High Liner Foods
Annual Report 2021

Plain-text annual report

Reimagining Reimagining Seafood Seafood to nourish Nourish life. ANNUAL REPORT 2021 Sales (in millions of USD) Product Sales Volume (in millions of pounds) 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 $500 $700 $900 $1,100 100 200 300 Adjusted EBITDA(1) (in millions of USD) Adjusted Diluted Earnings per Share (1) (in USD) 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 $0 $20 $40 $60 $80 $100 $0.00 $0.75 $1.50 (1) See the Non-IFRS Financial Measures section of High Liner Foods’ Management’s Discussion and Analysis (“MD&A”) for the fifty-two weeks ended January 1, 2022 for definitions of the non-IFRS financial measures used by the Company, including Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share. HIGH LINER FOODS | ANNUAL REPORT 2021 | 1 22.7% Gross Profit as a Percentage of Sales increased 120 basis points $875.4M Net sales increased by $47.9 million $90.4M Adjusted EBITDA grew by $2.4 million In 2021, we continued to navigate through the COVID-19 pandemic by prioritizing the health, safety and wellness of our people, providing customers and consumers with high-quality frozen seafood and delivering our third consecutive year of EBITDA growth for our shareholders. INSIDE THIS REPORT At a Glance 2 Our Global Reach 4 A Word from Our CEO 6 Reimagining Seafood to Nourish Life 8 ESG at High Liner Foods 12 Management’s Discussion and Analysis 14 Financial Statements and Notes 56 Corporate Information IBC 2 | HIGH LINER FOODS | ANNUAL REPORT 2021 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. Our Top Species by percentage of 2021 purchases (in USD): We have the scale and global reach to deliver the products our customers and consumers want. 21.2% Shrimp 20.5% Cod 14.3% Salmon (Wild and Farmed) 14.1% Pollock 11.5% Haddock 7.3% Tilapia 2.9% Sole HIGH LINER FOODS | ANNUAL REPORT 2021 | 3 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. 2021 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 $ $ $ $ $ $ $ $ $ $ $ $ $ 2021 875,405 90,422 42,249 1.25 1.20 44,798 1.32 1.28 826,469 20,319 332,524 9.98 0.310 233,726 1,102 $ $ $ $ $ $ $ $ $ $ $ $ $ 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 % Change 5.8% 2.7% 46.7% 47.1% 44.6% 27.2% 26.9% 25.5% 6.4% 127.0% 14.3% 14.3% 40.9% (3.0)% (2.0)% (1) See the Non-IFRS Financial Measures section of High Liner Foods’ MD&A for the fifty-two weeks ended January 1, 2022 for definitions of the non-IFRS financial measures used by the Company, including Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS. Key Retail Brands Key Foodservice Brands ® Our brand portfolio is diversified across species and price points, maximizing customer and consumer reach, and offering quality and versatility for multiple eating occasions and settings. 4 | HIGH LINER FOODS | ANNUAL REPORT 2021 4 | HIGH LINER FOODS | ANNUAL REPORT 2021 OUR GLOBAL REACH We source seafood from around the world. Offices Distribution Manufacturing Top sourcing regions HIGH LINER FOODS | ANNUAL REPORT 2021 | 5 HIGH LINER FOODS | ANNUAL REPORT 2021 | 5 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. Our suppliers are also expected to treat their employees well and uphold high worker safety and social standards. 6 | HIGH LINER FOODS | ANNUAL REPORT 2021 DEAR FELLOW SHAREHOLDERS, As a result, we were able to mitigate much of the impact of pandemic related challenges on our business and were able to still deliver year-over-year Adjusted EBITDA performance, surface organic growth and advance towards our goal of becoming the North American leader in branded value- added seafood. I am proud to report that we delivered year-over-year Adjusted EBITDA(1) growth for the third consecutive year, increasing our 2021 result by $2.4 million, to $90.4 million. Among the financial highlights of 2021 (as compared to Fiscal 2020): • Net Sales increased by $47.9 million to $875.4 million; • Gross Profit as a Percentage of Sales increased 120 basis points to 22.7%; and • We maintained our Net Debt to Rolling Twelve-Month Adjusted EBITDA(1) ratio at our long-term target of 3.0x. Together with the Board, we were also pleased to increase the quarterly dividend by 3.0 cents (from $0.07 to $0.10) in the third quarter of 2021. Our ability to increase the return of capital to shareholders indicates how well our team has been able to navigate ongoing market challenges, while continuing to drive profitability. 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. We have come a long way in three years Despite the challenges of the pandemic and global supply chain, our business continues to move from strength to strength. While top-line growth has inevitably been impacted, High Liner Foods today is much stronger than prior to the pandemic. For example, we have significantly improved our profitability, growing Gross Profit as a Percentage of Sales by 300 basis points since 2019. We grew our Adjusted EBITDA by $5.1 million during that timeframe as well. Both of these significant improvements were the result of executing against our branded, value-added strategy and strong execution across our entire organization. As we navigated challenges of the past year in partnership with our customers and suppliers, we deepened relationships, strengthened loyalty and showcased the benefits of our diversified portfolio and supply chain. Our sales team delivered new business wins and our marketing team put advertising and consumer investments to work to build brand value and drive product awareness. These results provide further evidence of the opportunity that is out there for us as market conditions stabilize and we continue to aggressively pursue growth in branded, value-added seafood in targeted categories and channels across North America. 2021: Overcoming challenges and realizing opportunity This time last year I reported on the resilience of our organization through the first year of the COVID-19 pandemic and the unwavering commitment of our people who came together to support our customers and deliver a steady supply of frozen seafood across North America. I am pleased to say that these same qualities continued to shine brightly in 2021, despite constant and varied challenges related to the global supply chain and the ongoing pandemic. Through it all, our team was nimble and proactive. We took every opportunity to deepen our customer relationships and brand loyalty. We remained grounded in our newly stated purpose — reimagining seafood to nourish life. We invested in our business, further diversified our supply chain, built inventory, continued to shift our portfolio towards higher margin branded, value-added products and worked together to serve our customers. And above all else, we continued to prioritize the health, safety and well-being of our people. (1) Please refer to the Non-IFRS Measures section of High Liner Foods’ MD&A for the fifty-two weeks ended January 1, 2022 for definitions of the non-IFRS financial measures used by the Company, including “Adjusted EBITDA” and “Net Debt to Rolling Twelve-Month Adjusted EBITDA”. HIGH LINER FOODS | ANNUAL REPORT 2021 | 7 evolving our approach to anticipate customer needs, and capitalizing on brand equity and recognition through targeted marketing. We will also drive continuous improvement and efficiencies across our operations, including modernization of our asset base, exploration of automation opportunities and further diversification of our supply chain. We are also exploring opportunities to accelerate growth through potential M&A opportunities and strategic relationships. We will be extremely prudent as we evaluate potential opportunities to ensure a strong strategic rationale, value upside and alignment with our purpose. Living our purpose and unlocking value Thank you for your ongoing support and confidence in our business. There’s no doubt that the challenges facing our industry are vast and complex, but there is also no doubt in my mind that High Liner Foods and its people will continue to rise to the challenge, evolve and grow — just as we have for more than 120 years. I look forward to another year of living our purpose and creating value for all our stakeholders. Sincerely, ROD HEPPONSTALL PRESIDENT AND CEO HIGH LINER FOODS We owe our success to the hard work and dedication of our global team of employees who worked safely together in our plants and warehouses, collaborated virtually, and transitioned to an evolving working model for our offices. Our people lived our purpose day in, day out and continue to take care of our customers and each other in trying times. I speak on behalf of the entire Executive Leadership Team and Board of Directors when I express my gratitude. 2022: Significant runway for organic growth Looking ahead, we believe there is a significant runway for organic growth within our existing business and we will direct as much attention and resources as possible to realizing this value. We are fortunate to have a strong business foundation, proven market leadership, successful products, and a branded, value-added offering that targets the evolving and diverse needs of our customers and consumers. And of course, these attributes are supported by the strength of our balance sheet and leverage ratio, which gives us the financial flexibility required to grow even under prolonged headwinds. Our strategy to generate top-line growth is simple — expand where we lead today; expand our market share where we know we can. We will do this by leveraging trusted customer relationships deepened during the pandemic, continuing to go to market differently through sharpening our execution and 8 | HIGH LINER FOODS | ANNUAL REPORT 2021 REIMAGINING SEAFOOD TO NOURISH LIVES Our purpose reflects a deep commitment to not only provide healthy, delicious seafood, but to meet the needs of our employees and communities and help them thrive, while reimagining how we work and how our business operates at a time of rapid change. Here are just a few of the ways we have lived our purpose and reimagined our business at a time of rapid change and transformation in the world. Reimagining work at High Liner Foods As we live our purpose to reimagine seafood, we are also empowering our people to reimagine what work looks and feels like at a time of rapid change. Our teams continued to collaborate in new and different ways, driving cross-functional engagement across the business and ensuring that each project tapped into our collective expertise and experience as One High Liner Foods. We refreshed and reimagined roles, responsibilities and performance indicators, and invested in professional development to help our people grow and reimagine their personal and professional potential at High Liner Foods. We developed a new hybrid work model for our corporate employees that reimagined how we could foster a strong workplace culture, allow for connection and interaction, while still managing through the pandemic and affording our people the benefits of flexible working arrangements. Our Diversity, Equity and Inclusion (DEI) Committee — led by Sarah Rajmoolie, Director Total Rewards, and Omar Turay, Manufacturing Manager, Newport News — led education and training initiatives for the organization and is leading the work to ensure that DEI considerations feature prominently in our recruitment strategies and help to foster a strong sense of belonging for the Company. All of this came together to support a high-performance culture and helped High Liner Foods be recognized by Canada’s Top 100 Employers as one of Atlantic Canada’s Top Employers for 2022. SARAH RAJMOOLIE, DIRECTOR TOTAL REWARDS HIGH LINER FOODS | ANNUAL REPORT 2021 | 9 At a time of global supply chain challenges, we are benefiting from our proactive steps to diversify our supply chain. We will continue along this path in 2022 and beyond. Reimagining our supply chain Global supply chain challenges created a significant hurdle for our business in 2021. In response, we reimagined how we procured, exported, transported and processed our seafood, while prioritizing safety, ensuring consistent quality standards, and requiring all partners to adhere to rigorous operational and sustainability standards. Our deep and long-standing relationships with our global suppliers strengthen our ability to build inventory and satisfy demand for our products across North America. Further diversifying by geography We took proactive steps to diversify our production into Indonesia and Northeast Asia. Thanks to our partners in the region and the agility of our team, we were able to establish a strong foothold in a relatively short timeframe. Opportunistically building inventory In the face of a North American shortage of seafood, we acted to take advantage of all opportunities to build inventory, even when it was above and beyond our initial orders. Our strong balance sheet afforded us the ability to move quickly and build supply, and our diversified business enabled us to move species across customers to help satisfy demand. 10 | HIGH LINER FOODS | ANNUAL REPORT 2021 Connecting with customers in a different way Our procurement teams interfaced directly with customers to demonstrate the exhaustive efforts High Liner was undertaking to procure and deliver products. This helped deepen customer relationships and showcased to our customers our agility and the breadth and depth of our global relationships. “Through all the supply chain challenges of 2021, our number one priority always remained the health and safety of our employees. I am proud to report that we did not lose one day of operations because of a COVID outbreak and, in addition to ensuring this business continuity, we continued to prioritize health and safety across the business.” – ED SNOOK, VICE PRESIDENT, OPERATIONS Doing whatever it takes as One HLF Throughout the year, we frequently faced delays at North American ports and, to avoid disappointing our customers, we pivoted to other points of entry and trucked product to our production facilities and warehouses. In every respect, our procurement, supply chain, retail and foodservice sales and marketing teams worked together with the common goal to satisfy demand for High Liner Foods products and maximize fill rates for customers. The realignment efforts to create One High Liner Foods back in 2018 paid dividends in this regard in 2021. Our essential workers played a huge role throughout the year to help ensure products were available for our customers and consumers. HIGH LINER FOODS | ANNUAL REPORT 2021 | 11 Reimagining customer and consumer engagement In 2021, we became much more proactive in our consumer marketing, speaking directly to North American consumers via digital channels and marketing campaigns. We invested in our brands, showcased the ease and convenience of preparing restaurant quality seafood at home and significantly stepped up our e-commerce profile. “Under enormous pressure, we came together as One HLF to serve the customer. This required countless pivots, incredible flexibility, and constant communication across the business. Our customers told us that at a time of supply constraints, we stood out in the industry for our ability to move quickly and find creative solutions.” – TOM RUPKEY, VICE PRESIDENT, FOODSERVICE SALES Reimagining our foodservice offering Reimagining chef-inspired seafood at home Sea Cuisine’s core line of chef- inspired, value-added seafood generated double digit growth for High Liner Foods in 2021 and increased sales for all retailers. Sea Cuisine is a great example of how we are reimagining our products and how we go to market. We will build on this success in 2022 and beyond. Our increasing focus on branded, value-added seafood fits very well with the evolving needs of foodservice customers who are adapting to a new operating environment. In the face of labour shortages, frequent shutdowns and the need for physical distancing in the kitchen, operators value the convenience of value-added and the flexibility of frozen. As a result, we are growing market share, deepening relationships and see tremendous opportunity ahead once the industry fully reopens and supply chain constraints ease. 12 | HIGH LINER FOODS | ANNUAL REPORT 2021 ESG AT HIGH LINER FOODS In 2021, High Liner Foods undertook a comprehensive engagement program to better understand the environmental, social and governance needs and priorities of its stakeholders and how stakeholder needs intersect with the Company’s refreshed purpose of Reimagining Seafood to Nourish Life. and pervasiveness of ESG to the Company’s risk management and business strategies, three committees of the Board (the Governance, Audit and HR committees) provide oversight to ensure management is implementing the Company’s ESG framework responsibly, environmental practices are rigorously monitored for both compliance and effectiveness, and the health and safety of employees is protected and prioritized. Sustainability is not an option, it’s the answer. The Company engaged with approximately 500 stakeholders including shareholders, employees, customers, suppliers and NGOs. We are extremely grateful to all who participated and shared their valuable input. In conversation with our stakeholders, and supported by supplemental survey data, we heard loudly and clearly that the issues High Liner Foods’ stakeholders care most about are high standards of responsible sourcing, environmental stewardship and corporate governance. These priorities align well with existing programs High Liner Foods has in place and confirm the direction for the Company to advance further initiatives in these areas — as it continues to build trust, realize new opportunities and meet the evolving needs of all of its stakeholders in the pursuit of long-term value and sustainability. Responsible sourcing We have a long legacy of leadership in the responsible sourcing, transparency and traceability of our seafood. We work closely with our suppliers across our diverse supply chain to set, maintain and independently audit our high standards of seafood sourcing. As an early industry adopter of farmed and wild sourcing of our seafood through the Ocean Disclosure Project, and most recently with our participation in the Global Whitefish Supply Chain Roundtable, we have set the bar high for ourselves and our industry peers. We will build on this work moving forward and plan to enhance our monitoring of the sustainability status of the whitefish sector and report back to stakeholders on our progress. Environmental stewardship In 2022, the Company will continue to advance its food waste reduction efforts as it works toward its goal of 50% less food waste by 2030 (compared to 2018). The Company also developed a 2022 work plan focused on refining its greenhouse gas emissions inventories, with the goal of identifying opportunities and setting targets for emissions reduction efforts. For further information on High Liner Foods’ environmental, social and governance practices, please see the Company’s Management Information Circular and Corporate Social Responsibility report, available at www.highlinerfoods.com. Corporate governance High Liner Foods’ Board of Directors and management believe that high ESG standards support the profitability and valuation of the Company and aligns with the values of our customers, employees, shareholders and other stakeholders. Given the importance Management’s Discussion and Analysis Consolidated Financial Statements Annual Report 2021 13 Introduction Company Overview Financial Objectives Outlook Recent Developments Performance Results by Quarter Fourth Quarter Business Acquisition, Integration and  Other Expense Finance Costs Income Taxes Contingencies Liquidity and Capital Resources Related Party Transactions Non-IFRS Financial Measures Governance Accounting Estimates and Standards Risk Factors Forward-Looking Information 14 15 15 17 17 19 22 23 25 25 25 25 26 31 31 36 36 39 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 Note 29 Comparative figures 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 98 101 101 102 14 HIGH LINER FOODS Management’s Discussion and Analysis For the fifty-two weeks ended January 1, 2022 (All amounts are in United States dollars unless otherwise stated) Introduction This Management’s Discussion and Analysis (“MD&A”), dated February 23, 2022, relates to the financial condition and results of operations of High Liner Foods Incorporated for the fifty- two weeks ended January 1, 2022 (“Fiscal 2021”) compared to the fourteen and fifty-three weeks ended January 2, 2021 (“Fiscal 2020”). 