Heather Keeler-Hurshman - Vice President, Investor Relations Keith Decker - President and Chief Executive Officer Paul Jewer - Executive Vice President and Chief Financial Officer

David Filion - RBC Capital Markets George Doumet - Scotiabank Jonathan Lammers - BMO Capital Markets

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the High Liner Foods Incorporated Conference Call for the Fourth Quarter and Fiscal 2016 Results. [Operator Instructions] This conference call is being recorded today, Wednesday, February 22, 2017 at 2:00 p.m. Eastern Time for replay purposes. I would now like to turn the call over to Heather Keeler-Hurshman, Vice President of Investor Relations for High Liner Foods. Ms. Keeler-Hurshman, please go ahead. Heather Keeler-Hurshman: Thank you. Good afternoon, everyone. Thank you for joining High Liner Foods conference call to discuss our fourth quarter and fiscal 2016 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 2016, followed by Keith who will discuss key developments in the business and our strategic focus in 2017 and then he will open up the call for questions. Before turning the call over to management, listeners are reminded that certain statements made in today’s call maybe 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 in its publicly available disclosure documents, particularly in its annual report 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 December 31, 2016. That news release, along with the company’s MD&A and audited consolidated financial statements for fiscal 2016, have been filed on SEDAR and can be found also in the Investor Information section of High Liner Foods’ website. If you would like to receive our news release in the future, please visit the company’s website to register. Lastly, please note that the company reports 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 2016, 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 2016 are relative to the fourth quarter of 2015 and comparisons of fiscal 2016 are to fiscal 2015. Our New Bedford scallop business was sold on September 7, 2016. And to assist listeners with assessing the company’s year-over-year performance, the sale had the impact of lowering sales volume by 600,000 pounds, sales by $8 million and adjusted EBITDA by $300,000 in the fourth quarter of 2016 compared to the fourth quarter of 2015. Sales volume decreased in the fourth quarter of 2016 by 3.8 million pounds or 5.7% to 62.4 million pounds. Excluding the impact of selling the scallop business, the sales volume decrease was 3.2 million pounds or 4.9% and was due to lower sales volume in the U.S. retail and foodservice businesses. These businesses continue to reflect the impact of lower demand for traditional breaded and battered frozen seafood products, which we were unable to offset with sales from our new frozen seafood products that align with emerging consumer trends preferences. Sales in U.S. dollars decreased in the fourth quarter of 2016 by $14.9 million or 6.6% to $210 million. The Canadian dollar was slightly stronger in the quarter on a year-over-year basis, increasing the value of reported sales by approximately $100,000, relative to the conversion impact in the same period last year. In domestic currency which is before the impact of converting our Canadian operations to the U.S. dollar presentation currency, sales decreased by $14.1 million or 5.8% to $230.8 million. This decrease reflects lower U.S. sales volume. Gross profit decreased in the fourth quarter of 2016 by $1.2 million or 2.6% to $44.9 million reflecting an increase in gross profit as a percentage of sales partially offset by lower volumes. Gross profit, as a percentage of sales, improved 90 basis points to 21.4%, primarily due to lower raw material costs and higher supply chain optimization savings realized in the period. Adjusted EBITDA decreased in the fourth quarter of 2016 by $400,000 or 2.2% to $17.4 million primarily reflecting the impact of converting our Canadian dollar denominated operations and corporate activities to U.S. dollars. In domestic currency, adjusted EBITDA increased in the fourth quarter of 2016 by $100,000 to $19.2 million, reflecting lower distribution costs largely