Heather Keeler Hurshman - Director, Investor Relations Henry Demone - Chairman of the Board Paul Jewer - Executive Vice President and Chief Financial Officer Keith Decker - President and Chief Executive Officer

Sabahat Khan - RBC Capital Markets Marc Robinson - Cormark Securities George Doumet - Scotiabank Michael Mills - Beacon Securities

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the High Liner Foods Incorporated conference call for the results of the first quarter of 2015. [Operator Instructions] I would now like to turn the call over to Heather Keeler-Hurshman, Director of Investor Relations for High Liner Foods. Ms. Keeler-Hurshman. Please go ahead.

Thank you, and good afternoon, everyone. Thank you for joining High Liner Foods conference call to discuss our financial results for the first quarter of 2015. On the call today from High Liner Foods are Henry Demone, Paul Jewer and Keith Decker. Before beginning our customary review for the quarterly results, I would like to first turn the call over to Henry, who would like to share with you a number of executive and board changes announced earlier today. Please go ahead Henry.

Thanks, Heather. Good afternoon, everyone. Earlier today, in addition to announcing the financial results for the first quarter of 2015, the company announced a number of executive and board changes. Keith Decker, formerly the company's President and Chief Operating Officer, has been named President and Chief Executive Officer of High Liner Foods, and has been appointed to the company's Board of Directors. I have assumed the role of Chairman of the company's Board of Directors from David Hennigar. And David has assumed the role of Lead Director and Vice Chairman of the Board. As many of you are already aware, succession planning has been a key focus on the company over the last several years. These appointments are in keeping with these plans, and took effect at the conclusion of our 2015 Annual General Meeting held in Halifax earlier today. I will speak more about these changes later on the call. Heather, please continue.

Thank you, Henry. So with that, I will formally introduce everyone on the call today from High Liner Foods. We have Henry Demone, Chairman of the Board; Keith Decker, President and Chief Executive Officer; and Paul Jewer, Executive Vice President and Chief Financial Officer. During the remainder of today's call, Paul will review the company's financial performance for the first quarter of 2015; followed by Keith, who will discuss operational highlights of the quarter; and then before opening the call for questions, Henry will for the last time provide a quick update on strategy. Before turning the call over to management, listeners are reminded that certain statements made in today's call may be forward-looking statements that are subject to risks and uncertainties. Management may use forward-looking statements as they discuss the company's strategy and business in the future. Actual operating or financial results could differ materially from those anticipated in these forward-looking statements. High Liner Foods includes a thorough discussion of the risk factors that can cause its anticipated outcomes to differ from actual outcomes and its publicly available disclosure documents, particularly in its annual MD&A and annual information form. Please note that High Liner Foods is under no obligation to update any forward-looking statements discussed today. As Henry has stated earlier today, High Liner Foods reported its financial results for the first quarter of 2015. That news release along with the company's MD&A and unaudited condensed interim consolidated financial statements for the first quarter of 2015 have been filed on SEDAR and can also be found in the investor information section of High Liner Foods' website. If you'd like to register for our news releases in the future, please visit the company's website to register. Lastly, please note that the company report its financial information in U.S. dollars and the results to be discussed today are stated in U.S. dollars unless otherwise noted. High Liner Foods common shares trade on the Toronto Stock Exchange and are reported in Canadian dollars. I will now turn the call over to Paul. Paul, please go ahead.