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 2021 Annual Report and our Annual Audited Consolidated Financial Statements (“Consolidated Financial Statements”) as at and for the fifty-two weeks ended January 1, 2022, 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 23, 2022, 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 2021 was fifty- two weeks, fiscal year 2020 was fifty-three weeks and 2019 was 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. Forward-Looking Statements 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 39 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 hf., 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 2021 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: Return On assets managed On equity Profitability Adjusted EBITDA as a Percentage of Sales Financial strength Fiscal 2021 Fiscal 2020 10.8% 12.2% 9.9% 11.1% 10.3% 10.6% Net Debt to Rolling Twelve-Month Adjusted EBITDA (times) 3.0x 3.0x 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”) 2021 2020 2019 2018 2017 10.8% 9.9% 9.4% 6.6% 8.2% 0 5% 10% 15% In 2021, Adjusted EBIT (as defined in the Non-IFRS Financial Measures section on page 31 of this MD&A) increased by $2.5 million, or 3.9%, compared to 2020 and the thirteen- month rolling average net assets managed decreased by $27.9 million, or 4.3%. The combined impact of these changes was an increase in ROAM from 9.9% at the end of Fiscal 2020 to 10.8% at the end of Fiscal 2021. The increase in Adjusted EBIT in 2021 is a result of the same factors causing the $2.4 million increase in Adjusted EBITDA in 2021 compared to 2020, as discussed in the Consolidated Performance section on page 19 of this MD&A. The decrease in the average net assets managed in 2021 compared to 2020 is primarily due to a decrease in average inventories, intangible assets and right of use assets, and an increase in average accounts payable balances. The decrease in average net assets managed was partially offset by an increase in average accounts receivable and property, plant and equipment balances. MD&A16 HIGH LINER FOODS Return on Equity (“ROE”) 2021 2020 2019 2018 2017 12.2% 11.1% 8.8% 5.8% 12.1% 0 5% 10% 15% In 2021, 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 $7.8 million, or 25.2%, compared to 2020, and the thirteen-month rolling average common equity increased by $38.1 million, or 13.7%. The combined impact of these changes resulted in an increase in ROE from 11.1% at the end of Fiscal 2020 to 12.2% at the end of Fiscal 2021. The increase in Adjusted Net Income in 2021 compared to 2020 is discussed in the Consolidated Performance section on page 19 of this MD&A. Adjusted EBITDA as a Percentage of Sales 2021 2020 2019 2018 2017 10.3% 10.6% 9.1% 6.0% 6.3% 0 3% 6% 9% 12% In 2021, Adjusted EBITDA (as defined in the Non-IFRS Financial Measures section on page 31 of this MD&A) increased by $2.4 million, or 2.7%, compared to 2020 and sales increased by $48.0 million, or 5.8%. The combined impact of these changes resulted in a decrease in Adjusted EBITDA as a Percentage of Sales from 10.6% in 2020 compared to 10.3% in 2021 (see the Non-IFRS Financial Measures section on page 31 of this MD&A). The increase in sales and increase in Adjusted EBITDA are discussed in the Consolidated Performance section on pages 19–21 of this MD&A, respectively. Net Debt to Rolling Twelve-Month Adjusted EBITDA 2021 2020 2019 2018 2017 3.0x 3.0x 4.1x 5.8x 5.9x 0.0 2.5x 5.0x 7.5x During 2021, Net Debt (as defined in the Non-IFRS Financial Measures section on page 31 of this MD&A) increased by $3.1 million and Adjusted EBITDA increased by $2.4 million. As a result, Net Debt to Rolling Twelve-Month Adjusted EBITDA remained consistent with the prior year at 3.0x (see the Non-IFRS Financial Measures section on page 31 of this MD&A). The change in Net Debt is discussed on page 34 of this MD&A and the change in Adjusted EBITDA is discussed in the Consolidated Performance section on page 21 of this MD&A. In the absence of any major acquisitions or unplanned capital expenditures in 2022, we expect this ratio to be below the Company’s long-term target of 3.0x at the end of Fiscal 2022. MD&AAnnual Report 2021 17 Outlook Demand for the Company’s products remains strong, however, like others in the retail and foodservice space, the Company continues to navigate global supply challenges, inflationary pressures on raw material and ongoing uncertainty related to the COVID-19 pandemic. High Liner Foods is taking all necessary steps to mitigate ongoing supply challenges by drawing on the scale of its global supply chain and the diversification of species, product, procurement and strong customer and supplier relationships to support its position. The Company’s performance may be impacted by ongoing global supply chain challenges, inflationary pressures on raw material and other inputs, its ability to successfully implement related pricing actions, and consumer response to inflation- driven price increases. With a strong balance sheet and cash flow, the Company is well equipped to navigate current market conditions and invest in the business, with anticipated capital expenditures of approximately $25.0 million in Fiscal 2022, as we modernize our asset base, explore automation opportunities and maintain and upgrade our facilities. The Company does not have any impending debt maturities and will continue to utilize its $150.0 million working capital credit facility, if required, and remains confident in its liquidity position. High Liner Foods expects its Net Debt to Rolling Twelve-Month Adjusted EBITDA ratio to be below the Company’s long-term target of 3.0x at the end of Fiscal 2022. 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 and suppliers, that could negatively impact the Company’s operations and financial results in future periods. 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 began to be lifted, the surge in demand eased, but the overall impact of COVID-19 on the Company’s retail business continued to be positive throughout Fiscal 2020. The Company was 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 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 included restaurants and schools across North America. Though the overall impact of COVID-19 on the Company’s foodservice business was negative, demand from the Company’s institutional customers, such as long-term and health care facilities, remained relatively stable. Since the initial impact of COVID-19 in March and April 2020, foodservice demand has steadily improved and continues to improve as restrictions are lifted and the Company’s foodservice customers return to pre- COVID business levels. At the same time, the positive impact of COVID-19 on the Company’s retail business has lessened as consumers return to eating at foodservice establishments. Throughout the first nine months of the pandemic, the Company experienced limited issues with the procurement of raw materials and ingredients and limited interruptions in transportation and warehousing activities. However, starting in the first quarter of 2021, the Company began to experience supply challenges and rising freight costs due to global shipping container availability largely related to higher than normal demand as the economy recovers from COVID-19. These challenges have continued throughout 2021 with a competitive labour market, material supply issues, port congestion and shutdowns, and inflationary cost pressures resulting in supply chain delays and incremental costs. During the thirteen weeks ended April 3, 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 the thirteen weeks ended April 3, 2021, the Company recognized $0.9 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. During the thirty- nine weeks ended January 1, 2022, the Company did not participate in this program. In addition, the Company has not participated in any pandemic-related government assistance programs in the United States during Fiscal 2020 and 2021. The Company does not have any unfulfilled conditions or contingencies related to the government assistance received. MD&A18 HIGH LINER FOODS High Liner Foods takes the matter of employee health, safety and well-being very seriously. The Company’s priority during the COVID-19 pandemic has been protecting the health of its employees, their families and communities. Throughout the pandemic, the Company made certain modifications designed to ensure the health and safety of employees, and will continue to implement measures to protect employees and prevent disruption to the Company’s supply chain and operations. See the Risk Factors section beginning on page 39 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 impacting the Company 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; and • 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. 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 applied to tariffs already incurred, or that would otherwise have been incurred, on specific goods from September 24, 2018 to August 7, 2020. 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 and have continued throughout 2021. The estimated annual run-rate exposure of the 25% tariff is approximately $5.0 million based on current volume and raw material costs; however, the Company has implemented plans, including pricing actions and other supply chain initiatives, to mitigate the impact of these tariffs and reduce the estimated impact to the Company and its customers. 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. Refinancing of Term Loan Facility During March 2021, the Company announced the refinancing of its term loan facility (see Note 14 “Long-term debt” to the Consolidated Financial Statements for further information). The term loan facility was amended to decrease the applicable interest rates for loans under the facility from LIBOR plus 4.25% (1.00% LIBOR floor) to LIBOR plus 3.75% (0.75% LIBOR floor). All other material terms of the facility remained unchanged, including the maturity date of October 2026. The amendments to the facility were not assessed as a substantial modification, and as a result, the deferred finance costs related to the original facility continue to be amortized over the remaining term. In addition, the Company incurred finance costs of $0.9 million. As the net present value of the cash flows of the modified debt was lower than the carrying value of the original facility before the amendments, a modification gain of $7.8 million was recorded in finance costs on the consolidated statements of income during the fifty-two weeks ended January 1, 2022. MD&AAnnual Report 2021 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-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 233.7 1.2535 875,405 198,544 22.7% 50,807 88,269 90,422 10.3% 42,249 1.25 1.20 44,798 1.32 1.28 826,469 264,857 0.310 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 240.9 1.3409 827,453 177,924 21.5% 45,076 73,926 88,045 10.6% 28,802 0.85 0.83 35,211 1.04 1.02 776,558 295,413 0.220 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Fifty-two weeks ended December 28, 2019 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 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Change (7.2) (0.0874) 47,952 20,620 1.2% 5,731 14,343 2,377 (0.3%) 13,447 0.40 0.37 9,587 0.28 0.26 49,911 (30,556) 0.09 (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. DISTRIBUTION EXPENSES Distribution expenses increased in 2021 by $5.7 million to $50.8 million compared to $45.1 million in 2020 primarily reflecting the higher freight costs related to global supply chain challenges, partially offset by the lower sales volumes mentioned previously and lower storage costs. As a percentage of sales, distribution expenses increased to 5.8% in 2021 compared to 5.4% in the same period in 2020. SALES Sales volume in 2021 decreased by 7.2 million pounds, or 3.0%, to 233.7 million pounds compared to 240.9 million pounds in 2020. In our foodservice business, sales volume was higher due to the significantly reduced COVID-19 restrictions on the Company’s foodservice customers in 2021 as compared to 2020, partially offset by the impact of global supply chain challenges on raw material supply to North America. In our retail business, sales volume was lower primarily due to lapping the significant surge in demand at the onset of the COVID-19 pandemic that did not repeat during 2021 and evolving consumer behaviour during the COVID-19 pandemic. The decline in sales volume in 2021 was partially offset by new business and new product sales. Sales in 2021 increased by $47.9 million, or 5.8%, to $875.4 million compared to $827.5 million in 2020. The increase in sales reflects the lower sales volumes mentioned above being more than offset by favourable changes in sales mix, lower promotional activity and pricing actions related to inflationary increases on input costs. In addition, the stronger Canadian dollar in 2021 compared to 2020 increased the value of reported USD sales from our CAD-denominated operations by approximately $14.3 million relative to the conversion impact last year. GROSS PROFIT Gross profit increased in 2021 by $20.6 million, or 11.6%, to $198.5 million compared to $177.9 million in 2020 and gross profit as a percentage of sales increased to 22.7% compared to 21.5% in 2020. The increase in gross profit reflects the favourable changes in the product mix reflected in the improved gross profit as a percentage of sales, offset by the decrease in sales volume previously discussed. In addition, the stronger Canadian dollar increased the value of reported USD gross profit from our Canadian operations in 2021 by approximately $3.6 million relative to the conversion impact last year. SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) EXPENSES (Amounts in $000s) Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 SG&A expenses, as reported $ 88,269 $ 73,926 Less: Share-based compensation  expense(1) Depreciation and amortization  expense(1) 7,722 5,766 10,317 10,701 SG&A expenses, net $ 70,230 $ 57,459 SG&A expenses, net as a  percentage of sales 8.0% 6.9% (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 increased by $14.4 million to $88.3 million in 2021 as compared to $73.9 million in 2020. SG&A expenses included share-based compensation expense of $7.7 million in 2021 compared to $5.8 million in 2020, primarily due to improved share price performance in 2021 compared to 2020. SG&A expenses also included depreciation and amortization expense of $10.3 million in 2021 compared to $10.7 million in 2020. Excluding share-based compensation and depreciation and amortization expenses, SG&A expenses increased in 2021 by $12.7 million to $70.2 million compared to $57.5 million in 2020, due to the higher consumer marketing expenditures in the current year primarily related to supporting our brands in both the U.S. and Canada retail businesses. In addition, the Company experienced higher administrative expenses in 2021 primarily due to the non-repeat of pandemic-related cost reductions and wage subsidies received in 2020. As a percentage of sales, SG&A excluding share-based compensation and depreciation and amortization expense increased to 8.0% in 2021 compared to 6.9% in 2020. MD&AAnnual Report 2021 21 In 2021 and 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. Excluding the impact of these non-routine items, other non- cash expenses, share-based compensation and the gain on modification of debt in the first quarter of 2021, Adjusted Net Income in 2021 increased by $9.6 million, or 27.3%, to $44.8 million compared to $35.2 million in 2020. Adjusted Diluted EPS increased $0.26 in 2021 to $1.28 compared to $1.02 in 2020. ADJUSTED EBITDA We refer to Adjusted EBITDA throughout this MD&A in discussing our results for the thirteen and fifty-two weeks ended January 1, 2022. See the Non-IFRS Financial Measures section on page 31 for further explanation of this non-IFRS measure. Adjusted EBITDA increased in 2021 by $2.4 million, or 2.7%, to $90.4 million compared to $88.0 million in 2020 and as a percentage of sales, Adjusted EBITDA decreased to 10.3% compared to 10.6%. The increase in Adjusted EBITDA is a result of the increase in gross profit partially offset by the increase in distribution and net SG&A expenses, all discussed previously. In addition, the stronger Canadian dollar increased the value of reported Adjusted EBITDA in USD from our Canadian operations in 2021 by approximately $2.0 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 2021 by $13.4 million, or 46.5%, to $42.2 million ($1.20 per diluted share) compared to $28.8 million ($0.83 per diluted share) in 2020. The increase in net income reflects a decrease in finance costs primarily reflecting the gain on modification of debt related to the debt refinancing completed in March 2021 (see the Recent Developments section on page 17 and the Finance Costs section on page 25 of this MD&A). The increase in net income was also a result of the increase in Adjusted EBITDA, partially offset by the increase in share-based compensation expense, both discussed previously. MD&A22 HIGH LINER FOODS Results by Quarter The following table provides summarized financial information for the last eight quarters: FISCAL 2021 (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 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) First quarter 243,413 27,803 17,828 0.53 0.51 14,060 0.41 0.40 0.07 188,063 First quarter 268,588 30,705 14,227 0.42 0.41 14,288 0.42 0.41 0.05 252,323 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Second quarter 189,811 19,575 8,021 0.23 0.23 10,378 0.31 0.30 0.07 194,410 Second quarter 165,829 17,087 3,382 0.10 0.10 4,660 0.14 0.14 0.05 234,348 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Third quarter 214,302 22,444 9,177 0.27 0.26 11,281 0.33 0.32 0.07 207,582 Third quarter 194,621 19,068 3,821 0.11 0.11 5,948 0.18 0.18 0.05 199,569 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Fourth quarter 227,879 20,600 7,223 0.22 0.20 9,079 0.27 0.26 0.10 232,832 Fourth quarter 198,415 21,185 7,372 0.22 0.21 10,315 0.30 0.29 0.07 193,960 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Full year 875,405 90,422 42,249 1.25 1.20 44,798 1.32 1.28 0.31 232,832 Full year 827,453 88,045 28,802 0.85 0.83 35,211 1.04 1.02 0.22 193,960 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (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. Represents the amount as at the end of the period. 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 income (loss) Basic EPS Diluted EPS Adjusted Net Income(1) Adjusted EPS Adjusted Diluted EPS(1) Annual Report 2021 23 Thirteen weeks ended January 1, 2022 Fourteen weeks ended January 2, 2021 58.7 1.2606 227,879 48,605 21.3% 14,119 21,746 20,600 9.0% 7,223 0.22 0.20 9,079 0.27 0.26 $ $ $ $ $ $ $ $ $ $ $ $ 59.6 1.3045 198,415 43,520 21.9% 11,365 20,029 21,185 10.7% 7,372 0.22 0.21 10,315 0.30 0.29 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Thirteen weeks ended December 28, 2019 59.7 1.3206 221,625 44,502 20.1% 11,384 18,577 $ $ $ $ $ Change (0.9) (0.0439) 29,464 5,085 (0.6)% 2,754 1,717 (585) $ 18,771 (1.7)% 8.5% (149) $ (3,019) — $ (0.01) $ (1,236) $ 0.03 0.03 $ $ (0.09) (0.09) 5,675 0.17 0.17 (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 thirteen weeks ended January 1, 2022, or the fourth quarter of 2021, decreased by 0.9 million pounds, or 1.5%, to 58.7 million pounds compared to 59.6 million pounds in the fourteen weeks ended January 2, 2021, or the fourth quarter of 2020. In our foodservice business, sales volume was lower due to the impact of global supply chain challenges on raw material supply to North America. In our retail business, sales volume was consistent with the same period last year due to evolving consumer behaviour during the COVID-19 pandemic. Sales volume was favourably impacted by new business and new product sales. Sales in the fourth quarter of 2021 increased by $29.5 million, or 14.9%, to $227.9 million compared to $198.4 million in the same period last year, reflecting pricing actions related to inflationary increases on input costs and favourable changes in sales mix, partially offset by the lower sales volumes discussed above. In addition, the stronger Canadian dollar in the fourth quarter of 2021 compared to the same quarter of 2020 increased the value of USD sales from our CAD- denominated operations by approximately $1.9 million relative to the conversion impact last year. GROSS PROFIT Gross profit increased in the fourth quarter of 2021 by $5.1 million, or 11.7%, to $48.6 million compared to $43.5 million in the same period in 2020 and gross profit as a percentage of sales decreased to 21.3% compared to 21.9%. The increase in gross profit reflects favorable changes in product mix, offset by higher than expected inflation and the lower sales volume discussed above. In addition, the stronger Canadian dollar increased the value of reported USD gross profit from our Canadian operations in 2021 by approximately $0.4 million relative to the conversion impact last year. DISTRIBUTION EXPENSES Distribution expenses, consisting of freight and storage, increased in the fourth quarter of 2021 by $2.7 million to $14.1 million compared to $11.4 million in the same period in 2020, reflecting increased freight costs related to global supply challenges as discussed in the Recent Developments section on page 17 of this MD&A. As a percentage of sales, distribution expenses increased to 6.2% in the fourth quarter of 2021 compared to 5.7% in the same period in 2020. MD&ANET INCOME Net income decreased in the fourth quarter of 2021 by $0.2 million, or 2.7%, to net income of $7.2 million ($0.20 per diluted share) compared to net income of $7.4 million ($0.21 per diluted share) in 2020. The decrease in net income was due to the decrease in Adjusted EBITDA and decrease in share-based compensation expense, both discussed previously, and a decrease in finance costs as discussed below in the Finance Costs section on page 25 of this MD&A. The increase in net income was partially offset by an increase in income tax expense as discussed in the Income Taxes section on page 25 on this MD&A. In the fourth quarter of 2021 and 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. Excluding the impact of these non- routine items or other non-cash expenses and share-based compensation, Adjusted Net Income in the fourth quarter of 2021 decreased by $1.2 million or 11.7% to $9.1 million compared to $10.3 million in 2020. Correspondingly, Adjusted Diluted EPS decreased by $0.03 to $0.26 compared to $0.29 in 2020. 