High Liner Foods Annual Report 2020

Plain-text annual report

ANNUAL REPORT 2020 2020 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 $ $ $ $ $ $ $ $ $ $ $ $ $ 2020 827,453 88,045 28,802 0.85 0.83 35,211 1.04 1.02 776,558 8,952 291,002 8.73 0.220 240,931 1,124 $ $ $ $ $ $ $ $ $ $ $ $ $ 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 % Change (12.2)% 3.2% 179.9% 174.2% 176.7% 20.8% 20.9% 20.0% (5.4)% 36.3% 8.5% 8.7% (25.4)% (6.9)% (3.7)% Sales Sales (in millions of USD) Sales Product Sales Volume (in millions of pounds) 2020 2019 2018 2017 2016 2020 2019 2018 2017 2016 $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 $700 $900 $1,100 2020 2019 2018 2017 2016 $0 Sales 2020 2019 2018 2017 2016 $20 $40 $60 $80 $100 $0 $0.75 $1.50 Adjusted EBITDA (1) See the Non-IFRS Financial Measures section of High Liner Foods’ Management’s Discussion and Analysis ("MD&A") for the fifty-three weeks ended January 2, 2021 for definitions of the non-IFRS financial measures used by the Company, including Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS. 0 20000 40000 60000 80000 100000 At High Liner Foods, our purpose is Reimagining Seafood to Nourish Life while having a positive impact on our employees, consumers, customers, communities and our planet. As we create value for our stakeholders, we will build on our 121-year history with a passion for the future. 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. Inside This Report At a Glance _______________________________________2 A Word from Our CEO ____________________________4 Opportunity Ahead _______________________________6 Health and Safety _________________________________8 Sustainability at High Liner Foods ________________ 12 Management’s Discussion and Analysis ____________________________________ 14 Financial Statements and Notes ______________________________________ 56 Corporate Information _________________________ IBC 1 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 2 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 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 become the leader in branded value-added seafood in North America. 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 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 2020 purchases (in USD): 22.6% Cod (Atlantic and Pacific) 20.5% Shrimp 15.2% Alaskan Pollock 12.0% Haddock 11.5% Salmon (Wild and Farmed) 6.8% Tilapia 2.5% Sole KEY RETAIL BRANDS KEY FOODSERVICE BRANDS ® 3 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 4 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 Dear fellow shareholders, Our strong and committed team 2020 was a year of hard work, collaboration and effort at High Liner Foods. The High Liner Foods team worked with a greater sense of purpose than ever before. Our employees rallied together to support our customers and ensure a steady flow of frozen seafood across North America. As consumers drew comfort in stocking their freezers amidst the pandemic, our team stepped up to the plate. Together, we quickly adjusted to new ways of working and pivoted to make bold decisions with our customers’ and consumers’ needs front of mind. During this time, as in the normal course of business, health and safety was our top priority. Under the guidance of our Director of Environmental, Health & Safety and with counsel from health authorities and other experts in the field, we made significant additional investments in health and safety to ensure our production facilities, warehouses and offices were set up to help reduce the spread of COVID-19 and protect our teams. As you will read on pages 8–11 in this annual report, our investments of time and resources were significant and extended beyond processes, protocol and equipment to the very core of our culture and how we work together. This is especially true with regard to our 786 employees working in our production facilities and warehouses. During a time of heightened anxiety, our frontline employees worked with care and consideration for each other and the resilience of our operations. Their hard work and tenacity made all the difference to our business in 2020. This annual report is dedicated, with enormous gratitude, to our frontline employees and their families — we appreciate each and every one of you. Thank you. Our robust supply chain was the linchpin of our success In addition to the incredible employee effort, we were fortunate to enter the crisis with the majority of the heavy lifting needed to strengthen the foundation of our business already completed. Of particular note, the supply chain optimization completed in 2019 as part of our critical initiatives allowed us to be extremely responsive to the ever-changing needs of our customers. Throughout the year, we had a laser focus on solving our customers’ pain points and ensuring an agile and meaningful response. For our foodservice customers, we acted quickly to help food operators pivot to takeout options. We also seized the opportunity to tailor our value-added products, already a success in the retail space, to help operators save time and resources as they adapted to COVID-19 realities. In our retail business, the reliability of food supply was the number one customer concern. We set the supply chain up for success with a focused portfolio of priority products and carefully managed capacity across our production facilities. This led to high order fill rates, very limited business disruption, deeper customer relationships and new business wins, all of which contributed to us delivering year-over-year improved financial performance. Year-over-year EBITDA growth I am proud to report that we ended the year delivering year-over-year Adjusted EBITDA(1) growth of $2.7 million, to $88.0 million, and we delivered record Adjusted EBITDA as a percentage of sales of 10.6%. We did so in spite of the pressures facing our foodservice business as a result of restaurant shutdowns. Among the financial highlights of 2020 (as compared to Fiscal 2019): • Gross Profit as a percentage of sales increased 180 basis points to 21.5%; • Standardized Free Cash Flow(1) increased by $49.0 million to an inflow of $94.0 million reflecting favourable cash flows from operating activities; and • Our Net Debt(1) to Adjusted EBITDA ratio improved significantly, achieving our long-term target of 3x compared to 4.1x. Together with the Board, we were particularly pleased to be able to increase the dividend by 40% to reflect our improving free cash flow. Our ability to increase the return of capital to shareholders indicates how far we have come as a business. Based on our improving performance, we can comfortably support the dividend increase while simultaneously investing in our business to fuel growth and continuing to reduce debt. (1) Please refer to the Non-IFRS Measures section of High Liner Foods' MD&A for the fifty-three weeks ended January 2, 2021 for definitions of the non-IFRS financial measures used by the Company, including "Adjusted EBITDA", "Net Debt", and "Standardized Free Cash Flow". 5 Alaska Wild Wings™/Fish Wings™ are an innovative, versatile meal and snacking option. Opportunity ahead Market conditions are ripe for growth for High Liner Foods. More than half a million new consumers have entered the frozen seafood category since the onset of the pandemic in March, at a time when our new product innovations are prominently displayed in the frozen food aisles of leading retailers across North America. Even with this growth, frozen seafood remains significantly underconsumed compared to other proteins, giving us a significant opportunity to grow — and disrupt — the market with our branded value- added seafood innovations and be ready to capitalize on the re-emergence of the foodservice industry. As consumers increasingly search for healthy, versatile proteins that can nourish their lives, our products, at a range of price points, not only deliver but showcase the potential to enjoy seafood at home. We intend to reimagine seafood for the market. In 2021, with the heavy lifting to strengthen the foundation of our business behind us, we are well positioned to go to market more aggressively supported by significant investments in marketing and the advancement of our people. I am confident that even as we navigate an uncertain, challenging and evolving market in Fiscal 2021, we will be able to advance our strategy to generate top-line growth, supported by continued Adjusted EBITDA gains. As you will read on pages 6–7, our large unprocessed seafood business gives us a significant competitive advantage, and we intend to leverage this scale to grow our branded value-added seafood business. Moving forward with purpose As we shift to ‘playing offence’ in the market, we will do so grounded in a strong sense of our wider purpose in society and with employee, environmental, social and governance (EESG) issues front of mind. We embark on 2021 with a new purpose statement “to reimagine seafood to nourish life” which accurately captures the work of the organization over the past year and our potential for the future. As we live our purpose, we will invest in an inclusive, equitable and diverse workplace that creates rewarding career opportunities for our people and ensures we continue to have the right people in the right roles to drive our business forward. We will continue to advance our sustainability goals, support our local communities and hold ourselves to the highest standards of governance. These are all attributes we hold true. Sustainability, responsibility, flexibility and resilience have been hallmarks of High Liner Foods for over 120 years. I am committed to ensuring that in Fiscal 2021, just as in the past fiscal year, we continue to reflect these values as we create long-term value for you, our shareholders. I am grateful for your ongoing support. Sincerely, Rod Hepponstall President and CEO Rod Hepponstall, President & Chief Executive Officer Opportunity Ahead High Liner Foods is strategically positioned to grow its branded value-added seafood business and has its sights set on becoming the North American leader in this segment. Customers, consumers and foodservice operators are hungry for the healthy and versatile protein seafood offers and especially our branded value-added seafood products. We believe that accelerated value- added growth is the path to drive improved margins and create long- term, sustainable shareholder value. Given the size and scale of our large unprocessed seafood business, High Liner Foods is strategically and competitively positioned to leverage this scale to grow the higher margin, sought-after branded value-added products. In 2021, we will continue to leverage our unprocessed business to create a solid base to enable overall growth, while driving profitability across the business, as we also: • continue to expand the distribution of our current branded value-added products and roll out an exciting new pipeline of product innovations to retail and foodservice customers; • increase investment in marketing, including, for the first time, direct to consumer marketing focused on growing the branded value-added segment; • continue to simplify our portfolio and seek opportunities to harmonize ingredients; • further optimize our supply chain to drive efficiency and maintain industry-leading order fill rates; and • ensure first-class sales execution, supported by continuous improvement initiatives across all aspects of the business. Leveraging our respected brand icon Our iconic Captain High Liner is well known and loved in Canada. We will capitalize on our brand recognition and category leadership to drive further growth. In the U.S., we intend to drive category disruption as a powerful challenger brand. High Liner Pan-Sear Garlic and Herb Shrimp paired with an apple beet salad. 6 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 Providing healthy and appealing seafood options at home We will continue to expand the eating occasions for seafood just as we have done with the launch of our on-trend snacking products such as our Fish Wings/Alaska Wild Wings and value-added shrimp items. With increased marketing dollars at work, we intend to capitalize on the increasing consumer desire for alternate proteins and desire for nutritious and affordable options to nourish their families. “ We will be bold in accelerating category growth and brand loyalty through a powerful combination of best-in-class sales execution with retailers and insight-based marketing campaigns and innovation with consumers.” Pam Kellogg Vice President, Retail Sales North America 7 “ Building our own relationship with the end consumer through enhanced marketing initiatives is a very exciting shift which has the potential for us to help reimagine seafood on dinner tables across North America.” Ioan Cusmir Vice President, Marketing Supporting the re-emergence of foodservice High Liner Foods is well positioned to drive more value-added seafood menu placements. We will continue to innovate and seek to capitalize on the anticipated increased consumer demand for seafood when restaurant dining returns in full force to North America. “ Research shows us that seafood is one of the most craved menu items — and there’s significant pent-up demand in the Foodservice channel. We launched a lot of innovation in foodservice in 2020 and introduced segment solutions to support Grab and Go home delivery and ease back-of-house prep challenges. In 2020, we supported our customers through the pandemic; now it’s time to play offence and drive a robust recovery. We are excited about our growth opportunity in 2021.” Tom Rupkey Vice President, Foodservice Sales North America I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 8 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 Health and Safety When the COVID-19 pandemic hit North America in early March, High Liner Foods brought together a multi-disciplinary team from all corners of the business to safeguard our frontline employees as much as possible. The team worked quickly to ensure that High Liner Foods’ health and safety policies and procedures were robust and aligned with evolving health authority guidelines and industry best practices. The following comments from our team provide some insight into the many different ways our people worked together to ensure safety, protect the essential work of our frontline workers and surface the most valuable lessons. Staying ahead of the curve In early 2020, before COVID-19 erupted in North America, High Liner Foods was already monitoring the situation unfolding internationally. Behind the scenes, teams were meeting daily to assess how COVID-19 might impact the supply chain or other business operations. Pre-emptive measures were set in place, so that when the reality of the pandemic moved closer to home, teams were ready to ‘flex’ and switch into high gear. “We made really quick decisions very early on and the Executive Leadership Team met with me daily to ask what I needed and how they could support,” said Erika Pouliot, Director of Environmental, Health and Safety. “We acted quickly, purchasing masks well before it became mandatory, and took time to listen and draw on the experience of other larger food manufacturers and of course health authorities and experts in both the U.S. and Canada. This comprehensive approach helped us to implement enhanced safety measures and protocols quickly by drawing on best practices and tailoring them to our unique circumstances.” Early on in the pandemic, High Liner Foods invested in enhanced safety measures for its plants and warehouses with installed temperature scanners, screening measures, signage, directional markers and partitions, hired extra personnel to help with the monitoring of physical distancing, increased cleaning of high-touch points, and ensured frequent clear communications, training and support for managers and their teams. “Of course, there was a learning curve for all of us and many difficult moments, but overall quick action (with course correction as needed) allowed us to preserve the trust and confidence of our employees,” explained Pouliot. By responding quickly, the organization was able to stay ahead of the curve by procuring supplies that were in scarce demand and protecting the health of our teams. “Throughout this process, I really felt like we pulled together; we were all focused on the same thing. We worked on a common goal and shared best practices. I’m confident we will take that momentum and collaboration into 2021.” Our comprehensive approach helped us to implement enhanced safety measures and protocols quickly by drawing on best practices and tailoring them to our unique circumstances. 9 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 Our essential workers have played a huge role throughout the pandemic. Team members like Connie Belo helped to ensure products were available for our customers and consumers. “ When you experience an intensive event, it galvanizes a team much more quickly. Although we were challenged with conventional timelines, we were able to achieve our goals. Our teams now have the attitude that anything is possible.” Michael Hassay General Manager, Portsmouth “ When the pandemic hit, it was a very difficult time and I’m really proud of how the company handled it. We faced disruption right at the beginning, and it was amazing to see the support and resources we received from corporate. I feel like we were very aggressive in being proactive and we set a very high bar. We want our employees to feel safe and to have confidence that we’re doing the right thing and providing the best protection and information available.” Holly Washington General Manager, Newport News “ We created processes throughout the warehouses that made it possible to continue operations while ensuring employee safety is the top priority. This included introducing digital processing for all transactions, so there’s no passing of paperwork. As a result of this automation, we enhanced safety and added efficiencies.” “ What was most engaging to me was hearing how all the cross-functional teams came together and learned from each other. It made us come together stronger as a team — and by that, I mean from executive leadership, operations leadership, and down to the plant level. It was an invaluable growing experience for everyone.” Bob Pendergast Operations Manager, North American warehouses Denise Sweat Director of Human Resources, Supply Chain 10 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 Acting fast helped secure supplies Amidst much uncertainty at the start of the pandemic, High Liner Foods rose to the challenge quickly. The purchasing team secured new technologies and supplies aimed to increase safety within the facilities and ensure operations could continue. These investments put into place safeguards that will continue to be used as part of our ongoing commitment to provide a safe working environment for all employees. Investing in safety “In order to keep operations going, it was very important to get out the door fast and make decisions very quickly. Being nimble helped us achieve this and stay ahead of the game,” said Marcio Menquini, Director of Purchasing. “We focused on making purchases in ways that would enable us to continue operating. It was important for us to develop those safety protocols, because as essential workers, we needed to keep the food supply chain going. This really paid off in a couple of ways: it ensured the continuity of our operations and it deepened trust with our people and our customers.” Marcio Menquini Director of Purchasing Essential work on the front line High Liner Foods has more than 786 employees working on the front line throughout its 5 facilities and warehouses. Our essential workers have played a huge role in keeping supply chains moving throughout the pandemic — and we are hugely grateful for their hard work and perseverance. Here are some insights from our team on the front line: Kathy Kritikos has seen a lot of changes in the past 40 years since starting at the Portsmouth plant. When she first started, everything was packed by hand. Today, she works as a machine operator, running the packaging equipment. While the pandemic posed unique challenges, she