Thank you, Heather, and good afternoon, everyone. Before beginning my financial review of the first quarter, I'd like to remind listeners that we use certain non-IFRS measures and ratios, when discussing our results, as we believe these are useful in assessing the company's financial performance. These measures are fully described and reconciled to IFRS measures in our MD&A. I'd also like to remind listeners that we acquired Atlantic Trading Company in October 2014, and therefore our last year's comparative results do not include the impact of this acquisition. In the first quarter of 2015, reported sales increased by 2.5% to $310.2 million compared to $302.6 million in the first quarter of 2014. In domestic currency, which is before the impact of converting Canadian dollar denominated sales to U.S. dollars, sales increase by $16.8 million or 5.4% to $326.9 million. The weaker Canadian dollar in 2015 decreased the value of reported sales by approximately $8.7 million relative to the conversion in the same period last year. Sales by volume decreased by 5% to 89.5 million pounds in the first quarter of 2015 compared to 94.2 million pounds in 2014. Pounds sold decreased by 4.7 million, primarily reflecting lower sales volumes from our U.S. and Canadian operations, partially offset by the impact of the Atlantic Trading acquisition. Adjusted EBITDA increased by $3.4 million to $30.7 million in the first quarter of 2015 and was 9.9% of sales compared to 9% in the same period last year. This increase reflected decrease in distribution cost and SG&A spending, partially offset by the decrease in sales volume and lower gross profit as a percentage of sales. Distribution costs decreased due to lower sales volume and fuel cost savings. SG&A spending was lower due to the impact of synergies related to the integration of American Pride and the timing of spending in both the U.S. and Canada. Keith will elaborate in a few minutes on the factors that resulted in a lower overall gross profit margin. In the first quarter, reported net income was $12.5 million with diluted earnings per share of $0.40 compared to net income of $11.9 million and diluted earnings per share of $0.38 in the same period of 2014. The $600,000 increase in reported net income primarily reflects higher adjusted EBITDA as just discussed and lower finance cost. Finance costs were primarily lower as a result of cost recognized in the first quarter of 2014 related to amendments made to company's credit facilities. The favorable impact of these items was partially offset by higher business acquisition, integration and one-time costs. These costs related to supply chain optimization activities and plant closures, including previously closed facilities, and the cessation of operations at our leased facility in Malden in April 2015. Excluding the impact of these one-time costs and other certain items, which are explained in our MD&A adjusted net income in the first quarter increased by $1.8 million or 13.4% in 2015 to $15.6 million, and correspondingly adjusted diluted earnings per share increased by $0.06. Turning now to balance sheet. The net working capital balance was $258.9 million at the end of the first quarter and was fairly consistent with the balance at the end of the first quarter of last year. Net interest bearing debt was $351.2 million at the end of the first quarter and $5.6 million higher than the balance at the end of the same period last year. This increase reflects the use of debt last October to finance the Atlantic Trading acquisition and a $5.7 million payment made to close operating leases related to the American Pride business, partially offset by cash flow generated from operating activities. Our net interest bearing debt to adjusted EBITDA ratio calculated on a rolling 12 months basis improved to 4x at the end of the first quarter compared to 4.4x at the end of fiscal 2014. We expect this ratio to continue to improve throughout 2015 as free cash flow will be used to pay down debt. That concludes my financial review for the first quarter of 2015. And I would now like to turn the call over to Keith to discuss operational highlights of the quarter.

Thank you, Paul, and good afternoon everyone. I'd like to elaborate on some of the items Paul mentioned that had an impact on our first quarter results, starting with those related to our Canadian operations. Sales in the first quarter from our Canadian business in it's domestic currency increased by $4.9 million or 6.2% to $84.6 million and volume decreased by 0.5 million pounds or 2.7% primarily reflecting lower retail sales. Adjusted EBITDA in the first quarter from our Canadian operations, again based on domestic currency decreased by $0.9 million or 11.9% to $6.7 million. This decrease was due to lower sales volume and the impact of cost increases, partially offset by lower distribution costs resulting from lower fuel costs and the timing of SG&A spending. Turning the discussion now to our U.S. operations. Sales increased by $11.9 million or 5.2% and volume decreased by 4.2 million pounds or 5.5%. The decline in volume was across the business and was partially offset by the impact of the Atlantic Trading acquisition. Adjusted EBITDA from the U.S. business increased by $3.6 million compared to last year. This increase was due to the impact of price increases, lower distribution cost resulting from lower sales volume and lower fuel costs, and lower SG&A expenses reflecting synergies from integrating American Pride and the timing of consumer marketing expenditures. The favorable impact of these items was partially offset by lower sales volumes. Unfortunately organic growth in our business remained challenging in the first quarter of 2015. Strength in the first part of the quarter was offset by declines later in the quarter, particularly in U.S. foodservice. As many of you are aware over the last year, we have experienced significant increases in raw material costs on certain species, and while we have passed a significant portion of these increases on to our customers, these higher prices may impact sales volume in the near term. And for the last, we continue to believe that focusing efforts on the development of innovative product offerings is key to driving organic growth. Before turning the call over to Henry, I would like to give you an quick update on the supply chain optimization project. We continue to make good progress on this initiative in the first quarter, despite some challenges, which included weather impacts and reduced plants volumes. However, progress has been delayed in a few areas. As part of this work, we announced plans in early January to cease the operations in our leased Malden facility, which is expected to reduce annual operating costs and correspondingly increase annual EBITDA by $3.0 million. Operations at the Malden facility ceased in early April, as planned. And I would like to thank the many employees involved with the successful transfer of production from the Malden plant to our other facilities. And with that, I will now turn the call over to Henry. Henry?