24 HIGH LINER FOODS SG&A EXPENSES SG&A expenses increased in the fourth quarter of 2021 by $1.7 million to $21.7 million compared to $20.0 million in the same period last year. SG&A expenses included share-based compensation expense of $2.0 million in the fourth quarter of 2021 compared to $2.9 million for the same period in 2020, primarily due to a lower expected performance multiplier for performance-based awards and a smaller improvement in share price performance during the current year as compared to the same period in the prior year, slightly offset by higher units outstanding in the current year as compared to the same period in the prior year. SG&A expenses also included depreciation and amortization expense of $2.6 million in the fourth quarter of 2021 and $2.8 million in the same period of 2020. Excluding share-based compensation and depreciation and amortization expenses, SG&A expenses increased in the fourth quarter of 2021 by $2.9 million to $17.2 million compared to $14.3 million in the same period last year, due to higher consumer marketing expenditures in the current year as mentioned previously and higher administrative expenses due to the non-repeat of pandemic-related cost reductions and wage subsidies received in the fourth quarter of 2020. As a percentage of sales, SG&A excluding share-based compensation and depreciation and amortization expense increased to 7.5% in the fourth quarter of 2021 compared to 7.2% in the same period last year. ADJUSTED EBITDA Adjusted EBITDA decreased in the fourth quarter of 2021 by $0.6 million, or 2.8%, to $20.6 million compared to $21.2 million in 2020 and as a percentage of sales, Adjusted EBITDA decreased to 9.0% compared to 10.7%. The decrease in Adjusted EBITDA reflects the increase in gross profit, partially offset by the increase in distribution expenses and net SG&A expenses, all discussed previously. In addition, the stronger Canadian dollar increased the value of reported Adjusted EBITDA in USD from our Canadian operations in 2021 by approximately $0.3 million relative to the conversion impact last year. MD&AAnnual Report 2021 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) Thirteen weeks ended January 1, 2022 Fourteen weeks ended January 2, 2021 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 Business acquisition, integration and other expense $ 480 $ 967 $ 2,850 $ 2,767 Business acquisition, integration and other expense for the fifty-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021 included certain non-routine expenses and consulting fees that are not representative of the Company’s ongoing operational activities. 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 gain related to debt refinancing activities(1) Interest expense on lease liabilities Deferred financing cost & net modification loss amortization Thirteen weeks ended January 1, 2022 Fourteen weeks ended January 2, 2021 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 3,046 $ 4,906 $ 14,321 $ 19,271 185 3,231 — 150 323 (850) 4,056 — 288 327 (860) 13,461 (7,901) 624 1,310 (2,251) 17,020 — 1,192 1,271 Total finance costs $ 3,704 $ 4,671 $ 7,494 $ 19,483 (1) The fifty-two weeks ended January 1, 2022 includes a gain on the modification of debt related to the debt refinancing completed in March 2021 (see the Recent Developments section on page 17 of this MD&A). Finance costs were $1.0 million lower in the fourth quarter of 2021 and $12.0 million lower in the fifty-two weeks ended January 1, 2022 compared to the same periods last year. The decrease during the fifty-two weeks ended January 1, 2022 was due to the gain on the modification of debt related to the debt refinancing completed in March 2021 (see the Recent Developments section on page 17 of this MD&A), and decreased interest expense on both long- and short-term debt, due to lower balances outstanding and lower rates. Income Taxes High Liner Foods’ effective income tax rate for the year ended January 1, 2022 was 13.9% compared to 21.5% in 2020. In the fourth quarter of 2021, the effective tax rate was an expense of 15.6% compared to a recovery of 13.6% in the fourth quarter of 2020. The lower effective tax rate for the year and quarter ended January 1, 2022 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 applicable statutory rates in Canada and the U.S. were 27.9% and 25.9%, respectively. See Note 18 “Income tax” to the Consolidated Financial Statements for full information with respect to income taxes. Contingencies The Company has no material outstanding contingencies. MD&A26 HIGH LINER FOODS 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 2021 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 2021. 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 1, 2022 are also noted in the following table. Per credit agreement As at January 1, 2022 Canadian Prime Rate revolving loans, Canadian Prime Rate revolving and U.S. Prime Rate  revolving loans, at their respective rates Bankers’ Acceptances (“BA”) revolving loans, at BA rates LIBOR revolving loans at LIBOR, at their respective rates Letters of credit, with fees of Standby fees, required to be paid on the unutilized facility, of Average short-term borrowings outstanding during 2021 were $0.6 million compared to $40.5 million in 2020. The $39.9 million decrease in average short-term borrowings primarily reflects lower working capital requirements during 2021 as compared to 2020 and increased short-term borrowings during 2020 to support operations as a result of COVID-19 (see the Recent Developments section on page 17 of this MD&A). At the end of the fourth quarter of 2021, the Company had $117.1 million (January 2, 2021: $132.2 million) of unused borrowing availability, taking into account both current borrowing base and letters of credit, which reduce the availability under the working capital credit facility. On January 1, 2022, letters of credit and standby letters of credit were outstanding in the amount of $27.0 million (January 2, 2021: $12.9 million) to support raw material purchases and to secure certain contractual obligations, including those related to the Company’s Supplemental Executive Retirement Plan (“SERP”). 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 or unplanned capital expenditures, we expect average short-term borrowings in 2022 to be higher than 2021. We believe the asset-based working capital credit facility should be sufficient to fund all of the Company’s anticipated cash requirements. 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% Term Loan Facility As at January 1, 2022, the Company had a $300.0 million term loan facility with an interest rate of LIBOR plus 3.75% (LIBOR floor of 0.75%), maturing in October 2026. During 2021 the Company repriced this Term Loan B facility to bear interest at LIBOR plus 3.75% and a LIBOR floor of 0.75% (previously 4.25% and 1.00%, respectively) (see the Recent Developments section on page 17 of this MD&A). All other material terms of the loan remain unchanged, including the maturity date previously noted. The Company expects to save approximately $2.0 million of annual cash interest expense based on the borrowings and LIBOR rates at the time of refinancing as a result of this amendment. 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-two weeks ended January 1, 2022, a regularly scheduled repayment of $1.9 million and a voluntary repayment of $7.5 million were made. A mandatory prepayment of $20.2 million was also made due to excess cash flows in 2020. Under the March 2021 refinanced term loan agreement, any mandatory and voluntary repayments made prior to the time of refinancing were not applied to future regularly scheduled principal repayments. MD&AAnnual Report 2021 27 However, the $7.5 million voluntary repayment made during the second quarter of 2021 was applied against future scheduled principal repayments in the last three quarters of 2021 and the first quarter of 2022, leaving $5.6 million in regularly scheduled repayments remaining in the next 12 months. There are no mandatory prepayments related to excess cash flows in 2021 scheduled in 2022. Substantially all tangible and intangible assets (excluding working capital) of the Company are pledged as collateral for the term loan. During the fifty-two weeks ended January 1, 2022, 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) April 4, 2016 January 4, 2018 March 4, 2020 April 26, 2021 April 26, 2021 April 26, 2021 June 30, 2021 April 24, 2021 3-month LIBOR (floor 1.0%) 1.6700%   $ April 24, 2021 3-month LIBOR (floor 1.0%) 2.2200%   $ June 30, 2021 3-month LIBOR (floor 1.0%) 1.4950%   $ July 7, 2023 3-month LIBOR (floor 0.75%) 0.8250%   $ July 8, 2024 3-month LIBOR (floor 0.75%) 0.9700%   $ July 6, 2026 3-month LIBOR (floor 0.75%) 1.3385%   $ December 31, 2025 3-month LIBOR (floor 0.75%) 1.3610%   $ 40.0 80.0 20.0 25.0 25.0 35.0 20.0 As of January 1, 2022, the combined impact of the outstanding interest rate swaps listed above effectively fix the interest rate on $105.0 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 0.75%. 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 31 of this MD&A) is comprised of the working capital credit and term loan facilities (excluding deferred finance costs and modification gains / losses) and lease liabilities, less cash. Net Debt increased by $3.0 million to $271.0 million at January 1, 2022 compared to $268.0 million at January 2, 2021, reflecting higher bank loans and lower cash balances as at January 1, 2022 as compared to the balances at January 2, 2021, partially offset by lower long-term debt reflecting repayments of long-term debt during 2021, and lower lease liabilities at the end of Fiscal 2021 as compared to the end of Fiscal 2020. Net Debt to Rolling Twelve-Month Adjusted EBITDA (see the Non-IFRS Financial Measures section on page 31 of this MD&A) was 3.0x at January 1, 2022 compared to 2.8x at October 2, 2021 and 3.0x at the end of Fiscal 2020. In the absence of any major acquisitions or unplanned capital expenditures in 2022, we expect this ratio to be below the Company’s long-term target of 3.0x at the end of Fiscal 2022. Capital Structure At January 1, 2022, Net Debt was 45.0% of total capitalization compared to 47.8% at January 2, 2021. (Amounts in $000s) Net Debt Shareholders’ equity Unrealized (gains) losses on derivative financial instruments included in AOCI Total capitalization Net debt as percentage of total capitalization January 1, 2022 January 2, 2021 $ 271,041 $ 267,968 332,524 (1,148) 291,002 1,289 $ 602,417 $ 560,259 45.0% 47.8% Using our January 1, 2022 market capitalization of $392.6 million, based on a share price of CAD$14.91 (USD$11.78 equivalent), instead of the book value of equity, Net Debt as a percentage of total capitalization decreases to 40.8%. MD&A28 HIGH LINER FOODS Normal Course Issuer Bid In June 2021, the Company announced that the Toronto Stock Exchange approved a Normal Course Issuer Bid to repurchase up to 150,000 common shares. The price the Company will pay for any common shares acquired will be the market price at the time of acquisition. Purchases could commence on June 23, 2021 and will terminate no later than June 22, 2022. During the fifty-two weeks ended January 1, 2022 the Company purchased 122,100 common shares under this plan at an average price of CAD$13.37 per share for total cash consideration of CAD$1.6 million. The excess of the purchase price over the book value of the shares in the amount of $1.0 million was charged to retained earnings. 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. 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 terminated on March 9, 2021. During the fifty-three weeks ended January 2, 2021 there were 60,000 shares purchased 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. 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 2021, the Board approved a quarterly dividend of CAD$0.10 per common share, which represents a 3.0 cents increase from the CAD$0.07 per common share paid during the first three quarters of 2021, commencing with the Company’s Q4 2021 quarterly dividend. The increase reflects the Board’s continued confidence in the Company’s operations. 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, 2021 September 1, 2021 June 1, 2021 March 3, 2021 December 1, 2020 September 1, 2020 June 1, 2020 March 1, 2020 Quarterly dividend (CAD)   $   $   $   $   $   $   $   $ 0.10 0.07 0.07 0.07 0.07 0.05 0.05 0.05 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 $121.3 million on January 1, 2022, 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 1, 2022. 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 under the term loan facility. On February 23, 2022, the Directors approved a quarterly dividend of CAD$0.10 per share on the Company’s common shares payable on March 15, 2022 to holders of record on March 2, 2022. These dividends are “eligible dividends” for Canadian income tax purposes. MD&AAnnual Report 2021 29 Disclosure of Outstanding Share Data On February 23, 2022, 33,329,710 common shares and 1,447,096 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 (used in) provided by operating activities Net cash flows used in financing activities Net cash flows used in investing activities Foreign exchange (decrease) increase on cash Thirteen weeks ended January 1, 2022 Fourteen weeks ended January 2, 2021 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 Change Change $ (8,044) $ 22,304 $ (30,348) $ 28,685 $ 102,997 $ (74,312) (260) (6,932) (149) (33,209) (2,476) 1,109 32,949 (4,456) (1,258) (41,421) (20,319) 563 (63,859) (8,952) (395) 22,438 (11,367) 958 Net change in cash during the period $ (15,385) $ (12,272) $ (3,113) $ (32,492) $ 29,791 $ (62,283) CASH FLOWS FROM OPERATING ACTIVITIES Cash inflows from operating activities were $74.3 million lower in 2021 compared to 2020. The decrease in cash inflows in 2021 was due to unfavourable changes in non-cash working capital balances including an increase in accounts receivable and inventories and partially offset by an increase in accounts payable and accrued liabilities. The decrease in cash inflows related to non-cash working capital balances was offset by lower income taxes paid, lower interest paid and higher cash flows provided by operations. CASH FLOWS FROM FINANCING ACTIVITIES Cash outflows from financing activities were $22.4 million lower in 2021 compared to 2020. The decrease in cash outflows in 2021 was due to the cash inflows related to short- term borrowings in 2021 as compared to cash outflows from repayment of short-term debt in 2020 (see the Liquidity and Capital Resources section beginning on page 26 of this MD&A) and was offset by repayments of long-term debt in the current year and higher common share dividends paid in the current year as compared to 2020. CASH FLOWS FROM INVESTING ACTIVITIES Net Non-Cash Working Capital (Amounts in $000s) Accounts receivable Inventories Prepaid expenses Accounts payable and accrued liabilities Provisions Net non-cash working capital Cash outflows from investing activities were $11.4 million higher in 2021 compared to the same period last year due to increased capital expenditures (see the Capital Expenditures section beginning on page 30 of this MD&A). Standardized Free Cash Flow Standardized Free Cash Flow (see the Non-IFRS Financial Measures section on page 31 for further explanation of Standardized Free Cash Flow) for the twelve months ended January 1, 2022 decreased by $85.6 million to an inflow of $8.4 million compared to an inflow of $94.0 million for the twelve months ended January 2, 2021. This decrease reflects unfavourable changes in non-cash working capital and increased capital expenditures, offset by higher cash flows from operating activities during the twelve months ended January 1, 2022 as compared to the twelve months ended January 2, 2021. January 1, 2022 January 2, 2021 $ 87,122 $ 60,927 $ 308,183 3,419 250,861 4,176 Change 26,195 57,322 (757) (165,720) (118,677) (47,043) (172) (3,327) 3,155 $ 232,832 $ 193,960 $ 38,872 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 increased by $38.8 million to $232.8 million at January 1, 2022 as compared to $194.0 million at January 2, 2021, primarily reflecting higher accounts receivable and inventories balances and lower provisions, offset by higher 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, as described in the “Seasonality” section on page 19 of this MD&A. 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 2022. Capital Expenditures Capital expenditures (including computer software) were $6.9 million and $20.3 million during the fourth quarter and thirteen and fifty-two weeks ended January 1, 2022, respectively, as compared to capital expenditures of $2.5 million and $9.0 million during the fourth quarter and fifty-three weeks ended January 2, 2021, respectively. Capital expenditures have increased versus the prior year as a result of deferring capital expenditures that had been planned for Fiscal 2020 into Fiscal 2021 due to the impact of the uncertainty related to the COVID-19 pandemic on the feasibility of completing capital projects. In addition, the Company is investing in capital expenditures to support growth and profitability. Excluding strategic initiatives that may arise, management expects that capital expenditures in 2022 will be approximately $25.0 million and funded by cash generated from operations and short-term borrowings. Contractual Obligations Other Liquidity Items SHARE-BASED COMPENSATION AWARDS Share-based compensation expense increased to $7.8 million in 2021 compared to $5.9 million in 2020 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 2021, unit holders exercised Performance Share Units (“PSUs”) and Restricted Share Units (“RSUs”) and received cash in the amount of $2.1 million (2020: $4.1 million). The liability for share-based compensation awards at the end of Fiscal 2021 was $13.4 million compared to $9.2 million at the end of Fiscal 2020. 