feels confident in how the company reacted right from the start, including installing dividers and setting up safety protocols. “ I grew with the company. I have seen the company grow, for the better, with more technology. You can’t stop the pandemic, but I feel like the company is on top of it. I feel safe at work.” Kathy Kritikos Machine Operator, Portsmouth “ Management communicates with us about any changes and updates. We use a face mask and shield and we follow the six feet distance. There’s hand sanitizer everywhere and people are always washing their hands. But of course, it’s a challenging time. For me, I’m careful. I feel good. From what I hear from other places, they’re doing a good job here, and it makes me feel safer coming to work.” Leah Johnson Team Leader, Production, Newport News Glenn Garcia, who has been with the company for nearly 15 years, works in the warehouse department as a pallet jack operator. He’s responsible for loading product into the freezer or trailer. Safety is critical to Garcia, who has a four-year-old child, 93-year-old grandmother and senior parents at home. “I think the company’s doing a good job. They take our temperature and have signs up and stagger groups in the break room, to prevent having too many inside at one time. In the warehouse, I can stay away from people, which is another thing that helps me feel safe coming to work.” Glenn Garcia Warehouse Worker, Newport News As an electrician, Jordan Risser frequently moves around the plant to ensure electrical systems are working efficiently. Thanks to safety measures including physical distancing, he says he feels “100% safe” while on the job. “I think High Liner Foods dealt with the pandemic really well and put procedures in place very quickly and effectively. It has been comforting to be able to come to work and continue to get a paycheque and not have to worry about my financial situation. I feel very fortunate for that.” Jordan Risser Industrial Electrician, Lunenburg Jordan Collette, a production worker in Lunenburg, credits his colleagues as well as management for working together to keep each other safe. “I think the company did a good job putting systematic procedures in place, ensuring that COVID-19 stays out. It’s equally important to note that the workers came in every day, followed all the procedures and did a great job to prevent COVID-19 from entering the workplace. It was definitely a joint effort on both sides. There were a lot of nervous people at the start but everybody did their job and did it well. This is, in all honesty, the best group of people I’ve ever worked with, so I fully trust that they’re following procedures and we’re all working together to stay safe.” Jordan Collette Production Worker, Lunenburg By the Numbers Total number purchased across North American operations in 2020: Masks 226,120 Traditional thermometers Infrared non-contact thermometers Overhead fever scanners for warehouses Wall-mounted fever scanners for offices 120 20 5 5 11 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 12 12 I H G H L I N E R F O O D S A N N U A L R E P O R T 2 0 2 0 Sustainability at High Liner Foods We are passionate about being a leader in providing delicious, healthy, and sustainably sourced and produced seafood. That passion shapes our strategy and guides our actions. We also believe that it is essential to our long-term success as a valued partner, a preferred employer, a trusted supplier and a growing, profitable business. Operating sustainably, in accordance with our values, defines our company and our culture and is embedded in the way we serve our customers, consumers and our communities. High Liner Foods continues to build a culture based upon continuous improvement in everything we do including our commitment to employee, environmental, social and governance (EESG) issues. As we seek to further embed sustainability across our operations, we will focus on reducing our energy footprint and ensuring energy efficiency is a key theme in all future capital expansions and upgrades. We will continue to work with industry partners to enhance the sustainability of our supply chain. Our efforts will include supporting a sustainable wild-caught fishery, while fostering the sustainable aquaculture sector which will be essential to meet global demand for affordable seafood protein. We report back to stakeholders on our specific sustainability practices and goals in our dedicated report available on our website at highlinerfoods.com/sustainability. Management’s Discussion and Analysis Consolidated Financial Statements Annual Report 2020 13 Introduction Company Overview Financial Objectives Outlook Recent Developments Performance Results by Quarter Fourth Quarter Business Acquisition, Integration and Other Expense 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 14 15 15 17 17 19 22 23 25 25 25 26 26 31 31 36 36 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 COVID-19 pandemic 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 56 57 58 58 59 60 61 61 61 61 73 75 76 76 77 78 79 81 81 82 82 83 86 87 90 92 92 93 93 93 95 95 97 98 101 102 14 HIGH LINER FOODS Management’s Discussion and Analysis For the fifty-three weeks ended January 2, 2021 (All amounts are in United States dollars unless otherwise stated) Introduction This Management’s Discussion and Analysis (“MD&A”), dated February 24, 2021, relates to the financial condition and results of operations of High Liner Foods Incorporated for the fifty-three weeks ended January 2, 2021 (“Fiscal 2020”) compared to the fifty-two weeks ended December 28, 2019 (“Fiscal 2019”). 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 2020 Annual Report and our Annual Audited Consolidated Financial Statements (“Consolidated Financial Statements”) as at and for the fifty-three weeks ended January 2, 2021, 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 24, 2021, 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 year 2020 was fifty-three weeks and fiscal years 2019 and 2018 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 31 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&ACompany 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 the acquisition of the U.S. subsidiary of Icelandic Group h.f, the Company 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). Annual Report 2020 15 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 2020 Fiscal 2019 Return On assets managed On equity Profitability Adjusted EBITDA as a percentage of sales Financial strength Net Debt to Adjusted EBITDA ratio (times) 9.9% 11.1% 9.4% 8.8% 10.6% 9.1% 3.0x 4.1x Each of these financial measures is further discussed below. See also the Non-IFRS Financial Measures section starting on page 31 for further explanation of these measures. Return on Assets Managed (“ROAM”) 2020 2019 2018 2017 2016 9.9% 9.4% 6.6% 8.2% 12.1% 0% 5% 10% 15% In 2020, Adjusted EBIT (as defined in the Non-IFRS Financial Measures section on page 32 of this MD&A) increased by $1.9 million, or 3.1%, compared to 2019 and the thirteen- month rolling average net assets managed decreased by $13.5 million, or 2.0%. The combined impact of these changes was an increase in ROAM from 9.4% at the end of Fiscal 2019 to 9.9% at the end of Fiscal 2020. The increase in Adjusted EBIT in 2020 is a result of the same factors causing the $2.7 million increase in Adjusted EBITDA in 2020 compared to 2019, as discussed in the Consolidated Performance section on page 19 of this MD&A. The decrease in the average net assets managed in 2020 compared to 2019 is primarily due to a decrease in average property, plant and equipment and intangible assets as a result of amortization in excess of capital expenditures in Fiscal 2020, as well as a decrease in the Company’s average working capital balances. MD&A16 HIGH LINER FOODS Return on Equity (“ROE”) 2020 2019 2018 2017 2016 In 2020, Adjusted EBITDA increased by $2.7 million, or 3.2%, compared to 2019 and sales decreased by $114.8 million, or 12.2%. The combined impact of these changes resulted in an increase in Adjusted EBITDA as a percentage of sales from 9.1% in 2019 compared to 10.6% in 2020. The increase in Adjusted EBITDA is discussed in the Consolidated Performance section on page 19 of this MD&A. Net Debt to Adjusted EBITDA 11.1% 8.8% 5.8% 12.1% 17.6% 0% 5% 10% 15% 20 In 2020, Adjusted Net Income (as defined in the Non-IFRS Financial Measures section on page 31 of this MD&A) less share-based compensation expense increased by $6.9 million, or 28.9%, compared to 2019, and the thirteen-month rolling average common equity increased by $7.1 million, or 2.6%. The combined impact of these changes resulted in an increase in ROE from 8.8% at the end of Fiscal 2019 to 11.1% at the end of Fiscal 2020. The increase in Adjusted Net Income in 2020 compared to 2019 is discussed in the Consolidated Performance section on page 19 of this MD&A. Adjusted EBITDA as a Percentage of Sales 2020 2019 2018 2017 2016 10.6% 9.1% 6.0% 6.3% 8.5% 0% 3% 6% 9% 12 Adjusted EBITDA as a percentage of sales is calculated as follows: • Adjusted EBITDA as defined in the Non-IFRS Financial Measures section on page 31 of this MD&A, divided by: • Sales as disclosed on the consolidated statements of income. 2020 2019 2018 2017 2016 3.0x 4.1x 5.8x 5.9x 3.1x 0.0 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 35 of this MD&A, divided by: • Adjusted EBITDA as defined in the Non-IFRS Financial Measures section on page 31 of this MD&A. During 2020, Net Debt decreased by $78.6 million and Adjusted EBITDA increased by $2.7 million. The combined impact of these changes was an improvement in Net Debt to Adjusted EBITDA for 2020 as compared to 2019. The change in Net Debt is discussed on page 27 of this MD&A and the change in Adjusted EBITDA is discussed in the Consolidated Performance section on page 19 of this MD&A. In the absence of any major acquisitions or unplanned capital expenditures in 2021, we expect this ratio will further improve by the end of Fiscal 2021. MD&AOutlook As the Company executes on its strategy and drives continuous improvement and increased investment in its operations, High Liner Foods is confident that it will be able to deliver the third consecutive year of Adjusted EBITDA growth in 2021. The Company anticipates that its Fiscal 2021 capital expenditures will be approximately $20.0 million, an increase over the average capital investment in the business over the past three years as the Company sought to conserve cash and strengthen its financial position. The Company believes that it is well positioned to continue to navigate the challenges presented by the 2019 coronavirus disease outbreak (“COVID-19”) to its foodservice business and that the Company’s resilient supply chain and compelling product offering positions High Liner Foods to capitalize on the resurgence in foodservice as COVID-19 related restrictions are lifted. Furthermore, the Company remains confident in its liquidity position as a result of its prudent cash management and early refinancing of debt in late 2019. The Company does not have any impending debt maturities and will continue to utilize its $150.0 million working capital credit facility if required. The Company currently has no borrowings on this facility. Recent Developments COVID-19 Pandemic In March 2020, COVID-19 was recognized as a pandemic by the World Health Organization (“WHO”). COVID-19 has continued to spread globally, including in the markets in which the Company operates, and is having a significant impact on general economic conditions on a global scale. In response to the WHO declaration and the continuing spread of COVID-19, several social distancing measures have been undertaken by the Company and third parties, including governments, regulatory authorities, businesses and the Company’s customers, that could negatively impact the Company’s operations and financial results in future periods. Annual Report 2020 17 Starting mid-March 2020, High Liner Foods experienced a surge in demand from its retail customers tied to COVID-19 due to consumer trends shifting toward eating at home as a result of social distancing restrictions. As restrictions have lifted, the surge in demand has eased, however the overall impact of COVID-19 on the Company’s retail business continues to be positive. The Company has been able to meet the increased demand and satisfy its customers by redirecting resources, inventory and production capacity across its integrated North American operations. Over the same time period, the Company has experienced a significant decline in its foodservice business, which represented approximately 65% of the total business in 2019, as a result of foodservice industry closures that include restaurants and schools across North America. Though the overall impact of COVID-19 on the Company’s foodservice business has been negative, demand from the Company’s institutional customers, such as long-term and health care facilities, has remained relatively stable. Since the initial impact of COVID-19 in March and April, foodservice demand has steadily improved and continues to improve as restrictions are lifted and the Company’s foodservice customers re-open for business. The impact of COVID-19 on the Company’s overall supply chain has been minimal. There have been no significant issues with the procurement of raw materials and ingredients, and there have been limited interruptions in transportation and warehousing activities. The Company’s three plants experienced some short-term manufacturing interruptions and operated fewer production lines throughout the second quarter of the year due to the impacts of COVID-19. However, late in the second quarter, the Company’s plants increased production lines and have been operating at planned capacity throughout the remainder of the year to meet the increasing demand in the Company’s retail and foodservice businesses as discussed above, and in the fourth quarter as we build inventory to support higher sales in Q1 2021 during the Lenten period. MD&A18 HIGH LINER FOODS During the fifty-three weeks ended January 2, 2021, the Company participated in the Canada Emergency Wage Subsidy government grant program (“wage subsidy”), which in general provides wage subsidies to eligible employers as a means of limiting job losses in Canada. During that period, the Company recognized $3.4 million in income-related wage subsidies as a reduction of salaries and benefits expense recognized in cost of sales, distribution expenses and selling, general and administrative expenses in the consolidated statements of income. The Company also participated in a cost recovery government support program resulting in $0.3 million recognized as a reduction in cost of sales and distribution expenses. See the Accounting Estimates and Standards section on page 36 of this MD&A for further detail on the Company’s accounting policy for government grants. The Company does not have any unfulfilled conditions or contingencies related to the government assistance received. Certain modifications made by the Company in response to COVID-19 include, but are not limited to: implementing a work from home policy for all salaried employees able to perform their duties at home; developing a gradual phased plan to support the safe return of employees to worksites; restricting employee business travel and implementing post-travel employee screening; limiting third-party access to the Company’s facilities; strengthening clean workplace practices including enhanced frequency of deep cleaning; implementation of a COVID-19 Task Force comprised of employees and executive leadership; introduction of temporary extraordinary recognition pay for all employees working in critical operational roles in production and warehouse facilities; and other employee screening, hygiene and social distancing practices as recommended by health authorities including Health Canada, the U.S. Centers for Disease Control and Prevention, and the WHO. During the fifty-three weeks ended January 2, 2021, the Company incurred $4.1 million in incremental costs associated with the implementation of these additional measures and other impacts of COVID-19. As the pandemic evolves, the Company will continue to implement measures designed to protect the health and safety of employees and prevent disruption to the Company’s supply chain and operations. See the Risk Factors section beginning on page 40 of this MD&A for further discussion of the impact of COVID-19 on the Company’s risk assessment. U.S. Tariffs In September 2018, the U.S. Trade Representative (“USTR”) commenced trade discussions with China that 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”) impacting most notably haddock (excluding block), tilapia and sole/flounder; • 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 15% tariff proposed on certain Chinese imports covered by the second action and the additional 25% tariff on certain species covered by the first action have been postponed indefinitely. 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. During August 2020, the Company received notice of approval of an exclusion extension request submitted to the USTR regarding tariffs on certain goods imported to the U.S. from China. The extension applied to tariffs that would otherwise have been incurred on specific goods from August 8, 2020 to December 31, 2020. The tariffs have since been reinstated following the expiry of the exclusion on December 31, 2020. 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&AAnnual Report 2020 19 Performance This discussion and analysis of the Company’s financial results focuses on the performance of the consolidated North American operations, the Company’s single operating and reporting segment. 