Thank you, Keith. In regards to updates on our 2015 strategic goals, Keith has already mentioned that supply chain optimization activity continued for the most part as planned during the first quarter. While the first quarter results reflect nominal cost savings from this project, we continue to expect net cost savings will be realized in 2015, and that total annual cost savings of $20 million to $25 million can be achieved by the end of next year. This goal continues to be a top priority for the organization with two main areas of focus. The first being optimization at the individual plant level, where areas like labor productivity and yield improvement are being targeted. This work is well underway at all of our facilities, and we have had varying levels of success on labor efficiency improvements, depending on the plant, and the focus remains on getting all of our facilities up to the level of efficiency expected. Material savings and yield improvement thus far have been in line with our expectations. The second area of focus is optimization at the consolidated entity level, and includes activities like standardizing and consolidating ingredients as well as packaging and optimizing our global supply chain and procurement activities. This work is also well underway. As I stated earlier, succession planning has been one of the company's top priorities over the last several years, and the announcement today of Keith's appointment to President and CEO follows a series of planned changes at the company's executive level to ensure continued strong leadership into the future. Keith joined us in 2007 with the FPI acquisition. He provided great leadership as COO of our U.S. business, while it increased sevenfold in size. And he has done an excellent job as President and Chief Operating Officer of the corporation for the past 18 months. Keith's leadership skills, commitment and experience in the seafood business make him an excellent choice for High Liner's President and Chief Executive Officer. I would like to congratulate Keith on his new role, and I am confident in his abilities and his team to continue to move the organization closer to our vision of becoming a leading frozen seafood supplier in North America. Keith's appointment as CEO marks a major milestone in the implementation of our succession plans, and the risk in senior leadership turnover that we faced a couple of years ago has been addressed. Designated successors or new people have been appointed in all key executive positions in the company. Lastly, before opening up the call to questions, I would like to share with you that earlier today the Board of Directors of the company approved a quarterly dividend of the CAD$0.12 per share on the company's common shares payable on June 15, 2015, to holders of record on June 1. This represents an increase of CAD$0.015 or 14.3% from the CAD$0.105 per share quarterly dividend paid on March 16 of this year. This reflects the Board's continued confidence in the company's operations. Operator, I'd now like to open the call up for questions.

[Operator Instructions] Your first question comes from the line of Sabahat Khan with RBC Capital Markets.

On the sales volumes, you indicted that the higher pricing is having somewhat of impact. Can you talk about how the overall U.S. foodservice industry is trended this year? And what you see for the rest of the year?

I would say that the foodservice industry seems to be experiencing some positives from, I guess, same-store traffic. Some of the concepts are still struggling, but some of them are dong better. Fast casual continues to develop. The challenges around seafood and seafood consumption, I would say that we anticipate that the foodservice industry in general will be slightly positive for the year, at least as far as the overall foodservice industry. But as far as seafood, I think there are still pockets where there is some traditional operators in the QSR side of the business, and in the casual dining segment, which are still experiencing some difficulty.

