an employee
benefit expense in the consolidated statements of income in the periods during which services are rendered by employees.
SHORT-TERM EMPLOYEE BENEFITS
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or incentive plans if the
Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee,
and the obligation can be estimated reliably.
TERMINATION BENEFITS
Termination benefits are recognized as an expense when the Company is committed demonstrably, without realistic possibility
of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date or to provide
termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits payable more than twelve months
after the reporting period are discounted to their present value.
(m) Revenue recognition
Revenue from the sale of products is recognized when the terms of a contract with a customer has been satisfied, which occurs
when control has been transferred to customers, either upon delivery to or pick-up by the customer. Revenue is measured
as the amount of consideration the Company expects to receive, and varies with changes in marketing programs provided to
customers, including volume rebates, cooperative advertising and other trade marketing programs that promote the Company’s
products. Revenue from customer contracts is recognized based on the price specified in the contract, net of the estimated
trade marketing programs. Accumulated historical experience is used to estimate and accrue for the trade marketing programs,
using the expected value method or most likely method, depending on the program. Revenue is only recognized to the extent
that it is highly probable that a significant reversal will not occur.
Notes to the Consolidated Financial Statements Annual Report 2019 65
A receivable is recognized when the goods are delivered or picked up by the customer as this is the point in time that the
consideration is unconditional because only the passage of time is required before the payment is due. The Company has
determined that no significant financing components exist with respect to contracts with customers, as accounts receivables
bear normal commercial credit terms and are non-interest bearing.
The Company elected to apply the practical expedient and recognizes the incremental costs of obtaining a contract as an
expense when incurred because the amortization period of the asset that the Company otherwise would recognize is less than
one year.
(n) Share-based compensation
EQUITY-SETTLED TRANSACTIONS
The Company measures all equity-settled share-based awards made to employees and others providing similar services
(collectively, “employees”) based on the fair value of the options or units on the date of grant. The grant date fair value of stock
options is estimated using an option pricing model and is recognized as employee benefits expense over the vesting period,
based on the number of options that are expected to vest, with a corresponding increase recognized in contributed surplus.
The fair value estimate requires determination of the most appropriate inputs to the pricing model, including the expected life,
volatility, and dividend yield, which are fully described in Note 17. The grant date fair value of equity-settled deferred share units,
performance share units and restricted share units is determined based on the market value of the Company’s shares on the
date of grant, and is expensed over the vesting period based on the estimated number of units that are expected to vest.
Service and non-market performance conditions are not taken into account when determining the grant date fair value of
awards, but the likelihood of the conditions being met is assessed as part of the Company’s best estimate of the number of
equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value.
Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting
conditions. Non-vesting conditions are reflected in the fair value of the award and lead to an immediate expensing of an award
unless there are also service and/or performance conditions.
When the terms of an equity-settled award are modified, the minimum expense recognized is the expense had the terms
not been modified, if the original terms of the award are met. An additional expense is recognized for any modification
that increases the total fair value of the share-based compensation payments or is otherwise beneficial to the employee as
measured at the date of modification.
CASH-SETTLED TRANSACTIONS
The cost of cash-settled transactions is initially measured at fair value using the Company’s share price at the award grant
date and is remeasured at each reporting date using the market value of the Company’s shares. The Company recognizes the
fair value of the amount payable to employees as compensation expense as it is earned, based on the estimated number of
units expected to vest with a corresponding change to the liability. The approach used to account for vesting conditions when
measuring equity-settled transactions also applies to cash-settled transactions.
In the case of stock options issued with tandem share appreciation rights (“SARs”), if employees elect to exercise their options
for shares, thereby cancelling the SARs, share capital is increased by the sum of the consideration paid by employees and the
liability is reversed, with any difference being recorded in the consolidated statements of income.
(o) Income taxes
Income tax expense comprises current and deferred income taxes, and is recognized in the consolidated statements of income,
except to the extent that it relates to a business combination or to items recognized directly in equity or OCI.
Current income tax is the expected tax payable or receivable on the taxable income or loss for the year using tax rates that are
enacted or substantively enacted at the reporting date and any adjustment to taxes payable or receivable in respect of previous
years. Current income tax assets and liabilities are offset if there is a legally enforceable right to offset current income tax assets
and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity or on different taxable
entities but the entity intends to settle current income tax assets and liabilities on a net basis or their income tax assets and
liabilities will be realized simultaneously.
Notes to the Consolidated Financial Statements 66 HIGH LINER FOODS
Deferred income tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is not recognized for
the following temporary differences: (i) the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss; (ii) differences relating to investments in subsidiaries
and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future and the timing
of the reversal of the temporary differences can be controlled, and (iii) taxable temporary differences arising on the initial
recognition of goodwill which is not deductible for tax purposes. Deferred income tax assets and liabilities are measured at the
enacted or substantively enacted rate that is expected to apply when the related temporary differences reverse.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent
it is probable future taxable profits will be available against which they can be utilized. Deferred income tax assets are reviewed
at each reporting date and are reduced to the extent it is no longer probable the related tax benefit will be realized.
(p) Earnings per share
Basic earnings per share is calculated by dividing net income attributable to equity holders by the weighted average number
of shares outstanding during the period, accounting for any changes to the number of shares outstanding, except those
transactions affecting the number of shares outstanding without a corresponding change in resources.
Diluted earnings per share is calculated by dividing net income attributable to equity holders by the weighted average number
of shares outstanding adjusted for the effects of all potentially dilutive shares. Potentially dilutive shares are only those shares
that would result in a decrease to earnings per share or increase to loss per share. Dilutive shares are calculated using the
treasury method for stock options, which assumes that outstanding units with an average exercise price below the market price
of the underlying shares are exercised and the assumed proceeds are used to repurchase common shares of the Company at
the average market price of the common shares for the period. The if-converted method is used for other share-based units, and
assumes that all units have been converted in determining diluted earnings per share if they are in-the-money, except where
such conversion would be anti-dilutive.
(q) Financial instruments
Financial instruments are measured at fair value on initial recognition of the instrument. The classification of financial assets
at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model
for managing them. With the exception of trade receivables that do not contain a significant financing component and financial
assets at fair value through profit or loss, the Company initially measures a financial asset at its fair value including related
transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price
determined under IFRS 15, Revenue from Contracts with Customers (see Note 3(m)). In order for a financial asset to be classified
and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are solely payments of
principal and interest (“SPPI”) on the principal amount outstanding, which is the Company’s business model. This assessment
is referred to as the SPPI test and is performed at an instrument level. All financial liabilities are recognized initially at fair value,
and in the case of loans and borrowings and payables, net of directly attributable transaction costs.
Measurement in subsequent periods depends on whether the financial instrument has been classified as: (i) financial asset at
fair value through profit or loss, (ii) financial assets at fair value through other comprehensive income, (iii) financial assets at
amortized cost, (iv) financial liabilities at fair value through profit or loss, or (v) financial liabilities at amortized cost.
FINANCIAL ASSETS OR LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (“FVTPL”)
Financial assets and liabilities at FVTPL include financial instruments which are held-for-trading (“HFT”), financial instruments
that are designated as FVTPL upon initial recognition, and financial instruments required to be measured at fair value. Financial
instruments are classified as HFT if they are acquired for the purpose of selling or repurchasing in the near term. Financial
instruments at FVTPL are carried in the consolidated statements of financial position at fair value with net changes in fair value
presented as finance costs or finance income in the consolidated statements of income.
Notes to the Consolidated Financial Statements Annual Report 2019 67
ASSETS AT AMORTIZED COST
Financial assets at amortized cost are non-derivative financial assets which are classified as such if the following conditions
are met: (i) the financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows, and (ii) the contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding. After initial measurement, such financial
assets are subsequently measured at amortized cost using the EIR method, less any impairment. Amortized cost is calculated
by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR
amortization is included in finance costs in the consolidated statements of income. Any losses arising from impairment are
recognized in the consolidated statements of income in finance costs for loans and in selling, general and administrative
expenses for receivables.
FINANCIAL LIABILITIES AT AMORTIZED COST
Financial liabilities at amortized cost generally include interest-bearing loans and borrowings. After initial recognition, interest-
bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are
recognized in the consolidated statements of income when the liabilities are modified or derecognized as well as through the
EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. Transaction costs are combined with the fair value of the financial liability on initial
recognition and amortized using the EIR method.
DERECOGNITION OF FINANCIAL INSTRUMENTS
A financial asset is derecognized when the rights to receive cash flows from the asset have expired, the Company transfers
its contractual rights to receive cash flows without retaining control or substantially all the risks and rewards of ownership of
the asset, or the Company enters into a pass-through arrangement. A financial liability is derecognized when the obligation
under the liability is discharged, cancelled or expires. When an existing liability is replaced by another from the same lender
on substantially different terms, or the terms of an existing liability are substantially different, such an exchange or substantial
modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the
respective carrying amounts is recognized in the consolidated statements of income. Transaction costs related to the original
financial liability are expensed in the event of an exchange or substantial modification, or if the terms of a modification are not
substantially different, the transaction costs related to the original financial liability are combined with the new carrying amount,
and amortized over the new term of the financial liability using the EIR method.
The Company’s financial instruments are classified and subsequently measured as follows:
Asset / liability
Cash
Accounts receivable
Foreign exchange contracts
Interest rate swaps
Bank loans
Accounts payable and accrued liabilities
Provisions
Long-term debt
(r) Fair value measurement
Classification
Subsequent measurement
Financial assets at amortized cost
Financial assets at amortized cost
Fair value through profit or loss
Fair value through profit or loss
Financial liabilities at amortized cost
Financial liabilities at amortized cost
Financial liabilities at amortized cost
Financial liabilities at amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that
market participants would use when pricing the asset or liability, assuming that market participants act in their economic best
interest. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
Notes to the Consolidated Financial Statements 68 HIGH LINER FOODS
All assets and liabilities for which fair value is measured or disclosed in the Consolidated Financial Statements are categorized
within the fair value hierarchy, described as follows, based on the lowest-level input that is significant to the fair value
measurement as a whole:
• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable; or
• Level 3 – Valuation techniques for which the lowest-level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the Consolidated Financial Statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the
lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability, and the level of the fair value hierarchy as explained above.
(s) Derivative instruments and hedging
All derivative instruments, including embedded derivatives that are not closely related to the host contract, are recorded in the
consolidated statements of financial position at fair value on the date a contract is entered into and subsequently remeasured
at fair value. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship
to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking
the hedge. The documentation includes identification of the hedge instrument, the hedged item of the transaction, the nature
of the risk being hedged and how the Company will assess whether the hedging relationship meets the hedge effectiveness
requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging
relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
• There is an economic relationship between the hedged item and the hedging instrument;
• The effect of credit risk does not dominate the value changes that result from that economic relationship; and
• The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the
Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity
of hedged item.
Hedges that meet all the qualifying criteria for hedge accounting are accounted for as described below. The method of
recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and the nature of
the hedge designation. The Company designates certain derivatives as one of the following:
(i) Embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated statements of
income. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the
cash flows that would otherwise be required or a reclassification of a financial asset or financial liability out of FVTPL.
(ii) Fair value hedges are hedges of the fair value of recognized assets, liabilities or a firm commitment. Changes in the fair
value of derivatives that are designated as fair value hedges are recorded in the consolidated statements of income
together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk.
(iii) Cash flow hedges are hedges of highly probable forecasted transactions. The effective portion of changes in the fair value
of derivatives that are designated as cash flow hedges are recognized in OCI. The gain or loss relating to the ineffective
portion is recognized immediately in the consolidated statements of income. Additionally:
• Amounts accumulated in OCI are recycled to the consolidated statements of income in the period when the hedged
item affects profit and loss;
• When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss that was reported in OCI remains in accumulated other comprehensive income (loss) (“AOCI”)
and is recognized in the consolidated statements of income when the forecasted transaction ultimately affects profit
and loss; and
Notes to the Consolidated Financial Statements Annual Report 2019 69
• When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in OCI is
immediately recognized in the consolidated statements of income.
(iv) Hedges of a net investment in a foreign operation are accounted for in a way similar to cash flow hedges. Gains or losses
on the hedging instrument relating to the effective portion of the hedge are recognized in OCI while any gains or
losses relating to the ineffective portion are recognized in the consolidated statements of income. On disposal of the
foreign operation, the cumulative value of any such gains or losses recorded in AOCI is transferred to the consolidated
statements of income.
(v) Derivatives that do not qualify for hedge accounting
Certain of the Company’s derivative instruments, while providing effective economic hedges, are not designated as
hedges for accounting purposes. Changes in the fair value of any derivatives that are not designated as hedges for
accounting purposes are recognized as finance costs in the consolidated statements of income consistent with the
underlying nature and purpose of the derivative instruments.
(t) New standards, interpretations and amendments thereof, adopted by the Company
The Company transitioned to the following new standards and amendments that were effective for annual periods beginning on
January 1, 2019 and that the Company has adopted on December 30, 2018:
IFRS 16, LEASES
In January 2016, the IASB issued IFRS 16, Leases, which replaces IAS 17, Leases, and its associated interpretive guidance. The
new standard eliminates the distinction between operating and finance leases, bringing most leases on-balance sheet for
lessees under a single model, unless an election is made to exclude a lease with a lease term of 12 months or less or the lease
is for a low-value asset. A lessee recognizes an ROU asset representing the Company’s right to use the underlying asset and a
lease liability representing the obligation to make lease payments. Lessor accounting, however, remains largely unchanged and
the distinction between operating and finance leases is retained.
The Company has elected to adopt the standard using the modified retrospective method and therefore the comparative
information for Fiscal 2018 has not been restated. The Company has recognized new assets and liabilities for all leases that
were previously classified as operating leases, other than those that were excluded due to the elected practical expedients. The
Company applied the following practical expedients upon transition:
• The previous determination pursuant to IAS 17 and IFRIC 4, Determining Whether an Arrangement Contains a Lease, of whether
a contract is a lease has been maintained for existing contracts;
• The Company has exercised the option not to apply the new recognition requirements to short-term leases with a term of 12
months or less (and no purchase option) and leases of low-value assets;
• For the purpose of initial measurement of the ROU assets as at December 30, 2018, initial direct costs were not taken into
account; and
• The Company has elected not to separate non-lease components from lease components and will account for identified
components as a single lease component.
As at December 30, 2018, the Company recognized additional assets and liabilities on the consolidated statements of financial
position of $14.6 million (see Note 9). In addition, the nature of the expense related to these leases has changed as IFRS 16
replaces the straight-line operating lease expense with depreciation expense for ROU assets and interest expense on the lease
liabilities using the EIR method.