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. Consolidated Performance The table below summarizes key consolidated financial information for the relevant periods. (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-three weeks ended Fifty-two weeks ended January 2, 2021 December 28, 2019 240.9 1.3409 827,453 177,924 21.5% 45,076 73,736 88,045 10.6% 28,802 0.85 0.83 35,211 1.04 1.02 776,558 295,413 0.220 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 258.8 1.3273 942,224 185,860 19.7% 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 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Fifty-two weeks ended Change (17.9) December 29, 2018 284.0 0.0136 $ 1.2956 (114,771) $ 1,048,531 (7,936) $ 188,157 1.8% (683) (16,283) 2,721 1.5% 18,513 0.54 0.53 6,074 0.18 0.17 (43,936) (14,067) (0.075) $ $ $ $ $ $ $ $ $ $ $ $ 17.9% 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 (1) See the Non-IFRS Financial Measures section starting on page 31 for further explanation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS. MD&A 20 HIGH LINER FOODS COVID-19 PANDEMIC The performance of the Company’s consolidated North American operations, as discussed in the following sections, has been significantly impacted by COVID-19, and may continue to be impacted in future periods. See the Recent Developments section on page 17 of this MD&A for further information regarding the current and anticipated impacts of the COVID-19 pandemic and the Company’s response. SALES Sales volume in 2020 decreased by 17.9 million pounds, or 6.9%, to 240.9 million pounds compared to 258.8 million pounds in 2019. In our foodservice business, sales volume was lower due to the impact of COVID-19 on our foodservice customers beginning in late March and continuing throughout Fiscal 2020. In our retail business, sales volume was higher primarily due to the surge in demand related to COVID-19 that began in late March and continued into the second quarter, partially offset by lost business in the fourth quarter of Fiscal 2019 that continued to impact volume year over year. The decline in sales volume was partially offset by the additional week in the fourth quarter of Fiscal 2020, new business and new product sales. Sales in 2020 decreased by $114.7 million, or 12.2%, to $827.5 million compared to $942.2 million in 2019. The decrease in sales reflects the lower sales volumes mentioned above and changes in sales mix. In addition, the weaker Canadian dollar in 2020 compared to 2019 decreased the value of reported USD sales from our CAD-denominated operations by approximately $2.0 million relative to the conversion impact last year. GROSS PROFIT Gross profit decreased in 2020 by $8.0 million, or 4.3%, to $177.9 million compared to $185.9 million in 2019 and gross profit as a percentage of sales increased to 21.5% compared to 19.7% in 2019. The decrease in gross profit reflects the decrease in sales volume discussed above and the incremental costs associated with COVID-19, partially offset by favorable changes in product mix reflected in the improved gross profit as a percentage of sales, improved supply chain efficiencies related to the critical initiatives completed in Fiscal 2019 and reduced labour costs due to the estimated wage subsidies for which the Company was eligible during the last three quarters of 2020. In addition, the weaker Canadian dollar decreased the value of reported USD gross profit from our Canadian operations in 2020 by approximately $0.6 million relative to the conversion impact last year. DISTRIBUTION EXPENSES Distribution expenses, consisting of freight and storage, decreased in 2020 by $0.7 million to $45.1 million compared to $45.8 million in 2019 primarily reflecting the lower sales volume mentioned previously and reduced labour costs due to estimated wage subsidies for which the Company was eligible during the last three quarters of 2020, partially offset by the higher freight costs related to COVID-19. As a percentage of sales, distribution expenses increased to 5.4% in 2020 compared to 4.9% in the same period in 2019. SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) EXPENSES (Amounts in $000s) Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 SG&A expenses, as reported $ 73,736 $ 90,019 Less: Share-based compensation expense(1) Depreciation and amortization expense(1) 5,766 7,084 10,701 10,779 SG&A expenses, net $ 57,269 $ 72,156 SG&A expenses, net as a percentage of sales 6.9% 7.7% (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 $16.3 million to $73.7 million in 2020 as compared to $90.0 million in 2019. SG&A expenses included share-based compensation expense of $5.8 million in 2020 compared to an expense of $7.1 million in 2019, primarily due to higher units outstanding in the prior year. This was partially offset by the issuance of stock options and cash settled awards in the current year and improved share price performance in the fourth quarter of 2020 compared to 2019. SG&A expenses also included depreciation and amortization expense of $10.7 million in 2020 compared to $10.8 million in 2019. Excluding share-based compensation and depreciation and amortization expenses, SG&A expenses decreased in 2020 by $14.9 million to $57.3 million compared to $72.2 million in 2019, due to lower variable selling costs largely related to the lower sales volume mentioned previously and lower administrative expenses related to travel restrictions and other cost reductions related to COVID-19 and the estimated wage subsidies for which the Company was eligible during the last three quarters of 2020. As a percentage of sales, SG&A excluding share-based compensation and depreciation and amortization expense decreased to 6.9% in 2020 compared to 7.7% in 2019. MD&AAnnual Report 2020 21 In 2020, net income included “business acquisition, integration and other expense” (as explained in the Business Acquisition, Integration and Other Expense section on page 25 of this MD&A) related to certain non-routine expenses. In 2019, net income included “business acquisition, integration and other expense” related to the product recall recovery, partially offset by costs associated with the Company’s 2019 critical initiatives, short-term termination benefits as a result of restructuring activities and other non-routine expenses. Excluding the impact of these non-routine items, other non- cash expenses, share-based compensation and the loss on modification of debt, but including only $5.5 million of the $8.5 million product recall recovery received during the first quarter of 2019, Adjusted Net Income in 2020 increased by $6.1 million, or 21.0%, to $35.2 million compared to $29.1 million in 2019. Adjusted Diluted EPS increased $0.17 in 2020 to $1.02 compared to $0.85 in 2019. ADJUSTED EBITDA We refer to Adjusted EBITDA throughout this MD&A in discussing our results for the fifty-three weeks ended January 2, 2021. See the Non-IFRS Financial Measures section on page 31 for further explanation of this non-IFRS measure. Adjusted EBITDA increased in 2020 by $2.7 million, or 3.2%, to $88.0 million compared to $85.3 million in 2019 and as a percentage of sales, Adjusted EBITDA increased to 10.6% compared to 9.1%. Adjusted EBITDA in 2019 included $5.5 million of the $8.5 million recovery received from the ingredient supplier in the first quarter of 2019 that was associated with the 2017 product recall. Excluding this $5.5 million recovery from 2019, Adjusted EBITDA increased by $8.2 million, or 10.3%, in 2020 as a result of the decrease in distribution and net SG&A expenses, partially offset by the decrease in gross profit, all discussed previously. In addition, the weaker Canadian dollar decreased the value of reported Adjusted EBITDA in USD from our Canadian operations in 2020 by approximately $0.3 million relative to the conversion impact last year. 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 31 for further explanation of these non-IFRS measures. Net income increased in 2020 by $18.5 million, or 179.6%, to $28.8 million ($0.83 per diluted share) compared to $10.3 million ($0.30 per diluted share) in 2019. The increase in net income reflects the increase in Adjusted EBITDA and decrease in share-based compensation expense, both discussed previously, and a decrease in finance costs related to the recognition in the prior year of a loss on modification of debt relating to the debt refinancing completed in October 2019 as discussed in the Finance Costs section on page 25 of this MD&A. This was partially offset by an increase in income tax expense as discussed in the Income Taxes section on page 25 of this MD&A and the additional $3.0 million product recall recovery from the ingredient supplier that was excluded from Adjusted EBITDA in the first quarter of 2019. MD&A22 HIGH LINER FOODS Results by Quarter The following table provides summarized financial information for the last eight quarters: FISCAL 2020 (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 2019 (Amounts in $000s, except per share amounts) Sales Adjusted EBITDA(1) Net Income (Loss) 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 268,588 30,705 14,227 0.42 0.41 14,288 0.42 0.41 0.050 252,323 First quarter 277,424 32,215 14,762 0.44 0.43 14,925 0.44 0.44 0.145 230,412 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Second quarter 165,829 17,087 3,382 0.10 0.10 4,660 0.14 0.14 0.050 234,348 Second quarter 223,034 17,883 946 0.03 0.03 4,680 0.14 0.13 0.050 209,791 Third quarter 194,621 19,068 3,821 0.11 0.11 5,948 0.18 0.18 0.050 199,569 Third quarter 220,141 16,455 (2,400) (0.07) (0.07) 3,857 0.11 0.11 0.050 201,289 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Fourth quarter 198,415 21,185 7,372 0.22 0.21 10,315 0.30 0.29 0.070 193,960 Fourth quarter 221,625 18,771 (3,019) (0.09) (0.09) 5,675 0.17 0.17 0.050 239,176 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Full year 827,453 88,045 28,802 0.85 0.83 35,211 1.04 1.02 0.220 193,960 Full year 942,224 85,324 10,289 0.31 0.30 29,137 0.86 0.85 0.295 239,176 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (1) See the Non-IFRS Financial Measures section starting on page 31 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&AFourth 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 2020 23 Fourteen weeks ended Thirteen weeks ended January 2, 2021 December 28, 2019 59.6 1.3045 198,415 43,520 21.9% 11,365 19,875 21,185 10.7% 7,372 0.22 0.21 10,315 0.30 0.29 $ $ $ $ $ $ $ $ $ $ $ $ 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 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Thirteen weeks ended Change (0.1) (0.0161) (23,210) (982) 1.8% (19) 1,298 2,414 2.2% 10,391 0.31 0.30 4,640 0.13 0.12 December 29, 2018 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 $ $ $ $ $ $ $ $ $ $ $ $ (1) See the Non-IFRS Financial Measures section starting on page 31 for further explanation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS. SALES Sales volume for the fourth quarter of 2020 decreased by 0.1 million pounds, or 0.2%, to 59.6 million pounds compared to 59.7 million pounds in the same period in 2019. In our foodservice business, sales volume continued to be lower due to the impact of COVID-19 on our foodservice customers. In our retail business, sales volume continued to be higher due to the increased demand related to COVID-19, partially offset by lost business in the fourth quarter of Fiscal 2019 that continued to impact volume year-over-year. The decline in sales volume was partially offset by the additional week in the fourth quarter of Fiscal 2020, new business and new product sales. Sales in the fourth quarter of 2020 decreased by $23.2 million, or 10.5%, to $198.4 million compared to $221.6 million in the same period last year, reflecting the lower sales volumes discussed above and changes in sales mix. In addition, the stronger Canadian dollar in the fourth quarter of 2020 compared to the same quarter of 2019 increased the value of USD sales from our CAD-denominated operations by approximately $0.6 million relative to the conversion impact last year. GROSS PROFIT Gross profit decreased in the fourth quarter of 2020 by $1.0 million, or 2.2%, to $43.5 million compared to $44.5 million in the same period in 2019 and gross profit as a percentage of sales increased to 21.9% compared to 20.1%. The decrease in gross profit reflects the lower sales volume discussed above, partially offset by favorable changes in product mix reflected in the improved gross profit as a percentage of sales and reduced labour costs due to the estimated wage subsidies for which the Company was eligible during the fourth quarter. In addition, the stronger Canadian dollar increased the value of reported USD gross profit from our Canadian operations in 2020 by approximately $0.2 million relative to the conversion impact last year. DISTRIBUTION EXPENSES Distribution expenses, consisting of freight and storage, remained consistent in the fourth quarter of 2020 at $11.4 million compared to the same period in 2019, reflecting the lower sales volume mentioned previously that was offset by increased freight costs related to COVID-19. As a percentage of sales, distribution expenses increased to 5.7% in the fourth quarter of 2020 compared to 5.1% in the same period in 2019. MD&A24 HIGH LINER FOODS SG&A EXPENSES SG&A expenses increased in the fourth quarter of 2020 by $1.3 million to $19.9 million compared to $18.6 million in the same period last year. SG&A expenses included share- based compensation expense of $2.9 million in the fourth quarter of 2020 compared to share-based compensation recovery of $1.5 million for the same period in 2019, primarily due to improved share price performance during the fourth quarter of 2020 as compared to the same period last year, partially offset by higher units outstanding in the prior year. SG&A expenses also included depreciation and amortization expense of $2.8 million in the fourth quarter of 2020 and $2.6 million in the same period of 2019. Excluding share-based compensation and depreciation and amortization expenses, SG&A expenses decreased in the fourth quarter of 2020 by $3.3 million to $14.2 million compared to $17.5 million in the same period last year, due to lower variable selling costs largely related to the lower sales volume mentioned previously and lower administrative expenses related to travel restrictions and other cost reductions related to COVID-19 including the estimated wage subsidies for which the Company was eligible in the fourth quarter. As a percentage of sales, SG&A excluding share- based compensation and depreciation and amortization expense decreased to 7.2% in the fourth quarter of 2020 compared to 7.9% in the same period last year. ADJUSTED EBITDA Adjusted EBITDA increased in the fourth quarter of 2020 by $2.4 million, or 12.8%, to $21.2 million compared to $18.8 million in the same period of 2019 and as a percentage of sales, Adjusted EBITDA increased to 10.7% compared to 8.5%. The increase in Adjusted EBITDA reflects the decrease in net SG&A expenses, partially offset by the decrease in gross profit, both discussed previously. In addition, the stronger Canadian dollar increased the value of reported Adjusted EBITDA in USD from our Canadian operations in 2020 by approximately $0.1 million relative to the conversion impact last year. NET INCOME (LOSS) Net income (loss) increased in the fourth quarter of 2020 by $10.4 million, or 346.7%, to net income of $7.4 million ($0.21 per diluted share) compared to a net loss of $3.0 million ($0.09 loss per diluted share) in 2019. The increase in net income reflects the increase in Adjusted EBITDA discussed previously, a decrease in business acquisition, integration and other expense as discussed below and a decrease in finance costs primarily due to the recognition in the fourth quarter of 2019 of a loss on the modification of debt related to the debt refinancing completed in October 2019 as discussed in the Finance Costs section on page 25 of this MD&A. This was partially offset by an increase in share-based compensation expense previously discussed and an increase in income tax expense as discussed in the Income Taxes section on page 25 of this MD&A. In the fourth quarter of 2020, net income included an expense of $1.1 million classified as “business acquisition, integration and other expense” (as explained in the Business Acquisition, Integration and Other Expense section on page 25 of this MD&A) related to certain non-routine expenses. In 2019, net loss included an expense of $2.6 million classified as “business acquisition, integration and other expense” related to costs associated with the Company’s critical initiatives and other non-cash expenses. Excluding the impact of these non-routine items or other non-cash expenses, share-based compensation and the loss on modification of debt, Adjusted Net Income in the fourth quarter of 2020 increased by $4.6 million or 80.7% to $10.3 million compared to $5.7 million in 2019. Correspondingly, Adjusted Diluted EPS increased by $0.12 to $0.29 compared to $0.17 in 2019. MD&AAnnual Report 2020 25 Business Acquisition, Integration and Other Expense 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) Fourteen weeks ended January 2, 2021 Thirteen weeks ended December 28, 2019 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 Business acquisition, integration and other expense (income) $ 1,121 $ 2,559 $ 2,957 $ 1,572 Business acquisition, integration and other expense for the fifty-three weeks ended January 2, 2021 included certain non-routine expenses. For the fifty-two weeks ended December 28, 2019, business acquisition, integration and other expense included the recognition of an $8.5 million recovery associated with the 2017 product recall from the ingredient supplier, more than offset by short-term termination benefits as a result of the organizational realignment initiated in November 2018 of $1.3 million, costs of $6.6 million related to the critical initiatives undertaken by the Company in 2019, and other non-routine expenses. 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 Interest expense on lease liabilities Deferred financing cost & modification loss amortization Fourteen weeks ended January 2, 2021 Thirteen weeks ended December 28, 2019 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 4,906 $ 5,098 $ 19,271 $ 20,173 (850) 4,056 — 288 327 (286) 4,812 10,969 376 427 (2,251) 17,020 — 1,192 1,271 (648) 19,525 10,969 1,447 1,071 Total finance costs $ 4,671 $ 16,584 $ 19,483 $ 33,012 Finance costs were $11.9 million lower in the fourth quarter of 2020 and $13.5 million lower in the fifty-three weeks ended January 2, 2021 compared to the same periods last year. The decrease during the fifty-three weeks ended January 2, 2021 was largely due to the recognition in 2019 of a loss on the modification of debt related to the debt refinancing completed in October 2019. Additionally the decrease was due to repayments of the term loan facility in October 2019 and during the first quarter of 2020, and a decrease in interest rates related to the economic impacts of COVID-19 (see the Recent Developments section on page 17 of this MD&A). This was partially offset by higher average short-term borrowings during the first three quarters of Fiscal 2020 compared to the same period in 2019. Income Taxes High Liner Foods’ effective income tax rate for the year ended January 2, 2021 was 21.5% compared to 29.2% in 2019. In the fourth quarter of 2020, the effective tax rate was a recovery of 13.6% compared to a recovery of 34.5% in the fourth quarter of 2019. The lower effective tax rate for the year and quarter ended January 2, 2021 compared to the same period last year was attributable to the Company’s tax-efficient financing structure, lower statutory rates in the United States, and adjustments in respect of prior years. The Company’s blended statutory rate for the year decreased from the prior year largely as a result of a reduction in corporate tax rates for the Province of Nova Scotia which came into effect on April 1, 2020. The applicable statutory rates in Canada and the U.S. were 28.2% and 27.6%, respectively. See Note 18 “Income tax” to the Consolidated Financial Statements for full information with respect to income taxes. MD&A26 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 14 of this MD&A (under the heading “Currency”) and in the Foreign Currency risk discussion on page 47 (in the Risk Factors section). Our capital management practices are described in Note 26 “Capital management” to the 2020 Consolidated Financial Statements. Working Capital Credit Facility The Company entered into an amended $150.0 million asset- based working capital credit facility (the “Facility”) in October 2019 with the Royal Bank of Canada as Administrative and Collateral agent, which expires by its amended terms in April 2023. There were no changes to the terms during 2020. 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 January 2, 2021 are also noted in the following table. Per credit agreement As at January 2, 2021 Canadian Prime Rate revolving loans, Canadian Prime Rate revolving and U.S. Prime Rate revolving loans, at their respective rates 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” to the Consolidated Financial Statements. In the absence of any major acquisitions, voluntary loan repayments or unplanned capital expenditures, we expect average short-term borrowings by the end of 2021 to be lower than 2020 as cash from operations will be used to fund working capital and reduce short-term borrowings. We believe the asset-based working capital credit facility should be sufficient to fund all of the Company’s anticipated cash requirements. 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 2020 were $40.5 million compared to $24.4 million in 2019. The $16.1 million increase in average short-term borrowings primarily reflects increased working capital requirements during the first half of 2020 as compared to the first half of 2019, long-term debt repayments in the fourth quarter of Fiscal 2019 and the first quarter of Fiscal 2020, and increased short-term borrowings during Fiscal 2020 to support operations as a result of COVID-19 (see the Recent Developments section on page 17 of this MD&A). This was partially offset by payments on the Company’s working capital credit facility during the last three quarters of Fiscal 2020 due to increased cash flows from operations as discussed in the Cash Flow section on page 29 of this MD&A. At the end of the fourth quarter of 2020, the Company had $132.2 million (December 28, 2019: $99.4 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 January 2, 2021, letters of credit and standby letters of credit were outstanding in the amount of $12.9 million (December 28, 2019: $12.6 million) to support raw material purchases and to secure certain contractual obligations, including those related to the Company’s Supplemental Executive Retirement Plan (“SERP”). MD&AAnnual Report 2020 27 Term Loan Facility As at January 2, 2021, the Company had a $300.0 million term loan facility with an interest rate of LIBOR plus 4.25% (LIBOR floor of 1.00%), maturing in October 2026. There were no changes to the terms during 2020. 