offset by lower gross profit. Reported net income increased in the fourth quarter of 2016 by $300,000 or 4.3% to $7.3 million, with diluted earnings per share of $0.24. This increase reflects lower finance costs and share-based compensation expense partially offset by lower adjusted EBITDA and higher income tax expense. Excluding the impact of certain non-routine and non-cash items, which are explained in our MD&A, adjusted net income decreased in the fourth quarter of 2016 by $500,000 or 6.2% to $7.6 million, and correspondingly, adjusted diluted earnings per share decreased by $0.02 to $0.24. Now, turning to our results for the full year, sales volume decreased in 2016 by 7.1 million pounds or 2.5% to 277.3 million pounds due to lower sales volume in the U.S. retail and foodservice businesses primarily reflecting the impact of lower demand for traditional breaded and battered frozen seafood products. Sales in U.S. dollars decreased in 2016 by $45.5 million or 4.5% to $956 million. The weaker Canadian dollar in 2016 compared to 2015 decreased the value of reported U.S. dollar sales from our Canadian dollar-denominated operations by approximately $8.7 million relative to the conversion impact last year. In domestic currency, sales decreased by $36.5 million or 3.4% to $1.37 billion, reflecting lower sales volume, the impact of sales price decreases and a change in product mix. Gross profit increased in 2016 by $1.2 million or 0.6% to $202.8 million, reflecting an improvement in gross profit as a percentage of sales partially offset by lower sales volume and an unfavorable change in the U.S. dollar, Canadian dollar exchange rate used to translate our Canadian dollar-denominated operations to U.S. dollars. Gross profit, as a percentage of sales, improved 110 basis points to 21.2% compared to 20.1% last year due to lower raw material cost and higher supply chain optimization savings. Adjusted EBITDA increased in 2016 by $4.2 million or 5.4% to $82.4 million. The impact of converting our Canadian dollar-denominated operations and corporate activities to U.S. dollars decreased the value of reported adjusted EBITDA by $7 million in 2016 compared to $5.7 million in 2015 reflecting in part the weaker Canadian dollar in 2016. In domestic currency, adjusted EBITDA increased in 2016 by $5.5 million or 6.6% to $89.4 million, reflecting higher gross profit and lower distribution expenses partially offset by increased SG&A expenses. Reported net income increased in 2016 by $3.4 million or 11.5% to $33 million, with diluted earnings per share of $1.06. This increase reflects higher adjusted EBITDA, as just explained, lower business acquisition, integration and other expenses and lower finance costs partially offset by higher income tax expense and an impairment of property plant and equipment related to the sale of our New Bedford facility. Excluding the impact of certain items, which are explained in our MD&A, adjusted net income in 2016 increased by $5.3 million or 14.9% to $40.9 million, and correspondingly, adjusted diluted earnings per share increased by $0.17 to $1.31. Turning now to the balance sheet, the net non-cash working capital balance was $195 million at the end of fiscal 2016. This is $24.9 million lower than the balance 1 year ago, reflecting improved inventory management, the sale of New Bedford scallop inventory and increased payables. Net interest bearing debt was $252.1 million at the end of fiscal 2016, which is $61 million lower than the balance 1 year earlier. This decrease reflects the repayments of debt with cash flow provided by operating activities and the receipt of proceeds on the sale of our New Bedford facility and scallop business in September. As a result of the decrease in net interest bearing debt and higher adjusted EBITDA in 2016 compared to 2015, our ratio of net interest bearing debt to adjusted EBITDA improved to 3.1x at the end of fiscal 2016 compared to 4.0x at the end of fiscal 2015. In the absence of any acquisitions or strategic initiatives requiring CapEx, we expect this ratio to be below 3x by the end of 2017. That concludes my financial review for 2016. 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 focus in 2017.