Notes to the Consolidated Financial Statements 70 HIGH LINER FOODS
The following table reconciles the operating lease payments as at December 29, 2018 to the lease liabilities recognized as at
December 30, 2018:
(Amounts in $000s)
Minimum lease payments under operating leases as at December 29, 2018
Recognition exemption for
Short-term leases
Leases of low-value assets
Reasonably certain extension options
Variable non-lease components(1)
Lease obligation as at December 30, 2018 (gross, without discounting)
Effect from discounting at the incremental borrowing rate as at December 30, 2018(2)
Liabilities recognized based on the initial application of IFRS 16 as at December 30, 2018
Current portion of lease liabilities as at December 29, 2018
Long-term lease liabilities as of December 29, 2018
Total lease liabilities as of December 30, 2018
Lease
liabilities
$
20,186
(24)
(15)
423
(2,653)
17,917
(3,347)
14,570
372
407
$
15,349
(1) Total payments related to variable non-lease components were $0.5 million during the fifty-two weeks ended December 28, 2019.
(2) The weighted-average incremental borrowing rate (“IBR”) for lease liabilities initially recognized as of December 30, 2018 was 10%. If the Company’s IBR changed by
1%, the lease liabilities initially recognized would change by approximately $0.4 million.
As the Company has elected to adopt IFRS 16 using the modified retrospective method, comparative amounts prepared under
IAS 17 have not been restated. The historical accounting policy applied to these balances stated that the determination of
whether an arrangement was, or contained, a lease was based on the substance of the arrangement at the inception date:
whether fulfillment of the arrangement was dependent on the use of a specific asset(s) or the arrangement conveyed a right to
use the asset(s).
Finance leases, where the Company was a lessee, which transferred substantially all the risks and rewards incidental to
ownership of the leased item to the Company, were capitalized at the commencement of the lease at the fair value of the leased
property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between finance
charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges were recognized in the consolidated statements of income. Operating lease payments were recognized as an expense
in the consolidated statements of income on a straight-line basis over the lease term.
IAS 19, EMPLOYEE BENEFITS
In February 2018, the IASB issued amendments to IAS 19, Employee Benefits (“IAS 19”), which addresses the accounting when a
plan amendment, curtailment or settlement occurs during the reporting period. The current service cost and net interest for the
remainder of the period after the plan amendment, curtailment or settlement should reflect the updated actuarial assumptions
after such an event. The amendments apply to plan amendments, curtailments, or settlements that occur on or after January 1,
2019, with early adoption permitted. The Company has adopted the amendments to IAS 19 on a prospective basis, which had
no impact on the Consolidated Financial Statements.
IFRIC INTERPRETATION 23, UNCERTAINTY OVER INCOME TAX TREATMENT
In June 2017, the International Accounting Standards Board (IASB) issued IFRIC Interpretation 23, Uncertainty over Income Tax
Treatments (the “Interpretation”), to address the accounting for income taxes when treatments involve uncertainty that affects
the application of IAS 12, Income Taxes (“IAS 12”). The Interpretation does not apply to taxes or levies outside the scope of
IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments.
The Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately;
• The assumptions an entity makes about the examination of tax treatments by taxation authorities;
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and
• How an entity considers changes in facts and circumstances.
Notes to the Consolidated Financial Statements Annual Report 2019 71
The Interpretation is effective for annual reporting periods beginning on or after January 1, 2019. The Interpretation had
no impact on the Consolidated Financial Statements, therefore the Company was able to implement the Interpretation
retrospectively without the use of hindsight.
(u) Accounting pronouncements issued but not yet effective
The standards, amendments and interpretations that have been issued, but are not yet effective, up to the date of issuance of
these financial statements are disclosed below. The Company intends to adopt these standards when they become effective.
IFRS 3, BUSINESS COMBINATIONS
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3, Business Combinations. The amendments
are intended to assist entities in determining whether a transaction should be accounted for as a business combination or as an
asset acquisition. The amendments apply to transactions that are either business combinations or asset acquisitions for which
the acquisition date is on or after January 1, 2020, with early adoption permitted. The Company will apply the interpretation
from the effective date.
IFRS 9, FINANCIAL INSTRUMENTS, IAS 39, FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT, AND IFRS 7, FINANCIAL
INSTRUMENTS: DISCLOSURES, INTEREST RATE BENCHMARK REFORM
In September 2019, the IASB issued amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and
Measurement, and IFRS 7, Financial Instruments: Disclosures, Interest Rate Benchmark Reform, which concludes phase one of its
work to respond to the effects of the Interbank Offered Rates (“IBOR”) reform on financial reporting. The amendments provide
temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an
existing interest rate benchmark with an alternative nearly risk-free rate (“RFR”). The amendments are effective for annual
periods beginning on or after January 1, 2020 and must be applied retrospectively.
The amendments include a number of reliefs that apply to all hedging relationships that are directly affected by the interest rate
benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and/or amount of
benchmark-based cash flows of the hedged item or hedging instrument. The first three reliefs provide for:
• The assessment of whether a forecast transaction (or component thereof) is highly probable;
• Assessing when to reclassify the amount in the cash flow hedge reserve to profit and loss; and
• The assessment of the economic relationship between the hedged item and the hedging instrument.
The amendments also introduce specific disclosure requirements for hedging relationships to which the reliefs are applied.
The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements.
IAS 1, PRESENTATION OF FINANCIAL STATEMENTS, AND IAS 8, ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS,
AMENDMENTS TO THE DEFINITION OF MATERIAL
In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements, and IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors, to align the definition of “material” across the standards and to clarify certain aspects
of the definition. The new definition states that, “Information is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those
financial statements, which provide financial information about a specific reporting entity.”
The amendments clarify that materiality will depend on the nature or magnitude of information, or both. An entity will need to
assess whether the information, either individually or in combination with other information, is material in the context of the
financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2020 and
must be applied prospectively, with early adoption permitted. The Company will apply the amendments from the effective date.
IAS 1, PRESENTATION OF FINANCIAL STATEMENTS
In January 2020, the IASB issued amendments to IAS 1, Presentation of Financial Statements, to clarify that the classification
of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period and
is unaffected by expectations about whether or not an entity will exercise their right to defer settlement of a liability. The
amendments further clarify that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets
or services.
Notes to the Consolidated Financial Statements 72 HIGH LINER FOODS
The amendments are effective for annual reporting periods beginning on or after January 1, 2022 and must be applied
retrospectively. The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements
and will apply the amendments from the effective date.
4. Critical accounting estimates and judgments
The preparation of the Company’s Consolidated Financial Statements requires management to make critical judgments,
estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying
notes. On an ongoing basis, management evaluates the judgments, estimates and assumptions using historical experience
and various other factors believed to be reasonable under the given circumstances. Actual outcomes may differ from these
estimates and could require a material adjustment to the reported carrying amounts in the future.
The most significant estimates made by management include the following:
Impairment of non-financial assets
The Company’s estimate of the recoverable amount for the purpose of impairment testing requires management to make
assumptions regarding future cash flows before taxes. Future cash flows are estimated based on multi-year extrapolation of the
most recent historical actual results and/or budgets, and a terminal value calculated by discounting the final year in perpetuity.
The future cash flows are then discounted to their present value using an appropriate discount rate that incorporates a risk
premium specific to the North American business. Further details, including the manner in which the Company identifies its
CGU, and the key assumptions used in determining the recoverable amount, are disclosed in Note 10.
Future employee benefits
The cost of the defined benefit pension plan and other post-employment benefits and the present value of the defined benefit
obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions, including the
discount rate, future salary increases, mortality rates and future pension increases. In determining the appropriate discount rate,
management considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the
benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Interest income on
plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the
discount rate. See Note 15 for certain assumptions made with respect to future employee benefits.
Income taxes
The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the
Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire. The Company’s
assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the Company’s ability
to utilize the underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax
deductions as assets, which would decrease or increase the income tax expense in the period in which this is determined.
There are transactions and calculations during the ordinary course of business for which the ultimate tax determination is
uncertain. The Company maintains provisions for uncertain tax positions that are believed to appropriately reflect the risk with
respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise considered
to involve uncertainty. These provisions for uncertain tax positions are made using the best estimate of the amount expected to
be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at each
reporting date; however, it is possible that at some future date, an additional liability could result from audits by taxing authorities.
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will affect
the tax provisions in the period in which such determination is made.
Notes to the Consolidated Financial Statements Annual Report 2019 73
Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the consolidated statements of financial position
cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash
flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a
degree of estimation is required in establishing fair values. The estimates include considerations of inputs such as liquidity risk,
credit risk and volatility. Changes in these inputs could affect the reported fair value of financial instruments.
Sales and marketing accruals
The Company estimates variable consideration to determine the costs associated with the sale of product to be allocated to
certain variable sales and marketing expenses, including volume rebates and other sales volume discounts, coupon redemption
costs, costs incurred related to damages and other trade marketing programs. The Company’s estimates include consideration
of historical data and trends, combined with future expectations of sales volume, with estimates being reviewed on a frequent
basis for reasonability.
The most significant judgments made by management include the following:
Impairment of non-financial assets
Assessment of impairment triggers are based on management’s judgment of whether there are sufficient internal and external
factors that would indicate an asset or CGU is impaired, or any indicators of impairment reversal, which would require a
quarterly impairment test. The determination of the Company’s CGU is also based on management’s judgment and is an
assessment of the smallest group of assets that generate cash inflows independently of other assets.
Income taxes
The Company is subject to income tax in various jurisdictions. Significant judgment is required to determine the consolidated
tax provision. The tax rates and tax laws used to compute income tax are those that are enacted or substantively enacted at the
reporting date in the countries where the Company operates and generates taxable income.
5. Product recall
In April 2017, the Company announced a voluntary recall of certain brands of breaded fish and seafood products sold in
Canada that may contain a milk allergen that was not declared on the ingredient label and allergen statement. The Company
identified that the allergen had originated from ingredients supplied by one of the Company’s U.S.-based ingredient suppliers.
Subsequently, the Company was notified by the ingredient supplier that several additional ingredients were being recalled
due to the potential presence of undeclared milk allergens, which necessitated the expansion of the Company’s initial recall to
include additional value-added seafood products sold in the U.S. and Canada.
As a result, during the fifty-two weeks ended December 30, 2017, the Company recognized $13.5 million in net losses
associated with the product recall related to consumer refunds, customer fines, the return of product to be re-worked or
destroyed, and incremental costs. These losses did not include any reduction in earnings as a result of lost sales opportunities
due to limited product availability and customer shortages, or increased production costs related to the interruption of
production at the Company’s facilities. During the fifty-two weeks ended December 29, 2018, the Company recognized an
$8.5 million recovery associated with the product recall losses from the ingredient supplier, which was recognized as business
acquisition, integration and other expense (income) in the consolidated statements of income.
During the fifty-two weeks ended December 28, 2019, the Company recognized an additional $8.5 million recovery associated
with the product recall losses from the ingredient supplier which was recognized as business acquisition, integration and other
expense (income) in the consolidated statements of income. As a result, the Company has recovered the full $13.5 million
in losses recognized during the fifty-two weeks ended December 30, 2017 related to consumer refunds, customer fines, the
return of product to be re-worked or destroyed, and direct incremental costs, and an additional $3.5 million related to lost sales
opportunities and increased production costs. No further expenses or recoveries are expected.
Notes to the Consolidated Financial Statements 74 HIGH LINER FOODS
6. Accounts receivable
(Amounts in $000s)
Trade accounts receivable
Other accounts receivable
December 28,
2019
December 29,
2018
$
$
84,229
860
85,089
$
$
83,843
1,030
84,873
Accounts receivable bear normal trade credit terms and are non-interest bearing. Trade accounts receivable includes revenue
from contracts with customers. The entire accounts receivable balance is pledged as collateral for the Company’s working
capital facility (see Note 11). As part of the acquisition of Rubicon Resources, LLC (“Rubicon”) in 2017, the Company assumed
financing arrangement guarantees for certain suppliers granting a security interest in substantially all of the inventory and
proceeds thereon (see Note 22).
The following is a reconciliation of the changes in the allowance for expected credit losses of receivables:
(Amounts in $000s)
At December 30, 2017
New provision for expected credit losses(1)
Provision utilized
Unused provision for expected credit losses reversed
At December 29, 2018
New provision for expected credit losses(1)
Provision utilized
Unused provision for expected credit losses reversed
At December 28, 2019
$
$
$
481
273
—
(40)
714
416
(1,015)
(20)
95
(1) For the fifty-two weeks ended December 28, 2019, the Company recognized $0.4 million of impairment losses (fifty-two weeks ended December 29, 2018:
$0.3 million) related to receivables arising from contracts with customers.
The aging analysis of trade accounts receivables, based on the invoice date, is as follows:
At December 29, 2018
At December 28, 2019
0–30 days
31–60 days
Over 60 days
88%
87%
10%
11%
2%
2%
7. Inventories
Total inventories at the lower of cost and net realizable value on the consolidated statements of financial position comprise
the following:
(Amounts in $000s)
Finished goods
Raw and semi-finished material
December 28,
2019
December 29,
2018
$
203,843
$
215,744
91,070
85,667
$
294,913
$
301,411
During the fifty-two weeks ended December 28, 2019, $756.4 million (December 29, 2018: $860.4 million) was recognized as
an expense for inventories in cost of sales on the consolidated statements of income. Of this, $9.4 million (December 29, 2018:
$6.7 million) was written-down during the year and a reversal for unused impairment reserves of $0.5 million (December 29,
2018: $0.1 million) was recorded. As of December 28, 2019, the value of inventory pledged as collateral for the Company’s
working capital facility (see Note 11) was $191.0 million (December 29, 2018: $177.6 million). As part of the Rubicon acquisition,
the Company assumed financing arrangement guarantees for certain suppliers granting a security interest in substantially all of
the inventory and proceeds thereon (see Note 22).