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 could be required of up to 50% of the previous year’s defined excess cash flow (“mandatory prepayments”). Per the loan agreement, mandatory prepayments and voluntary repayments will be applied to future regularly scheduled principal repayments. During the fifty-three weeks ended January 2, 2021, a regularly scheduled repayment of $1.9 million was made and a mandatory prepayment of $12.8 million was made due to excess cash flows in 2019. As at January 2, 2021, the Company had a mandatory prepayment of $20.2 million due in 2021 related to excess cash flows in 2020. No additional regularly scheduled repayments were required for 2020 and none are expected to be required for 2021 due to the mandatory prepayment. Substantially all tangible and intangible assets (excluding working capital) of the Company are pledged as collateral for the term loan. During the fifty-three weeks ended January 2, 2021, 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 December 31, 2019 3-month LIBOR (floor 1.0%) 2.1700% $ March 4, 2015 April 4, 2016 January 4, 2018 March 4, 2020 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% $ December 31, 2025 3-month LIBOR (floor 1.0%) 1.4950% $ 20.0 25.0 40.0 80.0 20.0 As of January 2, 2021, the combined impact of the outstanding interest rate swaps listed above effectively fix the interest rate on $140.0 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 35 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 $78.6 million to $268.0 million at January 2, 2021 compared to $346.6 million at December 28, 2019, reflecting repayments of long-term debt during Fiscal 2020, a decrease in current bank loans and a higher cash balance as at January 2, 2021 as compared to December 28, 2019. This was partially offset by higher lease liabilities in 2020 as compared to 2019. Net Debt to rolling twelve-month Adjusted EBITDA (see the Non-IFRS Financial Measures section on page 31 of this MD&A for further discussion of Adjusted EBITDA) was 3.0x at January 2, 2021 compared to 3.3x at September 26, 2020 and 4.1x at the end of Fiscal 2019. In the absence of any major acquisitions or unplanned capital expenditures in 2021, we expect this ratio will further improve by the end of Fiscal 2021. MD&A28 HIGH LINER FOODS Capital Structure At January 2, 2021, Net Debt was 47.8% of total capitalization compared to 56.3% at December 28, 2019. (Amounts in $000s) Net Debt Shareholders’ equity Unrealized losses on derivative financial instruments included in AOCI Total capitalization Net debt as percentage of total capitalization Using our January 2, 2021 market capitalization of $289.9 million, based on a share price of CAD$11.10 (USD$8.70 equivalent), instead of the book value of equity, Net Debt as a percentage of total capitalization increases slightly to 48.0%. Normal Course Issuer Bid In March 2020, the Company filed a new Normal Course Issuer Bid (“NCIB”) to repurchase up to 200,000 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 March 10, 2020 and will terminate no later than March 9, 2021. During the fifty-three weeks ended January 2, 2021 there were 60,000 shares purchased under this plan. 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 has been approved by the TSX. Dividends In November 2020, the Board approved a quarterly dividend of CAD$0.070 per common share, which represents a 40% increase from the CAD$0.050 per common share paid during the first three quarters of 2020, commencing with the Company’s Q4 2020 quarterly dividend. The increase reflects the Board’s continued confidence in the Company’s operations. These dividends are considered “eligible dividends” for Canadian income tax purposes. January 2, 2021 December 28, 2019 $ 267,968 $ 346,592 291,002 1,289 268,170 396 $ 560,259 $ 615,158 47.8% 56.3% As shown in the following table, the quarterly dividend on the Company’s common shares has changed two times during the last two fiscal years. The quarterly dividends paid in the last two years were as follows: Dividend record date December 1, 2020 September 1, 2020 June 1, 2020 March 1, 2020 December 1, 2019 September 1, 2019 June 1, 2019 March 7, 2019 Quarterly dividend (CAD) $ $ $ $ $ $ $ $ 0.070 0.050 0.050 0.050 0.050 0.050 0.050 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 $142.6 million on January 2, 2021, 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 3.0x on January 2, 2021. NCIBs are subject to an annual limit of $10.0 million under the term loan facility. On February 24, 2021, the Directors approved a quarterly dividend of CAD$0.070 per share on the Company’s common shares payable on March 15, 2021 to holders of record on March 3, 2021. These dividends are “eligible dividends” for Canadian income tax purposes. MD&AAnnual Report 2020 29 Disclosure of Outstanding Share Data On February 24, 2021, 33,350,940 common shares and 1,677,518 options were outstanding. The options are exercisable on a one-for-one basis for common shares of the Company. Cash Flow (Amounts in $000s) Net cash flows provided by (used in) operating activities Net cash flows (used in) provided by financing activities Net cash flows used in investing activities Foreign exchange increase (decrease) on cash Fourteen weeks ended January 2, 2021 Thirteen weeks ended December 28, 2019 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 Change Change $ 22,304 $ (24,092) $ 46,396 $ 102,997 $ 51,606 $ 51,391 (33,209) (2,476) 1,109 4,646 (1,812) (298) (37,855) (63,859) (50,705) (664) 1,407 (8,952) (395) (6,569) (756) (13,154) (2,383) 361 Net change in cash during the period $ (12,272) $ (21,556) $ 9,284 $ 29,791 $ (6,424) $ 36,215 CASH FLOWS FROM OPERATING ACTIVITIES Cash inflows from operating activities were $51.4 million higher in 2020 compared to the same period last year. The increase in cash inflows in 2020 was due to favorable changes in net non-cash working capital and higher cash flows from operations, partially offset by higher income taxes paid. The favorable changes in net non-cash working capital are the result of favorable changes in accounts receivable, inventories and provisions, partially offset by unfavorable changes in accounts payable and accrued liabilities. CASH FLOWS FROM FINANCING ACTIVITIES Cash outflows from financing activities were $13.2 million higher in 2020 compared to the same period last year. The increase in cash outflows in 2020 was due to the repayment of short-term borrowings as discussed previously (see the Liquidity and Capital Resources section beginning on page 26 of this MD&A). This was partially offset by lower long-term debt repayments and a decrease in common share dividends paid. CASH FLOWS FROM INVESTING ACTIVITIES Cash outflows from investing activities were $2.4 million higher in 2020 compared to the same period last year. The increase in cash outflows in 2020 was due to increased capital expenditures. Standardized Free Cash Flow Standardized Free Cash Flow (see the Non-IFRS Financial Measures section on page 34 for further explanation of Standardized Free Cash Flow) for the twelve months ended January 2, 2021 increased by $49.0 million to an inflow of $94.0 million compared to an inflow of $45.0 million for the twelve months ended December 28, 2019. This increase reflects favorable changes in non-cash working capital, partially offset by higher capital expenditures net of investment tax credits during the twelve months ended January 2, 2021 as compared to the twelve months ended December 28, 2019. Net Non-Cash Working Capital (Amounts in $000s) Accounts receivable Inventories Prepaid expenses Accounts payable and accrued liabilities Provisions Net non-cash working capital January 2, 2021 December 28, 2019 Change $ 60,927 $ 85,089 $ (24,162) 250,861 4,176 294,913 4,322 (118,677) (144,819) (3,327) (329) (44,052) (146) 26,142 (2,998) $ 193,960 $ 239,176 $ (45,216) MD&A30 HIGH LINER FOODS 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 decreased by $45.2 million to $194.0 million at January 2, 2021 as compared to $239.2 million at December 28, 2019, primarily reflecting lower accounts receivable, inventories and higher provisions, partially offset by lower accounts payable and accrued liabilities. 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 2021. Capital Expenditures Capital expenditures (including computer software) were $2.5 million and $9.0 million during the fourth quarter and fifty-three weeks ended January 2, 2021, respectively, as compared to capital expenditures of $1.8 million and $6.6 million during the fourth quarter and fifty-two weeks ended December 28, 2019, respectively. Excluding strategic initiatives that may arise, management expects that capital expenditures in 2021 will be approximately $20.0 million and funded by cash generated from operations and short-term borrowings. Other Liquidity Items SHARE-BASED COMPENSATION AWARDS Share-based compensation expense decreased to $5.9 million in 2020 compared to $7.1 million in 2019 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 2020, unit holders exercised Performance Share Units (“PSUs”), Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”) and received cash in the amount of $4.1 million (2019: $0.4 million). The liability for share-based compensation awards at the end of Fiscal 2020 was $9.2 million compared to $7.9 million at the end of Fiscal 2019. 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 2020 was $nil (2019: $nil). DEFINED BENEFIT PENSION PLANS The Company’s defined benefit pension plans can impact the Company’s cash flow requirements and liquidity. In 2020, the defined benefit pension expense for accounting purposes was $1.9 million (2019: $1.3 million) and the annual cash contributions were $0.4 million higher than the 2020 accounting expense (2019: consistent). For 2021, we expect cash contributions to be approximately CAD$1.4 million and the defined benefit pension expense to be approximately CAD$1.2 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 $7.6 million that is secured by a letter of credit in the amount of $9.7 million. Contractual Obligations Contractual obligations relating to our bank loans, long-term debt, lease liabilities, and purchase obligations as at January 2, 2021 were as follows: (Amounts in $000s) Long-term debt Lease liabilities Purchase obligations Payments due by period Total Less than 1 year 1–5 Years Thereafter $ 369,505 $ 37,537 $ 68,058 $ 263,910 17,681 117,994 5,781 92,560 11,474 25,434 426 — Total contractual obligations $ 505,180 $ 135,878 $ 104,966 $ 264,336 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 47 of this MD&A for further details. MD&AAnnual Report 2020 31 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 2020 Consolidated Financial Statements for further discussion of the Company’s financial risks and policies. The Company had no related party transactions, excluding key management personnel compensation, for the fifty- three weeks ended January 2, 2021. During the fifty-two weeks ended December 28, 2019, 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-three weeks ended January 2, 2021 were $nil (fifty-two weeks ended December 28, 2019: $0.3 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 $nil during the fifty- three weeks ended January 2, 2021 (fifty-two weeks ended December 28, 2019: $0.2 million). Related Party Transactions The Company’s business is carried on through the Parent company, High Liner Foods Incorporated, and wholly owned operating subsidiary, High Liner Foods (USA) Incorporated. 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. 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. MD&A32 HIGH LINER FOODS 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 EBITDA 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. Fourteen weeks ended January 2, 2021 Thirteen weeks ended December 28, 2019 $ 7,372 $ (3,019) 6,044 4,671 (884) 17,203 5,678 16,584 (1,589) 17,654 (Amounts in $000s) Net income (loss) Add back (deduct): Depreciation and amortization expense Financing costs Income tax recovery Standardized EBITDA Add back (deduct): Business acquisition, integration and other expenses(1) 968 2,559 (Amounts in $000s) Net income Add back (deduct): Depreciation and amortization expense Financing costs Income tax expense Standardized EBITDA Add back (deduct): Business acquisition, integration and other expenses(1) Impairment of property, plant and equipment Loss on disposal of assets Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 28,802 $ 10,289 23,228 19,483 7,870 79,383 22,455 33,012 4,235 69,991 2,767 7,105 — 34 974 130 7,124 Share-based compensation expense 5,861 Adjusted EBITDA $ 88,045 $ 85,324 (1) See the Business Acquisition, Integration and Other Expense section on page 25 of this MD&A for further explanation of the changes in business acquisition, integration and other expenses for the fifty-three weeks ended January 2, 2021 and fifty-two weeks ended December 28, 2019. As noted earlier in the Performance section starting on page 19, 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 that was associated with the 2017 product recall. Adjusted EBIT Adjusted EBIT is Adjusted EBITDA less depreciation and amortization expense. Management analysis of the business is based on Adjusted EBIT. The following tables reconcile Adjusted EBITDA to Adjusted EBIT. Fourteen weeks ended January 2, 2021 Thirteen weeks ended December 28, 2019 $ 21,185 $ 18,771 (Amounts in $000s) Adjusted EBITDA Less: Impairment of property, plant and equipment Loss on disposal of assets Share-based compensation expense (recovery) — 60 6 61 Depreciation and amortization expense 6,044 5,678 Adjusted EBIT $ 15,141 $ 13,093 2,954 (1,509) Adjusted EBITDA $ 21,185 $ 18,771 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 88,045 $ 85,324 (Amounts in $000s) Adjusted EBITDA Less: Depreciation and amortization expense 23,228 22,455 Adjusted EBIT $ 64,817 $ 62,869 MD&AAnnual Report 2020 33 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. The table below reconciles our Adjusted Net Income with measures that are found in our Consolidated Financial Statements: Net income (loss) Add back (deduct): Business acquisition, integration and other expenses(1) Impairment of property, plant and equipment Share-based compensation expense (recovery) Modification loss on debt refinancing activities 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(1) Impairment of property, plant and equipment Share-based compensation expense Modification loss on debt refinancing activities Tax impact of reconciling items Adjusted Net Income Average shares for the period (000s) Fourteen weeks ended January 2, 2021 Thirteen weeks ended December 28, 2019 $000s Diluted EPS $000s Diluted EPS $ 7,372 $ 0.21 $ (3,019) $ (0.09) 968 — 2,954 — (979) 0.03 — 0.08 — (0.03) 2,559 6 (1,509) 10,969 (3,331) $ 10,315 $ 0.29 $ 5,675 $ 34,375 0.08 — (0.04) 0.32 (0.10) 0.17 33,796 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $000s Diluted EPS $000s Diluted EPS $ 28,802 $ 0.83 $ 10,289 $ 0.30 2,767 — 5,861 — 0.08 — 0.17 — (2,219) (0.06) 7,105 974 7,124 10,969 (7,323) $ 35,211 $ 1.02 $ 29,138 $ 34,519 0.21 0.03 0.21 0.32 (0.21) 0.85 34,195 (1) See the Business Acquisition, Integration and Other Expense section on page 25 of this MD&A for further explanation of the changes in business acquisition, integration and other expenses for the fifty-three weeks ended January 2, 2021 and fifty-two weeks ended December 28, 2019. As noted earlier in the Performance section starting on page 19, Adjusted Net Income 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 that was associated with the 2017 product recall. MD&A34 HIGH LINER FOODS CAD-Equivalent Adjusted Diluted EPS CAD-Equivalent Adjusted Diluted EPS is Adjusted Diluted EPS, as defined on page 33 of this MD&A, 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-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. Adjusted Diluted EPS Average foreign exchange rate for the period CAD-Equivalent Adjusted Diluted EPS 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 (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 Fourteen weeks ended January 2, 2021 Thirteen weeks ended December 28, 2019 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ $ 0.29 $ 0.17 $ 1.02 $ 0.85 1.3045 1.3206 1.3409 1.3273 0.38 $ 0.22 $ 1.37 $ 1.13 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. Twelve months ended January 2, 2021 December 28, 2019 Change $ 42,476 $ (9,144) $ 51,620 60,521 102,997 (8,952) 60,750 51,606 (6,569) (229) 51,391 (2,383) $ 94,045 $ 45,037 $ 49,008 MD&AAnnual Report 2020 35 The table below calculates ROAM using our average net assets, calculated on a rolling thirteen-month basis, and Adjusted EBIT (which is reconciled to IFRS measures on page 32 of this MD&A). (Amounts in $000s) Adjusted EBIT Thirteen-month rolling average net assets managed ROAM Return on Equity January 2, 2021 December 28, 2019 $ 64,817 $ 62,869 652,998 666,522 9.9% 9.4% 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 calculates ROE using our average common equity calculated on a rolling thirteen-month basis, and 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 January 2, 2021 December 28, 2019 $ 35,211 $ 29,137 4,356 30,855 5,196 23,941 278,728 271,663 11.1% 8.8% (1) Net of tax expense of $1.5 million and $1.9 million during the fifty-three weeks ended January 2, 2021 and the fifty-two weeks ended December 28, 2019, respectively Net Debt Net Debt is calculated as the sum of bank loans, long-term debt (excluding deferred finance costs and modification losses) 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. 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 Less: cash Net Debt January 2, 2021 December 28, 2019 $ — $ 37,546 — — 268,048 20,185 5,979 (8,897) 285,315 10,722 4,866 15,588 (32,935) 410 37,956 289,020 14,511 7,073 (10,604) 300,000 7,198 4,582 11,780 (3,144) $ 267,968 $ 346,592 (1) A loss on the modification of debt related to the debt refinancing completed in October 2019 has been excluded from the calculation of Net Debt as it does not represent the expected cash outflows from the term loan facility. 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. MD&A36 HIGH LINER FOODS Governance Our 2020 Management Information Circular, to be filed in connection with our Annual General Meeting of Shareholders on May 18, 2021, 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 January 2, 2021. 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. There has been no change in the Company’s ICFR during 2020 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. MD&AAnnual Report 2020 37 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 January 2, 2021, we adopted the following standards, interpretations and amendments to existing standards that were effective for annual periods beginning on January 1, 2020 and that the Company has adopted on December 29, 2019: Government grants Government grants include assistance by government in the form of transfers of resources to the Company in return for past or future compliance with certain conditions relating to the operating conditions of the entity. Government grants are measured at fair value and are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to them and that the grants will be received. The Company recognizes income-related government grants in the consolidated statements of income as a deduction to the related expenses on a systematic basis over the periods in which the related expenses are recognized. The Company recognizes asset-related government grants as a reduction to the carrying amount of the asset in the consolidated statements of financial position. 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. 