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 2021 was $nil (2020: $nil). DEFINED BENEFIT PENSION PLANS The Company’s defined benefit pension plans can impact the Company’s cash flow requirements and liquidity. In 2021, the defined benefit pension expense for accounting purposes was $2.6 million (2020: $1.9 million) and the annual cash contributions were $1.2 million higher than the 2021 accounting expense (2020: $0.4 million higher). For 2022, we expect cash contributions to be approximately CAD$1.8 million and the defined benefit pension expense to be approximately CAD$1.1 million. We have more than adequate availability under our working capital credit facility to make the required future cash contributions to our defined benefit pension plans. As well, we have a SERP liability for accounting purposes of $6.8 million that is secured by a letter of credit in the amount of $8.5 million. Contractual obligations relating to our bank loans, long-term debt, lease liabilities, and purchase obligations as at January 1, 2022 were as follows: (Amounts in $000s) Bank loans Long-term debt Lease liabilities Purchase obligations Total contractual obligations Total Less than 1 year 1–5 years Thereafter Payments due by period $ 4,551 $ 4,551 $ — $ 318,124 12,397 189,482 19,596 4,963 179,326 298,528 7,373 10,155 $ 524,554 $ 208,436 $ 316,056 $ — — 61 — 61 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 41 and the Foreign Currency section on page 47 of this MD&A for further details. MD&AAnnual Report 2021 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 2021 Consolidated Financial Statements for further discussion of the Company’s financial risks and policies. Related Party Transactions The Company’s business is carried on through the Parent company, High Liner Foods Incorporated, and wholly owned operating 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. The Company had no related party transactions, excluding key management personnel compensation, for the fifty-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021. Non-IFRS Financial Measures The Company uses the following non-IFRS financial measures and ratios (together, “measures”) in this MD&A: Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”); Adjusted EBITDA as a Percentage of Sales; 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. The Company believes these non- IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below. These 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. Adjusted EBITDA and Adjusted EBITDA as Percentage of Sales Adjusted EBITDA is defined as 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, Adjusted EBITDA as a Percentage of Sales, is defined as Adjusted EBITDA divided by net sales, where net sales is defined as “Sales” on the consolidated statements of income. We use Adjusted EBITDA (and Adjusted EBITDA as a percentage of sales) as a performance measure as it approximates cash generated from operations before capital expenditures and changes in working capital, and it excludes the impact of expenses and recoveries associated with certain non-routine items that are not considered representative of the ongoing operational activities, as discussed above, and share-based compensation expense related to the Company’s share price. We believe investors and analysts also use Adjusted EBITDA (and Adjusted EBITDA as a percentage of sales) to evaluate the performance of our business. The most directly comparable IFRS measure to Adjusted EBITDA is “Net income” on the consolidated statements of income. Adjusted EBITDA is also useful when comparing to other 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. MD&A32 HIGH LINER FOODS The following table reconciles Adjusted EBITDA with measures that are found in our Consolidated Financial Statements, and calculates Adjusted EBITDA as a Percentage of Sales. (Amounts in $000s) Net income Add back (deduct):  Depreciation and amortization expense  Finance costs  Income tax expense (recovery) Standardized EBITDA Add back (deduct):  Business acquisition, integration and other expenses  Loss on disposal of assets  Share-based compensation expense Adjusted EBITDA Net Sales Adjusted EBITDA as Percentage of Sales (Amounts in $000s) Net income Add back (deduct):  Depreciation and amortization expense  Finance costs  Income tax expense Standardized EBITDA Add back (deduct):  Business acquisition, integration and other expenses  Impairment of property, plant and equipment  Loss on disposal of assets  Share-based compensation expense Adjusted EBITDA Net Sales Adjusted EBITDA as a Percentage of Sales Thirteen weeks ended January 1, 2022 Fourteen weeks ended January 2, 2021 $ 7,223 $ 7,372 5,770 3,704 1,333 18,030 521 67 1,982 6,044 4,671 (884) 17,203 968 60 2,954 $ 20,600 $ 227,879 $ 21,185 $ 198,415 9.0% 10.7% Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 42,249 $ 28,802 23,081 7,494 6,833 79,657 2,850 42 122 7,751 23,228 19,483 7,870 79,383 2,767 — 34 5,861 $ 90,422 $ 875,405 $ 88,045 $ 827,453 10.3% 10.6% Adjusted Net Income and Adjusted Diluted EPS Adjusted Net Income is net income adjusted for the after-tax impact of items which are not representative of ongoing operational activities of the business and certain non-cash expenses or income. Adjusted Diluted EPS is Adjusted Net Income divided by the average diluted number of shares outstanding. We use Adjusted Net Income and Adjusted Diluted EPS to assess the performance of our business without the effects of the above-mentioned items, and we believe our investors and analysts also use these measures. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. The most comparable IFRS financial measures are net income and EPS. MD&A The table below reconciles our Adjusted Net Income with measures that are found in our Consolidated Financial Statements and calculates Adjusted Diluted EPS. Annual Report 2021 33 Net income Add back (deduct): Business acquisition, integration and other expenses Share-based compensation expense 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 Gain on modification of debt(1) Impairment of property, plant and equipment Share-based compensation expense Tax impact of reconciling items Adjusted Net Income Average shares for the period (000s) Thirteen weeks ended January 1, 2022 $000s Adjusted Diluted EPS Fourteen weeks ended January 2, 2021 $000s Adjusted Diluted EPS $ 7,223 $ 0.20 $ 7,372 $ 0.21 521 1,982 (647) 0.01 0.06 (0.02) 968 2,954 (979) $ 9,079 $ 0.26 $ 10,315 $ 35,171 0.03 0.08 (0.03) 0.29 34,375 Fifty-two weeks ended January 1, 2022 $000s Adjusted Diluted EPS Fifty-three weeks ended January 2, 2021 $000s Adjusted Diluted EPS $ 42,249 $ 1.20 $ 28,802 $ 0.83 2,850 (7,901) 42 7,751 (193) 0.08 (0.22) — 0.23 (0.01) 2,767 — — 5,861 (2,219) $ 44,798 $ 1.28 $ 35,211 $ 35,121 0.08 — — 0.17 (0.06) 1.02 34,519 (1) Included in the “Finance costs” line in the consolidated statements of income for the fifty-two weeks ended January 1, 2022 and represents a gain on the modification of debt related to the debt refinancing completed in March 2021 (see the Recent Developments section on page 17 of this MD&A and Note 14 to the Consolidated Financial Statements). MD&A34 HIGH LINER FOODS Standardized Free Cash Flow Standardized Free Cash Flow is cash flow provided by operating activities less capital expenditures (net of investment tax credits) as reported in the consolidated statements of cash flows. The capital expenditures related to business acquisitions are not deducted from Standardized Free Cash Flow. We believe Standardized Free Cash Flow is an important indicator of financial strength and performance of our business because it shows how much cash is available to pay dividends, repay debt (including lease liabilities) and reinvest in the Company. We believe investors and analysts use Standardized Free Cash Flow to value our business and its underlying assets. The most comparable IFRS financial measure is “cash flows provided by operating activities” in the consolidated statements of cash flows. The table below reconciles our Standardized Free Cash Flow calculated on a rolling twelve-month basis, with measures that are in accordance with IFRS and as reported in the consolidated statements of cash flows. (Amounts in $000s) Cash flow provided by operations before changes in non-cash working capital, interest and income taxes paid Net change in non-cash working capital balances Interest paid Income taxes paid Cash flows provided by operating activities Less: Purchase of property, plant and equipment, net of investment tax credits, and intangible assets Twelve months ended January 1, 2022 January 2, 2021 $ 89,340 (40,685) (14,321) (5,649) 28,685 (20,319) 86,976 42,476 (19,271) (7,184) 102,997 (8,952) Change $ 2,364 (83,161) 4,950 1,535 (74,312) (11,367) Standardized Free Cash Flow $ 8,366 $ 94,045 $ (85,679) Net Debt and Net Debt to Rolling Twelve-Month Adjusted EBITDA Net Debt is calculated as the sum of bank loans, long-term debt (excluding deferred finance costs and modification gains/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. Net Debt to Rolling Twelve-Month Adjusted EBITDA is calculated as Net Debt divided by Adjusted EBITDA (see page 31). We consider Net Debt to Rolling Twelve-Month Adjusted EBITDA to be an important indicator of our ability to generate earnings sufficient to service our debt, that enhances understanding of our financial performance and highlights operational trends. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies; however, the calculations of Adjusted EBITDA may not be comparable to those of other companies, which limits their usefulness as comparative measures. MD&A The following table reconciles Net Debt to IFRS measures reported as at the end of the indicated periods in the consolidated statements of financial position and calculates Net Debt to Rolling Twelve-Month Adjusted EBITDA. Annual Report 2021 35 (Amounts in $000s) Bank loans Add back: Deferred finance costs included in bank loans(1) Total bank loans Long-term debt Current portion of long-term debt Add back: Deferred finance costs included in long-term debt(2) Less: Net loss on modification of debt(3) Total term loan debt Long-term portion of lease liabilities Current portion of lease liabilities Total lease liabilities Less: Cash Net Debt Adjusted EBITDA Net Debt to Rolling Twelve-Month Adjusted EBITDA January 1, 2022 January 2, 2021 $ 4,388 $ 163 4,551 — — — 244,994 268,048 5,625 5,810 (674) 20,185 5,979 (8,897) 255,755 285,315 6,851 4,327 11,178 (443) $ $ 271,041 90,422 $ $ 3.0x 10,722 4,866 15,588 (32,935) 267,968 88,045 3.0x (1) Represents deferred finance costs that are included in “Bank loans” in the consolidated statements of financial position. See Note 11 to the Consolidated Financial Statements. (2) Represents deferred finance costs that are included in “Long-term debt” in the consolidated statements of financial position. See Note 14 to the Consolidated Financial Statements. (3) A gain on modification of debt related to the refinancing completed in March 2021 (see the Recent Developments section on page 17 of this MD&A), net of a loss on the modification of debt related to 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. See Note 14 to the Consolidated Financial Statements. Return on Assets Managed Return on Equity 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). Adjusted EBIT is Adjusted EBITDA less depreciation and amortization expense. We believe investors and analysts use ROAM as an indicator of how efficiently the Company is using its assets to generate earnings. The table below reconciles Adjusted EBIT to the non-IFRS measure, Adjusted EBITDA (see page 31 of this MD&A), and calculates ROAM using our average net assets, calculated on a rolling thirteen-month basis, and Adjusted EBIT. 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. The table below calculates ROE using our average common equity calculated on a rolling thirteen-month basis, and Adjusted Net Income (see page 32 of this MD&A). (Amounts in $000s) Adjusted Net Income January 1, 2022 January 2, 2021 $ 44,798 $ 35,211 (Amounts in $000s) Adjusted EBITDA January 1, 2022 January 2, 2021 Less: Share-based compensation expense $ 90,422 $ 88,045 Tax impact of reconciling items Less: Depreciation and amortization expense 23,081 23,228 Adjusted EBIT $ 67,341 $ 64,817 Thirteen-month rolling average  net assets managed ROAM 625,132 652,998 10.8% 9.9% Thirteen-month rolling average  common equity ROE 7,751 (1,581) 38,628 5,861 (1,505) 30,855 316,812 278,728 12.2% 11.1% MD&A36 HIGH LINER FOODS Governance Our 2021 Management Information Circular, to be filed in connection with our Annual General Meeting of Shareholders on May 11, 2022, 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 1, 2022. 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, Internal Control over Financial Reporting (“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 2021 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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. Annual Report 2021 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 1, 2022, we adopted the following standards, interpretations and amendments to existing standards that were effective for annual periods beginning on January 1, 2021 and that the Company has adopted on January 3, 2021: 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 a risk-free rate (“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 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). The term loan facility has an applicable interest rate for loans under the facility of LIBOR plus 3.75% (0.75% 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 judgment 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 1, 2022 there are four interest rate swap contracts with a maturity date subsequent to December 31, 2021. The terms of these contracts 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. MD&A38 HIGH LINER FOODS 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 has adopted the amendments to IFRS 16, which had no impact on the Consolidated Financial Statements. IFRS 9, Financial Instruments In May 2020, the IASB issued annual improvements to IFRS Standards 2018-2020, which included amendments to IFRS 9 to clarify the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company has adopted the amendments to IFRS 9, in relation to the March 2021 debt repricing (see Note 14 to the Consolidated Financial Statements). Interpretations Committee Agenda Decision, Attributing Benefit to Periods of Service In April 2021, the IASB issued Interpretations Committee agenda decision, Attributing Benefit to Periods of Service, to address the periods of service to which an entity attributes benefit for a particular defined benefit plan that affects the application of IAS 19, Employee Benefits. The agenda decision specifically addresses the following: • Employees are entitled to a lump sum benefit payment when they reach a specified retirement age provided they are employed by the entity when they reach that retirement age; and • The amount of the retirement benefit to which an employee is entitled depends on the length of employee service with the entity before the retirement age and is capped at a specified number of consecutive years of service. It was concluded that the principles and requirements in IFRS standards provide an adequate basis for an entity to determine the periods to which the retirement benefit is attributed. The Company has adopted the agenda decision related to IAS 19, which had no impact on the Consolidated Financial Statements. Interpretations Committee Agenda Decision, Costs Necessary to Sell Inventories In June 2021, the IASB issued Interpretations Committee agenda decision, Costs Necessary to Sell Inventories, to address the necessary costs to sell when determining the net realizable value of inventories that affects the application of IAS 2, Inventories. It was concluded that, when determining the net realizable value of inventories, an entity estimates the costs necessary to make the sale in the ordinary course of business. An entity uses its judgment to determine which costs are necessary to make the sale considering its specific facts and circumstances, including the nature of the inventories. The Company has adopted the agenda decision related to IAS 2, which had no impact on the Consolidated Financial Statements. 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 has adopted the amendments to IAS 37, which had no impact on the Consolidated Financial Statements. MD&AAnnual Report 2021 39 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 has adopted the amendments to IAS 16, 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, 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 1, Disclosure of Accounting Policies In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statements 2, Making Materiality Judgements, to help entities provide accounting policy disclosures that are more useful by replacing the requirement to disclose “significant” accounting policies with a requirement to disclose “material” accounting policies. The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. 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 8, Definition of Accounting Estimates In February 2021, the IASB issued amendments to IAS 8 which introduces a new definition of “accounting estimates”. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements and will apply the amendments from the effective date. Risk Factors High Liner Foods is exposed to a number of risks in the normal course of business that have the potential to affect operating performance. Many of these risk factors are described below, including those the Company considers to be the most material. These risk factors, along with other risks and uncertainties not currently known to the Company or that the Company currently considers immaterial, could materially and adversely affect the Company’s performance, operating results and ability to pay dividends or return capital to shareholders. 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, many of the risks are beyond the Company’s control and therefore despite the Company’s efforts to manage or mitigate its risk exposure, 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. Readers should carefully consider the risk factors set out below, along with the other information contained in this document and the Company’s other public filings before making an investment decision. COVID-19 Pandemic The Company’s business operations and financial condition may be materially adversely affected by public health emergencies, including the COVID-19 pandemic, as well as the related government responses and consumer and customer behaviour. The COVID-19 pandemic has resulted in governmental authorities implementing various measures MD&A40 HIGH LINER FOODS including, but not limited to: travel bans and restrictions; social distancing measures; quarantines; increased border and port controls and closures and shutdowns; all or any of which may adversely impact the Company’s operations, suppliers, customers, consumers, counterparties, employee health, workforce productivity, insurance premiums and coverage, and ability to advance its business strategy. There is significant uncertainty regarding these measures and potential future measures, all of which could reduce customer and consumer demand, and/or impact the Company’s ability to meet that 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; or • freight delays and rising costs due to the impact of COVID-19 on global shipping; • 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 the most impacted by social distancing regulations; • An increased risk of delays in the completion of capital projects; • An increase in geopolitical risk related to governmental restrictions and market responses to COVID-19, including the impacts on operations of social distancing regulations, fluctuating currency exchange rates, and volatile market conditions; • An increased risk of disruptions in international trade and access to markets; • 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 COVID-19 pandemic, the Company has experienced periods of reduced demand for products in the foodservice business, changes in sales mix, increased costs to implement health and safety measures, and freight delays and rising costs associated with global shipping challenges. 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 due to the Company’s strengthened balance sheet, the Company has significant excess liquidity at January 1, 2022. The Company’s priority during the COVID-19 pandemic has been protecting the health of its employees, their families and communities. Therefore, the Company is following recommendations from government and public health authorities in order to maintain the continued safe operation of its business operations. 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 of COVID-19 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. 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, and 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 MD&A Annual Report 2021 41 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. 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. However, the Company cannot assure that these operating standards, even when working effectively, will eliminate the risks related to food safety, which could have a material adverse impact on the Company’s financial condition and results of operations. Product Liability and 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 controls and processes, 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. Procurement and Availability of Seafood Our business depends upon the procurement of frozen raw seafood materials and finished goods on world markets. In 2021, the Company purchased approximately 157 million pounds of seafood, with an approximate value of $449.6 million. Seafood markets are global with values expressed in USD. In 2021, we bought approximately 24 species of seafood from 23 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, MD&A42 HIGH LINER FOODS geopolitical issues, including economic sanctions, tariffs and trade barriers, and other environmental impacts in key fisheries can affect supply. 