Notes to the Consolidated Financial Statements 8. Property, plant and equipment
(Amounts in $000s)
Cost
At December 30, 2017
Additions
Disposals
Effect of exchange rates
At December 29, 2018
Additions
Transfers(1)
Disposals
Effect of exchange rates
At December 28, 2019
Accumulated depreciation and impairment
At December 30, 2017
Depreciation and impairment
Disposals
Effect of exchange rates
At December 29, 2018
Depreciation and impairment
Transfers(1)
Disposals
Effect of exchange rates
At December 28, 2019
Net carrying value
At December 29, 2018
At December 28, 2019
Annual Report 2019 75
Furniture,
fixtures, and
production
equipment
Computer
equipment
and vehicles(1)
Land and
buildings
Total
$
78,186
$
92,088
$
18,508
$
188,782
1,467
(50)
(1,468)
5,774
(891)
(1,905)
1,256
(1,431)
(873)
8,497
(2,372)
(4,246)
$
78,135
$
95,066
$
17,460
$
190,661
1,563
282
(274)
705
4,550
(352)
(2,055)
948
239
(1,907)
(245)
353
6,352
(1,977)
(2,574)
2,006
$
80,411
$
98,157
$
15,900
$
194,468
$
(23,710)
$
(34,469)
$
(10,314)
$
(68,493)
(3,092)
(6,366)
(2,164)
(11,622)
27
698
656
805
1,112
527
1,795
2,030
$
(26,077)
$
(39,374)
$
(10,839)
$
(76,290)
(2,783)
(3)
178
(352)
(7,032)
12
1,882
(416)
(1,348)
(11,163)
745
201
(276)
754
2,261
(1,044)
$
(29,037)
$
(44,928)
$
(11,517)
$
(85,482)
$
$
52,058
51,374
$
$
55,692
53,229
$
$
6,621
4,383
$
$
114,371
108,986
(1) The Company has transferred the $1.2 million carrying value of vehicles and equipment held under a finance lease and previously classified as property, plant and
equipment as at December 29, 2018 to ROU assets (see Note 9 for further information).
An impairment loss of $1.0 million (December 29, 2018: $1.3 million) was recorded during the fifty-two weeks ended
December 28, 2019 reflecting a write-down of certain property, plant and equipment as a result of equipment obsolescence.
The Company has a General Security Agreement that has pledged all of its property, plant and equipment as collateral for its
bank loans and long-term debt. See Note 11 and Note 14 for further information.
Notes to the Consolidated Financial Statements 76 HIGH LINER FOODS
9. Right-of-use assets and lease liabilities
Right-of-use assets
(Amounts in $000s)
Cost
At December 30, 2018
Additions
Transfers(1)
Disposals
Effect of exchange rates
At December 28, 2019
Accumulated depreciation
At December 30, 2018
Depreciation
Transfers(1)
Disposals
Effect of exchange rates
At December 28, 2019
Net carrying value
At December 30, 2018
At December 28, 2019
Land and
buildings
Plant and
machinery
Computer
equipment and
vehicles
$
13,686
$
110
69
(12)
94
$
250
268
—
(92)
—
634
419
1,908
(501)
77
Total
$
14,570
797
1,977
(605)
171
$
13,947
$
426
$
2,537
$
16,910
$
— $
— $
— $
—
(4,005)
(128)
(8)
12
—
—
13
—
(561)
(746)
352
(47)
(4,694)
(754)
377
(47)
$
(4,001)
$
(115)
$
(1,002)
$
(5,118)
$
$
13,686
9,946
$
$
250
311
$
$
634
1,535
$
$
14,570
11,792
(1) The Company has transferred the $1.2 million carrying value of vehicles and equipment held under a finance lease and previously classified as property, plant and
equipment as at December 29, 2018 to ROU assets (see Note 8 for further information).
AMOUNTS RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF INCOME
(Amounts in $000s)
Variable lease payments not included in the measurement of the lease liabilities
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
Total amounts recognized in the consolidated statements of income
Lease liabilities
(Amounts in $000s)
Lease liabilities
Fifty-two
weeks ended
December 28,
2019
$
$
539
4,694
1,447
6,680
Total
Less than
1 year
1–5 years
Thereafter
$
14,186
$
5,504
$
7,911
$
771
Maturity analysis
The Company does not face significant liquidity risk with regards to its lease liabilities. Lease liabilities are monitored within the
Company’s treasury function.
Notes to the Consolidated Financial Statements 10. Goodwill and intangible assets
The Company’s intangible assets consist of brands and customer and supplier relationships that have been acquired through a
business combination, and computer software.
Annual Report 2019 77
(Amounts in $000s)
Cost
At December 30, 2017
Additions
Effect of exchange rates
At December 29, 2018
Additions
Effect of exchange rates
At December 28, 2019
Accumulated amortization
At December 30, 2017
Amortization
Effect of exchange rates
At December 29, 2018
Amortization
Effect of exchange rates
At December 28, 2019
Net carrying value
At December 29, 2018
At December 28, 2019
Intangible assets
Customer
and supplier
relationships
Indefinite
lived
brands
Computer
software
Total
intangible
assets
Brands
Goodwill
Total
goodwill
and
intangible
assets
$
6,938
$ 164,848
$ 14,069
$
9,579
$ 195,434
$ 157,881
$ 353,315
—
(39)
—
(116)
—
(68)
6,113
6,113
—
6,113
(1,062)
(1,285)
(811)
(2,096)
$
6,899
$ 164,732
$ 14,011
$ 14,630
$ 200,262
$ 157,070
$ 357,332
—
18
—
44
—
18
255
620
255
700
—
387
255
1,087
$
6,917
$ 164,776
$ 14,019
$ 15,505
$ 201,217
$ 157,457
$ 358,674
$
(6,372)
$ (31,018)
$
— $
— $ (37,390)
$
— $ (37,390)
(451)
49
(6,396)
93
—
—
(604)
(7,451)
31
173
—
—
(7,451)
173
$
(6,774)
$ (37,321)
$
— $
(573)
$ (44,668)
$
— $ (44,668)
(123)
(20)
(6,417)
(40)
—
—
(1,029)
(7,569)
(27)
(87)
—
—
(7,569)
(87)
$
(6,917)
$ (43,778)
$
— $
(1,629)
$ (52,324)
$
— $ (52,324)
$
$
125
$ 127,411
$ 14,001
$ 14,057
$ 155,594
$ 157,070
$ 312,664
— $ 120,998
$ 14,019
$ 13,876
$ 148,893
$ 157,457
$ 306,350
During the fourth quarter of Fiscal 2018, the Company announced an organizational realignment to take better advantage of the
Company’s North American scale. As a result, the Company undertook significant restructuring of the internal leadership and
reporting structure to be arranged as a single frozen seafood company that is focused on North America, rather than focusing
on separate geographical segments (U.S. and Canada). As such, the Company has transitioned to a single operating and
reporting segment (see Note 24 for further information on the Company’s operating segment).
The transition to one North American operating segment triggered an assessment of the aggregation of assets applied in
identifying the CGUs for the purpose of the annual goodwill impairment testing. Historically, goodwill acquired through business
combinations and brands with indefinite lives were allocated to the Canadian and U.S. CGUs. As a result of the restructuring,
the monitoring of the Company’s operations and decision-making over the continuation or disposal of the Company’s assets
and operations has transitioned to a North American focus rather than the historical geographically focused approach. As such,
the Company has transitioned to a single North American CGU.
Notes to the Consolidated Financial Statements 78 HIGH LINER FOODS
Impairment of goodwill and identifiable intangible assets
As described in Note 3, the carrying values of goodwill and intangible assets with indefinite lives are tested for impairment
annually (as at the first day of the Company’s fourth quarter). The Company’s impairment test for goodwill and intangible
assets with indefinite useful lives was based on FVLCS at September 29, 2019, resulting in $nil impairment in the North
American CGU (September 30, 2018: $nil in the historical Canadian and U.S. CGUs, respectively). The key assumptions used
to determine the recoverable amount for the CGU for the most recently completed impairment calculation for Fiscal 2019 are
discussed below.
The recoverable amount of the CGU has been determined based on the FVLCS, determined using an income approach using
the discounted cash flow methodology. The fair value of the CGU must be measured using the assumptions that market
participants would use rather than those related specifically to the Company. In addition, the market approach was employed in
assessing the reasonableness of the conclusions reached.
INCOME APPROACH
The discounted cash flow (“DCF”) technique provides the best assessment of what the CGU could be exchanged for in an arm’s
length transaction as fair value is represented by the present value of expected future cash flows of the business together with the
residual value of the business at the end of the forecast period. The DCF was applied on an enterprise-value basis, where the after-
tax cash flows prior to interest expense are discounted using a weighted average cost of capital (“WACC”). This approach requires
assumptions regarding revenue growth rates, income margins before finance costs, income taxes, depreciation and amortization,
capital expenditures, tax rates and discount rates.
MARKET APPROACH
It is assumed under the market approach that the value of a company reflects the price at which comparable companies in the
same industry are purchased under similar circumstances. A comparison of a CGU to similar companies in the same industry
whose financial information is publicly available may provide a reasonable basis to estimate fair value. Fair value under this
approach is calculated based on EBITDA multiples and revenue multiples compared to the multiples based on publicly available
information for comparable companies and transaction prices.
Key assumptions used in determining the FVLCS
CASH FLOW PROJECTIONS
The cash flow projections, covering a five-year period (“projection period”), were based on financial projections approved
by management using assumptions that reflect the Company’s most likely planned course of action, given management’s
judgment of the most probable set of economic conditions, adjusted to reflect the perspective of the expectations of a market
participant. For the purpose of the Company’s annual impairment test as at September 29, 2019, gross margins are based
on actual and estimated values in the first year of the projection period, budgeted values in the second year of the projection
period, and these are increased over the projection period for anticipated efficiency improvements and growth. The projected
gross margins are updated to reflect anticipated future changes, such as currency fluctuations, in the cost of inputs (primarily
raw materials and commodity products used in processing), which are obtained from forward-looking data. Forecast figures
are used where data is publicly available; otherwise, past actual raw material cost movements have been used combined with
management’s industry experience and analysis of the seafood and commodity markets.
DISCOUNT RATE
The discount rate, derived from the WACC, represents the current market assessment of the risk specific to the CGU, taking
into consideration the time value of money and individual risks that have not been incorporated in the cash flow projections. The
discount rate was based on the weighted average cost of equity and cost of debt for comparable companies within the industry.
The cost of equity was calculated using the capital asset pricing model. The debt component of the WACC was determined by
using an after-tax cost of debt. The after-tax WACC applied to the North American CGU cash flow projections was 9.8% at
September 29, 2019.
Notes to the Consolidated Financial Statements Annual Report 2019 79
GROWTH RATE
Growth rates used to extrapolate the Company’s projection were determined using published industry growth rates in combination
with inflation assumptions and management input based on historical trend analysis and future expectations of growth. The long-
term growth rate applied to the cash flow projections of the North American CGU was 2.0% at September 29, 2019.
COSTS TO SELL
The costs to sell the North American CGU has been estimated at approximately 3.0% of the CGU’s enterprise value. The costs to
sell reflect the incremental costs, excluding finance costs and income taxes, that would be directly attributable to the disposal of
the CGU, including legal costs, marketing costs, costs of removing assets and direct incremental costs incurred in preparing the
CGU for sale.
SENSITIVITY TO CHANGES IN ASSUMPTIONS
With regard to the assessment of the FVLCS for the CGU, management believes that no reasonably possible change in any of
the above key assumptions would cause the carrying value to materially exceed its recoverable amount.
11. Bank loans
(Amounts in $000s)
December 28,
2019
December 29,
2018
Bank loans, denominated in CAD (average variable rate of 3.95%; December 29, 2018: 3.95%)
$
815
$
Bank loans, denominated in USD (average variable rate of 3.65%; December 29, 2018: 4.80%)
Less: deferred finance costs netted against bank loans
37,141
37,956
(410)
165
31,340
31,505
(353)
$
37,546
$
31,152
In October 2019, the Company amended the $180.0 million working capital facility (the “Facility”), with the Royal Bank of
Canada as Administrative Agent, to reduce the amount of the facility to $150.0 million and extend the term from April 2021 to
April 2023. There were no other significant amendments to the terms. The amendments to the Facility were not assessed as
a substantial modification, and as a result, the deferred finance costs related to the original Facility continue to be amortized
over the remaining term. The Facility is asset-based and collateralized by the Company’s inventories, accounts receivable and
other personal property in North America, subject to a first charge on brands, trade names and related intangibles under the
Company’s term loan facility (see Note 14). A second charge over the Company’s property, plant and equipment is also in place.
As at December 28, 2019, the Company had $99.4 million of undrawn borrowing facility (December 29, 2018: $118.2 million).
As at December 28, 2019 and December 29, 2018, the Facility allowed the Company to borrow:
Canadian Prime Rate revolving loans, Canadian Prime Rate revolving and U.S. Prime Rate revolving loans, at their
respective rates
Bankers' Acceptances ("BA") revolving loans, at BA rates
LIBOR revolving loans at LIBOR, at their respective rates
Letters of credit, with fees of
Standby fees, required to be paid on the unutilized facility, of
12. Accounts payable and accrued liabilities
(Amounts in $000s)
Trade accounts payable and accrued liabilities
Employee accruals, including incentives and vacation pay
plus 0.00% to 0.25%
plus 1.25% to 1.75%
plus 1.25% to 1.75%
1.25% to 1.75%
0.25%
December 28,
2019
December 29,
2018
$
122,499
$
146,990
18,739
10,172
$
141,238
$
157,162
Trade accounts payable and accrued liabilities are non-interest bearing. Employee accruals, including incentives and vacation
pay, are non-interest bearing and normally settle within fifty-two weeks.
Notes to the Consolidated Financial Statements 80 HIGH LINER FOODS
13. Provisions
The amounts recognized in provisions include the Company’s coupon redemption costs, termination benefits (see Note 15) and
expenditures associated with restructuring. Employee termination benefits, when applicable, are included as other provisions until
the amounts can be estimated with certainty, at which time they are reclassified to accounts payable and accrued liabilities.
The following is a reconciliation of the carrying amounts:
(Amounts in $000s)
At December 29, 2018
New provisions added
Provisions utilized
At December 28, 2019
Restructuring
$
1,197
$
259
(1,456)
$
Other
263
826
(760)
Total
1,460
1,085
(2,216)
$
— $
329
$
329
For the fifty-two weeks ended December 28, 2019, business acquisition, integration and other expense (income) included
short-term benefits of $1.3 million related to the Company’s organizational realignment announced on November 7, 2018 (fifty-
two weeks ended December 29, 2018: $3.5 million).
The Company’s provision amounts are usually settled within eleven months from initiation and, other than the restructuring
provision, are immaterial to the Company on an individual basis. Management does not expect the outcome of any of the
recorded amounts will give rise to any significant expense beyond the amounts recognized at December 28, 2019. The
Company is not eligible for any reimbursement by third parties for these amounts.
During the fifty-two weeks ended December 28, 2019, the Company received notice of approval of an exclusion request
submitted to the United States Trade Representative regarding tariffs on certain goods imported to the U.S. from China. The
exclusion applies to tariffs already incurred, or that would otherwise be incurred, on specific goods from September 24, 2018
to August 7, 2020 and may result in the recovery of tariffs previously paid by the Company. It is not practicable at this time to
estimate the timing or amount of any recovery.