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&A38 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 Interest Rate Benchmark Reform which included amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement and IFRS 7, Financial Instruments: Disclosures, and concludes phase one of its work to respond to the effects of the Interbank Offered Rates (“IBOR”) reform on financial reporting. The amendments focus on the period before the replacement of an existing interest rate benchmark with an alternative nearly risk-free rate (“RFR”) and provide temporary reliefs which enable hedge accounting to continue during that period of uncertainty. 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 Company holds interest rate swaps (see Note 25 to the Consolidated Financial Statements) to hedge the interest rate risk resulting from the term loan facility (see Note 14 to the Consolidated Financial Statements). The term loan facility has an applicable interest rate for loans under the facility of LIBOR plus 4.25% (1.00% LIBOR floor). The Company is actively managing the process to transition existing contracts using LIBOR to an alternative RFR and to ensure that upon transition, hedge effectiveness will be maintained. The Company has not applied significant judgement in applying these amendments as the impact of the IBOR reform on the Company’s hedge accounting is assessed as low. The Company has assessed interest rate swaps with a maturity date subsequent to December 31, 2021 as being directly impacted by the IBOR reform and therefore subject to the amendments. As at January 2, 2021 there is one interest rate swap contract with a maturity date subsequent to December 31, 2021. The terms of this contract are disclosed in Note 25 to the Consolidated Financial Statements. The amendments also introduce specific disclosure requirements for hedging relationships to which the reliefs are applied. The Company has adopted the amendments to IFRS 9, IAS 39 and IFRS 7 on a retrospective basis, which had no impact on the 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 has adopted the amendments to IAS 1 on a prospective basis, which had no impact on the Consolidated Financial Statements. 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. 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. MD&AIAS 37, Provisions, Contingent Liabilities and Contingent Assets In May 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a ‘direct related cost approach’. The costs that relate directly to a contract to provide goods or services include both incremental costs (e.g., the costs of direct labour and materials) and an allocation of costs directly related to contract activities (e.g., depreciation of equipment used to fulfill the contract as well as costs of contract management and supervision). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual periods beginning on or after January 1, 2022 and must be applied prospectively to contracts for which an entity has not yet fulfilled all of its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). Earlier application is permitted and must be disclosed. The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements and will apply the amendments 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 On August 27, 2020, the IASB issued Interest Rate Benchmark Reform – Phase 2 which includes amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement, IFRS 7, Financial Instruments: Disclosures, IFRS 4, Insurance Contracts, and IFRS 16, Leases, and concludes phase two of its work to respond to the effects of IBOR reform on financial reporting. The amendments address the issues that affect financial reporting at the time that an existing interest rate benchmark is replaced with an RFR. The amendments are effective for annual periods beginning on or after January 1, 2021 and must be applied retrospectively, with early adoption permitted. The Company is currently evaluating the impact of these amendments on the Consolidated Financial Statements and will apply the amendments from the effective date. Annual Report 2020 39 IFRS 16, Leases On May 28, 2020, the IASB issued an amendment to IFRS 16, Leases intended to provide practical relief to lessees in accounting for rent concessions arising as a result of the COVID-19 pandemic. The amendments to IFRS 16 for COVID-19 related rent concessions are to: • Provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification; • Require lessees that apply the exemption to account for COVID-19 related rent concessions as if they were not lease modifications; • Require lessees that apply the exemption to disclose the fact; and • Require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require restatement of prior periods. The amendment is effective annual periods beginning on or after June 1, 2020 with early application permitted. The Company is currently evaluating the impact of these amendments on the Consolidated Financial Statements and will apply the amendments from the effective date. IAS 16, Property, Plant and Equipment The IASB issued amendments to IAS 16, Property, Plant and Equipment to prohibit entities from deducting the proceeds of the sale of items of property, plant and equipment produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management from the cost of an item. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendments are effective for annual reporting periods beginning on or after January 1, 2020 and must be applied retrospectively only to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The Company is currently evaluating the impact of these amendments on the Consolidated Financial Statements and will apply the amendments from the effective date. MD&A40 HIGH LINER FOODS 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. COVID-19 Pandemic In March 2020, the COVID-19 outbreak was recognized as a pandemic by the WHO. COVID-19 has continued to spread globally, including in the markets in which the Company operates, and is having a significant impact on general economic conditions on a global scale. In response to the WHO declaration and continuing spread of COVID-19, several social distancing measures have been, and may continue to be, taken by the Company and third parties including governments, regulatory authorities, businesses and the Company’s customers, that could negatively impact the Company’s operations and financial results in future periods. The COVID-19 pandemic has resulted in governmental authorities implementing various measures including, but not limited to: travel bans and restrictions; social distancing measures; quarantines; increased border and port controls and closures and shutdowns. There is significant uncertainty regarding these measures and potential future measures, all of which could reduce customer demand, and/or impact the Company’s ability to meet customer demand. The full extent and impact of the COVID-19 pandemic on the Company’s operations is unknown. Potential material adverse impacts of the COVID-19 pandemic include, but are not limited to: • An increased risk of supply chain disruption, including suspension of plant operations, as a result of positive COVID-19 tests or government orders or other externally imposed restrictions on suppliers, third-party seafood processing facilities, or at the Company’s facilities; • An increased risk of availability and price volatility of seafood and non-seafood goods used in the Company’s production of seafood products; • An increased risk of a material reduction in demand for the Company’s products, particularly related to the Company’s foodservice business that has been impacted by social distancing regulations; • An increase in geopolitical risk related to governmental and market responses to COVID-19, including the impacts on operations of social distancing regulations, fluctuating currency exchange rates, and volatile market conditions; • An increase in risk related to employment matters and the Company’s workforce including, but not limited to, increased employee absences related to the COVID-19 pandemic and temporary or permanent layoffs as a result of reduction in product demand; • An increase in credit risk due to impact of COVID-19 on the liquidity of the Company’s customers; • An increase in liquidity risk for the Company associated with any negative impact of COVID-19 on cash flows from operations due to declines in sales volume; and, • An increased risk related to the Company’s financial estimates and judgments that rely on microeconomic and/ or macroeconomic factors due to the uncertain impact of COVID-19 on various inputs (see Note 5 “COVID-19 pandemic” to the Consolidated Financial Statements). During the fifty-three weeks ended January 2, 2021, the Company has experienced no material impact associated with the above risks, with the exception of the reduced demand for products in the foodservice business, which has been partially offset by increased demand in the Company’s retail business. The current economic, operating and capital market environment has led to an increased emphasis on liquidity and capital management. Management remains focused on ensuring sufficient liquidity exists, and through the Company’s strengthened balance sheet, the Company has significant excess liquidity at January 2, 2021. However, due to the uncertainty surrounding the duration and potential outcomes of the COVID-19 pandemic, including the results of measures taken to slow the spread and the broader impact COVID-19 may have on the North American and global economies or financial markets, we are unable at this time to accurately predict the overall impact on our operations, liquidity, financial condition, or results. Any future epidemic, pandemic, or other public health crisis that occurs in the future may pose similar risks to the Company. MD&AAnnual Report 2020 41 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. 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 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 verification by the Company’s food safety and quality professionals. 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. 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. 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. MD&A42 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 2020, the Company purchased approximately 184 million pounds of seafood, with an approximate value of $471.7 million. Seafood markets are global with values expressed in USD. In 2020, 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, can affect demand as well. Raw material costs in Canada are affected by the Canadian and U.S. dollar exchange rates. A strong Canadian dollar can offset 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. MD&AAnnual Report 2020 43 Seafood Production from Asia Customer Consolidation Many seafood companies, including High Liner Foods, divert 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 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 pandemic continues and results in a prolonged period of travel, commercial, and other similar restrictions, High Liner Foods could experience global supply disruptions, increasing freight costs or shipping container shortages. 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 2020 and 2019, the Company has managed this risk through contracts with suppliers. Crude oil prices, which influence fuel surcharges from freight suppliers, remained consistent during 2020 compared to 2019. World commodity prices for flour, soy and canola oils, imported ingredients in many of the Company’s products, increased throughout 2020 compared to 2019. The price of corrugated and folded carton, which is used in packaging, remained consistent in 2020. The Company currently has fixed price contracts with suppliers relating to our 2021 commodity purchase requirements and any additional amounts will be negotiated and fixed as necessary. 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 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. MD&A44 HIGH LINER FOODS 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. China are ongoing, which may impact the timing and amount of recoveries related to these exclusions and may have a material, adverse effect on results of operations, financial condition and cash flows of the Company. During August 2020, the Company received notice of approval of an exclusion extension request submitted to the USTR regarding tariffs on certain goods imported to the U.S. from China. The extension applied to tariffs that would otherwise have been incurred on specific goods from August 8, 2020 to December 31, 2020. The tariffs have since been reinstated following the expiry of the exclusion on December 31, 2020. 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 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 future recoveries. Trade discussions between the USTR and 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. MD&AAnnual Report 2020 45 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 2016, 2017, 2018 and 2019 that disclose many of the improvement efforts underway. 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. The Board of Directors and management believe that high employee, environmental, social and governance (“EESG”) standards go hand in hand with operating a profitable business and aligns with conscientious Shareholders. The Governance Committee oversees the Company’s environmental, social and governance framework and oversees management’s integration of EESG into the overall governance structure, strategy and risk management of High Liner Foods. The Board takes the safety of the Company’s employees very seriously and the Human Resources Committee reviews the health and safety performance of the Company on a quarterly basis. 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 higher margin products; • Eliminating under-performing products to maximize our portfolio; • Expanding into new markets and higher 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 develop 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. MD&A46 HIGH LINER FOODS Acquisition and Integration Risk Employment Matters The Company and its subsidiaries have approximately 1,100 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 the Company insures its accounts receivable risk, impairment losses related to receivables have historically been insignificant. As of the date of filing 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. 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 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. MD&AAnnual Report 2020 47 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. 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. 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. A weakening CAD increases the cost of these inputs in the Canadian operation’s domestic currency and 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. 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 $50.0-75.0 million of the USD purchases of the Parent are part of the hedging program annually and are usually hedged between 40-75% of the next twelve months of forecasted purchases. We are currently forecasting purchases of $61.7 million to be hedged in 2021 and of this amount, 62.0% was hedged as of January 2, 2021. Details on the hedges in place as at January 2, 2021 are included in Note 25 “Fair value measurement” to the Consolidated Financial Statements. MD&A48 HIGH LINER FOODS Liquidity Risk Pension Plan Assets and Liabilities 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 January 2, 2021, less than 9% 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 January 2, 2021 and at the date of this document, we are in compliance with all covenants and terms of our banking facilities. 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. 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 2019 and showed: a combined going concern deficit of CAD$6.2 million; one plan had a solvency deficit of CAD$0.7 million; and the other plan had a solvency deficit of CAD$1.3 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. MD&AAnnual Report 2020 49 Specific forward-looking statements in this document include, but are not limited to: statements with respect to: potential impact of the 2019 coronavirus pandemic on the Company’s operations and performance; 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; 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; 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; the 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; the amount and timing of the capital expenditures in excess of normal requirements to allow the movement of production between plants; and expectations regarding the potential future impact of the 2019 coronavirus pandemic on operations, customer and consumer behavior and economic patterns. 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. 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 the 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; the ability to attract and retain customers; 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. MD&A50 HIGH LINER FOODS 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 U.S Trade Representative’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 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; adverse weather conditions and natural disasters; the availability of adequate levels of insurance; management retention and development; and the potential impact of a pandemic outbreak of a contagious illness, such as the 2019 coronavirus/COVID-19 pandemic, on general economic and business conditions and therefore the Company’s operations and financial performance. 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&AAnnual Report 2020 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 three 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 24, 2021 (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 January 2, 2021 and December 28, 2019, 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-three weeks and fifty-two weeks then ended, respectively, 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 January 2, 2021 and December 28, 2019, and its consolidated financial performance and its consolidated cash flows for the fifty-three weeks and fifty-two weeks then ended, respectively, 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. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to the matter. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Independent Auditor’s Report Annual Report 2020 53 Key audit matter Impairment of goodwill and indefinite useful life intangible assets As at January 02, 2021, the Company has $172 million of goodwill and indefinite useful life intangible assets. Goodwill and indefinite useful life intangible assets are subject to an annual assessment for impairment at the cash generating unit (“CGU”) level. The recoverable amount of the CGU has been determined based on the fair value less costs of disposal (FVLCD), determined using an income approach, by applying a discounted cash flow methodology. The Company discloses significant judgments, estimates and assumptions and the result of their analysis in respect of impairment in Note 10 to the consolidated financial statements. Auditing management’s annual goodwill and indefinite useful life intangible assets impairment test was complex, given the degree of judgment and subjectivity in evaluating management’s estimates and assumptions in determining the recoverable amount of the CGU. The recoverable amount estimate is sensitive to significant assumptions, including the cash flow projections, the after-tax discount rate, the growth rate and costs to sell, which are affected by expectations about future market and economic conditions. How our audit addressed the key audit matter To test the estimated recoverable amount of the CGU, our audit procedures included, among others, assessing methodologies and the significant assumptions discussed above and underlying data used by the Company in its analysis. With the assistance of our valuation specialists, we evaluated the Company’s model, valuation methodology, and certain significant assumptions, including the after-tax discount rate, and the terminal growth rate. In addition, we assessed the historical accuracy of management’s estimates on cash flow projections by comparing management’s past projections to actual and historical performance. We also compared the costs to sell, sales growth rate and operating margins to current industry, market and economic trends in addition to comparing forecasts to approved business plans. We performed sensitivity analyses on significant assumptions, including the after-tax discount rate and the growth rate, to evaluate changes in the recoverable amount of the CGU that would result from changes in the assumptions. We also assessed the adequacy of the Company’s disclosures included in Note 10 to the accompanying consolidated financial statements in relation to this matter. 