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 41% 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. 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. Our broad product line and customer base, along with geographically diverse procurement operations, help us mitigate changes in the cost of our raw materials. 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. 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. 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. 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. Seafood Production from Asia 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. By diversifying our supply chain, 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, while continuing to require seafood suppliers to adhere to the Company’s Supplier Code of Conduct (“SCOC”). 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 a 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. To mitigate the risk of supply disruptions to the business resulting from trade challenges, the impact of COVID-19, freight delays or other issues, the Company has been shifting a portion of its seafood production in China to other countries, primarily in South East Asia (Vietnam, Indonesia and Thailand). However, the Company may not be able to develop alternate sourcing quickly enough to offset any supply disruptions that may occur elsewhere, which may adversely affect the Company’s results. Availability of Non-Seafood Goods 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 MD&AAnnual Report 2021 43 impact the Company’s financial condition and performance. Any such impact will depend on the effectiveness of the Company’s contingency plan. Non-Seafood Commodities The Company’s 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 2021 and 2020, the Company has managed this risk through contracts with suppliers. Crude oil prices, which influence fuel surcharges from freight suppliers, increased during 2021 compared to 2020. World commodity prices for flour, soy and canola oils, imported ingredients in many of the Company’s products, increased throughout 2021 compared to 2020. The price of corrugated and folded carton, which is used in packaging, increased in 2021. It is the practice of High Liner Foods to contract with suppliers to fix prices related to commodity purchase requirements for the items mentioned above. The Company has contracts fixing prices for a portion of these items in 2022 and is in negotiations to fix the remaining amounts expected to be purchased. Any fluctuations in commodity prices that the Company is unable to properly hedge or mitigate through fixed pricing could have a material adverse effect on the Company’s financial condition and results of operations. 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. Competition is based on factors such as product availability, product quality and taste, price, brand recognition, product variety, product packaging and design, shelf space, reputation, nutritional and other claims, effective promotions, and the ability to target changing consumer preferences. The Company may experience price pressure as a result of, among other things, competitors’ promotional effort and strategies to increase market share. Competitive pressures from new and existing competitors could result in reduced sales, margins, profits, and market share, all of which could have a material adverse effect on the Company’s financial condition and results of operations. The Company’s ability to increase revenue and execute its business strategy depends in part on its ability to cost- effectively attract new customers and consumers and retain existing customers and consumers. If the Company is unable to do this, its business, financial condition and operating results may be materially adversely affected. Further, if customers or consumers do not perceive the Company’s product offerings to be of sufficient value and quality, or if it fails to offer new and relevant product offerings, it may not be able to attract or retain customers or engage existing customers so that they continue to purchase products. There is no guarantee that the investment that the Company is making in marketing, advertising, and innovation will be successful in attracting or retaining market share or that it will deliver the anticipated long-term financial benefits underpinning growth targets. Some of High Liner Foods’ competitors have greater financial and other resources 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. In some instances, this could force the Company to lower prices, resulting in lower profitability or, in the alternative, cause it to lose market share if it fails to lower prices. In addition, some competitors may be more innovative, have more resources and/or be able to bring new products to market faster. This could put the Company at a disadvantage in keeping up with the pace of innovation and ability to introduce new products that appeal to evolving consumer trends. There can be no assurance that High Liner Foods’ principal competitors will not be successful in capturing, or that new competitors will not emerge and capture, a share of the Company’s present or potential customer base and/or market share. In addition, High Liner Foods and its financial results may be significantly adversely affected if High Liner Foods’ suppliers become competitors, if its customers decide to source their own food products, or if one or more of High Liner Foods’ competitors were to merge with another of its competitors. Competitors may also establish or strengthen relationships with parties with whom High Liner Foods has relationships, thereby limiting its ability to sell certain products. Disruptions in High Liner Foods’ business caused by such events could have a material adverse effect on its results of operations and financial condition. Customer Consolidation We sell the majority of our products to food distributors and large food retailers, including supercentres 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 MD&A44 HIGH LINER FOODS 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. Consumer Trends 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. Reputation and Public Opinion The potential for deterioration of the Company’s reputation may arise in many contexts and for many different reasons. As a result, reputational risk cannot be managed in isolation from other forms of risk. For example, any real or perceived quality or safety concerns, whether or not ultimately based on fact and whether or not involving the Company (such as incidents involving competitors, or the way in which products are handled by customers, consumers or others in the distribution chain after they leave the control of the Company), could cause negative publicity and reduced confidence in the Company, its brand or its products, which could in turn harm its reputation and operating results. Any loss of confidence on the part of consumers in the Company’s products, brands, the ingredients it uses or in the safety and quality of its products would be difficult and costly to overcome. The growing use of social and digital media by the Company, its consumers and third parties increases the speed and extent that information or misinformation and opinions can be shared. Negative publicity about the Company, its brands or its products on social or digital media could seriously damage its reputation. If the Company does not maintain the favourable perception of its brands, the Company’s sales and profits could be negatively impacted. Overall, negative public opinions or shifts in opinion whether about the Company, its brands, its industry or the overall environment in which it operates could materially adversely affect its reputation, business, strategy and operations, as well its financial condition and results of operations. Sustainability and Corporate Social Responsibility 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, and is reflected in the Company’s purpose statement, “Reimagining Seafood to Nourish Life”. 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 this commitment 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 – such as Marine Stewardship Council (“MSC”) certified and Global Sustainable Initiative (“GSSI”) recognition – have become a required tool to validate industry-driven wild fishery and aquaculture improvements. Environmental advocacy groups will continue to expect use of credible certification schemes to define sustainable wild fisheries and aquaculture. In 2015, the Company implemented a social compliance program with seafood suppliers that outlines acceptable standards for the treatment of all suppliers’ employees, and their 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 MD&AAnnual Report 2021 45 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 upstream 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 since 2016 that disclose many of the improvement efforts underway. 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. The long-term benefit of this investment 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, and through a rigorous continuous improvement process. The Board of Directors and management believe that high environmental, social and governance (“ESG”) standards support the Company’s profitability and valuation and align with the values of our Shareholders. Given the importance and pervasiveness of ESG to the Company’s risk management and business strategies, the oversight function has been assigned across various committees of the Board, where deemed most appropriate. The Governance Committee oversees the Company’s ESG framework as well as management’s integration of ESG into the overall governance structure, business strategy and risk management practices of High Liner Foods. The Audit Committee oversees environmental compliance matters and the Human Resources Committee reviews the health and safety performance of the Company. Beginning in 2021, the Human Resources Committee also began overseeing the implementation of new performance metrics and weightings regarding safety and ESG in executive compensation. To address carbon emissions, the Company has also developed a 2022 work plan that will identify and refine greenhouse gas emissions as part of the implementation of a carbon reduction program. consequences, such as criminal as well as civil penalties, liability for damages, and negative publicity for the Company. Compliance with these environmental 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. Climate Change The potential effects of climate change could have a material impact on the Company and its operations, due to associated physical, financial, compliance and reputational risks. 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. In an effort to address both climate change and reputational risks associated with the need to address the issue, the Company has also developed a 2022 work plan focused on identifying and refining its greenhouse gas emission inventories to implement a carbon reduction program. Environmental Risk and Regulation Growth (Other than by Acquisition) 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, however, failure to comply could have serious 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. MD&A46 HIGH LINER FOODS 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 and 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. Acquisition and Integration Risk A component of the Company’s strategy is to pursue acquisition opportunities to support sales and earnings growth and further species diversification. While management intends to be careful in selecting businesses to acquire, acquisitions inherently involve a number of risks, including, but not limited to, the possibility that the Company pays more than the acquired assets are worth; the additional expense associated with completing an acquisition; the potential loss of customers of the particular business; the difficulty of assimilating the operations and personnel of the acquired business; the challenge of implementing uniform standards, controls procedures and policies throughout the acquired business; the inability to integrate, train, retain and motivate key personnel of the acquired business; the potential disruption to the Company’s ongoing business and the distraction of management from the Company’s day-to-day operations; the inability to incorporate acquired businesses successfully into the Company’s existing operations; inaccurate estimates of the rate of return on acquisitions or investments; inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets, which could reduce future reported earnings; indemnities and potential disputes with the buyers or sellers; 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. 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. The Company’s operations are also subject to health and safety risks, as well as laws and regulations in this regard. The Board takes the safety of employees very seriously and the Human Resources Committee reviews the Company’s health and safety performance on a quarterly basis. Notwithstanding the Company’s existing health and safety systems, serious injury or death of an employee could have a serious impact on High Liner Foods’ reputation, and result in litigation and incurring additional costs, which may be significant. MD&AAnnual Report 2021 47 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; international armed conflict and terrorism; civil commotion and unrest; global pandemic (including COVID-19 (see Risk Factor above)); 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, import restrictions, 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. 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. 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. Foreign Currency High Liner Foods reports its results in USD to reduce volatility caused by changes in the USD to CAD exchange rate. 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. The Company’s results of operations and financial condition are both also affected by foreign currency fluctuations in a number of ways. The table below summarizes the effects of foreign exchange on our operations: Currency CAD CAD Euro Euro Asian currencies Strength Strong Weak Strong Weak 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 and increase 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 and decrease USD prices. Competitive activity may result in some selling price declines on unprocessed product. As in most commodities, a strong USD usually decreases input costs in USD, as suppliers in countries not using the USD need less USD to receive the same amount in domestic currency. In Canadian operations, it increases input costs in CAD. As in most commodities, a weak USD usually increases input costs in USD, as suppliers in countries not using the USD need more USD to receive the same amount in domestic currency. In Canadian operations, it decreases input costs in CAD. MD&A48 HIGH LINER FOODS 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. Although High Liner Foods reports in USD, our Canadian operations continue to be managed in CAD. Therefore, we enter into annual supply contracts, where possible, and engage in hedging activities in accordance with the Company’s “Price Risk Management Policy” (the “Policy”), buying USD forwards 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 $71.0 million to be hedged in 2022 and of this amount, 56.0% was hedged as of January 1, 2022. Details on the hedges in place as at January 1, 2022 are included in Note 25 “Fair value measurement” to the Consolidated Financial Statements. However, the Company cannot assure that these hedging activities will eliminate the risks related to foreign currency, which could have a material adverse impact on the Company’s financial condition and results of operations. Liquidity Risk The ability of the Company to secure short-term and long- term financing on terms acceptable to the Company is critical to fund business growth and manage its liquidity. Our primary sources of working capital are cash flows from operations and borrowings under our credit facilities. We actively manage our relationships with our lenders and have adequate credit facilities in place until April 2023, when the working capital credit facility expires. The failure or inability of the Company to secure short-term and long-term financing in the future on terms that are commercially reasonable and acceptable to the Company could have a significant adverse impact on the Company’s financial position and opportunities for growth. Even if the Company does successfully raise additional capital when needed, if it issues equity securities, investors will be diluted, and if it raises additional debt, it will be further leveraged and could be subject to restrictive covenants, such as restrictions on paying dividends or being required to pledge assets. 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 1, 2022, less than 6% of our debt will mature in the next twelve-month period based on the carrying value of borrowings reflected in the Consolidated Financial Statements. Our long-term debt is described in Note 14 “Long-term debt” to the Consolidated Financial Statements. At January 1, 2022 and at the date of this document, we are in compliance with all covenants and terms of our banking facilities. Uncertainty of Return of Capital The 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 MD&AAnnual Report 2021 49 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. There can be no assurance that the Company will maintain or increase its dividends in the future, which may have a material adverse effect on the Company’s share price. The Company also has a history of maintaining a normal course issuer bid in place that it may use to repurchase its shares for cancellation. There can be no assurance that the Company will continue with share repurchases. Pension Plan Assets and Liabilities In the normal course of business, the Company provides post-retirement pension benefits to its employees under both defined contribution and defined benefit pension plan arrangements. The funded status of the plans significantly affects the net periodic benefit costs of the Company’s pension plans and the ongoing funding requirements of those plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, and the market value of plan assets can affect the level of plan funding required, increase the Company’s future funding requirements, and cause volatility in the net periodic pension cost as well as the Company’s financial results. Any increase in pension expense or funding requirements could have a material adverse impact on the Company’s financial condition and results of operations. The asset mix of our defined benefit pension plans was established with the objective of reducing the volatility of the plan’s anticipated funded position. This has resulted in investing part of the portfolio in fixed income assets with a duration similar to that of the pension obligations. The latest actuarial valuations of these two plans were performed during Fiscal 2020 and Fiscal 2019 and showed: a going concern excess of CAD$0.3 million and an unfunded liability of CAD$6.1 million, respectively, and a solvency deficiency of CAD$1.2 million and CAD$1.3 million, respectively. 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 Company’s 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, suppliers and employees. The Company actively monitors, manages and continues to enhance its ability to mitigate cyber risk through its enterprise-wide programs, however, there is no assurance that any of these measures will be successful. 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. The Company also regularly implements process improvement initiatives to simplify and harmonize its systems and processes to optimize performance and reduce the risk of errors in financial reporting. There cannot be any guarantee that any such changes will improve current processes or operating results or reduce the risk of errors in financial reporting. Any of these failures could have a material adverse impact on the Company’s financial condition and results of 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. Specific forward-looking statements in this document include, but are not limited to: statements with respect to: future growth strategies and their impact on the Company’s MD&A50 HIGH LINER FOODS 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 operating and supply chain costs; the ability to develop new and innovative products that result in increased sales and market share; increased demand for the Company’s 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 the Company’s 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 the Company’s operations and performance, customer and consumer behaviour and economic patterns. 