14. Long-term debt
(Amounts in $000s)
Term loan
Less: current portion
Less: deferred finance costs
December 28,
2019
December 29,
2018
$
310,604
$
337,926
(14,511)
296,093
(7,073)
(13,655)
324,271
(1,597)
$
289,020
$
322,674
In October 2019, the Company amended the $370.0 million term loan facility to reduce the amount of the facility to
$300.0 million, extend the term from April 2021 to October 2026, and increase the applicable interest rates for loans under the
facility from LIBOR plus 3.25% (1.00% LIBOR floor) to LIBOR plus 4.25% (1.00% LIBOR floor). The amendments to the facility
were not assessed as a substantial modification, and as a result, the deferred finance costs related to the original facility continue
to be amortized over the remaining term. In addition, the Company incurred further deferred finance costs on the amended facility
of $6.1 million. As the net present value of the cash flows of the modified debt exceeded the carrying value of the original facility
before the amendments, a modification loss of $11.0 million was recorded in finance costs on the consolidated statements of
income during the fifty-two weeks ended December 28, 2019. Excluding the impact of the modification loss on the carrying value,
the principal balance outstanding of term loan debt was $300.0 million at December 28, 2019.
Prior to the October 2019 refinancing, quarterly principal repayments of $0.9 million were required on the term loan as regularly
scheduled repayments. During the fifty-two weeks ended December 28, 2019, a mandatory prepayment of $13.7 million was made
due to excess cash flows in 2018. Under the October 2019 refinanced term loan agreement, quarterly principal repayments of $1.9
million are required on the term loan as regularly scheduled repayments. Any mandatory and voluntary repayments subsequent to
the time of refinancing are applied to future regularly scheduled principal repayments. As at December 28, 2019, the Company had
a mandatory prepayment of $12.6 million due in 2020 related to excess cash flows in 2019.
Notes to the Consolidated Financial Statements Annual Report 2019 81
Substantially all tangible and intangible assets (excluding working capital) of the Company are pledged as collateral for the term
loan facility
15. Future employee benefits
Non-pension benefit plan
In Canada, the Company sponsors a non-pension benefit plan for employees hired before May 19, 1993. This benefit is a paid-
up life insurance policy or a lump sum payment based on the employee’s final earnings at retirement. In both Canada and the
U.S., the Company maintains a non-pension benefit plan for employees who retire after twenty-five years of service with the
Company. At retirement, the benefit is a payment of $1,000 to $2,500 depending on the years of service.
Defined contribution pension plans
In Canada, the Company maintains a DCPP for all salaried employees.
In the U.S., the Company maintains two DCPP under the provisions of the Employment Retirement Income Security Act of 1974
(a 401(k) Savings Plan), which covers substantially all employees of the Company’s U.S. subsidiary. The Company also makes
a safe harbour matching contribution equal to 100% of salary deferrals (contributions to the plan) that do not exceed 3% of
compensation plus 50% of salary deferrals between 3% and 5% of salary compensation.
In both Canada and the U.S., the Company maintains defined contribution Supplemental Executive Retirement Plans (“SERP”)
to extend the same pension plan benefits to certain senior executives, as is provided to others in the DCPP who were not
affected by income tax maximums.
Total expense and cash contributions for the Company’s DCPP was $1.9 million for the year ended December 28, 2019
(December 29, 2018: $2.0 million).
Defined benefit pension plans
In Canada, the Company also sponsors two actively funded DBPPs. None of the Company’s pension plans provide indexation
in retirement.
CANADIAN UNION EMPLOYEE PLAN
One of the actively funded DBPPs is for the Nova Scotia Union employees and provides a flat-dollar plan with negotiated increases.
CANADIAN MANAGEMENT PLAN
The Company sponsors a DBPP specifically for Canadian management employees (the “Management Plan”). On December 28,
2019, four persons were enrolled as active members in the Management Plan, including one senior executive, who are Canadian
residents and were employed prior to January 1, 2000. The objective of the Management Plan is to provide an annual pension
(including Canada Pension Plan) of 2% of the average of a member’s highest five years’ regular earnings while a member of
the Management Plan, multiplied by the number of years of credited service. Incentive payments are not eligible earnings for
pension purposes. The Management Plan was grandfathered and no new entrants are permitted. All members contribute 3.25%
of their earnings up to the Years Maximum Pensionable Earnings (“YMPE”) and 5% in excess of the YMPE to the maximum that
a member can contribute based on income tax rules. The credited service under the Management Plan for the Canadian senior
executive is twenty-seven years.
Upon retirement, the employees in the Management Plan are provided lifetime retirement income benefits based on their
best five years of salary less Canada Pension Plan benefits. Full benefits are payable at age 65, or at age 60 if the executive
has at least twenty-five years of service. The normal benefits are payable for life and 60% is payable to their spouse upon the
employee’s death, with a guarantee of sixty months. Members can retire at age 55 with a reduction. Other levels of survivor
benefits are offered. Instead, members can elect to take their pension benefit in a lump-sum payment at retirement.
Notes to the Consolidated Financial Statements 82 HIGH LINER FOODS
As at December 28, 2019, the Company also guarantees through its SERP to extend the same pension plan benefits to one
Canadian senior executive that it provides to others in the Management Plan who were not affected by income tax maximums.
The annual pension amounts derived from the aggregate of the Management Plan and SERP benefits represent 1.3% of the five-
year average YMPE plus 2% of the salary remuneration above the five-year average YMPE. The combination of these amounts
is multiplied by the years of service to determine the full annual pension entitlement from the two plans.
U.S. MANAGEMENT PLANS
The Company also has one DBPP in the U.S. that covers two former employees. These plans have ceased to accrue benefits
to employees.
Information regarding the Company’s DBPPs, and non-pension benefit plans in aggregate, is as follows:
Funded status
(Amounts in $000s)
Total present value of obligations(1)(2)
Fair value of plan assets
Net accrued defined benefit obligation
December 28,
2019
December 29,
2018
$
$
42,345
29,375
12,970
$
$
36,903
26,118
10,785
(1) The Company has a letter of credit outstanding as at December 28, 2019 relating to the securitization of the Company’s unfunded benefit plans under the SERP in the
amount of $9.5 million (December 29, 2018: $8.5 million).
(2) As at December 28, 2019, $0.9 million (December 29, 2018: $0.9 million) of the total obligation is related to non-pension benefit plans.
Movement in the present value of the defined benefit obligations
(Amounts in $000s)
DBO at the beginning of the year
Benefits paid by the plans
Effect of movements in exchange rates
Current service costs
Interest on obligations
Employee contributions
Plan curtailment
Effect of changes in financial assumptions related to non-pension benefit plans
Effect of changes in financial assumptions
DBO at the end of the year
Movement in the present value of plan assets
(Amounts in $000s)
Fair value of plan assets at the beginning of the year
Employee contributions paid into the plans
Employer contributions paid into the plans
Benefits paid by the plans
Effect of movements in exchange rates
Actual return on plan assets:
Return on plan assets
Actuarial gains (losses) in OCI
Fees and expenses
December 28,
2019
December 29,
2018
$
36,903
$
43,066
(2,943)
1,599
775
1,457
52
50
—
4,452
(2,231)
(3,446)
929
1,395
54
177
(273)
(2,768)
$
42,345
$
36,903
December 28,
2019
December 29,
2018
$
26,118
$
31,843
52
1,194
(2,788)
1,100
25,676
1,024
2,752
(77)
3,699
$
$
54
1,243
(2,165)
(2,514)
28,461
1,027
(3,291)
(79)
(2,343)
$
$
Fair value of plan assets at the end of the year
$
29,375
$
26,118
Notes to the Consolidated Financial Statements Expense recognized in the consolidated statements of income
(Amounts in $000s)
Current service costs
Interest on obligation
Return on plan assets
Plan curtailment
Effect of changes in financial assumptions related to non-pension benefit plans
Fees and expenses
Expense recognized in the following line items in the consolidated statements of income
(Amounts in $000s)
Cost of sales
Selling, general and administrative expenses
Plan assets comprise:
(Amounts in $000s)
Equity securities(1)
Debt securities
Cash and cash equivalents
Annual Report 2019 83
December 28,
2019
December 29,
2018
$
775
$
1,457
(1,024)
50
—
77
929
1,395
(1,027)
177
(273)
79
$
1,335
$
1,280
December 28,
2019
December 29,
2018
$
$
$
836
499
968
312
1,335
$
1,280
December 28,
2019
December 29,
2018
$
13,072
$
15,510
793
10,760
14,522
836
$
29,375
$
26,118
(1) The plan assets include CAD$1.5 million of the Company’s own common shares at market value at December 28, 2019 (December 29, 2018: CAD$1.3 million).
Actuarial losses recognized in OCI
(Amounts in $000s)
Cumulative amount at the beginning of the year
Recognized during the period
Effect of exchange rates
Cumulative amount at the end of the year
Principal actuarial assumptions
(Expressed as weighted averages)
Discount rate for the benefit cost for the year ended
Discount rate for the accrued benefit obligation as at year-end
Expected long-term rate on plan assets as at year-end
Future compensation increases for the benefit cost for the year ended
Future compensation increases for the accrued benefit obligation as at year-end
December 28,
2019
December 29,
2018
$
8,093
1,700
409
$
8,234
499
(640)
$
10,202
$
8,093
December 28,
2019
%
December 29,
2018
%
3.92
3.13
3.92
3.00
3.00
3.40
3.92
3.40
3.00
3.00
A quantitative sensitivity analysis for significant assumptions as at December 28, 2019 is shown below:
Sensitivity level
(Amounts in $000s)
(Decrease) increase on DBO
Discount rate
Mortality rate
0.5%
increase
0.5%
decrease
One-year
increase
One-year
decrease
$
(2,793)
$
3,314
$
1,258
$
(1,295)
The sensitivity analysis above has been determined based on a method that extrapolates the impact on the net DBO as a result
of reasonable changes in key assumptions occurring at the end of the reporting period. An analysis on salary increases and
decreases is not material. The Company expects CAD$1.4 million in contributions to be paid to its DBPP and CAD$2.6 million
to its DCPP in Fiscal 2020.
Notes to the Consolidated Financial Statements 84 HIGH LINER FOODS
Short-term employee benefits
The Company has recognized severance and retention benefits that were dependent upon the continuing provision of services
through to certain pre-defined dates, which for the fifty-two weeks ended December 28, 2019 was an expense of $1.4 million
(December 29, 2018: $1.2 million) in the consolidated statements of income.
Termination benefits
The Company has also expensed termination benefits during the period, which are recorded as of the date the committed plan
is in place and communication is made. These termination benefits relate to severance that is not based on a future service
requirement, and are included on the following line items in the consolidated statements of income:
(Amounts in $000s)
Cost of sales
Distribution expenses
Business acquisition, integration and other expenses
Selling, general and administrative expenses
16. Share capital
The share capital of the Company is as follows:
Authorized:
Preference shares, par value of CAD$25 each, issuable in series
Subordinated redeemable preference shares, par value of CAD$1 each, redeemable at par
Non-voting equity shares
Common shares, without par value
Purchase of shares for cancellation
December 28,
2019
December 29,
2018
$
— $
—
231
304
535
$
$
19
—
4,769
115
4,903
December 28,
2019
December 29,
2018
5,999,994
1,025,542
Unlimited
Unlimited
5,999,994
1,025,542
Unlimited
Unlimited
In January 2018, the Company announced that the Toronto Stock Exchange approved the renewal of the Company’s Normal
Course Issuer Bid (“NCIB”) to repurchase for cancellation up to 150,000 common shares. The price the Company will pay
for any common shares acquired will be the market price at the time of acquisition. Purchases could commence on February
2, 2018 and terminated no later than February 1, 2019. During the fifty-two weeks ended December 28, 2019 there were no
purchases under this plan.
A summary of the Company’s common share transactions is as follows:
Balance, beginning of period
Options exercised for shares
Fair value of share-based compensation on options exercised
Fifty-two weeks ended
December 28, 2019
Fifty-two weeks ended
December 29, 2018
Shares
($000s)
Shares
($000s)
33,383,481
$
112,887
33,379,815
$
112,835
—
—
—
—
3,666
—
24
28
Balance, end of period
33,383,481
$
112,887
33,383,481
$
112,887
During the fifty-two weeks ended December 28, 2019, the Company distributed dividends per share of CAD$0.295 (fifty-two
weeks ended December 29, 2018: CAD$0.580).
On February 26, 2020, the Company’s Board of Directors declared a quarterly dividend of CAD$0.050 per share, payable on
March 15, 2020 to shareholders of record as of March 4, 2020.
Notes to the Consolidated Financial Statements Annual Report 2019 85
17. Share-based compensation
The Company has a Share Option Plan (the “Option Plan”) for designated directors, officers and certain managers of the
Company, a Performance Share Unit (“PSU”) Plan for eligible employees which includes the potential issuances of restricted
share units (“RSU”), and a Deferred Share Unit (“DSU”) Plan for directors of the Company.
Issuances of options, RSUs and PSUs may not result in the following limitations being exceeded: (a) the aggregate number of
shares issuable to insiders pursuant to the PSU Plan, the Option Plan or any other share-based compensation arrangement
of the Company exceeding 10% of the aggregate of the issued and outstanding shares at any time; and (b) the issuance from
treasury to insiders, within a twelve-month period, of an aggregate number of shares under the PSU Plan, the Option Plan
and any other share-based compensation arrangement of the Company exceeding 10% of the aggregate of the issued and
outstanding shares.
The carrying amount of cash-settled share-based compensation arrangements recognized in other current liabilities and other
long-term liabilities on the consolidated statements of financial position was $4.9 million and $3.0 million, respectively, as at
December 28, 2019 (December 29, 2018: $0.2 million and $1.5 million, respectively).
Share-based compensation expense is recognized in the consolidated statements of income as follows:
(Amounts in $000s)
Cost of sales resulting from:
Equity-settled awards(1)
Selling, general and administrative expenses resulting from:
Cash-settled awards(1)
Equity-settled awards(1)
Share-based compensation expense
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
$
40
$
49
6,455
629
200
988
$
7,124
$
1,237
(1) Cash-settled awards may include options with SARs, PSUs, RSUs and DSUs. Equity-settled awards include options.
