Heather Keeler-Hurshman - Director, IR Keith Decker - President and CEO Paul Jewer - EVP and CFO

George Doumet - Scotiabank Mark Robinson - Cormark Securities

Good afternoon, ladies and gentlemen, and thank you for standing-by. Welcome to the High Liner Foods' Incorporated Conference Call for the Fourth Quarter and Fiscal 2015 Results. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up to questions. [Operator Instructions] This conference call is being recorded today, Wednesday, February 17, 2016 at 2 PM Eastern Time for replay purposes. 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. Heather Keeler-Hurshman: Thank you, and good afternoon, everyone. Thank you for joining High Liner Foods conference call to discuss our fourth quarter and fiscal 2015 financial results. On the call today from High Liner Foods are Keith Decker, President and Chief Executive Officer; and Paul Jewer, Executive Vice President and Chief Financial Officer. Today's call will start with Paul reviewing the Company’s financial performance for the fourth quarter and fiscal 2015, followed by Keith, who will discuss key developments in the business and provide an update and strategic goals before opening the call for questions. 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, including 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. Earlier today, High Liner Foods reported its financial results for the fourth quarter and fiscal year ended January 2, 2016 that news release along with the Company’s MD&A and audited financial statements for fiscal 2015 have been filed on SEDAR and can also be found in the investor information section of High Liner Foods’ website. If you would like to receive 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 quoted 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 fourth quarter of 2015, 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. Please note that all comparisons provided during my financial review of the fourth quarter of 2015 are relative to the fourth quarter of 2014, in comparison to fiscal 2015 to fiscal 2014. The company has a floating fiscal year end with the last day of the fiscal year being the Saturday closest to December 31st. While most fiscal years include 52 weeks, like fiscal 2015, occasionally they include 53 weeks, like 2014 did. As a result, 2014 fourth quarter results reflect 14 weeks of operations, compared to 13 weeks in the fourth quarter of 2015. To assist listeners with assessing the company's year-over-year performance, the estimated benefit associated with an additional week of operations in the fourth quarter of 2014 was 5.5 million pounds of sales volume, $20 million of sales in domestic currency, and $1.6 million of adjusted EBITDA in domestic currency. One final note [ph], we purchased Atlantic Trading Company on October 7th of 2014 and this is the first fiscal year being reported that include the full year of results from that acquisition. Sales volume decreased in the fourth quarter of 2015 by 10.4 million pounds or 13.6%, to 66.2 million pounds. Volumes declined by 8.1 million pounds in the U.S. and 2.3 million pounds in Canada due in part to the additional week of sales in 2014. Also as explained in our last two quarterly conference calls, significant price increases have been passed on to customers over the last year to recover increased raw material costs, including higher foreign exchange in our Canadian business. Management believes these cumulative price increases have adversely impacted sales volume. The organization was very focused in the second half of 2015 on improving sales volume through more effective and increased promotional activity. And we did see an improvement in year-over-year sales volume trends, compared to those experienced in the first half of the year. Sales in U.S. dollars decreased in the fourth quarter of 2015 by $42 million or 15.7% to $224.9 million. The weaker Canadian dollar in 2015 decreased the value of reported sales in the quarter by approximately $10.5 million, relative to the conversion impact in the same period last year. In domestic currency, which is before the impact of converting our Canadian dollar denominated operations to U.S. dollars, sales decreased by $32.6 million, or 11.7%, to $144.9 million. This decrease reflects lower sales volume, partially offset by the impact of price increases, net of increased promotional spending. Promotional spending was higher in the fourth quarter of 2015 compared to the same period last year and an effort to improve sales volume trends. Adjusted EBITDA decreased in the fourth quarter of 2015 by $2.6 million, or 12.7%, to $17.8 million. Approximately $700,000 of this decrease reflects an unfavorable change in the U.S. dollar, Canadian dollar exchange rate and the remaining decrease reflects lower sales volume, partially offset by higher adjusted EBITDA as a percentage of sales. Adjusted EBITDA as a percentage of sales increased to 7.9% compared to 7.7%, reflecting the impact of supply chain optimization