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 the same; the impact of the U.S. Trade Representative’s tariffs on certain seafood products; costs of commodity products, freight, storage 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 market place; 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 2021 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 23, 2022 (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 1, 2022 and January 2, 2021, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of accumulated other comprehensive loss, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the fifty-two weeks and fifty-three 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 1, 2022 and January 2, 2021, and its consolidated financial performance and its consolidated cash flows for the fifty-two weeks and fifty-three 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 2021 53 Key audit matter Impairment of goodwill and indefinite useful life intangible assets As at January 1, 2022, 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 2021 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 23, 2022 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 1, 2022 January 2, 2021 $ 443 $ 6 25 7 8 9 11 18 25 10 10 87,122 5,870 540 308,183 3,419 405,577 115,852 11,041 — 24 1,008 135,195 157,772 420,892 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 11, 14 $ 826,469 $ 776,558 11 12 19 13 25 17 14 9 14 25 17 9 18 15 16 $ 4,388 $ — 164,135 114,326 1,585 172 1,269 5,499 35 5,625 4,327 187,035 4,351 3,327 2,735 2,731 41 20,185 4,866 152,562 244,994 268,048 23 7,874 6,851 34,179 12,989 306,910 493,945 113,458 17,477 219,965 (18,376) 332,524 329 6,510 10,722 31,071 16,314 332,994 485,556 112,739 16,551 183,649 (21,937) 291,002 $ 826,469 $ 776,558 Notes to the Consolidated Financial StatementsConsolidated Statements of Income Annual Report 2021 57 Annual Report 2021 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 57-58 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 875,405 $ 827,453 Notes 24 676,861 198,544 50,807 88,269 42 2,850 56,576 7,494 49,082 2,953 3,880 6,833 649,529 177,924 45,076 73,926 — 2,767 56,155 19,483 36,672 6,535 1,335 7,870 $ 42,249 $ 28,802 $ $ 1.25 1.20 $ $ 0.85 0.83 33,865,092 35,121,174 33,853,881 34,519,305 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 gains (losses) on cash flow hedges Net other comprehensive gain to be reclassified to net income Other comprehensive income (loss) to not be reclassified to net income Defined benefit plan actuarial gains (losses) Other comprehensive income (loss), net of income tax Total comprehensive income Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 42,249 $ 28,802 2,576 (3,071) 1,797 (178) 1,124 286 1,563 502 86 2,437 3,561 3,253 6,814 6,867 (10,245) 6,373 (521) 2,474 (1,246) (506) 631 228 (893) 1,581 (2,267) (686) $ 49,063 $ 28,116 Consolidated Statements of Accumulated Other Comprehensive Loss (in thousands of United States dollars) Balance at January 2, 2021 Total exchange gains on translation of foreign operations and Canadian dollar  denominated items Total exchange gains on cash flow hedges Balance at January 1, 2022 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 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 $ (20,648) $ (1,289) $ (21,937) $ $ 1,124 — (19,524) (23,122) 2,474 — $ $ — 2,437 1,148 (396) — (893) $ $ 1,124 2,437 (18,376) (23,518) 2,474 (893) $ (20,648) $ (1,289) $ (21,937) Notes to the Consolidated Financial StatementsConsolidated Statements of Changes in Shareholders’ Equity Annual Report 2021 59 Annual Report 2021 59 (in thousands of United States dollars) Balance at January 2, 2021 Other comprehensive income Net income Common share dividends Share-based compensation (Note 16, 17) Common shares repurchased for cancellation (Note 16) Balance at January 1, 2022 Balance at December 28, 2019 Other comprehensive income Net income Common share dividends Share-based compensation Common shares Contributed surplus Retained earnings Accumulated other comprehensive loss Total $ 112,739 $ 16,551 $ 183,649 $ (21,937) $ 291,002 — — — 1,059 (340) 113,458 112,887 $ $ — — — — — — — 926 — 3,253 42,249 (8,219) — (967) $ $ 17,477 16,028 $ $ 219,965 162,773 $ $ — — — 523 — (2,267) 28,802 (5,518) — (141) 3,561 — — — — (18,376) (23,518) 1,581 — — — — 6,814 42,249 (8,219) 1,985 (1,307) $ $ 332,524 268,170 (686) 28,802 (5,518) 523 (289) Common shares repurchased for cancellation (Note 16) (148) Balance at January 2, 2021 $ 112,739 $ 16,551 $ 183,649 $ (21,937) $ 291,002 See accompanying notes to the Consolidated Financial Statements 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 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 Net cash flows provided by operating activities Financing activities Increase (decrease) in bank loans Repayment of lease liabilities Repayment of long-term debt Deferred finance costs Common share dividends paid 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 increase (decrease) on cash Net change in cash during the period Cash, beginning of period Cash, end of period See accompanying notes to the Consolidated Financial Statements Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 Notes $ 42,249 $ 28,802 28 17 8 28 18 21 21 14 21 16 23,081 7,751 328 1,198 7,494 6,833 406 89,340 (26,599) (57,170) 750 45,494 (3,160) (40,685) (14,321) (5,649) 28,685 4,529 (5,848) (29,560) (1,017) (8,219) (1,306) (41,421) (20,319) (20,319) 563 (32,492) 32,935 443 $ 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 Notes to the Consolidated Financial StatementsAnnual Report 2021 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-two weeks ended January 1, 2022 (“Fiscal 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 23, 2022. 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 1, 2022. 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. (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 Notes to the Consolidated Financial StatementsAnnual Report 2021 63 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. (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. Notes to the Consolidated Financial Statements64 HIGH LINER FOODS 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. (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. Notes to the Consolidated Financial StatementsAnnual Report 2021 65 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 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. Excluding goodwill, 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. 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 Notes to the Consolidated Financial Statements66 HIGH LINER FOODS 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. 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) 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. Notes to the Consolidated Financial StatementsAnnual Report 2021 67 (o) 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. (p) 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. 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. Notes to the Consolidated Financial Statements68 HIGH LINER FOODS (q) 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. (r) 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. FINANCIAL ASSETS AT AMORTIZED COST Financial assets at amortized cost are non-derivative financial assets that 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 Notes to the Consolidated Financial StatementsAnnual Report 2021 69 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 (s) 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. 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. Notes to the Consolidated Financial Statements70 HIGH LINER FOODS (t) 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 • 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. Notes to the Consolidated Financial StatementsAnnual Report 2021 71 (u) 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, 2021 and that the Company adopted on January 3, 2021: 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 a risk-free rate (“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 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 3.75% (0.75% 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 judgment 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 1, 2022, there are four interest rate swap contracts with a maturity date subsequent to December 31, 2021. The terms of these contracts 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. 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 has adopted the amendments to IFRS 16, which had no impact on the Consolidated Financial Statements. IFRS 9, FINANCIAL INSTRUMENTS In May 2020, the IASB issued annual improvements to IFRS Standards 2018–2020, which included amendments to IFRS 9 to clarify the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company has adopted the amendments to IFRS 9, in relation to the March 2021 debt repricing (see Note 14). INTERPRETATIONS COMMITTEE AGENDA DECISION, ATTRIBUTING BENEFIT TO PERIODS OF SERVICE In April 2021, the IASB issued Interpretations Committee agenda decision – Attributing Benefit to Periods of Service to address the periods of service to which an entity attributes benefit for a particular defined benefit plan that affects the application of IAS 19, Employee Benefits. The agenda decision specifically addresses the following: Notes to the Consolidated Financial Statements72 HIGH LINER FOODS • Employees are entitled to a lump sum benefit payment when they reach a specified retirement age provided they are employed by the entity when they reach that retirement age; and • The amount of the retirement benefit to which an employee is entitled depends on the length of employee service with the entity before the retirement age and is capped at a specified number of consecutive years of service. It was concluded that the principles and requirements in IFRS standards provide an adequate basis for an entity to determine the periods to which the retirement benefit is attributed. The Company has adopted the agenda decision related to IAS 19, which had no impact on the Consolidated Financial Statements. INTERPRETATIONS COMMITTEE AGENDA DECISION, COSTS NECESSARY TO SELL INVENTORIES In June 2021, the IASB issued Interpretations Committee agenda decision – Costs Necessary to Sell Inventories to address the necessary costs to sell when determining the net realizable value of inventories that affects the application of IAS 2, Inventories. It was concluded that, when determining the net realizable value of inventories, an entity estimates the costs necessary to make the sale in the ordinary course of business. An entity uses its judgment to determine which costs are necessary to make the sale considering its specific facts and circumstances, including the nature of the inventories. The Company has adopted the agenda decision related to IAS 2, which had no impact on the Consolidated Financial Statements. 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 has adopted the amendments to IAS 37, which had no impact on the Consolidated Financial Statements. 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 has adopted the amendments to IAS 16, which had no impact on the Consolidated Financial Statements. (v) 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. Notes to the Consolidated Financial StatementsAnnual Report 2021 73 IAS 1, DISCLOSURE OF ACCOUNTING POLICIES In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statements 2 Making Materiality Judgements, to help entities provide accounting policy disclosures that are more useful by replacing the requirement to disclose “significant” accounting policies with a requirement to disclose “material” accounting policies. The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. 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 8, DEFINITION OF ACCOUNTING ESTIMATES In February 2021, the IASB issued amendments to IAS 8 which introduces a new definition of “accounting estimates”. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements and will apply the amendments from the effective date. 4. Critical accounting estimates and judgments The preparation of the Company’s Consolidated Financial Statements requires management to make critical judgments, estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. On an ongoing basis, management evaluates the judgments, estimates and assumptions using historical experience and various other factors believed to be reasonable under the given circumstances. Actual outcomes may differ from these estimates and could require a material adjustment to the reported carrying amounts in the future. The most significant estimates made by management include the following: Impairment of non-financial assets The Company’s estimate of the recoverable amount for the purpose of impairment testing requires management to make assumptions regarding future cash flows before taxes. Future cash flows are estimated based on multi-year extrapolation of the most recent historical actual results and/or budgets, and a terminal value calculated by discounting the final year in perpetuity. The future cash flows are then discounted to their present value using an appropriate discount rate that incorporates a risk premium specific to the North American business. Further details, including the manner in which the Company identifies its CGU, and the key assumptions used in determining the recoverable amount, are disclosed in Note 10. Future employee benefits The cost of the defined benefit pension plan and other post-employment benefits and the present value of the defined benefit obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions, including the discount rate, future salary increases, mortality rates and future pension increases. In determining the appropriate discount rate, management considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Interest income on plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the discount rate. See Note 15 for certain assumptions made with respect to future employee benefits. Income taxes The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire. The Company’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the Company’s ability to utilize the underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax deductions as assets, which would decrease or increase the income tax expense in the period in which this is determined. Notes to the Consolidated Financial Statements74 HIGH LINER FOODS 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. 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. Notes to the Consolidated Financial StatementsAnnual Report 2021 75 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 and suppliers, that impacted financial results during both Fiscal 2020 and 2021 and could impact future financial results. 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. The potential impacts on the Company’s most significant estimates and judgments 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 thirteen weeks ended April 3, 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 thirteen weeks ended April 3, 2021, the Company recognized $0.9 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. During the thirty-nine weeks ended January 1, 2022 the Company did not participate in this program. 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 1, 2022 January 2, 2021 $ $ 85,622 1,500 87,122 $ $ 59,401 1,526 60,927 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 28, 2019 New provision for expected credit losses(1) Provision utilized Unused provision for expected credit losses reversed At January 2, 2021 New provision for expected credit losses(1) Provision utilized Unused provision for expected credit losses reversed At January 1, 2022 $ $ $ 95 673 — (509) 259 123 (3) (149) 230 (1) For the fifty-two weeks ended January 1, 2022, the Company recognized $0.1 million of impairment losses (fifty-three weeks ended January 2, 2021: $0.7 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 January 2, 2021 At January 1, 2022 0–30 days 31–60 days Over 60 days 87% 80% 12% 14% 1% 5% 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 1, 2022 January 2, 2021 $ 197,055 $ 160,126 111,128 90,735 $ 308,183 $ 250,861 During the fifty-two weeks ended January 1, 2022, $676.9 million (January 2, 2021: $649.5 million) was recognized as an expense for inventories in cost of sales on the consolidated statements of income. Of this, $5.3 million (January 2, 2021: $8.9 million) was written-down during the year and a reversal for unused impairment reserves of $1.5 million (January 2, 2021: $1.3 million) was recorded. As of January 1, 2022 the value of inventory pledged as collateral for the Company’s working capital facility (see Note 11) was $220.5 million (January 2, 2021: $209.3 million). Notes to the Consolidated Financial Statements8. Property, plant and equipment (Amounts in $000s) Cost At December 28, 2019 Additions Transfers Disposals Effect of exchange rates At January 2, 2021 Additions Transfers Disposals Effect of exchange rates At January 1, 2022 Accumulated depreciation and impairment At December 28, 2019 Depreciation and impairment Transfers Disposals Effect of exchange rates At January 2, 2021 Depreciation and impairment Transfers Disposals Effect of exchange rates At January 1, 2022 Net carrying value At January 2, 2021 At January 1, 2022 Annual Report 2021 77 Furniture, fixtures, and production equipment Computer equipment and vehicles Land and buildings Total $ 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 3,824 188 (370) 134 15,131 (379) (1,884) 143 740 191 (2,312) 53 19,695 — (4,566) 330 $ 86,477 $ 114,131 $ 12,466 $ 213,074 $ (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) (3,031) (1) 402 (79) (6,845) 54 1,646 (106) (1,004) (10,880) (53) 2,235 (46) — 4,283 (231) $ (33,719) $ (54,580) $ (8,923) $ (97,222) $ $ 51,691 52,758 $ $ 51,791 59,551 $ $ 3,739 3,543 $ $ 107,221 115,852 A nominal impairment loss (January 2, 2021: $nil) was recorded during the fifty-two weeks ended January 1, 2022 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 28, 2019 Additions Disposals Effect of exchange rates At January 2, 2021 Additions Disposals Effect of exchange rates At January 1, 2022 Accumulated depreciation At December 28, 2019 Depreciation Disposals Effect of exchange rates At January 2, 2021 Depreciation Disposals Effect of exchange rates At January 1, 2022 Net carrying value At January 2, 2021 At January 1, 2022 AMOUNTS RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF INCOME (Amounts in $000s) Furniture, fixtures, and production equipment Computer equipment and vehicles Land and buildings $ 13,947 $ 4,190 (1,143) 61 $ 426 105 (115) — 2,537 1,284 (569) 47 Total $ 16,910 5,579 (1,827) 108 $ 17,055 $ 416 $ 3,299 $ 20,770 263 — 18 — — — 382 (538) 20 645 (538) 38 $ 17,336 $ 416 $ 3,163 $ 20,915 $ (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) (3,660) (161) — 1 — — (664) 363 (1) (4,485) 363 — $ (7,907) $ (403) $ (1,564) $ (9,874) $ $ 12,807 9,429 $ $ 174 13 $ $ 2,037 1,599 $ $ 15,018 11,041 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 Variable lease payments not included in the measurement of the lease liabilities $ 564 $ Depreciation expense on right-of-use assets Interest expense on lease liabilities Total amounts recognized in the consolidated statements of income 4,485 964 $ 6,013 $ 543 4,997 1,192 6,732 Notes to the Consolidated Financial StatementsAnnual Report 2021 79 Lease liabilities The undiscounted payments related to the Company’s lease liabilities are shown in the table below: (Amounts in $000s) Lease liabilities Total Less than 1 year 1–5 years Thereafter $ 12,397 $ 4,963 $ 7,373 $ 61 Maturity analysis The Company does not face significant liquidity risk in regard 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 28, 2019 Additions Effect of exchange rates At January 2, 2021 Additions Effect of exchange rates At January 1, 2022 Accumulated amortization At December 28, 2019 Amortization Effect of exchange rates At January 2, 2021 Amortization Effect of exchange rates At January 1, 2022 Net carrying value At January 2, 2021 At January 1, 2022 Intangible assets Indefinite lived brands Customer and supplier relationships Computer software Total intangible assets Brands Goodwill Total goodwill and intangible assets $ 6,917 $ 14,019 $ 164,776 $ 15,505 $ 201,217 $ 157,457 $ 358,674 — 11 — 11 — 27 557 383 557 432 — 240 557 672 $ 6,928 $ 14,030 $ 164,803 $ 16,445 $ 202,206 $ 157,697 $ 359,903 — 5 — 33 — 81 623 129 623 248 — 75 623 323 $ 6,933 $ 14,063 $ 164,884 $ 17,197 $ 203,077 $ 157,772 $ 360,849 $ (6,917) $ — $ (43,778) $ (1,629) $ (52,324) $ — $ (52,324) — (11) — — (6,452) (1,144) (7,596) (46) (61) (118) — — (7,596) (118) $ (6,928) $ — $ (50,276) $ (2,834) $ (60,038) $ — $ (60,038) — (5) — — (6,439) (1,277) (7,716) (71) (52) (128) — — (7,716) (128) $ (6,933) $ — $ (56,786) $ (4,163) $ (67,882) $ — $ (67,882) $ $ — $ 14,030 $ 114,527 $ 13,611 $ 142,168 $ 157,697 $ 299,865 — $ 14,063 $ 108,098 $ 13,034 $ 135,195 $ 157,772 $ 292,967 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 October 3, 2021, resulting in $nil impairment in the North American CGU (September 27, 2020: $nil). The key assumptions used to determine the recoverable amount for the CGU for the most recently completed impairment calculation for Fiscal 2021 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 October 3, 2021, 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 9.5% at October 3, 2021. 