And I'd add that if you looked at the broad-line distributors, as they reported their Q1 results, or a number of the major restaurant chains, the theme certainly was some strength in the early part of the quarter, but then some softness towards the end of the quarter as we moved into the second quarter. And that's not inconsistent with what we've seen in the business as well.

And just on the cost for the quarter, SG&A seems to have come down quite a bit year-over-year, and you indicated that some of that might have been timing. Can you just comment on what led to that SG&A decrease? And should we think of that as kind of the run rate for the rest of the year?

No, because there is some timing impacts, so there was some, I would say, change in the timing of things like marketing spend, as an example. Although, there are some synergies that are reflected there as well related to the finalization of the integration of the American Pride. That that obviously is sustainable, some of the timing you will see come back in Q2 or later quarters.

Your next question comes from the line of Marc Robinson with Cormark Securities.

The first question around just want to quantify the spend of these organic volume declines in the U.S. So, Paul, maybe you can give a number what percent were the volumes down in the U.S. on an organic basis?

Overall, the volumes were down 4.7 million pounds or 5%. The majority of that was in the U.S. business, and the majority of it in the U.S. business was in foodservice. But to be honest, we did have volume declines across the board in foodservice and retail. And as we mentioned earlier, we think pricing was part of that equation. We did have to pass on a lot of the increases in prices last year, and again early in the first quarter and think that has had some impact on volume. And the second piece that we talked about is just the underlying backdrop in terms of what's going on in the foodservice business overall. The pricing impact obviously was most acute in Canada because of the fact the softness of the Canadian dollar contributed to even higher price increases that has been passed on.

And just excluding the Atlantic Trading contribution, what were the volume declines in the U.S., do you have that number?

In the U.S., it's 5.5% in the U.S. in total.

That's including Atlantic Trading, right?

That's including Atlantic Trading, yes. So if you've exclude Atlantic Trading, it would be -- I don't have the number in front of me, but probably a couple of hundred basis points more than that.

Just around, I want to better understand the timing of this $20 million to $25 million in supply chain savings. So you save by the end of 2016, so is that -- would you expect to get $20 million to $25 million in 2016 or you expect to be running at a rate of $20 million to $25 million by the end of 2016.

It's the latter. We'd be at that run rate by the end of 2016. Some will be realized during 2015, which will have the full benefit of that in 2016, but some of the savings will be realized will be realized through 2016, so it won't be up to the full run rate until towards the end of the year.

And how much have you paid or how much do you intend to pay to consultants to realize that $20 million to $25 million?

I won't give you specific number, it's confidential with them. Although, frankly it's included in the adjustment line between EBITDA and adjusted EBITDA, and so it makes a part of that adjustment line, but I would note in Q1, in particular, there were other items that were included in that that warrant consulting fees, in particular, closing cost associated with Malden. So it's not a number we've disclosed. As a percentage of the overall savings, it's a fairly low number that we're frankly quite happy to pay to generate the kinds of savings that we're talking about.

And then just finally here, what percentage of the American Pride synergies have been realized, are they fully realized now?

Yes, in essence they're fully realized. The first of them were sort of the back office savings. We've not got IT systems integrated. We finished that in Q4, so that's been realized. There was some production volume that was moved around, including associated with the closing of Malden, so that's been realized. So I would say, most of that is now fully reflected in the results that you see.

Your next question comes from the line of George Doumet with Scotiabank.

Just a follow-up on couple of questions that were asked on the U.S. volume declines, are we expecting any meaningful temporary volume declines relating to be the Malden transitioning?

No, we are not. That was actually done very well by the team, and we've successfully closed that facility, move the production, and it was completed in the first part of the April.

Also, could you give us a sense of magnitude on price increases, I guess, versus mix for the quarter, and the expectations of pricing levels moving forward maybe by end market or geography would be appreciated?