Share Option Plan
Under the terms of the Company’s Share Option Plan, the Company may grant options to eligible participants, including:
Directors, members of the Company’s Leadership Team, and senior managers of the Company. Shares to be optioned are not
to exceed the aggregate number of 3,800,000 as of May 7, 2013 (adjusted for the two-for-one stock split that was effective
May 30, 2014), representing 12.4% of the then issued and outstanding authorized shares. The option price for the shares
cannot be less than the fair market value (as defined further in the Share Option Plan) of the optioned shares as of the date
of grant. The term during which any option granted may be exercised may not exceed ten years from the date of grant. The
purchase price is payable in full at the time the option is exercised. Options are not transferable or assignable.
The Share Option Plan permits, at the time of granting an option, granting the right to receive, at the time of exercise and in lieu
of the right to purchase an optioned share, a cash amount equal to the difference between the option price and the fair market
value of the share on the date of exercise (a SAR). Effective March 29, 2013, amendments were made to eliminate the SARs on
certain options granted in early 2012 and prior for certain Directors and officers of the Company. On a voluntary basis, these
Directors and officers relinquished the entitlement under the SARs, resulting in 409,649 options with SARs being extinguished,
and then reinvested as options that do not have SARs. On the amendment date, the liability of $7.6 million for these options
with SARs was fixed, resulting in no future impact on profit or loss for the options that were vested at that time, and was
reclassified to contributed surplus. Options with SARs are accounted for as cash-settled transactions and options without SARs
are accounted for as equity-settled transactions. During the fifty-two weeks ended December 28, 2019, the final outstanding
options with SARs expired.
Options issued may also be awarded a cashless exercise option at the discretion of the Board, where the holder may elect to
receive, without payment of any additional consideration, optioned shares equal to the value of the option as computed by the
Option Plan. When the holder elects to receive the cashless exercise option, the Company accounts for these options as equity-
settled transactions.
Notes to the Consolidated Financial Statements 86 HIGH LINER FOODS
The following table illustrates the number (“No.”) and weighted average exercise prices (“WAEP”) of, and movements in,
options during the period:
Outstanding, beginning of period
Granted
Exercised for shares(1)
Exercised for cash(1)
Cancelled or forfeited
Expired
Outstanding, end of period
Exercisable, end of period
Fifty-two weeks ended
December 28, 2019
Fifty-two weeks ended
December 29, 2018
No. WAEP (CAD)
No. WAEP (CAD)
1,624,681
$
444,844
—
—
(102,135)
(249,974)
1,717,416
929,525
$
$
15.03
7.46
—
—
11.54
20.19
12.53
14.96
1,340,449
$
804,312
(3,666)
(2,000)
(169,177)
(345,237)
1,624,681
753,439
$
$
18.99
11.27
8.25
8.25
16.68
20.92
15.03
18.04
(1) The weighted average share price at the date of exercise for these options was CAD$nil for the fifty-two weeks ended December 28, 2019 (fifty-two weeks ended
December 29, 2018: CAD$10.79).
Set forth below is a summary of the outstanding options to purchase common shares as at December 28, 2019:
Option price (CAD)
$7.25–10.00
$10.01–15.00
$15.01–20.00
$20.01–25.00
Options outstanding
Options exercisable
Number
outstanding
Weighted
average
exercise price
Average life
(years)
Number
exercisable
Weighted
average
exercise price
394,148
$
808,785
313,212
201,271
1,717,416
7.46
11.38
15.30
22.71
4.26
3.21
1.22
0.67
— $
429,580
310,501
189,444
929,525
—
11.23
15.30
22.88
The fair value of options granted during the fifty-two weeks ended December 28, 2019 and December 29, 2018 was estimated
on the date of grant using the Black-Scholes pricing model with the following weighted average inputs and assumptions:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life (years)
Weighted average share price (CAD)
Weighted average fair value (CAD)
December 28,
2019
December 29,
2018
7.77
40.44
1.86
5.00
7.46
1.34
$
$
5.16
35.45
2.10
5.00
11.34
2.32
$
$
The expected life of the options is based on historical data and current expectations and is not necessarily indicative of exercise
patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the
life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
Performance Share Unit Plan
The PSU Plan is intended to align the Company’s senior management with the enhancement of shareholder returns and other
operating measures of performance. Both PSUs and RSUs may be issued under the PSU Plan to any eligible employee of the
Company, or its subsidiaries, who have rendered meritorious services that contributed to the success of the Company. Directors
who are not full-time employees of the Company may not participate in the PSU Plan. The Company is permitted to issue up to
400,000 shares from treasury in settling entitlements under the PSU Plan.
Notes to the Consolidated Financial Statements Annual Report 2019 87
The PSU plan is dilutive and units may be settled in cash or shares upon vesting. If settled in cash, the amount payable to the
participant shall be determined by multiplying the number of PSUs or RSUs (which will be adjusted in connection with the
payment of dividends by the Company as if such PSUs or RSUs were common shares held under a dividend reinvestment plan)
by the fair market value of a common share at the vesting date, and in the case of PSUs, by a performance multiplier to be
determined by the Company’s Board of Directors. If settled in shares on the vesting date, each RSU is exchanged for a common
share, and each PSU is multiplied by a performance multiplier and then exchanged for common shares.
The following table illustrates the movements in the number of PSUs during the period:
Outstanding, beginning of period
Granted
Reinvested dividends
Released and paid in cash
Forfeited and expired
Outstanding, end of period
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
879,757
242,875
35,407
263,556
730,695
31,624
—
(14,096)
(204,556)
(132,022)
953,483
879,757
The expected performance multiplier used in determining the fair value of the liability and related share-based compensation
expense for PSUs for the fifty-two weeks ended December 28, 2019 was 117% (December 29, 2018: 65%).
The following table illustrates the movements in the number of RSUs during the period:
Outstanding, beginning of period
Granted
Reinvested dividends
Released and paid in cash
Forfeited
Outstanding, end of period
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
280,562
169,914
15,025
(41,304)
(40,420)
383,777
72,529
213,133
16,804
(542)
(21,362)
280,562
The share price at the reporting date was CAD$8.23 (December 29, 2018: CAD$7.30). PSUs will vest at the end of a one to
three-year period, if agreed-upon performance measures are met (if applicable) and the RSUs will vest in accordance with the
terms of the agreement.
Deferred Share Unit Plan
The DSU Plan allows a director to receive all or any portion of their annual retainer, additional fees and equity value in DSUs in
lieu of cash or options. DSUs cannot be redeemed for cash until the holder is no longer a Director of the Company. These units
are considered cash-settled share-based payment awards and are non-dilutive.
The following table illustrates the movements in the number of DSUs during the period:
Outstanding, beginning of period
Granted
Reinvested dividends
Redeemed
Outstanding, end of period
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
153,425
61,849
6,360
(21,645)
199,989
77,934
66,657
8,834
—
153,425
Notes to the Consolidated Financial Statements 88 HIGH LINER FOODS
18. Income tax
The Company’s statutory tax rate for the year ended December 28, 2019 is 29.2% (December 29, 2018: 29.2%). The
Company’s effective income tax rate was 29.2% for the year ended December 28, 2019 (December 29, 2018: 26.6%). The
higher effective income tax rate in Fiscal 2019 compared to the same period last year was attributable to reduced interest
expense deductibility associated with the Company’s tax-efficient financing structure due to a valuation allowance.
The major components of income tax expense are as follows:
Consolidated statements of income
(Amounts in $000s)
Current income tax expense
Deferred income tax expense
Origination and reversal of temporary differences
Income tax expense reported in the consolidated statements of income
Consolidated statements of comprehensive income
(Amounts in $000s)
Income tax expense related to items charged or credited directly to OCI during the period:
Gain (loss) on hedge of net investment in foreign operations
(Loss) gain on translation of net investment in foreign operations
Effective portion of changes in fair value of cash flow hedges
Net change in fair value of cash flow hedges transferred to carrying amount of hedged item
Net change in fair value of cash flow hedges transferred to income
Defined benefit plan actuarial (losses) gains
December 28,
2019
December 29,
2018
$
3,356
$
1,583
879
$
4,235
$
4,507
6,090
December 28,
2019
December 29,
2018
$
— $
(1,834)
—
(752)
(289)
(201)
(503)
1,732
1,444
(221)
(75)
(144)
902
Income tax (recovery) expense directly to other comprehensive income (loss)
$
(1,745)
$
The reconciliation between income tax expense and the product of accounting profit multiplied by the Company’s statutory tax
rate is as follows:
(Amounts in $000s)
Accounting profit before tax at statutory income tax rate of 29.2% (2018: 29.2%)
Non-deductible expenses for tax purposes:
Withholding tax on dividends
Non-deductible share-based compensation
Tax benefits not previously recognized
Other non-deductible items
Effect of lower income tax rates of U.S. subsidiary
U.S. Base Erosion & Anti-Abuse Tax
Acquisition financing structures deduction
Change in substantively enacted tax rates (U.S.)
Other
Income tax expense
December 28,
2019
December 29,
2018
$
4,241
$
6,677
162
257
—
570
(548)
227
—
(633)
(41)
—
220
228
325
(546)
379
(1,526)
—
333
$
4,235
$
6,090
Notes to the Consolidated Financial Statements Deferred income tax
(Amounts in $000s)
Annual Report 2019 89
Consolidated statements of
financial position as at
Consolidated statements of
income for the years ended
December 28,
2019
December 29,
2018
December 28,
2019
December 29,
2018
Accelerated depreciation for tax purposes on property, plant and equipment
$
(11,113)
$
(12,493)
$
(3,762)
$
(428)
Inventory
Intangible assets
Pension
Revaluation of cash flow hedges
Losses available for offset against future taxable income
Deferred charges and other
Deferred income tax expense
Net deferred income tax liability
Reflected in the consolidated statements of financial position as follows:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax liability
Reconciliation of net deferred income tax liabilities
(Amounts in $000s)
Opening balance, beginning of year
Deferred income tax expense during the period recognized in income
Deferred income tax reclassified to income tax receivable
Deferred income tax recovery during the period recognized in retained earnings
Deferred income tax recovery (expense) during the period recognized in OCI
Other
Closing balance, end of year
(3,138)
(23,628)
1,789
113
398
7,531
(3,115)
(21,397)
3,404
(392)
2,697
2,852
(147)
4,614
2,372
—
1,905
(4,103)
3,022
3,053
(32)
(479)
(742)
113
$
879
$
4,507
$
(28,048)
$
(28,444)
$
2,134
$
7
(30,182)
(28,451)
$
(28,048)
$
(28,444)
December 28,
2019
December 29,
2018
$
(28,444)
$
(21,156)
(879)
(384)
581
1,333
(255)
(4,507)
(1,800)
144
(1,125)
—
$
(28,048)
$
(28,444)
The Company has net operating losses in its U.S. subsidiaries of $nil at December 28, 2019 (December 29, 2018: $3.1 million)
that are available to use from 2020 to 2029. A deferred income tax asset has been recognized for the amount that is probable
to be realized.
The Company had unused capital losses of CAD$38.6 million at December 28, 2019 (December 29, 2018: $nil), which have
an indefinite carryforward period. A deferred tax asset has only been recognized to the extent of the benefit that is probable to
be realized.
The Company can control the distribution of profits, and accordingly, no deferred income tax liability has been recorded on the
undistributed profit of its subsidiaries that will not be distributed in the foreseeable future.
The temporary difference associated with investments in subsidiaries, for which a deferred tax liability has not been recognized,
is $nil at December 28, 2019 and $nil at December 29, 2018.
The Company recognized a current tax liability and current tax expense of $0.2 million related to deemed dividends on the
wind-up of its Icelandic subsidiary in 2019. There were no income tax consequences attached to the payment of dividends in
2018 by the Company to its shareholders.
Notes to the Consolidated Financial Statements 90 HIGH LINER FOODS
19. Revenue from contracts with customers
Disaggregation of revenue
The Company disaggregates revenue from contracts with customers based on the single operating segment, North America.
During the fourth quarter of Fiscal 2018, the Company announced an organizational realignment to take better advantage of
the Company’s North American scale. As a result, the Company undertook significant reorganization of internal leadership and
reporting structure to be arranged as a single frozen seafood company that is focused on North America. As such, the Company
has transitioned to a single operating and reporting segment and a single aggregation of revenue. The Company discloses sales
earned outside of Canada in accordance with IFRS in Note 24.
Contract liability
The Company’s contract liability consists of donated product received from the United States Department of Agriculture for the
purpose of processing the product for distribution to eligible recipient agencies. The donated inventory is non-cash consideration
that is recorded at the fair value of the product received. The Company has an obligation to sell the product to the eligible agencies
at the reduced price, with the donated product being included in the transaction price recognized on the sale of the finished
products. The contract liability is classified as current because the Company expects to settle the obligation within twelve months
from the reporting date. During the fifty-two weeks ended December 28, 2019, the Company recognized $4.7 million (December
29, 2018: $5.6 million) in revenue that was included in the contract liability balance at the beginning of the period.
20. Earnings per share
Net income and basic weighted average shares outstanding are reconciled to diluted earnings and diluted weighted average
shares outstanding, respectively, as follows:
Fifty-two weeks ended
December 28, 2019
Fifty-two weeks ended
December 29, 2018
Net income
($000s)
$
$
10,289
—
10,289
Weighted
average shares
(000s)
Per share
($)
Net income
($000s)
Weighted
average shares
(000s)
33,801
$
0.31
$
16,776
33,617
$
394
(0.01)
—
2
34,195
$
0.30
$
16,776
33,619
$
Per share
($)
0.50
—
0.50
Net income
Dilutive options and units
Diluted earnings
Excluded from the diluted earnings per common share calculation for the fifty-two weeks ended December 28, 2019 were
1,295,512 options, as their effect would have been anti-dilutive (fifty-two weeks ended December 29, 2018: 1,616,015 options).
21. Changes in liabilities arising from financing activities
(Amounts in $000s)
Bank loans
Current portion of long-term debt
Other current financial liabilities
Current portion of lease liabilities
Long-term debt
Other long-term financial liabilities
Long-term lease liabilities
December 29,
2018
Cash flows
Reclassified
between
current and
non-current
Change in
fair values
New leases(1)
Other(1)
December 28,
2019
$ 31,152
$
6,436
$
— $
— $
— $
(42)
$ 37,546
13,655
(13,655)
14,511
78
372
—
(5,649)
—
251
322,674
(30,413)
(14,511)
5
407
—
—
—
(251)
—
769
—
—
279
—
—
—
9,595
—
—
7,037
—
14
13
14,511
861
4,582
11,270
289,020
8
5
292
7,198
Total liabilities from financing activities
$ 368,343
$ (43,281)
$
— $
1,048
$ 16,632
$ 11,268
$ 354,010
(1) During the fifty-two weeks ended December 28, 2019, the Company adopted IFRS 16, Leases, and recognized additional assets and liabilities on the consolidated
statements of financial position (see Note 9 for further detail).