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 October 3, 2021. Notes to the Consolidated Financial StatementsAnnual Report 2021 81 COSTS TO SELL The costs to sell the North American CGU was 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 1, 2022 January 2, 2021 Bank loans, denominated in CAD (average variable rate of 2.45%; January 2, 2021: 2.45%) $ Bank loans, denominated in USD (average variable rate of 3.32%; January 2, 2021: 3.5%) Less: deferred finance costs(1) $ 2,038 2,513 4,551 (163) $ 4,388 $ — — — — — (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. Taking into account the current borrowing base and letters of credit, as at January 1, 2022, the Company had $117.1 million of borrowing availability (January 2, 2021: $132.2 million). As at January 1, 2022 and January 2, 2021, 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 1, 2022 January 2, 2021 $ 149,469 $ 14,666 98,918 15,408 $ 164,135 $ 114,326 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 January 2, 2021  New provisions added  Provisions utilized  Unused amounts reversed At January 1, 2022 $ 3,327 136 (1,037) (2,254) $ 172 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 1, 2022. 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 1, 2022 January 2, 2021 $ 256,429 $ 294,212 (5,625) 250,804 (5,810) (20,185) 274,027 (5,979) $ 244,994 $ 268,048 In March 2021, the Company amended the $300.0 million term facility to decrease the applicable interest rates for loans under the facility from LIBOR plus 4.25% (1.00% LIBOR floor) to LIBOR plus 3.75% (0.75% LIBOR floor). All other material terms of the facility remained unchanged, including the maturity date of October 2026. The amendments to the facility were not assessed as a substantial modification, and as a result, the deferred finance costs related to the original facility continue to be amortized over the remaining term. In addition, the Company incurred finance costs of $0.9 million. As the net present value of the cash flows of the modified debt was lower than the carrying value of the original facility before the amendments, a modification gain of $7.8 million was recorded in finance costs on the consolidated statements of income during the fifty-two weeks ended January 1, 2022. Excluding the impact of the net modification loss on the carrying value, the principal balance outstanding of term loan debt was $255.8 million at January 1, 2022. Quarterly principal repayments of $1.9 million are required on the term loan as regularly scheduled repayments. During the fifty- two weeks ended January 1, 2022, a regularly scheduled repayment of $1.9 million and a voluntary repayment of $7.5 million were made. A mandatory prepayment of $20.2 million was also made due to excess cash flows in 2020. Any mandatory and voluntary repayments made prior to the time of refinancing were not applied to future regularly scheduled principal repayments. However, a $7.5 million voluntary repayment made during the second quarter of 2021 was applied against future scheduled principal repayments in the last three quarters of 2021 and the first quarter of 2022, leaving $5.6 million in regularly scheduled repayments remaining in the next 12 months. There are no mandatory prepayments related to excess cash flows in 2021 expected for 2022. 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 2021 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 a DCPP under the provisions of the Employment Retirement Income Security Act of 1974 (a 401(k) Savings Plan), which covers substantially all employees of the Company’s U.S. subsidiary. The Company also makes a safe harbour matching contribution equal to 100% of salary deferrals (contributions to the plan) that do not exceed 3% of compensation plus 50% of salary deferrals between 3% and 5% of salary compensation. In both Canada and the U.S., the Company maintains defined contribution Supplemental Executive Retirement Plans (“SERP”) to extend the same pension plan benefits to certain senior executives, as is provided to others in the DCPP who are not affected by income tax maximums. Total expense and cash contributions for the Company’s DCPPs was $1.8 million for the year ended January 1, 2022 (January 2, 2021: $1.8 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 certain Canadian management employees (the “Management Plan”). On January 1, 2022, two 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 Company maintains a defined benefit SERP to provide pension plan benefits to designated members of the Management Plan whose benefits are affected by the maximum pension limits of the Income Tax Act (Canada). The annual pension amounts derived from the aggregate of the Management Plan and SERP benefits represent 1.3% of the five- year average YMPE plus 2% of the salary remuneration above the five-year average YMPE. The combination of these amounts is multiplied by the years of service to determine the full annual pension entitlement from the two plans. U.S. MANAGEMENT PLANS The Company also has one DBPP in the U.S. that covers two former employees. This plan has ceased to accrue benefits to employees. Notes to the Consolidated Financial Statements84 HIGH LINER FOODS 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 1, 2022 January 2, 2021 $ $ 41,987 $ 47,685 28,999 31,211 12,988 $ 16,474 (1) The Company has a letter of credit outstanding as at January 1, 2022 relating to the securitization of the Company’s unfunded benefits under the defined benefit SERP in the amount of $8.5 million (January 2, 2021: $9.7 million). (2) As at January 1, 2022 $0.8 million (January 2, 2021: $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 Past 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 1, 2022 January 2, 2021 $ 47,685 $ 42,345 (5,313) 419 895 1,174 1,179 13 — (12) (4,053) (2,673) 1,051 925 — 1,361 42 — 488 4,146 $ 41,987 $ 47,685 January 1, 2022 January 2, 2021 $ 31,211 $ 29,375 13 1,291 (5,156) 264 27,623 740 718 (82) 1,376 $ $ 42 1,246 (2,542) 737 28,858 925 1,508 (80) 2,353 $ $ Fair value of plan assets at the end of the year $ 28,999 $ 31,211 Notes to the Consolidated Financial StatementsExpense recognized in the consolidated statements of income (Amounts in $000s) Current service costs Past service costs Interest on obligation Return on plan assets 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 2021 85 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 895 $ 1,174 1,179 (740) 52 82 925 — 1,361 (925) 488 80 $ 2,642 $ 1,929 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ $ 2,175 $ 467 2,642 $ 842 1,087 1,929 January 1, 2022 January 2, 2021 $ 5,249 $ 10,611 23,692 58 20,099 499 $ 28,999 $ 31,209 (1) The plan assets include CAD$2.8 million of the Company’s own common shares at market value at January 1, 2022 (January 2, 2021: CAD$2.1 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 1, 2022 January 2, 2021 $ 13,122 $ 10,202 (4,772) 207 2,638 282 $ 8,557 $ 13,122 January 1, 2022 % January 2, 2021 % 2.46 3.16 2.46 3.00 3.00 3.13 2.46 3.13 3.00 3.00 Notes to the Consolidated Financial Statements86 HIGH LINER FOODS A quantitative sensitivity analysis for significant assumptions as at January 1, 2022 is shown below: Sensitivity level (Amounts in $000s) (Decrease) increase on DBO Discount rate Mortality rate 0.5% increase 0.5% decrease One-year increase One-year decrease $ (2,865) $ 3,099 $ 1,304 $ (1,331) 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$1.8 million in contributions to be paid to its DBPPs and CAD$2.0 million to its DCPPs in Fiscal 2022. Short-term employee benefits The Company has recognized severance and retention benefits that were dependent upon the continuing provision of services through to certain pre-defined dates, which for the fifty-two weeks ended January 1, 2022 was a nominal amount (fifty-three weeks ended January 2, 2021: expense of a nominal amount) 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 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-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ $ 36 — 852 888 $ $ 24 56 1,503 1,583 January 1, 2022 January 2, 2021 5,999,994 5,999,994 1,025,542 1,025,542 Unlimited Unlimited Unlimited Unlimited In June 2021, the Company announced that the Toronto Stock Exchange approved a Normal Course Issuer Bid to repurchase up to 150,000 common shares. Purchases could commence on June 23, 2021 and will terminate no later than June 22, 2022. During the fifty-two weeks ended January 1, 2022, the Company purchased 122,100 common shares under this plan at an average price of CAD$13.37 per share for total cash consideration of CAD$1.6 million. The excess of the purchase price over the book value of the shares in the amount of $1.0 million was charged to retained earnings. 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 terminated on 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Annual Report 2021 87 A summary of the Company’s common share transactions is as follows: Balance, beginning of period Options exercised for shares via cashless exercise method (Note 17) Shares issued on redemption of PSU/RSUs (Note 17) Shares repurchased for cancellation Balance, end of period Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 Shares ($000s) Shares ($000s) 33,323,481 $ 112,739 33,383,481 $ 112,887 44,924 83,405 (122,100) 173 886 (340) — — — — (60,000) (148) 33,329,710 $ 113,458 33,323,481 $ 112,739 During the fifty-two weeks ended January 1, 2022, the Company distributed dividends per share of CAD$0.31 (fifty-three weeks ended January 2, 2021: CAD$0.22). In November 2021, the Company’s Board of Directors increased the quarterly dividend to CAD$0.10 per share, which represents a 3.0 cents increase from the CAD$0.07 per share dividend paid in the first three quarters of 2021, reflecting the Board’s continued confidence in the Company’s operations. On February 23, 2022, the Company’s Board of Directors declared a quarterly dividend of CAD$0.10 per share, payable on March 15, 2022 to shareholders of record as of March 2, 2022. 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 $5.5 million and $7.9 million, respectively, as at January 1, 2022 (January 2, 2021: $2.7 million and $6.5 million, respectively). Share-based compensation expense is recognized in the consolidated statements of income as follows: (Amounts in $000s) Cost of sales resulting from: Equity-settled awards(1) Selling, general and administrative expenses resulting from: Cash-settled awards(1) Equity-settled awards(1) Share-based compensation expense (1) Cash-settled awards may include PSUs, RSUs and DSUs. Equity-settled awards include options. Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 29 $ 95 7,308 414 5,339 427 $ 7,751 $ 5,861 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 Exercised for shares via cashless method(1) Cancelled or forfeited Expired Outstanding, end of period Exercisable, end of period Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 No. WAEP (CAD) No. WAEP (CAD) 1,748,843 $ 155,532 (122,497) — (334,782) 1,447,096 1,011,955 $ $ 10.65 13.45 8.02 — 14.93 10.18 10.43 1,717,416 $ 271,276 — (25,915) (213,934) 1,748,843 1,222,603 $ $ 12.53 7.51 — 13.42 22.04 10.65 11.85 (1) For the fifty-two weeks ended January 1, 2022, 44,924 shares were issued related to options exercised via the cashless method (fifty-three weeks ended January 2, 2021: nil shares). The weighted average share price at the date of exercise for these options was CAD$12.64 for the fifty-two weeks ended January 1, 2022 (fifty-three weeks ended January 2, 2021: $nil). Set forth below is a summary of the outstanding options to purchase common shares as at January 1, 2022: Option price (CAD) $7.25–10.00 $10.01–15.00 $20.01–25.00 Options outstanding Options exercisable Number outstanding Weighted average exercise price 555,860 $ 855,754 35,482 1,447,096 7.48 11.51 20.61 Average life (years) Number exercisable Weighted average exercise price 2.66 2.28 0.24 276,251 $ 700,222 35,482 1,011,955 7.47 11.08 20.61 The fair value of options granted during the fifty-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021 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 1, 2022 January 2, 2021 2.17 41.96 1.23 7.00 13.36 4.69 $ $ 2.66 42.28 1.22 5.00 7.51 2.26 $ $ Notes to the Consolidated Financial StatementsAnnual Report 2021 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 Released and paid in shares Forfeited Outstanding, end of period Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 604,940 156,038 13,245 (92,178) (38,312) (14,889) 628,844 953,483 268,977 15,286 (476,079) — (156,727) 604,940 The expected performance multiplier used in determining the fair value of the liability and related share-based compensation expense for PSUs for the fifty-two weeks ended January 1, 2022 was 100% (fifty-three weeks ended January 2, 2021: 111%). 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 Released and paid in shares Forfeited Outstanding, end of period Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 512,740 155,924 9,818 (100,693) (87,355) (10,554) 479,880 383,777 187,339 12,227 (39,608) — (30,995) 512,740 The share price at the reporting date was CAD$14.91 (January 2, 2021: CAD$11.10). PSUs will vest at the end of a three-year period, if agreed-upon performance measures are met, 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-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 267,559 199,989 42,778 6,766 — 317,103 79,761 6,965 (19,156) 267,559 18. Income tax The Company’s statutory tax rate for the year ended January 1, 2022 is 27.9% (January 2, 2021: 28.2%). The Company’s effective income tax rate was 13.9% for the year ended January 1, 2022 (January 2, 2021: 21.5%). The lower effective income tax rate in Fiscal 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 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 gains (losses) Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 2,953 $ 6,535 3,880 $ 6,833 $ 1,335 7,870 Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ (18) $ (85) (515) (209) 261 (546) 109 648 218 1,305 2,262 Income tax expense (recovery) directly to other comprehensive income (loss) $ $ (1,094) 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 2021 91 (Amounts in $000s) Accounting profit before tax at statutory income tax rate of 27.9% (2020: 28.2%) Non-deductible expenses for tax purposes: 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-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 13,694 $ 10,342 60 (119) (1,842) 361 (4,683) (20) (425) (193) $ 6,833 $ 74 190 (444) — (893) (40) (1,212) (147) 7,870 Consolidated statements of financial position as at Consolidated statements of income for the years ended January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021 Accelerated depreciation for tax purposes on property, plant and equipment $ (14,285) $ (13,127) $ 1,158 $ 2,014 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 (6,840) (24,057) 1,924 (55) 367 8,791 (3,904) (24,175) 2,675 487 218 9,156 2,915 (118) (559) — (150) 634 785 547 (31) — 180 (2,160) $ 3,880 $ 1,335 $ (34,155) $ (28,670) $ 24 $ 2,401 (34,179) (31,071) $ (34,155) $ (28,670) 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 recovery during the period recognized in contributed surplus Deferred income tax (expense) recovery during the period recognized in retained earnings Deferred income tax (expense) recovery during the period recognized in OCI Other Closing balance, end of year January 1, 2022 January 2, 2021 $ (28,670) $ (28,048) (3,880) 650 (1,309) (945) (1) (1,335) — 572 364 (223) $ (34,155) $ (28,670) The Company had unused capital losses of CAD$48.8 million at January 1, 2022 (January 2, 2021: CAD$50.9 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. Notes to the Consolidated Financial Statements92 HIGH LINER FOODS 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 1, 2022 and $nil at January 2, 2021. There were no income tax consequences attached to the payment of dividends in 2021 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-two weeks ended January 1, 2022, the Company recognized $2.4 million (fifty-three weeks ended January 2, 2021: $3.6 million) in revenue that was included in the contract liability balance at the beginning of the period. 20. Earnings per share Net income and basic weighted average shares outstanding are reconciled to diluted earnings and diluted weighted average shares outstanding, respectively, as follows: Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 Net income ($000s) $ $ 42,249 — 42,249 Weighted average shares (000s) Per share ($) Net income ($000s) Weighted average shares (000s) 33,865 $ 1.25 $ 28,802 33,854 $ 1,256 (0.05) — 665 35,121 $ 1.20 $ 28,802 34,519 $ Per share ($) 0.86 (0.03) 0.83 Net income Dilutive options and units Diluted earnings Excluded from the diluted earnings per common share calculation for the fifty-two weeks ended January 1, 2022 were 201,020 options and units, as their effect would have been anti-dilutive (fifty-three weeks ended January 2, 2021: 1,083,419 options). Notes to the Consolidated Financial StatementsAnnual Report 2021 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 January 2, 2021 Cash flows Reclassified between current and non-current Change in fair values New leases, modifications and interest Other(1) January 1, 2022 $ — $ 4,529 $ — $ — $ — $ (141) $ 4,388 20,185 (20,185) 2,735 4,866 268,048 329 10,722 — (5,848) (9,375) — — 5,625 — 4,306 (5,625) — (4,306) — (1,490) — — (307) — — — 93 — — 348 — 24 34 5,625 1,269 4,327 (8,054) 244,994 1 87 23 6,851 Total liabilities from financing activities $ 306,885 $ (30,003) $ — $ (1,797) $ 441 $ (8,049) $267,477 (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 Other 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 (1) “Other” includes the effect of amortization of deferred financing charges and the impact of the foreign exchange movements. During the fifty-two weeks ended January 1, 2022, “Other” also includes a modification gain of $7.8 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 1, 2022 relating to the procurement of inventories and the security of certain contractual obligations of $18.5 million (January 2, 2021: $3.2 million). The Company also had a letter of credit outstanding as at January 1, 2022 relating to the securitization of the Company’s defined benefit SERP (see Note 15) in the amount of $8.5 million (January 2, 2021: $9.7 million). 23. Related party disclosures Entity with significant influence over the Company As at January 1, 2022, Thornridge Holdings Limited owns 34.6% of the Company’s outstanding common shares (January 2, 2021: 34.6%). 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-two weeks ended January 1, 2022 and the fifty-three weeks ended January 2, 2021. The Company did not have any transactions during 2020 or 2021 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 CEO 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 2021 and 2020. (2) Refer to Note 15 for details of each plan. (3) Refer to Note 17 for details regarding the Company’s Share Option, DSU, PSU and RSU Plans. Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 4,042 $ 4,669 60 97 3,340 7,539 $ 93 — 976 5,738 $ Notes to the Consolidated Financial StatementsAnnual Report 2021 95 24. Geographic information Sales earned outside of Canada for the fifty-two weeks ended January 1, 2022 were $653.9 million (fifty-three weeks ended January 2, 2021: $626.2 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 1, 2022 January 2, 2021 $ 86,104 $ 82,609 8,126 121,584 147,916 11,494 128,108 147,916 $ 363,730 $ 370,127 For the fifty-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021 the Company recognized $188.5 million and $183.7 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 1, 2022 January 2, 2021 Level 2 Level 3 Level 2 Level 3 $ $ $ $ 988 560 443 849 — — $ — $ — 258 — $ 1,077 $ — 249,533 1,987 — — — — — 289,744 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-two weeks ended January 1, 2022, 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 was $250.6 million as at January 1, 2022 (January 2, 2021: $288.2 million). The fair values of other financial assets and liabilities at January 1, 2022 and January 2, 2021 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 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021 $ $ $ 560 988 1,548 $ 258 — 258 $ $ $ 849 443 1,292 $ 1,987 1,077 3,064 During the fifty-two weeks ended January 1, 2022, the Company expensed $0.1 million and $0.6 million (fifty-three weeks ended January 2, 2021: expensed $0.1 million and $1.1 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-two weeks ended January 1, 2022, 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) April 4, 2016 January 4, 2018 March 4, 2020 April 26, 2021 April 26, 2021 April 26, 2021 June 30, 2021 April 24, 2021 3-month LIBOR (floor 1.0%) 1.6700%   $ April 24, 2021 3-month LIBOR (floor 1.0%) 2.2200%   $ June 30, 2021 3-month LIBOR (floor 1.0%) 1.4950%   $ July 7, 2023 3-month LIBOR (floor 0.75%) 0.8250%   $ July 8, 2024 3-month LIBOR (floor 0.75%) 0.9700%   $ July 6, 2026 3-month LIBOR (floor 0.75%) 1.3385%   $ December 31, 2025 3-month LIBOR (floor 0.75%) 1.3610%   $ 40.0 80.0 20.0 25.0 25.0 35.0 20.0 The cash flow hedge of interest expense variability was assessed to be effective for the fifty-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021, 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 gains of $1.8 million and after-tax net losses of $0.8 million, respectively. The Company did not hold any interest rate swaps that were not designated in a formal hedging relationship during the fifty- two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021. There was $0.1 million recognized in the consolidated statements of income resulting from hedge ineffectiveness during the fifty-two weeks ended January 1, 2022 and $nil during the fifty-three weeks ended January 2, 2021. 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 2021 97 As at January 1, 2022, the Company had outstanding notional amounts of $27.7 million (January 2, 2021: $40.6 million) in foreign currency average-rate forward contracts that were formally designated as a hedge and $3.1 million in foreign currency single-rate forward contracts that were formally designated as a hedge (January 2, 2021: $2.1 million). With the exception of $0.7 million (January 2, 2021: $2.3 million) average-rate forward contracts with maturities ranging from January 2023 to June 2023, 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-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021, and therefore the change in fair value was recorded in OCI as after-tax net losses of $0.2 million and after-tax net losses of $0.5 million, respectively. There were nominal amounts recognized in the consolidated statements of income resulting from hedge ineffectiveness during the fifty-two weeks ended January 1, 2022 and nominal amounts recognized during the fifty-three weeks ended January 2, 2021. As at January 1, 2022, the Company had $33.0 million (January 2, 2021: $nil) of foreign currency single-rate forward contracts to hedge foreign currency exchange risk on USD monetary assets and liabilities that were not formally designated as a hedge. The change in fair value related to hedging foreign currency exchange risk on USD monetary assets and liabilities, recognized in the consolidated statements of income for the fifty-two weeks ended, were net gains of $0.7 million and the change for the fifty-three weeks ended January 2, 2021 were net losses of $0.7 million. HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS As at January 1, 2022, a total borrowing of $255.6 million ($5.0 million included in accounts payable, $5.6 million included in the current portion of long-term debt and $245.0 million included in long-term debt (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)) has been designated as a hedge of the net investment in the U.S. subsidiary and is being used to hedge the Company’s exposure to foreign exchange risk on this net investment. Gains or losses on the re-translation of this borrowing are transferred to OCI to offset any gains or losses on translation of the net investment in the U.S. subsidiary. There was no hedge ineffectiveness recognized during the fifty-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021. 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 1, 2022, the Company had Average Adjusted Aggregate Availability of $121.3 million. The Company also has restrictions under the term loan facility on capital distributions, where the aggregate amount for dividends are subject to an annual limit of $17.5 million with a provision to increase this amount subject to leverage and excess cash flow tests. NCIBs are subject to an annual limit of $10.0 million with a provision to carry forward unused amounts, subject to a maximum of $20.0 million per annum. For the fifty-two weeks ended January 1, 2022 and fifty-three weeks ended January 2, 2021, the Company paid $8.2 million and $5.5 million in dividends, respectively, and purchased shares for $1.0 million and $0.1 million, respectively, under the NCIB. The Company monitors capital (excluding letters of credit) using the ratio of net debt to capitalization, which is net debt divided by total capital plus net debt. The Company’s objective is to keep this ratio between 35% and 60%. Seasonal working capital debt may result in the Company exceeding the ratio at certain times throughout the fiscal year. The Directors of the Company have also decided that this range can be exceeded on a temporary basis as a result of acquisitions. Notes to the Consolidated Financial Statements98 HIGH LINER FOODS (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 (gains) losses on derivative financial instruments included in AOCI Total capitalization Net debt as percentage of total capitalization January 1, 2022 January 2, 2021 $ 4,551 $ — 255,755 11,178 271,484 285,315 15,588 300,903 (443) (32,935) 271,041 332,524 (1,148) 267,968 291,002 1,289 $ 602,417 $ 560,259 45% 48% No changes were made in the objectives, policies or processes for managing capital for the fiscal year ended January 1, 2022 and January 2, 2021. 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 1, 2022, 42.8% 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 (January 2, 2021: 51.7%). 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 1, 2022, the Company’s current bank loans were $4.6 million (January 2, 2021: $nil) and long-term debt was $256.4 million (January 2, 2021: $294.2 million). An increase of 25 basis points on the bank loans would have reduced income before income taxes by a nominal amount (January 2, 2021: $nil). 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 (January 2, 2021: $0.4 million). A corresponding decrease in respective interest rates would have an approximately equal and opposite effect. There is no impact on the Company’s equity except through changes in income. Notes to the Consolidated Financial StatementsAnnual Report 2021 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 1, 2022, the Parent hedged 44% (January 2, 2021: 51%) of these purchases identified for hedging, extending to June 2023. 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 soy 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-two weeks ended January 1, 2022, approximately 61.5% of the Parent’s costs were denominated in USD, while approximately 99.9% 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 1, 2022, a one-cent increase/decrease in the USD/CAD exchange rate will decrease/increase equity by approximately $0.9 million (January 2, 2021: $0.9 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 70% of the trade receivables at January 1, 2022 (January 2, 2021: 58%), with the largest customer accounting for 25% (January 2, 2021: 11%). 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 1, 2022, less than 6% of the Company’s debt (January 2, 2021: less than 9%) will mature in less than one year based on the carrying value of borrowings reflected in the Consolidated Financial Statements. At January 1, 2022, 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, including accounts payable and accrued liabilities and undiscounted cash flows and interest payments related to long-term debt: (Amounts in $000s) Due within 1 year Due in 1–5 years Due after 5 years Total Accounts payable and accrued liabilities $ 164,135 $ — $ — $ 164,135 Long-term debt As at January 1, 2022 19,596 298,528 $ 188,282 $ 298,528 $ — — 318,124 $ 486,810 Accounts payable and accrued liabilities $ 114,326 $ — $ — $ 114,326 Long-term debt As at January 2, 2021 Commodity price risk 37,537 68,058 263,910 369,505 $ 151,863 $ 68,058 $ 263,910 $ 483,831 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 2021 and 2020, 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 2022 commodity purchase requirements are covered. Should an increase in the price of commodities materialize, there could be a negative impact on earnings performance and alternatively, a decrease in the price of commodities could result in a benefit to earnings performance. Crude oil prices, which influence fuel surcharges from freight suppliers, increased during 2021 compared to 2020. World commodity prices for flour, soy and canola oils, imported ingredients in many of the Company’s products, increased throughout 2021 compared to 2020, as well as the price of corrugated and folded carton, which is used in packaging. Seafood price risk The Company is dependent upon the procurement of frozen raw seafood materials and finished goods on world markets. The Company bought $449.6 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 $4.5 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 2021 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 gain related to debt refinancing activities (Note 14) Foreign exchange (gain) loss Total finance costs Foreign exchange loss (gain) included in: Cost of sales Finance costs Total foreign exchange loss Loss (gain) on disposal of assets included in: Cost of sales Distribution expenses Selling, general and administrative expenses Total loss on disposal of assets Depreciation and amortization expense included in: Cost of sales Distribution expenses Selling, general and administrative expenses Total depreciation and amortization expense Employee compensation and benefit expense: Wages and salaries (including payroll benefits) Future employee benefit costs Share-based compensation expense Termination benefits Short-term employee benefits Fifty-two weeks ended January 1, 2022 Fifty-three weeks ended January 2, 2021 $ 328 $ 998 12,707 15,869 964 1,310 106 (7,901) (20) 1,192 1,271 129 — 24 $ 7,494 $ 19,483 $ $ $ $ 800 $ (20) 780 $ 223 $ 6 (106) 123 $ 667 24 691 105 9 (80) 34 $ 8,125 $ 4,639 10,317 7,592 4,935 10,701 $ 23,081 $ 23,228 $ 98,824 $ 91,186 4,370 7,751 888 28 3,123 5,861 1,583 (10) Total employee compensation and benefit expense $ 111,861 $ 101,743 29. Comparative figures Comparative figures on the consolidated statements of income have been reclassified to reflect a $0.2 million increase to selling, general and administrative expenses from business, acquisition, integration and other expenses to conform to the current period’s presentation. Notes to the Consolidated Financial Statements102 HIGH LINER FOODS Historical Consolidated Statement of Income (UNAUDITED) In United States dollars, unless otherwise noted (Amounts in $000s, except per share amounts) Sales Gross profit Distribution expenses Selling, general and administrative  expenses Impairment of property, plant and  equipment Business acquisition, integration  and other expenses (income) Finance costs (Income) loss from equity accounted  investee, net of income tax 2021 2019 $ 875,405 $ 827,453 $ 942,224 2020 198,544 177,924 185,860 50,807 45,076 45,759 2018 $ 1,048,531 188,157 52,649 2017(1) 2016(1) 2015(1) $ 1,053,846 $ 954,986 $ 999,471 186,079 49,827 201,807 43,610 199,627 48,037 2014 $ 1,051,613 220,405 52,558 2013(2) 2012(2)(3) $ 947,301 $ 942,631 215,335 53,368 206,661 44,511 88,269 73,926 90,019 92,208 99,449 96,978 93,597 105,313 98,820 100,862 42 — 974 1,302 — 2,327 — 852 — 13,230 2,850 7,494 2,767 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 Income before income taxes 49,082 36,672 14,524 22,866 17,538 39,809 34,273 37,531 43,648 — — — — — — — — (86) 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: 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 196 536 5,442 (7,109) (1,667) 2,953 3,880 6,833 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 $ 42,249 $ 28,802 $ 10,289 $ 16,776 $ 31,653 $ 32,284 $ 28,351 $ 30,300 $ 31,356 $ 2,203 $ 42,249 $ 28,802 $ 10,289 $ 16,776 $ 31,653 $ 32,284 $ 28,351 $ 30,300 $ 31,356 $ 2,203 6,833 7,494 7,585 15,496 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 $ 79,657 $ 79,383 $ 69,991 $ 62,240 $ 50,475 $ 71,219 $ 67,260 $ 71,897 $ 75,136 $ 56,502 2,850 2,767 7,105 (2,471) 2,639 4,787 7,473 6,582 3,256 10,741 42 — 974 1,302 — 2,327 — 852 — 13,230 — 122 7,751 — — 34 5,861 — — 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 — $ 90,422 $ 88,045 $ 85,324 $ 62,474 $ 66,112 $ 81,383 $ 76,181 $ 83,341 $ 85,343 $ 91,687 $ 42,249 $ 28,802 $ 10,289 $ 16,776 $ 31,653 $ 32,284 $ 28,351 $ 30,300 $ 31,356 $ 2,203 50 — — — 1,999 — 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 — 761 188 (105) 1,899 (90) (426) (80) 76 529 — — — — 605 — 776 744 6,380 (402) Modification (gains) losses, accelerated  amortization of deferred financing costs,  and other items resulting from debt  refinancing and amendment activities Intercompany dividend withholding tax (5.670) — Adjusted Net Income $ 44,798 $ 35,211 $ 29,137 $ 17,049 $ 41,328 $ 40,284 $ 34,333 $ 38,781 $ 41,281 $ 38,071 Share-based compensation expense 6,170 4,356 5,196 1,176 658 2,794 1,207 2,958 6,366 10,025 Historical Consolidated Statement of Income (UNAUDITED) Annual Report 2021 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 2021 9.98 $ 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 20,319 8,952 6,569 14,607 27,775 17,686 18,587 28,075 15,419 13,447 $ 1.25 1.32 1.20 1.28 $ 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 33,330 33,323 33,383 33,383 33,380 30,889 30,874 30,706 30,571 30,258 33,865 35,121 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 Dividends declared and paid $ 8,219 $ 5,518 $ 7,424 $ 14,663 $ 14,355 $ 12,145 $ 11,023 $ 11,285 $ 10,305 $ Dividends per common share (CAD) 0.310 0.220 0.295 0.580 0.565 0.520 0.465 0.410 0.350 (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. 30,238 30,920 6,379 0.210 104 HIGH LINER FOODS Historical Consolidated Statement of Financial Position (UNAUDITED) In United States dollars, unless otherwise noted (Amounts in $000s) Cash 2021 2020 $ 443 $ 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(3) 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 87,122 60,927 85,089 5,870 540 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 $ 73,947 5,145 533 308,183 250,861 294,913 301,411 353,433 252,059 263,043 261,987 252,960 222,313 3,419 405,577 115,852 11,041 — 24 — 1,008 — 135,195 157,772 — 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 — — 2,495 — 1,683 — — — 3,372 — 1,678 — — — 4,656 — 1,906 — — — 7,207 96 1,847 92 102,315 117,824 — 107,704 119,270 515 105,253 111,999 542 110,631 112,873 4,819 Total assets $ 826,469 $ 776,558 $ 820,494 $ 837,155 $ 907,969 $ 685,108 $ 695,144 $ 705,574 $ 677,499 $ 631,827 Bank loans – actual amounts owing $ 4,551 $ — $ 37,956 $ 31,505 $ 53,560 $ 959 $ 17,628 $ 65,851 $ 97,899 $ 60,530 Bank loans – deferred charges (163) — (410) (353) (208) (338) (470) (721) (672) (826) Accounts payable and accrued liabilities 164,135 114,326 141,238 157,162 205,820 138,766 124,132 Share-based compensation payable – current Contract liability(4) Provisions Other current financial liabilities Income taxes payable Current portion of long-term debt Current portion of lease liabilities(3) 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(3) Deferred income taxes Future employee benefits Liabilities classified as held for sale 5,499 1,585 172 1,269 35 5,625 4,327 187,035 250,804 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 (5,810) (5,979) (7,073) (1,597) (2,485) (1,599) (1,917) (2,717) (5,791) 23 — 7,874 6,851 34,179 12,989 — 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 — 91,436 10,005 — 1,614 550 1,165 34,237 1,039 199,750 213,888 (529) 1,130 — 1,532 2,181 45,126 13,791 1,604 Shareholders' equity 332,524 291,002 268,170 263,859 268,867 220,204 198,624 196,974 184,649 153,354 Total liabilities and shareholders’ equity $ 826,469 $ 776,558 $ 820,494 $ 837,155 $ 907,969 $ 685,108 $ 695,144 $ 705,574 $ 677,499 $ 631,827 (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. (3) 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. (4) 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 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 Anthony Rasetta Chief Commercial Officer Johanne McNally Myers Executive Vice President, Human Resources Paul Jewer, fcpa Executive Vice President & Chief Financial Officer Ron van der Giesen Chief Supply Chain Officer Tim Rorabeck Executive Vice President, Corporate Affairs & General Counsel Senior Management Group Andy Tanner Treasurer Bill DiMento Vice President, Sustainability & Government Affairs Bill Mandly Director, Project Management Brian Novello Director, Storage and Distribution Services Charlene Milner Vice President, Finance Dale Martin Vice President, Seafood Procurement Deepak Bhandari Vice President, Financial Planning & Analysis and Revenue Growth Management Denise Sweat Director, Human Resources Supply Chain Ed Snook Vice President, Operations Fred Pace Director, Warehouse Management System Implementation John Kramer Director, Sales & Operations Planning Marcio Menquini Director, Purchasing Meggan Hodgson Vice President, Quality Assurance & Food Safety Mike Sirois Vice President, Product Development & Technical Services Naomi Jewers Assistant Corporate Secretary Pam Kellogg Vice President, Retail Sales Pam Sharma Director, Organizational Effectiveness Sarah Rajmoolie Director, Total Rewards Susan Rousell Director, Human Resources Corporate Tom Rupkey Vice President, North American Foodservice Sales 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 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 Concept and design: The Works Design Communication Ltd. worksdesign.com Annual Report 2021 105 Contact: TSX Trust Company AnswerLineTM: 1-800-387-0825 (toll-free in North America) or (416) 682-3860 Fax: 1-888-249-6189 E-mail inquiries: shareholderinquiries@tmx.com tsxtrust.com Mailing Address: P.O. Box 2082, Station C Halifax, NS B3J 3B7 Banks The Royal Bank of Canada JPMorgan Chase Bank, N.A. Bank of Montreal Canadian Imperial Bank of Commerce Rabobank Investor Relations For: • Additional financial information • Industry and Company developments • Additional copies of this report Contact: 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 Wednesday, May 11, 2022 11:30 a.m. ADT High Liner Foods Incorporated Lunenburg, Nova Scotia Virtually: https://web.lumiagm.com/424360488 Password: highliner2022 (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) REIMAGINING SEAFOOD TO NOURISH LIFE... IN OUR COMMUNITIES At High Liner Foods, our purpose of Reimagining Seafood to Nourish Life inspires us to have a positive social impact, contribute to our communities and leverage our business for the greater good. In 2021, we hosted a company-wide Week of Nourishment in which the High Liner Foods team, across all locations, volunteered time to nourish local community groups and help raise awareness of growing issues of hunger and food insecurity across North America. The Week of Nourishment rallied our teams around our purpose and helped advance our goal to donate 10 Million Meals in 10 Years to the communities in which High Liner Foods operates. For more information on High Liner Foods’ approach to environmental, social and governance issues, please see High Liner Foods Corporate Social Responsibility Report and Management Information Circular, available at www.highlinerfoods.com. MD&A

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