savings, lower fuel costs and lower SG&A expenses, including lower sales commission and incentive expenses, along with savings related to restructuring activities. Adjusted EBITDA for the fourth quarter of 2015 reflected approximately $3 million of net benefit associated with supply chain optimization, primarily in our U.S. operations. Reported net income increased in the fourth quarter of 2015 by $1.4 million, or 25%, to $7.4 million, with diluted earnings per share of $0.23. This increase in net income reflects lower unusual and one-time costs and lower finance costs, partially offset by lower adjusted EBITDA, as just explained and higher income tax expense. Lower one-time costs reflect fees paid in the fourth quarter of 2014 related to supply chain optimization activities, and the write-off of those assets in that period related to the cessation of operations at a previously leased plant in Malden, Massachusetts. Excluding the impact of certain items, which are explained in our MD&A, adjusted net income decreased in the fourth quarter of 2015 by $1 million, or 11%, to $8.1 million, and correspondingly, adjusted diluted earnings per share decreased by $0.03 to $0.26. Now turning to our results for the full year; sales volume deceased in 2015 by 23.2 million pounds or 7.5% to 284.4 million pounds, compared to 307.6 million pounds in 2014. The addition of sales volume from the Atlantic Trading acquisition was offset by lower volumes from both our U.S. and Canadian operations. Lower sales volume reflects an additional week of sales in fiscal 2014. In addition, significant price increases have been passed on to customers over the past year to recover increased cost, which management believes has had an adverse effect on sales volume. Management also believes certain internal sales execution and promotional challenges for a contributing factor to volume declines earlier in 2015 and has taken action to address this including restructuring activities and the recruitment of new talent to certain key positions. Sales in U.S. dollars decreased in 2015 by $50.1 million or 4.8%. The weaker Canadian dollar in 2015 decreased the value of reported U.S. dollar sales from our Canadian dollar denominated operations by approximately $40.9 million, relative to the conversion impact last year. In domestic currency, sales decreased by $9.7 million or 0.9%, reflecting lower sales volume, partially offset by the impact of price increases, net of increased promotional spending. As already mentioned, promotional spending was higher in 2015 compared to 2014, in an effort to improve sales volume trends. Adjusted EBITDA decreased in 2015 by $5.1 million or 6.1%, to $78.2 million, approximately 3.6 million of this decrease reflects in an unfavorable change in the U.S. dollar, Canadian dollar exchange rate, and the remaining decrease reflects lower sales volume and lower adjusted EBITDA as a percentage of sales. Adjusted EBITDA as a percentage of sales decreased to 7.8% compared to 7.9%, reflecting price increases that did not fully recover cost increases, partially offset by the impact of supply chain optimization savings, lower fuel cost and lower SG&A expenses, including lower sales commission and incentive expenses along with savings related to restructuring activities. In addition, adjusted EBITDA in 2015 reflects the impact of foreign exchange gains related to favorable hedging activities in 2015. Reported net income decreased in 2015 by $700,000 or 2.3% to $29.6 million with diluted earnings per share of $0.95. This decrease in net income reflects lower adjusted EBITDA, as just explained, partially offset by lower finance cost and lower income tax expense. Excluding the impact of certain items, which are explained in our MD&A, adjusted net income decreased in 2015 by $3.2 million or 8.2%, to $35.6 million, and correspondingly, adjusted diluted earnings per share decreased by $0.10 to $1.14. Turning now to the balance sheet; the net working capital balance was $219.6 million at the end of fiscal 2015. This was $40.3 million lower than the balance a year ago, due primarily the higher payables. Net interest bearing debt was $313.1 million at the end of fiscal 2015, which was $51.7 million lower than the balance at the end of fiscal 2014. This decrease reflects the repayment of debt with cash flow provided by operating activities, which was $60.3 million higher in 2015 than 2014. As a result of the decrease in net interest bearing debt, partially offset by a lower adjusted EBITDA in 2015 compared to 2014, a ratio of net interest bearing debt to adjusted EBITDA decreased to 4 times at the end of fiscal 2015, compared to 4.4 times at the end of fiscal 2014. We expect this ratio to continue to improve in 2016 as adjusted EBITDA is expected to increase and free cash flow will be used to reduce debt. That concludes my financial review for 2015. I would now like to turn the call over to Keith to discuss key developments in the business and provide an update on our strategic goals.