(2) ‘Other’ includes the effect of amortization of deferred financing charges, the impact of the foreign exchange movements and a modification loss of $11.0 million related
to the amendment of the Company’s term loan facility (see Note 14 for further detail). The Company classifies interest paid and income taxes paid as cash flows from
operating activities.
Notes to the Consolidated Financial Statements Annual Report 2019 91
22. Guarantees and commitments
Guarantee of supplier financing arrangement
As part of the Rubicon acquisition in Fiscal 2017, the Company assumed financing arrangement guarantees for certain suppliers
that finance their exports of seafood products to Rubicon. As part of this financing arrangement, the Company has granted
a security interest in substantially all of the inventory and proceeds thereon arising from purchases from these suppliers and
has guaranteed the suppliers’ borrowings, to the extent that such borrowings were used in connection with the exportation of
seafood products to Rubicon. The Company has deemed the amount of the guarantee to be the open accounts payable to these
suppliers and as of December 28, 2019, the open accounts payable was $1.6 million.
The Company had letters of credit outstanding as at December 28, 2019 relating to the procurement of inventories and the
security of certain contractual obligations of $3.1 million (December 29, 2018: $6.9 million). The Company also had a letter of
credit outstanding as at December 28, 2019 relating to the securitization of the Company’s SERP benefit plan (see Note 15) in
the amount of $9.5 million (December 29, 2018: $8.5 million).
23. Related party disclosures
Entity with significant influence over the Company
As at December 28, 2019, Thornridge Holdings Limited owns 34.5% of the Company’s outstanding common shares
(December 29, 2018: 34.5%).
Other related parties
The Company had related party transactions with a company controlled by certain key management of Rubicon, however,
effective the beginning of the second quarter of 2019, this company ceased to be a related party in accordance with IFRS. Total
sales to related parties for the fifty-two weeks ended December 28, 2019 were $0.3 million (fifty-two weeks ended December
29, 2018: $0.9 million). The Company leased an office building from a related party at an amount which approximated the fair
market value that would be incurred if leased from a third party however, effective the beginning of the second quarter of 2019,
the lessor ceased to be a related party of the Company in accordance with IFRS. The aggregate payments under the lease,
which are measured at the exchange amount, totaled approximately $0.2 million during the fifty-two weeks ended December
28, 2019 (fifty-two weeks ended December 29, 2018: $0.7 million).
The Company did not have any transactions during 2018 or 2019 with entities who had significant influence over the Company
or with members of the Board of Directors and their related interests.
Key management personnel compensation
In addition to their salaries, the Company also provides benefits to the Chief Executive Officer (“CEO”), and certain senior
executive officers in the form of contributions to post-employment benefit plans, non-cash plans and various other short- and
long-term incentive and benefit plans. The Company has entered into Change of Control Agreements (the “Agreements”)
with certain senior executive officers. The Agreements are automatically extended annually by one additional year unless the
Company provides 90 days’ notice of its unwillingness to extend the agreements. The Agreements provide that in the event
of a termination by the Company following a change of control, other than for cause or by senior executive officers for good
reason as defined in the Agreements, senior executive officers are entitled to: (a) cash compensation equal to their final annual
compensation (including base salary and short-term incentives) multiplied by two for all senior executive officers; (b) the
automatic vesting of any options or other entitlements for the purchase or acquisition of shares in the capital of the Company
which are not then exercisable, which shall be exercisable following termination for two years for all senior executive officers;
and (c) continue to participate in certain benefit programs for two years for all senior executive officers.
Notes to the Consolidated Financial Statements 92 HIGH LINER FOODS
The following are the amounts recognized as an expense during the reporting period related to key management
personnel compensation:
(Amounts in $000s)
Salaries and short-term incentive plans(1)
Post-employment benefits(2)
Termination benefits(2)
Share-based compensation(3)
(1) Short-term incentive amounts were for those earned in 2019 and 2018.
(2) Refer to Note 15 for details of each plan.
(3) Refer to Note 17 for details regarding the Company’s Share Option, DSU, PSU and RSU Plans.
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
$
4,796
$
5,594
135
155
5,111
$
10,197
$
228
697
1,052
7,571
24. Geographic information
During the fourth quarter of Fiscal 2018, the Company announced an organizational realignment to take better advantage of the
Company’s North American scale. As a result, the Company undertook significant reorganization of the internal leadership and
reporting structure to be arranged as a single frozen seafood company that is focused on North America, rather than focusing
on separate geographical segments (U.S. and Canada). As such, the Company has transitioned to a single operating and
reporting segment.
Information About Geographic Areas
Sales earned outside of Canada for the fifty-two weeks ended December 28, 2019 were $712.4 million (December 29, 2018:
$795.2 million). Sales by geographic area are determined based on the shipping location.
The non-current assets outside of Canada are as follows:
(Amounts in $000s)
Property, plant and equipment
Right-of-use assets
Intangible assets
Goodwill
December 28,
2019
December 29,
2018
$
85,037
$
89,313
8,577
134,214
147,916
—
140,742
147,916
$
375,744
$
377,971
For the fifty-two weeks ended December 28, 2019 and December 29, 2018 the Company recognized $274.8 million
and $272.1 million of sales from two customers, respectively, that represent more than 10% of the Company’s total
consolidated sales.
25. Fair value measurement
Fair value of financial instruments
Fair value is a market-based measurement, not an entity-specific measurement. Fair value measurements are required to reflect
the assumptions that market participants would use in pricing an asset or liability based on the best available information
including the risks inherent in a particular valuation technique, such as a pricing model, and the risks inherent in the inputs to
the model. Management is responsible for valuation policies, processes and the measurement of fair value within the Company.
Notes to the Consolidated Financial Statements Annual Report 2019 93
Financial liabilities carried at amortized cost are shown using the EIR method. Other financial assets and other financial liabilities
represent the fair value of the Company’s foreign exchange contracts as well as the fair value of interest rate swaps on debt.
The Company uses a fair value hierarchy, based on the relative objectivity of the inputs used to measure the fair value of
financial instruments, with Level 1 representing inputs with the highest level of objectivity and Level 3 representing inputs with
the lowest level of objectivity. The following table sets out the Company’s financial assets and liabilities by level within the fair
value hierarchy::
(Amounts in $000s)
Fair value of financial assets
Interest rate swaps
Foreign exchange contracts
Fair value of financial liabilities
Interest rate swaps
Foreign exchange contracts
Long-term debt
December 28, 2019
December 29, 2018
Level 2
Level 3
Level 2
Level 3
$
$
$
$
39
231
536
617
—
— $
—
$
2,093
1,424
— $
— $
—
302,831
83
—
—
—
—
—
310,647
The Company’s Level 2 derivatives are valued using valuation techniques such as forward pricing and swap models. These models
incorporate various market-observable inputs including foreign exchange spot and forward rates, and interest rate curves.
The fair values of long-term debt instruments, classified as Level 3 in the fair value hierarchy, are estimated based on unobservable
inputs, including discounted cash flows using current rates for similar financial instruments subject to similar risks and maturities,
adjusted to reflect the Company’s credit risk.
The Company uses the date of the event or change in circumstances to recognize transfers between Level 1, Level 2 and Level 3 fair
value measurements. During the fifty-two weeks ended December 28, 2019, no such transfers occurred.
The financial liabilities not measured at fair value on the consolidated statements of financial position consist of long-term debt
(including current portion). The carrying amount for these instruments is $303.5 million as at December 28, 2019 (December 29,
2018: $336.3 million).
Amortized cost impact on interest expense
During the fifty-two weeks ended December 28, 2019, the Company expensed $0.2 million and $0.9 million (December 29,
2018: $0.2 million and $0.7 million) of short-term and long-term interest, respectively, relating to interest that was calculated
using the EIR method associated with transaction fees and borrowings.
The fair values of other financial assets and liabilities at December 28, 2019 and December 29, 2018 are shown below:
(Amounts in $000s)
Financial instruments at fair value through OCI:
Foreign exchange forward contracts
Interest rate swap
Other financial assets
Other financial liabilities
December 28,
2019
December 29,
2018
December 28,
2019
December 29,
2018
$
$
231
39
270
$
$
1,424
2,093
3,517
$
$
$
617
536
1,153
$
83
—
83
Notes to the Consolidated Financial Statements 94 HIGH LINER FOODS
Hedging activities
INTEREST RATE SWAPS
During the fifty-two weeks ended December 28, 2019, the Company had the following interest rate swaps outstanding to hedge
interest rate risk resulting from the term loan facility (see Note 14):
Effective date
Maturity date
Receive floating rate
Pay fixed rate
Designated in a formal hedging relationship:
Notional amount
(millions)
December 31, 2014
December 31, 2019
3-month LIBOR (floor 1.0%)
2.1700% $
March 4, 2015
April 4, 2016
January 4, 2018
March 4, 2020
3-month LIBOR (floor 1.0%)
1.9150% $
April 24, 2021
3-month LIBOR (floor 1.0%)
1.6700% $
April 24, 2021
3-month LIBOR (floor 1.0%)
2.2200% $
20.0
25.0
40.0
80.0
The cash flow hedge of interest expense variability was assessed to be highly effective for the fifty-two weeks ended December
28, 2019 and December 29, 2018, and therefore the change in fair value for those interest rate swaps designated in a hedging
relationship was included in OCI as after-tax net losses of $1.3 million and after-tax net gains of $1.3 million, respectively.
The Company did not hold any interest rate swaps that were not designated in a formal hedging relationship during the fifty-two
weeks ended December 28, 2019 and December 29, 2018.
FOREIGN CURRENCY CONTRACTS
Foreign currency forward contracts are used to hedge foreign currency risk resulting from expected future purchases denominated
in USD, which the Company has qualified as highly probable forecasted transactions, and to hedge foreign currency risk resulting
from USD monetary assets and liabilities, which are not covered by natural hedges.
As at December 28, 2019, the Company had outstanding notional amounts of $34.0 million (December 29, 2018: $23.9 million) in
foreign currency average-rate forward contracts and $3.2 million (December 29, 2018: $1.4 million) in foreign currency single-rate
forward contracts that were formally designated as a hedge. With the exception of $1.9 million (December 29, 2018: $0.4 million)
average-rate forward contracts with maturities ranging from December 2020 to June 2021, all foreign currency forward contracts
have maturities that are less than one year.
The cash flow hedges of the expected future purchases were assessed to be highly effective for the fifty-two weeks ended
December 28, 2019 and December 29, 2018, and therefore the change in fair value was recorded in OCI as after-tax net losses of
$0.5 million and after-tax net gains of $2.2 million, respectively. There were no amounts recognized in the consolidated statements
of income resulting from hedge ineffectiveness during the fifty-two weeks ended December 28, 2019 (fifty-two weeks ended
December 29, 2018: nominal net losses).
As at December 28, 2019, the Company had no outstanding notional amounts (December 29, 2018: $nil) of foreign currency
single-rate forward contracts to hedge foreign currency exchange risk on USD monetary assets and liabilities that were not formally
designated as a hedge. The change in fair value for the fifty-two weeks ended December 28, 2019 and December 29, 2018 was $nil
and net gains of $0.3 million, respectively, which was recorded in the consolidated statements of income.
HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS
As at December 28, 2019, a total borrowing of $303.5 million ($14.5 million included in the current portion of long-term debt
and $289.0 million included in long-term debt) (December 29, 2018: a total borrowing of $336.3 million ($13.6 million included
in the current portion of long-term debt and $322.7 million included in long-term debt)) has been designated as a hedge of
the net investment in the U.S. subsidiary and is being used to hedge the Company’s exposure to foreign exchange risk on this
net investment. Gains or losses on the re-translation of this borrowing are transferred to OCI to offset any gains or losses on
translation of the net investment in the U.S. subsidiary. There was no hedge ineffectiveness recognized during the fifty-two
weeks ended December 28, 2019 and December 29, 2018.
Notes to the Consolidated Financial Statements Annual Report 2019 95
26. Capital management
The primary objective of the Company’s capital management policy is to ensure a strong credit rating and healthy capital
ratios to support the business and maximize shareholder value. The Company defines capital as funded debt and common
shareholder equity, including AOCI, except for gains and losses on derivatives used to hedge interest and foreign exchange cash
flow exposure.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions, by
adjusting the dividend payment to shareholders, returning capital to shareholders, purchasing capital stock under a NCIB, or
issuing new shares.
Capital distributions, including purchases of capital stock, are subject to availability under the Company’s working capital debt
facility. The consolidated Average Adjusted Aggregate Availability under the working capital debt facility must be greater than
$18.8 million. As at December 28, 2019, the Company had Average Adjusted Aggregate Availability of $110.3 million. The
Company also has restrictions under the term loan facility on capital distributions, where the aggregate amount for dividends
are subject to an annual limit of $17.5 million with a provision to increase this amount subject to leverage and excess cash
flow tests. NCIBs are subject to an annual limit of $10.0 million with a provision to carry forward unused amounts, subject
to a maximum of $20.0 million per annum. For the fifty-two weeks ended December 28, 2019 and December 29, 2018, the
Company paid $7.4 million and $14.7 million in dividends, respectively, and $nil under the NCIB.
The Company monitors capital (excluding letters of credit) using the ratio of net debt to capitalization, which is net debt divided
by total capital plus net debt. The Company’s objective is to keep this ratio between 35% and 60%. Seasonal working capital
debt may result in the Company exceeding the ratio at certain times throughout the fiscal year. The Directors of the Company
have also decided that this range can be exceeded on a temporary basis as a result of acquisitions.
(Amounts in $000s)
Total bank loans, principal outstanding (Note 11)
Total long-term debt, principal outstanding (Note 14)
Total lease liabilities (Note 9)
Total debt
Less: cash
Net debt
Shareholders' equity
Unrealized losses (gains) on derivative financial instruments included in AOCI
Total capitalization
Net debt as percentage of total capitalization
December 28,
2019
December 29,
2018
$
37,956
$
31,505
300,000
11,780
349,736
(3,144)
346,592
268,170
396
337,926
779
370,210
(9,568)
360,642
263,859
(2,215)
$
615,158
$
622,286
56%
58%
No changes were made in the objectives, policies or processes for managing capital for the fiscal year ended December 28, 2019
and December 29, 2018.
27. Financial risk management objectives and policies
The Company’s principal financial liabilities, other than derivatives, comprise bank loans and overdrafts, term loans, letters
of credit, notes payable, lease liabilities, and trade payables. The main purpose of these financial liabilities is to finance the
Company’s operations. The Company has various financial assets such as trade receivables, other accounts receivable, and
cash, which arise directly from its operations.