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. 54 HIGH LINER FOODS Independent Auditor’s Report 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. 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. Independent Auditor’s Report Annual Report 2020 55 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Sonya Fraser. Chartered Professional Accountants Halifax, Canada February 24, 2021 56 HIGH LINER FOODS 56 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 finance costs 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 January 2, 2021 December 28, 2019 6 25 7 8 9 11 18 25 10 10 $ 32,935 60,927 2,609 211 250,861 4,176 351,719 107,221 15,018 287 2,401 47 142,168 157,697 424,839 $ 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 11, 14 $ 776,558 $ 820,494 11 12 19 13 25 17 14 9 14 25 17 9 18 15 16 $ — $ 37,546 114,326 4,351 3,327 2,735 2,731 41 20,185 4,866 152,562 141,238 3,581 329 861 4,881 2,102 14,511 4,582 209,631 268,048 289,020 329 6,510 10,722 31,071 16,314 332,994 485,556 112,739 16,551 183,649 (21,937) 291,002 292 3,031 7,198 30,182 12,970 342,693 552,324 112,887 16,028 162,773 (23,518) 268,170 $ 776,558 $ 820,494 Notes to the Consolidated Financial StatementsConsolidated Statements of Income Annual Report 2020 57 Annual Report 2020 57 (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 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-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 827,453 $ 942,224 Notes 24 649,529 177,924 45,076 73,736 — 2,957 56,155 19,483 36,672 6,535 1,335 7,870 756,364 185,860 45,759 90,019 974 1,572 47,536 33,012 14,524 3,356 879 4,235 $ 28,802 $ 10,289 $ $ 0.85 0.83 $ $ 0.31 0.30 33,853,881 34,519,305 33,801,217 34,195,365 8 28 18 18 18 20 20 20 20 Notes to the Consolidated Financial Statements58 HIGH LINER FOODS 58 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 on hedge of net investment in foreign operations Loss 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 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 on cash flow hedges Net other comprehensive gain to be reclassified to net income Other comprehensive loss to not be reclassified to net income Defined benefit plan actuarial losses Other comprehensive (loss) income, net of income tax Total comprehensive income Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 28,802 $ 10,289 6,867 (10,245) 6,373 (521) 2,474 (1,246) (506) 631 228 (893) 1,581 (2,267) (686) 13,644 (16,548) 8,735 (976) 4,855 (1,818) (698) (486) 391 (2,611) 2,244 (1,469) 775 $ 28,116 $ 11,064 Consolidated Statements of Accumulated Other Comprehensive Loss (in thousands of United States dollars) Balance at December 28, 2019 Total exchange gains on translation of foreign operations and Canadian dollar denominated items Total exchange losses on cash flow hedges Balance at January 2, 2021 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 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 $ (23,122) $ (396) $ (23,518) $ $ 2,474 — (20,648) (27,977) 4,855 — $ $ — (893) (1,289) 2,215 — (2,611) $ $ 2,474 (893) (21,937) (25,762) 4,855 (2,611) $ (23,122) $ (396) $ (23,518) Notes to the Consolidated Financial StatementsAnnual Report 2020 59 Annual Report 2020 59 Consolidated Statements of Changes in Shareholders’ Equity (in thousands of United States dollars) Balance at December 28, 2019 Other comprehensive loss Net income Common share dividends Share-based compensation Common shares repurchased for cancellation (Note 16) Balance at January 2, 2021 Balance at December 29, 2018 Other comprehensive income Net income Common share dividends Share-based compensation Balance at December 28, 2019 See accompanying notes to the Consolidated Financial Statements Common shares Contributed surplus Retained earnings Accumulated other comprehensive loss Total $ 112,887 $ 16,028 $ 162,773 $ (23,518) $ 268,170 — — — — (148) 112,739 112,887 $ $ — — — 523 — $ $ 16,551 15,357 $ $ — — — — — — — 671 (2,267) 28,802 (5,518) — (141) 183,649 161,377 (1,469) 10,289 (7,424) — 1,581 — — — — $ $ (21,937) (25,762) 2,244 $ $ — — — (686) 28,802 (5,518) 523 (289) 291,002 263,859 775 10,289 (7,424) 671 $ 112,887 $ 16,028 $ 162,773 $ (23,518) $ 268,170 Notes to the Consolidated Financial Statements60 HIGH LINER FOODS 60 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 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 (paid) refunded Net cash flows provided by operating activities Financing activities (Decrease) increase in bank loans Repayment of lease liabilities Repayment of long-term debt Deferred finance costs Common share dividends paid Common shares repurchased for cancellation Net cash flows used in financing activities Investing activities Purchase of property, plant and equipment, net of investment tax credits, and intangible 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-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 Notes $ 28,802 $ 10,289 28 17 8 28 18 21 21 14 21 23,228 5,861 135 363 19,483 7,870 1,234 86,976 24,325 45,871 256 (30,970) 2,994 42,476 (19,271) (7,184) 102,997 (37,745) (5,568) (14,685) (54) (5,518) (289) (63,859) (8,952) (8,952) (395) 29,791 3,144 $ 32,935 $ 22,455 7,124 1,292 (25) 33,012 4,235 1,020 79,402 212 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 Notes to the Consolidated Financial StatementsAnnual Report 2020 61 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-three weeks ended January 2, 2021, 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 24, 2021. 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 January 2, 2021. 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”). 62 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 StatementsAnnual Report 2020 63 (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 5–10 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 Statements64 HIGH LINER FOODS (h) Right-of-use assets and lease liabilities 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 cash-generating unit (“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 StatementsAnnual Report 2020 65 (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 Statements66 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 have 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 StatementsAnnual Report 2020 67 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. (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 Statements68 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 assets 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 StatementsAnnual Report 2020 69 FINANCIAL 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 Statements70 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 StatementsAnnual Report 2020 71 • 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 adopted the following standards, interpretations and amendments to existing standards that were effective for annual periods beginning on January 1, 2020 and that the Company has adopted on December 29, 2019: GOVERNMENT GRANTS Government grants include assistance by government in the form of transfers of resources to the Company in return for past or future compliance with certain conditions relating to the operating conditions of the entity. Government grants are measured at fair value and are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to them and that the grants will be received. The Company recognizes income-related government grants in the consolidated statements of income as a deduction to the related expenses on a systematic basis over the periods in which the related expenses are recognized. The Company recognizes asset-related government grants as a reduction to the carrying amount of the asset in the consolidated statements of financial position. 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 has adopted the amendments to IFRS 3 on a prospective basis, which had no impact on the Consolidated Financial Statements. 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 Interest Rate Benchmark Reform which included amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement and IFRS 7, Financial Instruments: Disclosures, and concludes phase one of its work to respond to the effects of the Interbank Offered Rates (“IBOR”) reform on financial reporting. The amendments focus on the period before the replacement of an existing interest rate benchmark with an alternative nearly risk-free rate (“RFR”) and provide temporary reliefs which enable hedge accounting to continue during that period of uncertainty. 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. Notes to the Consolidated Financial Statements72 HIGH LINER FOODS The Company holds interest rate swaps (see Note 25) to hedge the interest rate risk resulting from the term loan facility (see Note 14). The term loan facility has an applicable interest rate for loans under the facility of LIBOR plus 4.25% (1.00% LIBOR floor). The Company is actively managing the process to transition existing contracts using LIBOR to an alternative RFR and to ensure that upon transition, hedge effectiveness will be maintained. The Company has not applied significant judgement in applying these amendments as the impact of the IBOR reform on the Company’s hedge accounting is assessed as low. The Company has assessed interest rate swaps with a maturity date subsequent to December 31, 2021 as being directly impacted by the IBOR reform and therefore subject to the amendments. As at January 2, 2021 there is one interest rate swap contract with a maturity date subsequent to December 31, 2021. The terms of this contract are disclosed in Note 25. The amendments also introduce specific disclosure requirements for hedging relationships to which the reliefs are applied. The Company has adopted the amendments to IFRS 9, IAS 39 and IFRS 7 on a retrospective basis, which had no impact on the 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 has adopted the amendments to IAS 1 on a prospective basis, which had no impact on the Consolidated Financial Statements. (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. 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, 2023 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. IAS 37, PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS In May 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a ‘direct related cost approach’. The costs that relate directly to a contract to provide goods or services include both incremental costs (e.g., the costs of direct labour and materials) and an allocation of costs directly related to contract activities (e.g., depreciation of equipment used to fulfill the contract as well as costs of contract management and supervision). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual periods beginning on or after January 1, 2022 and must be applied prospectively to contracts for which an entity has not yet fulfilled all of its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). Earlier application is permitted and must be disclosed. The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements and will apply the amendments from the effective date. Notes to the Consolidated Financial StatementsAnnual Report 2020 73 IFRS 9, FINANCIAL INSTRUMENTS, IAS 39, FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT AND IFRS 7, FINANCIAL INSTRUMENTS: DISCLOSURES, INTEREST RATE BENCHMARK REFORM On August 27, 2020, the IASB issued Interest Rate Benchmark Reform – Phase 2 which includes amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement, IFRS 7, Financial Instruments: Disclosures, IFRS 4, Insurance Contracts, and IFRS 16, Leases, and concludes phase two of its work to respond to the effects of IBOR reform on financial reporting. The amendments address the issues that affect financial reporting at the time that an existing interest rate benchmark is replaced with an RFR. The amendments are effective for annual periods beginning on or after January 1, 2021 and must be applied retrospectively, with early adoption permitted. The Company is currently evaluating the impact of these amendments on the Consolidated Financial Statements and will apply the amendments from the effective date. IFRS 16, LEASES On May 28, 2020, the IASB issued an amendment to IFRS 16, Leases intended to provide practical relief to lessees in accounting for rent concessions arising as a result of the COVID-19 pandemic. The amendments to IFRS 16 for COVID-19 related rent concessions are to: • Provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification; • Require lessees that apply the exemption to account for COVID-19 related rent concessions as if they were not lease modifications; • Require lessees that apply the exemption to disclose the fact; and • Require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require restatement of prior periods. The amendment is effective annual periods beginning on or after June 1, 2020 with early application permitted. The Company is currently evaluating the impact of these amendments on the Consolidated Financial Statements and will apply the amendments from the effective date. IAS 16, PROPERTY, PLANT AND EQUIPMENT The IASB issued amendments to IAS 16, Property, Plant and Equipment to prohibit entities from deducting the proceeds of the sale of items of property, plant and equipment produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management from the cost of an item. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendments are effective for annual reporting periods beginning on or after January 1, 2022 and must be applied retrospectively only to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The Company is currently evaluating the impact of these amendments on the 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. Notes to the Consolidated Financial Statements74 HIGH LINER FOODS 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. 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. Notes to the Consolidated Financial StatementsAnnual Report 2020 75 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. COVID-19 pandemic In March 2020, the 2019 coronavirus disease outbreak (“COVID-19”) was recognized as a pandemic by the World Health Organization (“WHO”). COVID-19 has continued to spread globally, including in the markets in which the Company operates, and is having a significant impact on general economic conditions on a global scale. In response to the WHO declaration and continuing spread of COVID-19, several social distancing measures have been taken by the Company and third parties including governments, regulatory authorities, businesses and the Company’s customers, that have impacted financial results during the fifty-three weeks ended January 2, 2021 and could impact future financial results. The preparation of the Company’s Consolidated Financial Statements requires management to make critical judgements, estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. The potential impacts on the Company’s most significant estimates and judgements of COVID-19 include, but are not limited to, increased risk of potential impairment charges to the carrying amounts of goodwill, indefinite-lived intangible assets and long-lived assets; and, increased volatility in fair value measurements and future employee benefits, as a result of fluctuating market inputs. Other potential impacts of COVID-19 on the Company’s financial position include, but are not limited to, increased concentration risk, particularly related to the Company’s foodservice business; increased liquidity risk associated with the anticipated impacts on cash flows from operations of expected declines in sales volumes; increased credit risk resulting in increased expected credit losses on trade accounts receivable; increased risk of write-downs of inventories to net realizable value; and, increased product return liabilities associated with revenue from contracts with customers. During the fifty-three weeks ended January 2, 2021, the Company participated in the Canada Emergency Wage Subsidy government grant program, which in general provides wage subsidies to eligible employers as a means of limiting job losses in Canada. During the fifty-three weeks ended January 2, 2021, the Company recognized $3.4 million in income-related wage subsidies as a reduction of salaries and benefits expense recognized in cost of sales, distribution expenses and selling, general and administrative expenses in the consolidated statements of income. The Company also participated in a cost recovery government support program resulting in $0.3 million recognized as a reduction in cost of sales and distribution expenses. The Company does not have any unfulfilled conditions or material contingencies related to the government assistance received. Actual future results may differ materially from the Company’s current estimates as the scope of COVID-19 evolves or if the duration of business disruption is longer than currently anticipated. Notes to the Consolidated Financial Statements76 HIGH LINER FOODS 6. Accounts receivable (Amounts in $000s) Trade accounts receivable Other accounts receivable January 2, 2021 December 28, 2019 $ $ 59,401 1,526 60,927 $ $ 84,229 860 85,089 Accounts receivable bear normal trade credit terms and are non-interest bearing. Trade accounts receivable includes revenue from contracts with customers. The entire trade accounts receivable balance is pledged as collateral for the Company’s working capital facility (see Note 11). The following is a reconciliation of the changes in the allowance for expected credit losses of receivables: (Amounts in $000s) At December 29, 2018 New provision for expected credit losses(1) Provision utilized Unused provision for expected credit losses reversed At December 28, 2019 New provision for expected credit losses(1) Provision utilized Unused provision for expected credit losses reversed At January 2, 2021 $ $ $ 714 416 (1,015) (20) 95 673 — (509) 259 (1) For the fifty-three weeks ended January 2, 2021, the Company recognized $0.7 million of impairment losses (fifty-two weeks ended December 28, 2019: $0.4 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 28, 2019 At January 2, 2021 0–30 days 31–60 days Over 60 days 87% 87% 11% 12% 2% 1% 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 January 2, 2021 December 28, 2019 $ 160,126 $ 203,843 90,735 91,070 $ 250,861 $ 294,913 During the fifty-three weeks ended January 2, 2021, $649.5 million (December 28, 2019: $756.4 million) was recognized as an expense for inventories in cost of sales on the consolidated statements of income. Of this, $8.9 million (December 28, 2019: $9.4 million) was written-down during the year and a reversal for unused impairment reserves of $1.3 million (December 28, 2019: $0.5 million) was recorded. As of January 2, 2021, the value of inventory pledged as collateral for the Company’s working capital facility (see Note 11) was $209.3 million (December 28, 2019: $191.0 million). Notes to the Consolidated Financial Statements8. Property, plant and equipment (Amounts in $000s) Cost At December 29, 2018 Additions Transfers(1) Disposals Effect of exchange rates At December 28, 2019 Additions Transfers Disposals Effect of exchange rates At January 2, 2021 Accumulated depreciation and impairment At December 29, 2018 Depreciation and impairment Transfers(1) Disposals Effect of exchange rates At December 28, 2019 Depreciation and impairment Transfers Disposals Effect of exchange rates At January 2, 2021 Net carrying value At December 28, 2019 At January 2, 2021 Annual Report 2020 77 Furniture, fixtures, and production equipment Computer equipment and vehicles(1) Land and buildings Total $ 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 2,299 76 (415) 330 6,105 (148) (3,728) 734 377 72 (2,763) 208 8,781 — (6,906) 1,272 $ 82,701 $ 101,120 $ 13,794 $ 197,615 $ (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) (2,901) (13) 1,169 (228) (6,630) 13 2,616 (400) (1,104) (10,635) — 2,746 (180) — 6,531 (808) $ (31,010) $ (49,329) $ (10,055) $ (90,394) $ $ 51,374 51,691 $ $ 53,229 51,791 $ $ 4,383 3,739 $ $ 108,986 107,221 (1) The Company 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 $nil (December 28, 2019: $1.0 million) was recorded during the fifty-three weeks ended January 2, 2021 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 Statements78 HIGH LINER FOODS 9. Right-of-use assets and lease liabilities Right-of-use assets (Amounts in $000s) Cost At December 29, 2018 Additions Transfers Disposals Effect of exchange rates At December 28, 2019 Additions Disposals Effect of exchange rates At January 2, 2021 Accumulated depreciation At December 29, 2018 Depreciation Transfers Disposals Effect of exchange rates At December 28, 2019 Depreciation Disposals Effect of exchange rates At January 2, 2021 Net carrying value At December 28, 2019 At January 2, 2021 Land and buildings Plant and machinery Computer equipment and vehicles(1) $ 13,686 $ 110 69 (12) 94 $ 13,947 $ 4,190 (1,143) 61 $ $ 250 268 — (92) — 426 105 (115) — 634 419 1,908 (501) 77 2,537 1,284 (569) 47 Total $ 14,570 797 1,977 (605) 171 $ 16,910 5,579 (1,827) 108 $ 17,055 $ 416 $ 3,299 $ 20,770 $ — $ — $ — $ — (4,005) (128) (8) 12 — — 13 — (561) (746) 352 (47) (4,694) (754) 377 (47) $ (4,001) $ (115) $ (1,002) $ (5,118) (4,147) 3,945 (45) (216) 89 — (634) 394 (20) (4,997) 4,428 (65) $ (4,248) $ (242) $ (1,262) $ (5,752) $ $ 9,946 12,807 $ $ 311 174 $ $ 1,535 2,037 $ $ 11,792 15,018 (1) The Company 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) Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 Variable lease payments not included in the measurement of the lease liabilities $ 543 $ Depreciation expense on right-of-use assets Interest expense on lease liabilities Total amounts recognized in the consolidated statements of income 4,997 1,192 $ 6,732 $ 539 4,694 1,447 6,680 Notes to the Consolidated Financial StatementsLease liabilities (Amounts in $000s) Lease liabilities Annual Report 2020 79 Total Less than 1 year 1–5 years Thereafter $ 17,681 $ 5,781 $ 11,474 $ 426 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. 