Thank you, Paul, and good afternoon, everyone. Earlier today, in conjunction with the release of our fourth quarter and fiscal 2015 financial results, the company announced it will cease value added fish operations and its production facility in New Bedford, Massachusetts by the end of the third quarter of this year. This change will reduce excess capacity across our North American production network; thereby improving manufacturing efficiency and helping the company achieve its supply chain optimization objectives. This change does not impact the company’s scallop processing operations, which are also located at the New Bedford facility. We’ve recognized this is a very difficult day for the employees impacted in New Bedford and want to thank them for their contribution to the American Pride business and to High Liner Foods. The decision to cease up these operations was necessary to ensure High Liner Foods continued ability to compete and grow. The New Bedford plant is currently the company’s most underutilized manufacturing facility with annual production of approximately 40 million pounds. The supply chain optimization activity is completed to-date have sufficiently increased capacity at our Lunenburg, Portsmouth and Newport news facilities. Such that they are able collectively to absorb the production from New Bedford and still provide sufficient capacity to meet our growth objectives going forward. The estimated annual ongoing pretax reduction in operating cost for EBITDA resulting from this consolidation is $7 million with a nominal amount of this to be realized in the last quarter of this year. We expect to incur approximately $5 million in pretax one-time cost related to the transfer of assets, cessation of employment at the New Bedford plant, write-down of inventories and other costs. We are assessing the opportunities associated with this scallop business and given the uncertainty, regarding the long-term plans for this business are unable at this time to estimate the full impact that this transaction will have on our financial statements. However, we have disclosed that the net book value of equipment associated with the value added fish operations at the New Bedford facility was approximately $6.1 million at the end of fiscal 2015. In regards to financial performance in the fourth quarter of 2015 as expected, we only started to realize the benefit of raw material cost savings toward the end of the quarter. Therefore, previous raw material cost increases along with the weaker Canadian dollar continue to have a negative impact on year-over-year financial performance. We were pleased that the fourth results reflect operational improvements, including increased benefit from supply chain optimization activities, which as Paul mentioned earlier contributed $3 million in pretax cost savings compared to the fourth quarter of 2014. These savings help to offset the impact of lower product margins and contributed to an increase in adjusted EBITDA as a percentage of sales, when expressed in domestic currency compared to the fourth quarter of 2014. In 2016, we will continue to focus on growing the business, operating it as efficiently as possible and ensuring that we have the right talent. Our primary focus will continue to be on increasing sales volume and managing cost to improve earnings. Increasing sales volume will be supported by lower seafood raw material prices. However, we do not expect to see volume growth on a year-over-year comparative basis until after the first quarter. This is due in part to a shortened promotional period associated with Lents in 2016 compared to 2015. We will complete outstanding supply chain optimization activities in 2016, which will now include transferring the New Bedford plants production to achieve the full benefit associated with these activities. We continue to believe that a minimum of $20 million in annual cost savings on a run rate basis can be achieved related to all of our supply chain optimization activities by the end of 2016. Before opening up the call for questions, I'd like to share with you that earlier today the company's Board of Directors approved a quarterly dividend of Canadian $0.12 per share on the company's common shares payable on March 15, 2016 to holders of record on March 01, 2016. Operator I would like now to open the call for questions. Thank you.

[Operator Instructions] And your first question comes from George Doumet with Scotiabank. Your line is now open.

Hey, good afternoon guys.

Hey George.

I'm just focusing on the cost side, cod prices remain at pretty elevated and we've seen however some meaningful I guess the decline in other species. Just putting it all together, can you give us a sense of magnitude and what we expect on average or by weighted basis for the prices in general to come down next year or in 2016?

We're certainly starting to see at the end of the fourth quarter that improvement in raw material prices, which will flow into our first quarter of 2016. And couple of things I'd highlight there though George, you got to remember in Canada that raw material benefit gets off entirely by the currency move. So, the benefit really will materialize in the U.S. and we're right now in the process of making the terminations on how much of that benefit will get reinvested and promotional activity to shore up volume growth in the category and how much of it will flow directly to the above one [ph].

Appreciate the color. But can you give us a sense of magnitude there in terms of how you’re your prices are down on a weighted basis?