The Company is exposed to interest rate risk, foreign currency risk, price risk, credit risk and liquidity risk. The Company enters
into interest rate swaps, foreign currency contracts and insurance contracts to manage these types of risks from the Company’s
operations and its sources of financing. The Company’s policy is that no speculative trading in derivatives shall be undertaken.
The Audit Committee of the Board of Directors reviews and approves policies for managing each of these risks, which are
summarized below.
Notes to the Consolidated Financial Statements 96 HIGH LINER FOODS
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates, which relates to the Company’s debt obligations with floating interest rates. The Company’s policy is to
manage interest rate risk by having a mix of fixed and variable rate debt. The Company’s objective is to keep between 35% and
55% of its borrowings at fixed rates of interest. To manage this, the Company enters into fixed rate debt facilities or interest rate
swaps, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable rate interest
amounts calculated by reference to an agreed-upon notional amount. These swaps are designated to hedge the underlying debt
obligations. Interest rate options that effectively fix the maximum rate of interest that the Company will pay may also be used to
manage this exposure. At December 28, 2019, 51% of the Company’s borrowings, including the long-term debt and the working
capital facility, were either hedged or at a fixed rate of interest (December 29, 2018: 45%).
INTEREST RATE SENSITIVITY
The Company’s income before income taxes is sensitive to the impact of a change in interest rates on that portion of debt
obligations with floating interest rates, with all other variables held constant. As at December 28, 2019, the Company’s current
bank loans were $38.0 million (December 29, 2018: $31.5 million) and long-term debt was $310.6 million (December 29,
2018: $337.9 million). An increase of 25 basis points on the bank loans would have reduced income before income taxes by
$0.1 million (December 29, 2018: $0.1 million). An increase of 25 basis points above the LIBOR floor on the long-term debt
would have reduced income before income taxes by $0.3 million (December 29, 2018: $0.4 million). A corresponding decrease
in respective interest rates would have an approximately equal and opposite effect. There is no impact on the Company’s equity
except through changes in income.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in
foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the
Parent company having a CAD functional currency, meaning that all transactions are recorded in CAD. However, as the
Company’s Consolidated Financial Statements are reported in USD, the results of the Parent are converted into USD for external
reporting purposes. Therefore, the Canadian to U.S. exchange rates (USD/CAD) impact the results reported in the Company’s
Consolidated Financial Statements.
The Parent’s operating activities, including the majority of sales that are in CAD, have USD-denominated input costs. For
products sold in Canada, raw material is purchased in USD. However, labour, packaging and ingredient conversion costs,
overheads and selling, general and administrative costs are incurred in CAD. A strengthening Canadian dollar has an overall
effect of increasing income before income taxes in USD terms and conversely, a weakening Canadian dollar has the overall
effect of decreasing income before income taxes in USD terms.
The Parent hedges forecasted cash flows for purchases of USD-denominated products for the Canadian operations where the
purchase price is substantially known in advance. At December 28, 2019, the Parent hedged 61% (December 29, 2018: 37%) of
these purchases identified for hedging, extending to June 2021. The Company’s Price Risk Management Policy dictates that cash
flows out fifteen months are hedged between a minimum and maximum percent that declines by quarter the further into the
future the cash flows are. The Company does not hedge cash flows on certain USD-denominated seafood purchases in which
the ultimate selling price charged to the Company’s Canadian customers move with changes in the USD/CAD exchange rates.
It is the Company’s policy to set the terms of the hedge derivatives to match the terms of the hedged item to maximize hedge
effectiveness. The Company also has foreign exchange risk related to the USD-denominated input costs of commodities
used in its Canadian operations related to freight surcharges on transportation costs, paper products in packaging, grain and
corn products in its breading and batters, and soya and canola bean-based cooking oils. The Company hedges these USD-
denominated input costs on a small scale, but relies where possible on three to thirty-six month, fixed price contracts in CAD
with suppliers.
For the fifty-two weeks ended December 28, 2019, approximately 81.3% of the Parent’s costs were denominated in USD, while
approximately 99.7% of the Parent’s sales were denominated in its CAD functional currency.
Notes to the Consolidated Financial Statements Annual Report 2019 97
The Parent has some assets and liabilities that are denominated in CAD, and therefore, the assets and liabilities reported in the
Consolidated Financial Statements change as USD/CAD exchange rates fluctuate. A stronger CAD has the effect of increasing
the carrying value of assets and liabilities such as accounts receivable, inventory, property, plant and equipment, and accounts
payable of the Parent when translated to USD. The net offset of those changes flow through OCI. Based on the equity of the
Parent as of December 28, 2019, a one-cent increase/decrease in the USD/CAD exchange rate will decrease/increase equity by
approximately $1.0 million (December 29, 2018: $0.7 million).
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading
to a financial loss. The Company trades only with recognized, creditworthy third parties. It is the Company’s policy that all
customers who wish to trade on credit terms are subject to credit verification procedures. In addition, the Company holds credit
insurance on its trade accounts receivable and all receivable balances are managed and monitored at the corporate level on an
ongoing basis with the result that the Company’s exposure to bad debts is not significant. The Company’s top ten customers
account for 69% of the trade receivables at December 28, 2019 (December 29, 2018: 67%), with the largest customer
accounting for 17% (December 29, 2018: 14%).
With respect to credit risk arising from the other financial assets of the Company, which comprise cash and certain derivative
instruments, the Company’s exposure to credit risk arises from default of the counterparty. The Company manages this risk by
dealing with financially creditworthy counterparties, such as Chartered Canadian banks and U.S. banks with investment grade
ratings. The maximum exposure to credit risk is equal to the carrying value of accounts receivable and derivative instruments.
Liquidity risk
Liquidity risk is the risk that the Company may not have cash available to satisfy financial liabilities as they come due. The
Company monitors its risk to a shortage of funds using a detailed budgeting process that identifies financing needs for the next
twelve months as well as the models that look out five years. Working capital and cash balances are monitored daily and a
procurement system provides information on commitments. This process projects cash flows from operations. The Company’s
objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, letters of
credit, bank loans, notes payable, and lease liabilities. The Company’s objective is that not more than 50% of borrowings should
mature in the next twelve-month period. At December 28, 2019, less than 6% of the Company’s debt (December 29, 2018: less
than 4%) will mature in less than one year based on the carrying value of borrowings reflected in the Consolidated Financial
Statements. At December 28, 2019, the Company was in compliance with all covenants and terms of its debt facilities.
The table below shows the maturities of the Company’s non-derivative financial liabilities:
(Amounts in $000s)
Bank loans
Accounts payable and accrued liabilities
Long-term debt
As at December 28, 2019
Bank loans
Accounts payable and accrued liabilities
Long-term debt
As at December 29, 2018
Due within
1 year
Due in
1–5 years
Due after
5 years
Total
$
37,956
$
— $
— $
37,956
141,238
36,064
—
—
112,565
267,429
141,238
416,058
$
215,258
$
112,565
$
267,429
$
595,252
$
— $
31,505
$
— $
31,505
157,162
13,655
—
324,271
—
—
157,162
337,926
$
170,817
$
355,776
$
— $
526,593
Notes to the Consolidated Financial Statements 98 HIGH LINER FOODS
Commodity price risk
The Company is affected by price volatility of certain commodities such as crude oil, wheat, corn, paper products, and frying
oils. The Company’s Price Risk Management Policy dictates the use of fixed pricing with suppliers whenever possible, but allows
the use of hedging with derivative instruments if deemed prudent. Throughout 2019 and 2018, the Company managed this risk
through contracts with suppliers. Where possible, the Company enters into fixed price contracts with suppliers on an annual
basis and, therefore, a significant portion of the Company’s 2020 commodity purchase requirements are covered. Should an
increase in the price of commodities materialize, there could be a negative impact on earnings performance and alternatively, a
decrease in the price of commodities could result in a benefit to earnings performance.
Crude oil prices, which influence fuel surcharges from freight suppliers, increased during 2019 compared to 2018. World
commodity prices for flour, soy and canola oils, imported ingredients in many of the Company’s products, increased throughout
2019 compared to 2018. The price of corrugated and folded carton, which is used in packaging, remained consistent in 2019.
Seafood price risk
The Company is dependent upon the procurement of frozen raw seafood materials and finished goods on world markets. The
Company buys as much as $554.0 million of this product annually. A 1.0% change in the price of frozen raw seafood materials
would increase/decrease the Company’s procurement costs by $5.5 million. Prices can fluctuate and there is no formal commercial
mechanism for hedging either sales or purchases. Purchases of seafood on global markets are principally in USD. The Company
hedges exposures to a portion of its currency exposures and enters into longer-term supply contracts when possible.
The Company maintains a strict policy of Supplier Approval and Audit Standards, including a diverse supplier base to ensure no
over-reliance on any one source or species. The Company has multiple strategies to manage seafood costs, including purchasing
significant quantities of frozen raw material and finished goods originating from all over the world. Over time, the Company strives
to adjust selling prices to its customers as the world price of seafood changes or currency fluctuations occur.
Notes to the Consolidated Financial Statements 28. Supplemental information
The components of income and expenses included in the consolidated statements of income are as follows:
Annual Report 2019 99
(Amounts in $000s)
Included in finance costs:
Interest expense on bank loans
Interest expense on long-term debt
Interest expense on lease liabilities
Deferred financing charges
Interest on letter of credit for SERP
Modification loss related to debt refinancing activities (Note 14)
Foreign exchange (gain) loss
Total finance costs
Foreign exchange (gain) loss included in:
Cost of sales
Finance costs
Total foreign exchange gain
Loss (gain) on disposal of assets included in:
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Total loss on disposal of assets
Depreciation and amortization expense included in:
Cost of sales
Distribution expenses
Selling, general and administrative expenses
Total depreciation and amortization expense
Employee compensation and benefit expense:
Wages and salaries (including payroll benefits)
Future employee benefit costs
Share-based compensation expense
Termination benefits
Short-term employee benefits
Fifty-two
weeks ended
December 28,
2019
Fifty-two
weeks ended
December 29,
2018
$
1,450
$
18,064
1,447
1,071
117
10,969
(106)
2,053
18,373
—
874
108
—
195
$
33,012
$
21,603
$
$
$
$
$
(161)
$
(106)
(267)
$
$
194
38
(102)
130
$
(573)
195
(378)
240
10
(84)
166
$
7,491
4,185
10,779
6,848
1,482
9,441
$
22,455
$
17,771
$
101,959
$
97,445
2,787
7,124
535
1,378
3,264
1,237
4,903
1,197
Total employee compensation and benefit expense
$
113,783
$
108,046
Notes to the Consolidated Financial Statements 100 HIGH LINER FOODS
Historical Consolidated Statement of Income (UNAUDITED)
In United States dollars, unless otherwise noted
(Amounts in 000s, except per share amounts)
Sales
Gross profit
Distribution expenses
Selling, general and administrative
expenses
Impairment of property, plant and
equipment
Business acquisition, integration
and other expenses (income)
Finance costs
(Income) loss from equity accounted
investee, net of income tax
2019
$ 942,224
2018
$ 1,048,531
2017(1)
2016(1)
2015(1)
$ 1,053,846
$ 954,986
$ 999,471
185,860
45,759
188,157
52,649
186,079
49,827
201,807
43,610
199,627
48,037
2014
$ 1,051,613
220,405
52,558
2013(2)
2012
(2)(3)
2011
(2)(3)(4)
2010
(2)(3)(4)
$ 947,301
$ 942,631
$ 675,539
$ 567,572
215,335
53,368
206,661
44,511
153,530
35,382
133,169
29,149
90,019
92,208
99,449
96,978
93,597
105,313
98,820
100,862
72,898
66,565
974
1,302
—
2,327
—
852
—
13,230
—
—
1,572
33,012
(2,471)
21,603
2,639
16,626
4,787
14,296
7,473
16,247
6,582
17,569
3,256
16,329
10,741
36,585
11,049
6,019
870
5,025
Income before income taxes
14,524
22,866
17,538
39,809
34,273
37,531
43,648
—
—
—
—
—
—
(86)
196
536
52
(16)
28,130
31,576
Income taxes
Current
Deferred
Total income tax expense (recovery)
Net income
Reconciliation to EBITDA:
Net income
Add-back:
Income tax expense (recovery)
Finance costs
Amortization of intangible assets
Depreciation
Standardized EBITDA
Add-back:
Business acquisition, integration and
other expenses (income)
Impairment of property, plant and
equipment
Increase in cost of sales due to
purchase price allocation to
inventory
Loss (gain) on disposal of assets
Share-based compensation expense
Non-operating items
Adjusted EBITDA
Reconciliation to Adjusted Net Income:
Net income
Add-back, after-tax:
3,356
879
4,235
1,583
4,507
6,090
(723)
(13,392)
(14,115)
8,514
(989)
7,525
5,184
738
5,922
3,906
3,325
7,231
12,378
(86)
12,292
5,442
(7,109)
(1,667)
5,762
3,708
9,470
6,220
6,057
12,277
$ 10,289
$ 16,776
$ 31,653
$ 32,284
$ 28,351
$ 30,300
$ 31,356
$
2,203
$ 18,660
$ 19,299
$ 10,289
$ 16,776
$ 31,653
$ 32,284
$ 28,351
$ 30,300
$ 31,356
$
2,203
$ 18,660
$ 19,299
4,235
33,012
7,569
14,886
6,090
21,603
7,451
10,320
(14,115)
16,626
6,558
9,753
7,525
14,296
5,166
11,948
5,922
16,247
5,225
11,515
7,231
17,569
4,923
11,874
12,292
16,329
5,258
9,901
(1,667)
36,585
5,551
13,830
9,470
6,019
1,840
7,981
12,277
5,025
1,169
7,094
$ 69,991
$ 62,240
$ 50,475
$ 71,219
$ 67,260
$ 71,897
$ 75,136
$ 56,502
$ 43,970
$ 44,864
7,105
(2,471)
2,639
4,787
7,473
6,582
3,256
10,741
11,049
870
974
1,302
—
2,327
—
852
—
13,230
—
—
130
7,124
—
—
166
1,237
—
—
734
771
11,493
—
(179)
3,229
—
—
329
1,119
—
—
681
3,329
—
—
247
6,704
—
1,149
(190)
10,255
—
510
192
737
—
—
55
14
3,653
—
$ 85,324
$ 62,474
$ 66,112
$ 81,383
$
76,181
$ 83,341
$ 85,343
$ 91,687
$ 56,458
$ 49,456
$ 10,289
$ 16,776
$ 31,653
$ 32,284
$ 28,351
$ 30,300
$ 31,356
$
2,203
$
18,660
$
19,299
Share-based compensation expense
5,196
1,176
658
2,794
1,207
2,958
6,366
10,025
703
3,653
Impairment of property, plant and
equipment
Accelerated depreciation on
equipment/property disposed as
part of a discontinuation/acquisition
Business acquisition, integration and
other expenses (income)
Non-operating items
Increase in cost of sales due to
purchase price allocation to
inventory
Mark-to-market loss (gain) on
embedded derivative and related
accretion
Mark-to-market (gain) loss on
interest rate swaps
Modification losses, accelerated
amortization of deferred financing costs,
and other items resulting from debt
refinancing and amendment activities
Intercompany dividend withholding tax
710
938
—
—
5,028
(1,841)
—
—
—
—
7,753
161
—
—
—
—
—
—
—
—
1,785
7,232
—
—
—
—
—
1,614
—
520
668
216
—
—
—
3,014
4,985
4,290
2,068
—
—
—
—
—
—
—
—
—
—
8,635
1,146
6,895
—
—
—
8,397
—
761
312
188
(105)
1,899
(90)
(426)
(80)
76
529
—
—
—
—
605
—
776
744
6,380
(402)
—
—
—
782
—
—
541
—
34
—
—
—
996
Adjusted Net Income
$ 29,137
$ 17,049
$ 41,328
$ 40,284
$ 34,333
$ 38,781
$ 41,281
$ 38,071
$ 28,854
$ 24,523
Annual Report 2019 101
Historical Consolidated Statement of Income (UNAUDITED)
In United States dollars, unless otherwise noted
(Amounts in 000s, except per share amounts)
Book value per common share
Gross capital expenditures from
continuing operations
$
Per share information:
Basic earnings per common share
Based on net income
$
Based on adjusted net income
Diluted earnings per common share
Based on net income
Based on adjusted net income
Common shares
Outstanding at year-end
Weighted average outstanding
Basic
Diluted
Dividends declared and paid
$
Dividends per common share (CAD)
2019
8.03
$
2018
7.90
$
2017(1)
8.05
$
2016(1)
7.13
$
2015(1)
6.43
$
2014
6.41
$
2013(2)
6.04
$
2012
(2)(3)
2011
(2)(3)(4)
5.07
$
5.27
$
2010
(2)(3)(4)
4.89
6,569
14,607
27,775
17,686
18,587
28,075
15,419
13,447
7,675
5,134
$
0.31
0.86
0.30
0.85
$
0.50
0.51
0.50
0.51
$
0.98
0.93
0.97
0.93
1.04
1.30
1.04
1.29
$
0.92
$
1.11
0.95
1.10
$
0.99
1.26
0.97
1.24
$
1.03
1.36
1.01
1.32
$
0.08
1.26
0.07
1.23
$
0.62
0.95
0.61
0.94
0.60
0.76
0.60
0.76
33,383
33,383
33,380
30,889
30,874
30,706
30,571
30,258
30,174
30,298
33,801
34,195
7,424
0.295
33,617
33,619
32,412
32,527
30,917
31,175
30,819
31,265
30,665
31,317
30,367
31,186
30,238
30,920
30,218
30,682
$ 14,663
$ 14,355
$ 12,145
$ 11,023
$ 11,285
$ 10,305
$
6,379
$
5,891
$
0.580
0.565
0.520
0.465
0.410
0.350
0.210
0.195
32,192
32,490
5,238
0.165
(1) For Fiscal 2017, 2016 and 2015, the operating results contain certain corrections of errors identified in previously reported amounts related to the accounting for
donated products received from the United States Department of Agriculture for the purpose of processing the product for distribution to eligible recipient agencies.
