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
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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
®
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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".
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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.
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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
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“ 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
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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.
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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
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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
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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
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19
22
23
25
25
25
26
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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&A Company Overview
High Liner Foods, through its predecessor companies, has
been in business since 1899 and has been a publicly traded
Canadian company since 1967, trading under the symbol ‘HLF’
on the Toronto Stock Exchange (“TSX”). We are a leading
North American processor and marketer of value-added
(i.e. processed) frozen seafood, producing a wide range of
products from breaded and battered items to seafood entrées,
that are sold to North American food retailers and foodservice
distributors. In addition, we are a major supplier of commodity
products in the North American market. The retail channel
includes grocery and club stores and our products are sold
throughout the U.S. and Canada under the High Liner, Fisher
Boy, Mirabel, Sea Cuisine and Catch of the Day labels. The
foodservice channel includes sales of seafood that is usually
eaten outside the home and our branded products are sold
through distributors to restaurants and institutions under the
High Liner, Mirabel, Icelandic Seafood(1) and FPI labels. The
Company is also a major supplier of private-label value-added
frozen premium seafood products to North American food
retailers and foodservice distributors.
We own and operate three food-processing plants located in
Lunenburg, Nova Scotia (“N.S.”), Portsmouth, New Hampshire,
and Newport News, Virginia.
Although our roots are in the Atlantic Canadian fishery, we
purchase all our seafood raw material and some finished goods
from around the world. From our headquarters in Lunenburg,
N.S., we have transformed our long and proud heritage into
global seafood expertise. We deliver on the expectations of
consumers by selling seafood products that respond to their
demands for sustainable, convenient, tasty and nutritious
seafood, at good value.
Additional information relating to High Liner Foods, including
our most recent Annual Information Form (“AIF”), is available
on SEDAR at www.sedar.com and in the Investor Center
section of the Company’s website at www.highlinerfoods.com.
(1) In December 2011, as part of 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&A 16 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&A Outlook
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&A 18 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&A Annual 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&A Annual 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&A 22 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&A Fourth Quarter
Consolidated Performance
(in $000s, except sales volume, per share amounts,
percentage amounts and exchange rates)
Sales volume (millions of lbs)
Average foreign exchange rate (USD/CAD)
Sales
Gross profit
Gross profit as a percentage of sales
Distribution expenses
Selling, general and administrative expenses
Adjusted EBITDA(1)
Adjusted EBITDA as a percentage of sales
Net (loss) income
Basic EPS
Diluted EPS
Adjusted Net Income(1)
Adjusted EPS
Adjusted Diluted EPS(1)
Annual Report 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&A 24 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&A Annual 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&A 26 HIGH LINER FOODS
Contingencies
The Company has no material outstanding contingencies.
Liquidity and Capital Resources
The Company’s balance sheet is affected by foreign currency
fluctuations, the effect of which is discussed in the Introduction
section on page 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&A Annual 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&A 28 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&A Annual 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&A 30 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&A Annual 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&A 32 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&A Annual 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&A 34 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&A Annual 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&A 36 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&A Annual 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&A 38 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&A 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.
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&A 40 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&A Annual 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&A 42 HIGH LINER FOODS
Procurement
Availability of Seafood and Non-Seafood Goods
Our business depends upon the procurement of frozen
raw seafood materials and finished goods on world
markets. In 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&A Annual 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&A 44 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&A Annual 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&A 46 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&A Annual 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&A 48 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&A Annual 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&A 50 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&A Annual 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 Statements Consolidated 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 Statements 58 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 Statements Annual 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 Statements 60 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 Statements Annual 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 Statements Annual 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 Statements 64 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 Statements Annual 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 Statements 66 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 Statements Annual 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 Statements 68 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 Statements Annual 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 Statements 70 HIGH LINER FOODS
All assets and liabilities for which fair value is measured or disclosed in the Consolidated Financial Statements are categorized
within the fair value hierarchy, described as follows, based on the lowest-level input that is significant to the fair value
measurement as a whole:
• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable; or
• Level 3 – Valuation techniques for which the lowest-level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the Consolidated Financial Statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the
lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability, and the level of the fair value hierarchy as explained above.
(s) Derivative instruments and hedging
All derivative instruments, including embedded derivatives that are not closely related to the host contract, are recorded in the
consolidated statements of financial position at fair value on the date a contract is entered into and subsequently remeasured
at fair value. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship
to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking
the hedge. The documentation includes identification of the hedge instrument, the hedged item of the transaction, the nature
of the risk being hedged and how the Company will assess whether the hedging relationship meets the hedge effectiveness
requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging
relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
• There is an economic relationship between the hedged item and the hedging instrument;
• The effect of credit risk does not dominate the value changes that result from that economic relationship; and
• The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the
Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity
of hedged item.
Hedges that meet all the qualifying criteria for hedge accounting are accounted for as described below. The method of
recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and the nature of
the hedge designation. The Company designates certain derivatives as one of the following:
(i) Embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated statements of
income. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the
cash flows that would otherwise be required or a reclassification of a financial asset or financial liability out of FVTPL.
(ii) Fair value hedges are hedges of the fair value of recognized assets, liabilities or a firm commitment. Changes in the fair
value of derivatives that are designated as fair value hedges are recorded in the consolidated statements of income
together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk.
(iii) Cash flow hedges are hedges of highly probable forecasted transactions. The effective portion of changes in the fair value
of derivatives that are designated as cash flow hedges are recognized in OCI. The gain or loss relating to the ineffective
portion is recognized immediately in the consolidated statements of income. Additionally:
• Amounts accumulated in OCI are recycled to the consolidated statements of income in the period when the hedged
item affects profit and loss;
• When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss that was reported in OCI remains in accumulated other comprehensive income (loss) (“AOCI”)
and is recognized in the consolidated statements of income when the forecasted transaction ultimately affects profit
and loss; and
Notes to the Consolidated Financial Statements Annual Report 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 Statements 72 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 Statements Annual 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 Statements 74 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 Statements Annual 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 Statements 76 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 Statements 8. 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 Statements 78 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 Statements Lease 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 Statements 80 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 Statements Annual 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 Statements 82 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 Statements Annual 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 Statements 84 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 Statements Expense recognized in the consolidated statements of income
(Amounts in $000s)
Current service costs
Interest on obligation
Return on plan assets
Plan curtailment
Effect of changes in financial assumptions related to non-pension benefit plans
Fees and expenses
Expense recognized in the following line items in the consolidated statements of income
(Amounts in $000s)
Cost of sales
Selling, general and administrative expenses
Plan assets comprise:
(Amounts in $000s)
Equity securities(1)
Debt securities
Cash and cash equivalents
Annual Report 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 Statements 86 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 Statements A summary of the Company’s common share transactions is as follows:
Balance, beginning of period
Options exercised for shares
Fair value of share-based compensation on options exercised
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 Statements 88 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 Statements Annual 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 Statements 90 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 Statements The 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 Statements 92 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 Statements Annual 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 Statements 94 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 Statements Annual 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 Statements 96 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 Statements Annual 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 Statements 98 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 Statements Annual 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 Statements 100 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 Statements 28. 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 Statements 102 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