Yes, so from a price increase perspective, we believe most of the price increases are now behind us. As we've said, we expect some release on raw material costs as we get into the fourth quarter of the year. The reason it will take that long to realize, because the reality is we have long lead times and we're sitting on inventory today, but that's already baked into our pricing, so we wouldn't expect anything in terms of pricing increases of any magnitude in the near future. And that statement applies to both Canada and the U.S., unless of course we have another massive swing in currency in the Canadian business. And as you know, even in that situation, we do, do some hedging to try to prevent us from having to do immediate price increases in that situation. From a mix perspective, part of the reason for the gross margin decline in the quarter, as a percentage of sales, was the higher percentage of sales in non-value-added products, which obviously, in our case bring depending on the product lower margin, that was influenced by Atlantic Trading, which is non-value-added, but also in general in our business overall and in the quarter.

One last one if I may. Maybe an update on the new products pipeline, I guess, in the U.S. foodservice, anything related maybe with the QSR end-market.

We launched some products in March at Boston Seafood Show. We have the fully cooked Pulled Barbecue Salmon, which is out there. Our next line of products will probably launch some time later this fall, as we continue to bring our offerings for both the fast casual segment, but also for the segments from a convenience perspective and Heat-and-Go type of products. So I would anticipate that you'll start to see more of those rolling out in the latter part of this year and then consistently through next year.

Your next question comes from the line of Michael Mills with Beacon Securities.

Most my questions have been covered off, but just a couple of things here. In terms of the external consultants, how much longer should we expect them to be, I guess, on the payroll so to speak?

Likely for another a quarter or two, if not -- a lot of the work has been done in that regard. And so we shouldn't expect to see it at the end of this year, unless frankly we've identified other new opportunities that we've decided to engage some opportunity on, but not on the work that's underway today.

There was two phases. There was first off is for the plant production side and the second piece was the supply chain side, which encompassed our global supply chain. So we're well underway in Phase 1, and Phase 2 is underway as well.

And just a note to share, there was a partial roof collapse in New Bedford. Was there any impact on operations, any impact on maybe Q2 from that?

No impact really in Q2. We were able, actually, with the great work done by the team there to get that facility back up and running within a matter of essentially 48 hours. And we did have a small deductible that we incurred, and that's actually reflected in the first quarter results. But our assumption is anything of any significance would be covered by insurance, if there is an impact in the second quarter.

And then just lastly, another dividend increase here, obviously, you guys have a great track record of increasing the dividend. I'm wondering how you view I guess the appropriate dividend level versus perhaps paying down debt or better positioning the balance sheet to support future acquisitions. Should we look at a higher payout ratio, given fewer acquisition opportunities or any color you can provide there?

I think for now you should expect our payout ratio and yield should be similar to what we've targeted in the past, which is at 30% of adjusted trailing earnings from payout ratio and yield of approximately 2%. And at this point any surplus free cash flow above and beyond that, we intend to use to continue to pay down debt. As I said in my prepared remarks, our goal is to continue to reduce and improve the debt to EBITDA leverage ratio as we move to the balance of this year.

One last one, CapEx looked a bit lighter than I was expecting in the quarter. What's the full year run rate? Maybe I missed it in the MD&A.

We said typically it would be more in the neighborhood of $15 million to $20 million for us. Last year it was particularly high at $27 million or $28 million. So I think that's a more reasonable run rate for us on a normalized basis.

At this time, there are no further questions in queue. I turn the call back over to the presenters. End of Q&A

Thank you very much. Before closing the quarterly call for the last time, I would like to say that it has been an honor for me to be High Liner's President and CEO for 25 years. I am very proud of what the company has accomplished over this period, and I really want to thank all the employees of High Liner, the shareholders, suppliers and customers, who have helped us achieve what we've done over that period. Also want to thank former Chairman, David Hennigar, who provided great leadership for me personally and for our Board, over roughly the same time as I was President and CEO. I am looking forward to my new role as Chairman. And I'm going to continue to support the management team and growth of the business as well as represent the shareholders. And I want to close by saying I do truly believe that High Liners best days lie ahead of us. So thank you very much, and we appreciate you participating in the call. And Keith and Paul will update you on second quarter results in August.

Thank you for joining, ladies and gentlemen. This concludes today's conference call. You may now disconnect.