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. (Amounts in $000s) Cost At December 29, 2018 Additions Effect of exchange rates At December 28, 2019 Additions Effect of exchange rates At January 2, 2021 Accumulated amortization At December 29, 2018 Amortization Effect of exchange rates At December 28, 2019 Amortization Effect of exchange rates At January 2, 2021 Net carrying value At December 28, 2019 At January 2, 2021 Intangible assets Customer and supplier relationships Indefinite lived brands Computer software Total intangible assets Brands Goodwill Total goodwill and intangible assets $ 6,899 $ 164,732 $ 14,001 $ 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 — 11 — 27 — 11 557 383 557 432 — 240 557 672 $ 6,928 $ 164,803 $ 14,030 $ 16,445 $ 202,206 $ 157,697 $ 359,903 $ (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) — (11) (6,452) (46) — — (1,144) (7,596) (61) (118) — — (7,596) (118) $ (6,928) $ (50,276) $ — $ (2,834) $ (60,038) $ — $ (60,038) $ $ — $ 120,998 $ 14,019 $ 13,876 $ 148,893 $ 157,457 $ 306,350 — $ 114,527 $ 14,030 $ 13,611 $ 142,168 $ 157,697 $ 299,865 Notes to the Consolidated Financial Statements80 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 27, 2020, resulting in $nil impairment in the North American CGU (September 29, 2019: $nil). The key assumptions used to determine the recoverable amount for the CGU for the most recently completed impairment calculation for Fiscal 2020 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 27, 2020, 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 9.6% at September 27, 2020. 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 27, 2020. Notes to the Consolidated Financial StatementsAnnual Report 2020 81 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) January 2, 2021 December 28, 2019 Bank loans, denominated in CAD (average variable rate of 2.45%; December 28, 2019: 3.95%) $ — $ 815 Bank loans, denominated in USD (average variable rate of 3.5%; December 28, 2019: 3.65%) Less: deferred finance costs(1) — — — 37,141 37,956 (410) $ — $ 37,546 (1) Total deferred finance costs as at January 2, 2021 were $0.3 million and have been classified as non-current assets on the consolidated statements of financial position. The Company has a $150.0 million working capital facility (the “Facility”), with the Royal Bank of Canada as Administrative Agent, which expires in April 2023. 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 January 2, 2021, the Company had $132.2 million of undrawn borrowing facility (December 28, 2019: $99.4 million). As at January 2, 2021 and December 28, 2019, 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% January 2, 2021 December 28, 2019 $ 98,918 $ 122,499 15,408 18,739 $ 114,326 $ 141,238 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 Statements82 HIGH LINER FOODS 13. Provisions (Amounts in $000s) At December 28, 2019 New provisions added Provisions utilized At January 2, 2021 January 2, 2021 329 3,448 (450) 3,327 $ $ The Company’s provision amounts are usually settled within eleven months from initiation and 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 January 2, 2021. The Company is not eligible for any reimbursement by third parties for these amounts. 14. Long-term debt (Amounts in $000s) Term loan Less: current portion Less: deferred finance costs January 2, 2021 December 28, 2019 $ 294,212 $ 310,604 (20,185) 274,027 (5,979) (14,511) 296,093 (7,073) $ 268,048 $ 289,020 As at January 2, 2021, the Company had a $300.0 million term facility with an interest rate of LIBOR plus 4.25% (1.00% LIBOR floor), maturing in October 2026. As a part of the amendments to the term loan facility completed in October 2019, a modification loss of $11.0 million increased the carrying value of the term loan facility and was recorded in finance costs on the consolidated statements of income during the fifty-two weeks ended December 28, 2019 due to the net present value of the cash flows of the modified debt exceeding the carrying value of the original facility before amendments. Excluding the impact of the modification loss on the carrying value, the principal balance outstanding of term loan facility was $285.3 million at January 2, 2021. Quarterly principal repayments of $1.9 million are required on the term loan as regularly scheduled repayments. During the fifty- three weeks ended January 2, 2021, a regularly scheduled repayment of $1.9 million was made and a mandatory prepayment of $12.8 million was made due to excess cash flows in 2019. Any mandatory and voluntary repayments are applied to future regularly scheduled repayments, and as such, no additional regularly scheduled principal repayments were required for 2020. As at January 2, 2021, the Company had a mandatory prepayment of $20.2 million due in 2021 related to excess cash flows in 2020. The Company does not expect to make any regularly scheduled principal repayments in 2021 due to the excess cash flow prepayment. Substantially all tangible and intangible assets (excluding working capital) of the Company are pledged as collateral for the term loan facility. Notes to the Consolidated Financial StatementsAnnual Report 2020 83 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 harbor 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 $1.8 million for the year ended January 2, 2021 (December 28, 2019: $1.9 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 January 2, 2021, three persons were enrolled as active members in the Management Plan, 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. 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. 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. Notes to the Consolidated Financial Statements84 HIGH LINER FOODS 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 January 2, 2021 December 28, 2019 $ $ 47,685 $ 42,345 31,211 29,375 16,474 $ 12,970 (1) The Company has a letter of credit outstanding as at January 2, 2021 relating to the securitization of the Company’s unfunded benefit plans under the SERP in the amount of $9.7 million (December 28, 2019: $9.5 million). (2) As at January 2, 2021, $0.9 million (December 28, 2019: $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 January 2, 2021 December 28, 2019 $ 42,345 $ 36,903 (2,673) (2,943) 1,051 925 1,361 42 — 488 4,146 1,599 775 1,457 52 50 — 4,452 $ 47,685 $ 42,345 January 2, 2021 December 28, 2019 $ 29,375 $ 26,118 42 1,246 (2,542) 737 52 1,194 (2,788) 1,100 28,858 $ 25,676 925 $ 1,508 (80) 2,353 1,024 2,752 (77) 3,699 $ $ Fair value of plan assets at the end of the year $ 31,211 $ 29,375 Notes to the Consolidated Financial StatementsExpense 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 2020 85 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 925 $ 1,361 (925) — 488 80 775 1,457 (1,024) 50 — 77 $ 1,929 $ 1,335 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ $ 842 $ 1,087 836 499 1,929 $ 1,335 January 2, 2021 December 28, 2019 $ 10,611 $ 13,072 20,099 499 15,510 793 $ 31,209 $ 29,375 (1) The plan assets include CAD$2.1 million of the Company’s own common shares at market value at January 2, 2021 (December 28, 2019: CAD$1.5 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 January 2, 2021 December 28, 2019 $ 10,202 $ 2,638 282 8,093 1,700 409 $ 13,122 $ 10,202 January 2, 2021 % December 28, 2019 % 3.13 2.46 3.13 3.00 3.00 3.92 3.13 3.92 3.00 3.00 Notes to the Consolidated Financial Statements86 HIGH LINER FOODS A quantitative sensitivity analysis for significant assumptions as at January 2, 2021 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 $ (3,084) $ 3,449 $ 1,536 $ (1,570) 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$4.7 million to its DCPP in Fiscal 2021. 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-three weeks ended January 2, 2021 was a nominal amount (fifty-two weeks ended December 28, 2019: expense of $1.4 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 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ $ 24 56 — 1,503 $ 1,583 $ — — 231 304 535 January 2, 2021 December 28, 2019 5,999,994 5,999,994 1,025,542 1,025,542 Unlimited Unlimited Unlimited Unlimited In March 2020, the Company announced that the Toronto Stock Exchange approved a Normal Course Issuer Bid to repurchase up to 200,000 common shares. Purchases could commence on March 10, 2020 and will terminate no later than March 9, 2021. During the fifty-three weeks ended January 2, 2021, the Company purchased 60,000 common shares under this plan at an average price of CAD$6.65 per share for total cash consideration of CAD$0.4 million. The excess of the purchase price over the book value of the shares in the amount of $0.1 million was charged to retained earnings. Notes to the Consolidated Financial StatementsA 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 Shares repurchased for cancellation Balance, end of period Annual Report 2020 87 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 Shares ($000s) Shares ($000s) 33,383,481 $ 112,887 33,383,481 $ 112,887 — — — — (60,000) (148) — — — — — — 33,323,481 $ 112,739 33,383,481 $ 112,887 During the fifty-three weeks ended January 2, 2021, the Company distributed dividends per share of CAD$0.220 (fifty-two weeks ended December 28, 2019: CAD$0.295). During the fourth quarter, the Company’s Board of Directors increased the quarterly dividend to CAD$0.070 per share, which represents a 40% increase from the CAD$0.050 per share dividend paid in the first three quarters of 2020, reflecting the Board’s continued confidence in the Company’s operations. On February 24, 2021, the Company’s Board of Directors declared a quarterly dividend of CAD$0.070 per share, payable on March 15, 2021 to shareholders of record as of March 3, 2021. 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 $2.7 million and $6.5 million, respectively, as at January 2, 2021 (December 28, 2019: $4.9 million and $3.0 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 (1) Cash-settled awards may include PSUs, RSUs and DSUs. Equity-settled awards include options. Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 95 $ 40 5,339 427 6,455 629 $ 5,861 $ 7,124 Notes to the Consolidated Financial Statements88 HIGH LINER FOODS 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 Executive 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. 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. 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 Cancelled or forfeited Expired Outstanding, end of period Exercisable, end of period Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 No. WAEP (CAD) No. WAEP (CAD) 1,717,416 $ 271,276 (25,915) (213,934) 1,748,843 1,222,603 $ $ 12.53 7.51 — 22.04 10.65 11.85 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 Set forth below is a summary of the outstanding options to purchase common shares as at January 2, 2021: 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 665,424 $ 791,005 256,932 35,482 1,748,843 7.48 11.38 15.30 20.61 3.48 2.18 0.24 1.24 187,783 $ 742,406 256,932 35,482 1,222,603 7.47 11.34 15.30 20.61 The fair value of options granted during the fifty-three weeks ended January 2, 2021 and fifty-two weeks ended December 28, 2019 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) January 2, 2021 December 28, 2019 2.66 42.28 1.22 5.00 7.51 2.26 $ $ 7.77 40.44 1.86 5.00 7.46 1.34 $ $ Notes to the Consolidated Financial StatementsAnnual Report 2020 89 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. 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 Outstanding, end of period Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 953,483 268,977 15,286 (476,079) (156,727) 604,940 879,757 242,875 35,407 — (204,556) 953,483 The expected performance multiplier used in determining the fair value of the liability and related share-based compensation expense for PSUs for the fifty-three weeks ended January 2, 2021 was 111% (fifty-two weeks ended December 28, 2019: 117%). 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-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 383,777 187,339 12,227 (39,608) (30,995) 512,740 280,562 169,914 15,025 (41,304) (40,420) 383,777 The share price at the reporting date was CAD$11.10 (December 28, 2019: CAD$8.23). 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. Notes to the Consolidated Financial Statements90 HIGH LINER FOODS 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-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 199,989 153,425 79,761 6,965 (19,156) 267,559 61,849 6,360 (21,645) 199,989 18. Income tax The Company’s statutory tax rate for the year ended January 2, 2021 is 28.2% (December 28, 2019: 29.2%). The Company’s effective income tax rate was 21.5% for the year ended January 2, 2021 (December 28, 2019: 29.2%). The lower effective income tax rate in Fiscal 2020 compared to the same period last year was attributable to the Company’s tax-efficient financing structure, lower statutory rates in the United States, and adjustments in respect of prior years. The Company’s blended statutory rate for the year decreased from the prior year largely as a result of a reduction in corporate tax rates for the Province of Nova Scotia which came into effect on April 1, 2020. 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 on hedge 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 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 6,535 $ 3,356 1,335 879 $ 7,870 $ 4,235 Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ (85) $ (515) (209) 261 (546) — (752) (289) (201) (503) Income tax recovery directly to other comprehensive income (loss) $ (1,094) $ (1,745) Notes to the Consolidated Financial StatementsThe reconciliation between income tax expense and the product of accounting profit multiplied by the Company’s statutory tax rate is as follows: Annual Report 2020 91 (Amounts in $000s) Accounting profit before tax at statutory income tax rate of 28.2% (2019: 29.2%) Non-deductible expenses for tax purposes: Withholding tax on dividends Non-deductible share-based compensation 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.) Adjustments in respect of prior years Other Income tax expense Deferred income tax (Amounts in $000s) Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 10,342 $ 4,241 — 74 190 (444) — (893) (40) (1,212) (147) 162 257 570 (548) 227 — (633) — (41) $ 7,870 $ 4,235 Consolidated statements of financial position as at Consolidated statements of income for the years ended January 2, 2021 December 28, 2019 January 2, 2021 December 28, 2019 Accelerated depreciation for tax purposes on property, plant and equipment $ (13,127) $ (11,113) $ 2,014 $ (3,762) 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 during the period recognized in OCI Other Closing balance, end of year (3,904) (24,175) 2,675 487 218 9,156 (3,138) (23,628) 1,789 113 398 7,531 785 547 (31) — 180 (2,160) (147) 4,614 2,372 — 1,905 (4,103) $ 1,335 $ 879 $ (28,670) $ (28,048) $ 2,401 $ 2,134 (31,071) (30,182) $ (28,670) $ (28,048) January 2, 2021 December 28, 2019 $ (28,048) $ (28,444) (1,335) — 572 364 (223) (879) (384) 581 1,333 (255) $ (28,670) $ (28,048) Notes to the Consolidated Financial Statements92 HIGH LINER FOODS The Company had unused capital losses of CAD$50.9 million at January 2, 2021 (December 28, 2019: CAD$38.6 million), 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 January 2, 2021 and $nil at December 28, 2019. There were no income tax consequences attached to the payment of dividends in 2020 by the Company to its shareholders. 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. 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-three weeks ended January 2, 2021, the Company recognized $3.6 million (fifty-two weeks ended December 28, 2019: $4.7 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-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 Net income ($000s) Weighted average shares (000s) Per share ($) Net income ($000s) Weighted average shares (000s) $ $ 28,802 33,854 $ 0.85 $ 10,289 33,801 $ — 665 (0.02) — 394 28,802 34,519 $ 0.83 $ 10,289 34,195 $ Per share ($) 0.31 (0.01) 0.30 Net income Dilutive options and units Diluted earnings Excluded from the diluted earnings per common share calculation for the fifty-three weeks ended January 2, 2021 were 1,083,419 options and units, as their effect would have been anti-dilutive (fifty-two weeks ended December 28, 2019: 1,295,512 options). Notes to the Consolidated Financial StatementsAnnual Report 2020 93 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 28, 2019 Cash flows Reclassified between current and non-current Change in fair values New leases modifications and interest(1) Other(2) January 2, 2021 $ 37,546 $ (37,745) $ — $ — $ — $ 199 $ — 14,511 (14,511) 20,185 861 4,582 — (5,568) — 3,479 289,020 (174) (20,185) 292 7,198 — — — (3,479) — 1,859 — — 35 — — — — 15 1,213 1,160 20,185 2,735 4,866 — — 7,017 (613) 268,048 2 (14) 329 10,722 Total liabilities from financing activities $ 354,010 $ (57,998) $ — $ 1,894 $ 8,230 $ 749 $306,885 (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 modifications and interest(1) December 28, 2019 Other(2) $ 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 and the impact of the foreign exchange movements. During the fifty-two weeks ended December 28, 2019 ‘Other’ also includes 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. 22. Guarantees and commitments The Company had letters of credit outstanding as at January 2, 2021 relating to the procurement of inventories and the security of certain contractual obligations of $3.2 million (December 28, 2019: $3.1 million). The Company also had a letter of credit outstanding as at January 2, 2021 relating to the securitization of the Company’s SERP benefit plan (see Note 15) in the amount of $9.7 million (December 28, 2019: $9.5 million). 