(2) Share and per share amounts for Fiscal 2013 and prior years have been restated to reflect the retrospective application of the May 30, 2014 2-for-1 stock split.
(3) In Fiscal 2012, the Company changed its presentation currency from CAD to USD. Results for Fiscal 2011 and 2010 have been fully restated to USD.
(4) The Company adopted International Financial Reporting Standards effective January 2, 2011, with retrospective application to Fiscal 2010.
102 HIGH LINER FOODS
Historical Consolidated Statement of
Financial Position (UNAUDITED)
In United States dollars, unless otherwise noted
(Amounts in 000s)
Cash
$
Accounts receivable
Income taxes receivable
Other financial assets
Inventories
Prepaid expenses
Total current assets
Property, plant and equipment
Right-of-use assets(4)
Deferred income taxes
Investment in equity accounted investee
Other receivables and miscellaneous assets
Future employee benefits
Intangible assets
Goodwill
Assets classified as held for sale
2019
3,144
85,089
3,494
236
294,913
4,322
391,198
108,986
11,792
2,134
—
34
—
148,893
157,457
—
$
2018
9,568
84,873
6,411
2,504
2017(1)
4,738
$
2016(1)
$ 18,252
$
2015(1)
1,043
$
92,395
13,533
570
75,190
4,809
1,705
76,335
6,023
6,453
2014
1,044
81,772
7,381
4,139
$
2013
1,206
90,113
3,509
1,524
2012(2)
65
$
2011
(2)(3)
$
3,205
$
73,947
5,145
533
83,590
3,498
1,323
2010
(2)(3)
601
50,724
704
895
301,411
353,433
252,059
263,043
261,987
252,960
222,313
256,324
132,696
4,333
409,100
114,371
—
7
—
1,013
—
155,594
157,070
—
3,462
468,131
120,289
—
2,787
—
837
—
158,044
157,881
—
3,340
355,355
109,626
—
2,290
—
864
—
98,872
118,101
—
2,051
354,948
115,879
—
2,495
—
1,683
—
102,315
117,824
—
2,481
358,804
114,231
—
3,372
—
1,678
—
107,704
119,270
515
2,361
351,673
101,470
—
4,656
—
1,906
—
105,253
111,999
542
2,991
304,994
89,268
—
7,207
96
1,847
92
110,631
112,873
4,819
2,969
350,909
105,808
—
1,667
271
1,190
92
116,594
110,816
—
1,899
187,519
67,634
—
2,416
154
819
92
31,409
40,036
—
Total assets
$ 820,494
$ 837,155
$ 907,969
$ 685,108
$ 695,144
$ 705,574
$ 677,499
$ 631,827
$ 687,347
$ 330,079
Bank loans – actual amounts owing
$ 37,956
$ 31,505
$ 53,560
$
959
$ 17,628
$ 65,851
$
97,899
$ 60,530
$ 119,936
$ 43,261
Bank loans – deferred charges
(410)
(353)
(208)
(338)
(470)
(721)
(672)
(826)
(978)
(304)
Accounts payable and accrued liabilities
141,238
157,162
205,820
138,766
124,132
Share-based compensation payable – current
Contract liability(5)
Provisions
Other current financial liabilities
Income taxes payable
Current portion of long-term debt
Current portion of lease liabilities(4)
Total current liabilities
Long-term debt – actual amounts owing
Long-term debt – deferred charges and
market valuations
Other long-term financial liabilities
Other long-term liabilities
Share-based compensation payable –
long-term
Long-term lease liabilities(4)
Deferred income taxes
Future employee benefits
Liabilities classified as held for sale
Shareholders' equity
Total liabilities and shareholders’
equity
4,881
3,581
329
861
2,102
14,511
4,582
209,631
296,093
245
4,772
1,460
78
585
13,655
372
209,481
324,271
201
4,055
278
1,965
—
—
714
1,028
—
386
1,626
851
—
721
266,385
337,926
143,999
267,926
613
—
263
817
2,242
11,816
1,015
158,056
282,934
83,595
2,259
100,945
3,313
—
437
580
20
3,000
994
156,015
294,750
—
240
459
2,543
—
979
205,706
232,720
91,436
10,005
—
1,614
550
1,165
34,237
1,039
199,750
213,888
102,623
4,233
—
1,013
780
2,024
2,500
1,046
55,821
4,559
—
553
2,347
3,248
4,450
978
233,177
247,500
114,913
44,456
(7,073)
(1,597)
(2,485)
(1,599)
(1,917)
(2,717)
(5,791)
(529)
(20,254)
292
—
3,031
7,198
30,182
12,970
—
5
—
1,493
407
28,451
10,785
—
62
—
1,641
407
23,943
11,223
—
196
—
888
702
44,602
8,190
—
89
125
358
715
46,529
9,631
—
951
2,180
620
1,212
46,722
8,867
—
5,597
175
869
1,647
43,998
7,929
—
1,130
—
1,532
2,181
45,126
13,791
1,604
6,223
—
243
2,555
47,991
11,085
—
(305)
208
—
—
3,062
9,949
9,682
—
268,170
263,859
268,867
220,204
198,624
196,974
184,649
153,354
158,827
148,114
$ 820,494
$ 837,155
$ 907,969
$ 685,108
$ 695,144
$ 705,574
$ 677,499
$ 631,827
$ 687,347
$ 330,079
(1) For Fiscal 2017, 2016 and 2015, the operating results contain certain corrections of errors identified in previously reported amounts related to the accounting for
donated products received from the United States Department of Agriculture for the purpose of processing the product for distribution to eligible recipient agencies.
(2) In Fiscal 2012, the Company changed its presentation currency from CAD to USD. Results for Fiscal 2011 and 2010 have been fully restated to USD.
(3) The Company adopted International Financial Reporting Standards effective January 2, 2011, with retrospective application to Fiscal 2010.
(4) The Company has changed the presentation of the related balances on the consolidated statements of financial position and reclassified historical finance lease
balances as at December 30, 2018 from property, plant and equipment to right-of-use assets, with corresponding current and long-term lease liabilities, to reflect the
terminology and presentation requirements of IFRS 16, Leases, adopted on December 30, 2018. This standard was applied using the modified retrospective method
and therefore historical balances have not been restated.
(5) The Company has changed the presentation of this obligation on the consolidated statements of financial position and has reclassified the related balance as at
December 30, 2017 from accounts payable and accrued liabilities to contract liability to reflect the terminology and the presentation requirements of IFRS 15, Revenue
from Contracts with Customers, adopted on December 31, 2017.
Notes to the Consolidated Financial Statements Corporate Information
Honourary Director
Donald Sobey
Board of Directors
Joan Chow(2)
Rob Dexter(2)
David Hennigar(1)
Jill Hennigar(1)
Rod Hepponstall(3)
Shelly Jamieson(2)(3)(4)
Jolene Mahody(1)(3)(4)
Andy Miller(1)
Robert Pace (Chair)(3)(4)
Frank van Schaayk(2)(3)(4)
Executive Leadership
Rod Hepponstall
President & Chief Executive Officer
Paul Jewer
Executive Vice President & Chief Financial Officer
Johanne McNally Myers
Vice President, Human Resources
Craig Murray
Senior Vice President, Marketing & Innovation
Tim Rorabeck
Executive Vice President, Corporate Affairs
& General Counsel
Paul Snow
Executive Vice President
Ron van der Giesen
Senior Vice President, Supply Chain
Other Senior Leadership
Tania Albanese
Senior Director, National Accounts
Bill DiMento
Vice President, Sustainability
& Government Affairs
Tyler Held
Director, Internal Audit
Bill Mandly
Director, Project Management
Dale Martin
Vice President, Seafood Procurement
Karl McHugh
General Manager, Portsmouth
Charlene Milner
Vice President, Finance
Fred Pace
Director, Supply Chain Inventory Management
JR Pierce
Director, Commodity Seafood Sales
Tom Rupkey
Vice President, North American Foodservice Sales
Mike Sirois
Vice President, Product Development &
Technical Services
Ed Snook
General Manager, Lunenburg
Andy Tanner
Director, Corporate Treasury
David Thomas
Director, Field Sales Foodservice Canada
Tom Walker
Vice President, Information Technology
Plants & Warehouse Facilities
Massachusetts: Peabody
New Hampshire: Portsmouth
Virginia: Newport News
Nova Scotia: Lunenburg
Operating Subsidiary Companies
High Liner Foods (USA), Incorporated
ISF (USA), LLC
Rubicon Resources, LLC
High Liner Foods (Thailand) Co., Ltd.
High Liner Foods, útibú á Íslandi
Auditors
Meggan Hodgson
Vice President, Quality Assurance & Food Safety
Ernst & Young LLP, Chartered Accountants
Transfer Agent
Catherine Hu
Vice President, Marketing
Naomi Jewers
Assistant Corporate Secretary
Heather Keeler-Hurshman
Vice President, Investor Relations & Communications
Pam Kellogg
Vice President, Retail Sales
Mike Kocsis
Vice President, Strategic Initiatives
John Kramer
Director, Sales & Operations Planning
For help with:
• Changes of address
• Transfer of shares
• Loss of share certificates
• Consolidation of multiple mailings to
one shareholder
• Estate settlements
Contact:
AST Trust Company (Canada)
AnswerLineTM:
1-800-387-0825 (toll-free in North America)
or (416) 682-3860
Fax: 1-888-249-6189
E-mail inquiries: inquiries@astfinancial.com
www.astfinancial.com/ca
Mailing Address:
P.O. Box 2082, Station C
Halifax, NS B3J 3B7
Banks
The Royal Bank of Canada
JPMorgan Chase Bank, N.A.
Bank of Montreal
Canadian Imperial Bank of Commerce
Rabobank
Investor Relations
For:
• Additional financial information
• Industry and Company developments
• Additional copies of this report
Contact:
Heather Keeler-Hurshman
Vice President, Investor Relations & Communications
Tel.: (902) 421-7100
Fax: (902) 634-6228
E-mail: investor@highlinerfoods.com
Investor relations website:
www.highlinerfoods.com
Mailing Address:
100 Battery Point
P.O. Box 910
Lunenburg, NS B0J 2C0
Common Shares listed on The Toronto
Stock Exchange
Trading Symbol – HLF
Annual General Meeting of Shareholders
Tuesday, May 12, 2020
11:30 a.m. ADT
High Liner Foods Incorporated
Lunenburg, Nova Scotia
(1) Audit Committee (Jolene Mahody, Chair)
(2) Human Resources Committee (Shelly Jamieson, Chair)
(3) Executive Committee (Robert Pace, Chair)
(4) Governance Committee (Frank van Schaayk, Chair)
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Our new Alaska Wild Wings reeled in
First Place in Foodservice at the 27th
Annual Alaska Symphony of Seafood.
Hailed as wildly innovative, our
Alaska Wild Wings are just one of
several on-trend offerings aimed at
expanding seafood eating occasions.
Our wildly delicious bite-size wings,
made from 100% wild-caught Alaska
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on their own or paired with a variety
of sauces. Serve as a protein-packed
snack or shareable game-day
appetizer — ways to enjoy this
unique product are truly endless.