Across, I mean....

Yeah, across.

Yeah. Haddock is the species that the most significant decline where frankly prices have over the last year halved, you're right, cod really hasn’t seen a benefit and salmon had seen a benefit, but is now starting to move a little bit in the opposite direction. But, it's - I mean George, it's millions of dollars of cost benefit. The question is again how much of that will we reinvest back in the promotional activity in the business in the first couple of quarters to drive volume.

Okay. On that note, can we - is it possible to do promotional activities, we're expecting 2016. Can we still see continued margin expansion through the higher volumes for the U.S. margin side of things?

Yeah, certainly the expectation for the full year of 2016 is that we would see margin expansion even with the promotional activity to drive for some volume growth.

Appreciate that. And one last one if I may, we're about a week or so in Lents. Can you give us a sense of how it shaping up to be this year given I guess what you guys alluded a short-term promotional window there?

Yeah, I think it's - I mean it's too early to say yet to be honest George. What we have typically give people some perspective on is, how we exited the last quarter versus how we started the last quarter and we did have some more momentum as we exited 2015 than we started in the fourth quarter. But, I think we've also given a perspective that we still think volume growth in 2016 first quarter is going to be a problem because of the fact that that promotional period for Lent is shorter.

And effectively you're taking Lent from April, finish in April and you're pushing it all into March. And so typically we would see volume start to drop off roughly two weeks before the Easter holiday. So, next year we're going to have a very late Lent, and we would expect to possibly see some benefit from that late Lent in comparison to this year.

Appreciate that. Thanks a lot, guys.

[Operator Instructions]. Your next question comes from Mark Robinson, the Cormark Securities. Your line is now open.

Thanks. Just a few quick questions first. How much was the Atlantic Trading contribution in the quarter?

We haven't broken those numbers separately, Mark. If you recall, when we purchase the business, we disclosed sales, an annual sales volume that we had marginal growth over that sales volume so that remains largely intact. And on the EBITDA basis, we haven't disclosed specific results for ATC. But I would tell you, it remains absolutely in line with our expectations when we bought it.

Okay. And in the quarter, you had $3 million towards these cost savings, how much in total than in 2015 will be realized?

So, in total, it would be between $6 million and $7 million for the year. So, it was clearly backend loaded and you'll see those savings now continue to grow as we move through 2016.

With respect to this plant closure I guess given the economics of spending $5 million to save 7, why is this something that you're just doing now, why wasn't this something that was sort of core to your supply chain savings right from the outset?

Clearly, the supply chain optimization process that we went through was necessary for us to be able to fit that production into our other facilities. And so, as you're aware, we spent the last year, year and a half working on organizing our plans more efficiently, gaining capacity, which is now enabling us to make this transition. It's been on our plant to try to do this from a capacity perspective, raising the capacity. We knew that it would take place as part of our supply chain optimization.

And Mark, you'll recall a few years ago when we closed our Denver's plant, we had challenges with that closure.

Yeah.

And we wanted to make sure we have the plan in place that would allow us to do this without any interruption to our customer service levels. And we're now very confident that we have the people and the processes in place in order to execute on this well. And you're right when you're ready to execute on it well, the opportunity is clearly very obvious in terms of the benefit.

Okay. And finally these lower input costs presumably are going to allow you to increase promotional spending and or lower prices to try and drive enhanced volumes. But the entire protein complex is down materially in terms of price. So, can you just talk about whether you foresee any challenges and actually taking market share in the face of all proteins being down quite considerably year-over-year.

Yeah, I would say that we see that it's a battle for share of stomach that you see corn prices driving lower chicken, beef, goat [ph] prices. And so really it's a focus on providing the correct price points in the correct promotional activities. We put a lot of work into that of the last six months of the year to ensure that we are being more effective with our price points and our pricing. I would say that it will be a challenge because there is a lot of lower cost proteins that are out there. But we believe that the benefits of the health of seafood will continue to enable us to promote.

Okay. Thanks very much.

I'll now turn the call back over the presenters for any concluding remarks.

Thank you, operator. And thank you everyone for your participation in today's call. We look forward on updating you with the results of the first quarter on our next conference call in May.

This concludes today’s conference. You may now disconnect.