23. Related party disclosures Entity with significant influence over the Company As at January 2, 2021, Thornridge Holdings Limited owns 34.6% of the Company’s outstanding common shares (December 28, 2019: 34.5%). Notes to the Consolidated Financial Statements94 HIGH LINER FOODS Other related parties The Company had no related party transactions, excluding key management personnel compensation, for the fifty-three weeks ended January 2, 2021. During the fifty-two weeks ended December 28, 2019, 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. 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: $0.2 million. The Company did not have any transactions during 2019 or 2020 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 the CEO and 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 the CEO or senior executive officers for good reason as defined in the Agreements, the CEO or 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 the CEO and up to two for the 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 the ECO and during the salary continuance period for the senior executive officers; and (c) continue to participate in certain benefit programs for two years for the CEO and during the salary continuance period for the senior executive officers. 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 2020 and 2019. (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-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 4,669 $ 4,796 93 — 976 135 155 5,111 $ 5,738 $ 10,197 Notes to the Consolidated Financial StatementsAnnual Report 2020 95 24. Geographic information Sales earned outside of Canada for the fifty-three weeks ended January 2, 2021 were $626.2 million (fifty-two weeks ended December 28, 2019: $712.4 million). Sales by geographic area are determined based on the shipping location. The Company disaggregates revenue from contracts with customers based on its single operating segment, North America. The non-current assets outside of Canada are as follows: (Amounts in $000s) Property, plant and equipment Right-of-use assets Intangible assets Goodwill January 2, 2021 December 28, 2019 $ 82,609 $ 85,037 11,494 128,108 147,916 8,577 134,214 147,916 $ 370,127 $ 375,744 For the fifty-three weeks ended January 2, 2021 and fifty-two weeks ended December 28, 2019 the Company recognized $183.7 million and $274.8 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. 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 January 2, 2021 December 28, 2019 Level 2 Level 3 Level 2 Level 3 $ — $ — $ 258 — $ 1,077 $ — $ 1,987 — — 289,744 $ $ 39 231 536 617 — — — — — 302,831 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. Notes to the Consolidated Financial Statements96 HIGH LINER FOODS 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-three weeks ended January 2, 2021, 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 $288.2 million as at January 2, 2021 (December 28, 2019: $303.5 million). The fair values of other financial assets and liabilities at January 2, 2021 and December 28, 2019 are shown below: (Amounts in $000s) Financial instruments at fair value through OCI: Foreign exchange forward contracts Interest rate swap Amortized cost impact on interest expense Other financial assets Other financial liabilities January 2, 2021 December 28, 2019 January 2, 2021 December 28, 2019 $ $ 258 $ — 258 $ 231 39 270 $ $ 1,987 $ 1,077 617 536 3,064 $ 1,153 During the fifty-three weeks ended January 2, 2021, the Company expensed $0.1 million and $1.1 million (fifty-two weeks ended December 28, 2019: expensed $0.2 million and $0.9 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. Hedging activities INTEREST RATE SWAPS During the fifty-three weeks ended January 2, 2021, 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 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% $ December 31, 2025 3-month LIBOR (floor 1.0%) 1.4950% $ 20.0 25.0 40.0 80.0 20.0 The cash flow hedge of interest expense variability was assessed to be highly effective for the fifty-three weeks ended January 2, 2021 and the fifty-two weeks ended December 28, 2019, 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 $0.8 million and after-tax net losses 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- three weeks ended January 2, 2021 and the fifty-two weeks ended December 28, 2019. 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. Notes to the Consolidated Financial StatementsAnnual Report 2020 97 As at January 2, 2021, the Company had outstanding notional amounts of $40.6 million (December 28, 2019: $34.0 million) in foreign currency average-rate forward contracts that were formally designated as a hedge and $2.1 million in foreign currency single-rate forward contracts that were formally designated as a hedge (December 28, 2019: $3.2 million). With the exception of $2.3 million (December 28, 2019: $1.9 million) average-rate forward contracts with maturities ranging from January 2022 to June 2022, 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 effective for the fifty-three weeks ended January 2, 2021 and the fifty-two weeks ended December 28, 2019, and therefore the change in fair value was recorded in OCI as after-tax net losses of $0.5 million, and $0.5 million, respectively. There were nominal amounts recognized in the consolidated statements of income resulting from hedge ineffectiveness during the fifty-three weeks ended January 2, 2021 and no amounts recognized during the fifty-two weeks ended December 28, 2019. As at January 2, 2021, the Company had no outstanding notional amounts (December 28, 2019: $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. During the fifty-three weeks ended January 2, 2021 and the fifty-two weeks ended December 28, 2019, the change in fair value related to hedging foreign currency exchange risk on USD monetary assets and liabilities, recognized in the statements of income were net losses of $0.7 million and $nil, respectively. HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS As at January 2, 2021, a total borrowing of $288.2 million ($20.2 million included in the current portion of long-term debt and $268.0 million included in long-term debt) (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)) 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-three weeks ended January 2, 2021 and the fifty-two weeks ended December 28, 2019. 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 January 2, 2021, the Company had Average Adjusted Aggregate Availability of $142.6 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-three weeks ended January 2, 2021 and the fifty-two weeks ended December 28, 2019, the Company paid $5.5 million and $7.4 million in dividends, respectively, and purchased shares of $0.1 million and $nil, respectively, under the NCIB. Notes to the Consolidated Financial Statements98 HIGH LINER FOODS 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 on derivative financial instruments included in AOCI Total capitalization Net debt as percentage of total capitalization January 2, 2021 December 28, 2019 $ — $ 37,956 285,315 15,588 300,903 300,000 11,780 349,736 (32,935) (3,144) 267,968 291,002 1,289 346,592 268,170 396 $ 560,259 $ 615,158 48% 56% No changes were made in the objectives, policies or processes for managing capital for the fiscal year ended January 2, 2021 and December 28, 2019. 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. 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 January 2, 2021, 51.7% 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 28, 2019: 51.0%). 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 January 2, 2021, the Company’s current bank loans were $nil (December 28, 2019: $38.0 million) and long-term debt was $294.2 million (December 28, 2019: $310.6 million). An increase of 25 basis points on the bank loans would have reduced income before income taxes by $nil (December 28, 2019: $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 $0.4 million (December 28, 2019: $0.3 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. Notes to the Consolidated Financial StatementsAnnual Report 2020 99 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 January 2, 2021, the Parent hedged 51% (December 28, 2019: 61%) of these purchases identified for hedging, extending to June 2022. 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 fixed price contracts with suppliers. For the fifty-three weeks ended January 2, 2021, approximately 73.3% of the Parent’s costs were denominated in USD, while approximately 99.8% of the Parent’s sales were denominated in its CAD functional currency. 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 January 2, 2021, a one-cent increase/decrease in the USD/CAD exchange rate will decrease/increase equity by approximately $0.9 million (December 28, 2019: $1.0 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 58% of the trade receivables at January 2, 2021 (December 28, 2019: 69%), with the largest customer accounting for 11% (December 28, 2019: 17%). 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. Notes to the Consolidated Financial Statements100 HIGH LINER FOODS 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 on commitments 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 January 2, 2021, less than 9% of the Company’s debt (December 28, 2019: less than 6%) will mature in less than one year based on the carrying value of borrowings reflected in the Consolidated Financial Statements. At January 2, 2021, 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) Due within 1 year Due in 1–5 years Due after 5 years Total Accounts payable and accrued liabilities $ 114,326 $ — $ — $ 114,326 Long-term debt As at January 2, 2021 Bank loans Accounts payable and accrued liabilities Long-term debt As at December 28, 2019 Commodity price risk 37,537 68,058 263,910 369,505 $ 151,863 $ 68,058 $ 263,910 $ 483,831 $ 37,956 $ — $ — $ 37,956 141,238 36,064 — — 112,565 267,429 141,238 416,058 $ 215,258 $ 112,565 $ 267,429 $ 595,252 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 2020 and 2019, 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 2021 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, remained consistent during 2020 compared to 2019. World commodity prices for flour, soy and canola oils, imported ingredients in many of the Company’s products, increased throughout 2020 compared to 2019. The price of corrugated and folded carton, which is used in packaging, remained consistent in 2020. Seafood price risk The Company is dependent upon the procurement of frozen raw seafood materials and finished goods on world markets. The Company bought $471.7 million of this product in the current year. A 1.0% change in the price of frozen raw seafood materials would increase/decrease the Company’s procurement costs by $4.7 million. Prices can fluctuate and there is limited 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 Statements28. Supplemental information The components of income and expenses included in the consolidated statements of income are as follows: Annual Report 2020 101 (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 loss (gain) Total finance costs Foreign exchange loss (gain) included in: Cost of sales Finance costs Total foreign exchange loss (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 Total employee compensation and benefit expense Fifty-three weeks ended January 2, 2021 Fifty-two weeks ended December 28, 2019 $ 998 $ 1,450 15,869 18,064 1,192 1,271 129 — 24 1,447 1,071 117 10,969 (106) $ 19,483 $ 33,012 $ $ $ $ 667 $ 24 691 $ 105 $ 9 (80) 34 $ (161) (106) (267) 194 38 (102) 130 $ 7,592 $ 4,935 10,701 7,491 4,185 10,779 $ 23,228 $ 22,455 $ 91,186 $ 101,959 3,123 5,861 1,583 (10) 2,787 7,124 535 1,378 $ 101,743 $ 113,783 Notes to the Consolidated Financial Statements102 HIGH LINER FOODS Historical Consolidated Statement of Income (UNAUDITED) Income before income taxes 36,672 14,524 22,866 17,538 39,809 34,273 37,531 43,648 — — — — — — — (86) 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 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: 11,049 6,019 52 28,130 5,762 3,708 9,470 196 536 5,442 (7,109) (1,667) 2020 2019 $ 827,453 $ 942,224 2018 $ 1,048,531 2017(1) 2016(1) 2015(1) $ 1,053,846 $ 954,986 $ 999,471 177,924 185,860 45,076 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) $ 947,301 $ 942,631 $ 675,539 215,335 53,368 206,661 44,511 153,530 35,382 73,736 90,019 92,208 99,449 96,978 93,597 105,313 98,820 100,862 72,898 — 974 1,302 — 2,327 — 852 — 13,230 — 2,957 19,483 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 6,535 1,335 7,870 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 $ 28,802 $ 10,289 $ 16,776 $ 31,653 $ 32,284 $ 28,351 $ 30,300 $ 31,356 $ 2,203 $ 18,660 $ 28,802 $ 10,289 $ 16,776 $ 31,653 $ 32,284 $ 28,351 $ 30,300 $ 31,356 $ 2,203 $ 18,660 7,870 19,483 7,536 15,692 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 $ 79,383 $ 69,991 $ 62,240 $ 50,475 $ 71,219 $ 67,260 $ 71,897 $ 75,136 $ 56,502 $ 43,970 2,767 7,105 (2,471) 2,639 4,787 7,473 6,582 3,256 10,741 11,049 — — 34 5,861 — 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 — $ 88,045 $ 85,324 $ 62,474 $ 66,112 $ 81,383 $ 76,181 $ 83,341 $ 85,343 $ 91,687 $ 56,458 $ 28,802 $ 10,289 $ 16,776 $ 31,653 $ 32,284 $ 28,351 $ 30,300 $ 31,356 $ 2,203 $ 18,660 Share-based compensation expense 4,356 5,196 1,176 658 2,794 1,207 2,958 6,366 10,025 703 Impairment of property, plant and equipment Accelerated depreciation on equipment/property disposed as part of a discontinuation/acquisition Business acquisition, integration and other (income) expenses 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 — — 2,053 — — — — — — 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 Adjusted Net Income $ 35,211 $ 29,137 $ 17,049 $ 41,328 $ 40,284 $ 34,333 $ 38,781 $ 41,281 $ 38,071 $ 28,854 Historical Consolidated Statement of Income (UNAUDITED) Annual Report 2020 103 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 2020 8.73 $ 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) 5.07 $ 2011 (2)(3)(4) 5.27 8,952 6,569 14,607 27,775 17,686 18,587 28,075 15,419 13,447 7,675 $ 0.85 1.04 0.83 1.02 $ 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 33,323 33,383 33,383 33,380 30,889 30,874 30,706 30,571 30,258 30,174 33,854 34,519 33,801 34,195 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 Dividends declared and paid $ 5,518 $ 7,424 $ 14,663 $ 14,355 $ 12,145 $ 11,023 $ 11,285 $ 10,305 $ 6,379 $ Dividends per common share (CAD) 0.220 0.295 0.580 0.565 0.520 0.465 0.410 0.350 0.210 (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 have been fully restated to USD. (4) The Company adopted International Financial Reporting Standards effective January 2, 2011. 30,218 30,682 5,891 0.195 104 HIGH LINER FOODS Historical Consolidated Statement of Financial Position (UNAUDITED) In United States dollars, unless otherwise noted (Amounts in $000s) Cash 2020 $ 32,935 $ 2019 3,144 $ Accounts receivable Income taxes receivable Other financial assets Inventories Prepaid expenses Total current assets Property, plant and equipment Right-of-use assets(4) Deferred finance costs 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 60,927 85,089 2,609 211 3,494 236 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 1,323 250,861 294,913 301,411 353,433 252,059 263,043 261,987 252,960 222,313 256,324 4,176 351,719 107,221 15,018 287 2,401 — 47 — 4,322 391,198 108,986 11,792 — 2,134 — 34 — 142,168 157,697 — 148,893 157,457 — 4,333 409,100 114,371 — — 7 — 1,013 — 155,594 157,070 — 3,462 468,131 120,289 — — 3,340 355,355 109,626 — — 2,787 2,290 — 837 — 158,044 157,881 — — 864 — 98,872 118,101 — 2,051 354,948 115,879 2,481 358,804 114,231 2,361 351,673 101,470 2,991 304,994 89,268 2,969 350,909 105,808 — — 2,495 — 1,683 — — — 3,372 — 1,678 — — — 4,656 — 1,906 — — — 7,207 96 1,847 92 — — 1,667 271 1,190 92 102,315 117,824 — 107,704 119,270 515 105,253 111,999 542 110,631 112,873 4,819 116,594 110,816 — Total assets $ 776,558 $ 820,494 $ 837,155 $ 907,969 $ 685,108 $ 695,144 $ 705,574 $ 677,499 $ 631,827 $ 687,347 Bank loans – actual amounts owing $ — $ 37,956 $ 31,505 $ 53,560 $ 959 $ 17,628 $ 65,851 $ 97,899 $ 60,530 $ 119,936 Bank loans – deferred charges — (410) (353) (208) (338) (470) (721) (672) (826) (978) Accounts payable and accrued liabilities 114,326 141,238 157,162 205,820 138,766 124,132 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 2,731 4,351 3,327 2,735 41 20,185 4,866 152,562 274,027 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 1,046 233,177 247,500 (5,979) (7,073) (1,597) (2,485) (1,599) (1,917) (2,717) (5,791) (529) (20,254) 329 — 6,510 10,722 31,071 16,314 — 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 — Shareholders' equity 291,002 268,170 263,859 268,867 220,204 198,624 196,974 184,649 153,354 158,827 Total liabilities and shareholders’ equity $ 776,558 $ 820,494 $ 837,155 $ 907,969 $ 685,108 $ 695,144 $ 705,574 $ 677,499 $ 631,827 $ 687,347 (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 have been fully restated to USD. (3) The Company adopted International Financial Reporting Standards effective January 2, 2011. (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. Corporate Information Honorary Director Donald Sobey Board of Directors Joan Chow(2) Rob Dexter, Q.C.(1) Andrew Hennigar(1) David Hennigar Rod Hepponstall(3) Shelly Jamieson(3)(4) Jolene Mahody(1)(3)(4) Andy Miller(2) Robert Pace (Chair)(3)(4) Frank van Schaayk(2)(3)(4) Executive Leadership Rod Hepponstall President & Chief Executive Officer Paul Jewer, fcpa Executive Vice President & Chief Financial Officer Tim Rorabeck Executive Vice President, Corporate Affairs & General Counsel Ron van der Giesen Senior Vice President, Supply Chain Craig Murray Senior Vice President, Marketing & Innovation Johanne McNally Myers Vice President, Human Resources Senior Management Group Andy Tanner Director, Corporate Treasury Bill DiMento Vice President, Sustainability & Government Affairs Bill Mandly Director, Project Management Charlene Milner Vice President, Finance Dale Martin Vice President, Seafood Procurement Deepak Bhandari Vice President, Financial Planning & Analysis Denise Sweat Director, Human Resources Supply Chain Ed Snook Vice President, Operations Fred Pace Director, Supply Chain Inventory Management Ioan Cusmir Vice President, Marketing John Kramer Director, Sales & Operations Planning Annual Report 2020 105 Marcio Menquini Director, Purchasing Meggan Hodgson Vice President, Quality Assurance & Food Safety Mike Sirois Vice President, Product Development & Technical Services 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 Naomi Jewers Assistant Corporate Secretary Pam Kellogg Vice President, Retail Sales Pam Sharma Director, Organizational Effectiveness Sarah Rajmoolie Senior Manager, Total Rewards Susan Rousell Director, Human Resources Corporate 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 Tom Rupkey Vice President, North American Foodservice Sales Investor Relations Tom Walker Vice President, Information Technology & Strategic Deployment Tyler Held Director, Internal Audit 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 Auditors Ernst & Young LLP, Chartered Professional Accountants Transfer Agent For help with: • Changes of address • Transfer of shares • Loss of share certificates • Consolidation of multiple mailings to one shareholder • Estate settlements For: • Additional financial information • Industry and Company developments • Additional copies of this report Contact: Charlene Milner Vice President, Finance Tel.: (902) 421-7180 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 18, 2021 11:30 a.m. ADT High Liner Foods Incorporated Lunenburg, Nova Scotia Virtually: https://web.lumiagm.com/447368559 Password: highliner2021 (case sensitive) (1) Audit Committee (Jolene Mahody, Chair) (2) Human Resources Committee (Frank van Schaayk, Chair) (3) Executive Committee (Robert Pace, Chair) (4) Governance Committee (Shelly Jamieson, Chair) Concept and Design: THE WORKS DESIGN COMMUNICATIONS worksdesign.com Reimagining Seafood to Nourish Life

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