Thank you, Paul and good afternoon everyone. We are pleased with 2016’s financial results, particularly the 11.5% increase that was achieved in net earnings despite lower year-over-year sales volumes. These results reflect an 80 basis point improvement in adjusted EBITDA as a percentage of sales to 8.6% in 2016 compared to 7.8% in 2015. This improvement is attributable to lower raw material prices in 2016 and an incremental $13.3 million realized in supply chain optimization savings. In 2016, we completed the last of the planned activities associated with our supply chain optimization project. Through the life of this project, which commenced in the third quarter of 2014, we were successful in achieving more than $20 million in pretax cost savings on an annual run rate basis. Beyond the annual savings generated, this significant undertaking resulted in an enterprise wide set of rules and procedures referred to internally as the High Liner operating system that provides a solid foundation upon which we can make incremental improvements going forward. In 2016, lower demand for traditional breaded and battered frozen seafood products continue to impede our ability to return to sales volume growth. We expect this trend to continue into 2017, including this through the Lenten period until we were able to offset the decline in breaded and battered products with new product sales. To unite and align the organization behind achieving sustainable organic sales growth, we refined the company’s vision and mission statements last year. And I would like to share them with you. Our vision is great tasting seafood for a better life and our mission is with the customer at the center of all we do, we are on a mission to drive seafood consumption by providing innovative solutions to a world looking for healthy, easy to prepare and delicious seafood options. Despite seafood being a nutritious protein choice, we know that North Americans, on average are not consuming enough seafood to meet the minimum two servings per week recommended by dietary guidelines in both the U.S. and Canada. We see this as a significant opportunity to drive seafood consumption in North America through introducing new and innovative frozen seafood products that not only make it easy for health conscious consumers to incorporate more seafood into their diets, but which also appeal to consumers as a convenient and delicious option when making a choice among proteins. Ultimately, we are focused on developing and marketing frozen seafood products that result in North Americans choosing to eat more seafood than they do today. I continue to believe product innovation is how we will ultimately return to volume growth. Innovation efforts in 2017 will focus on two areas. The first is our core offerings, where we are focused on innovating and improving the tight supply that already exist in our portfolio today. This is about breathing new life into and expanding our core product offerings, ensuring they reflects what we know consumers want when they are selecting seafood products. In some instances, these efforts may include activities aimed at chasing customer and consumer perception regarding what our core products offer in terms of quality and value. The second area, product innovation efforts, our focus is creating and delivering new products to the market in line with the emerging consumer trends and preferences. This is about growing sales from products that do not currently exist in our portfolio or in the marketplace that we believe will appeal to today’s seafood consumer. Ideally, the types of new products we introduce to the market will also expand and diversify our portfolio to include more of the species that are experiencing the greatest growth rates in the marketplace, yet represents only a relatively small percentage of our current business. Our ability to innovate is critical if we are to return to volume growth. And in 2016, we adopted a new approach to product innovation, called innovation engineering. Innovation engineering is a methodology that allows us to speed up the innovation efforts, while simultaneously reducing risk in the process. Many employees have received in depth training on this new approach and we are already seeing early signs of success since putting it into action. In 2015, we added new talent from outside the organization and promoted from within to elevate our commitment to commercial excellence. This means building effective relationships with our customers and leveraging the full extent of our seafood expertise to help them win in seafood. Commercial excellence also means ensuring our sales and marketing teams are structured and equipped with the information and market intelligence needed to provide customers with products that meet their needs and to make effective pricing and promotional decisions. We saw a significant improvement in this area in 2016 and we will continue with these efforts in 2017 as an integral component to our growth strategy. While internal growth is clearly our primary focus, the completion of our supply chain optimization project in 2016 and the improvement in our debt to adjusted EBITDA ratio better positioned us for further acquisition opportunities to support sales and earnings growth and to further species diversification. Before opening the call up for questions, I would like to share with you that earlier today the company’s Board of Directors approved a quarterly dividend of $0.14 per share on the company’s common shares, payable on March 15, 2017, to holders of record on March 3, 2017. Operator, I would now like to open the call for questions. Thank you.

[Operator Instructions] Your first question comes from Sabahat Khan from RBC Capital Markets. Your line is now open.

Hi. This is David Filion on behalf of Sabahat. Good afternoon.

Hi David.

Hi David.

So with regards to your volume commentary, how do you see that trending through 2017 differently in the U.S. versus in Canada?

Yes, I think the – clearly, the challenges on the volume side are more significant on the U.S. side of the business. Our Canadian business has been stable to slightly growing and we would expect that we will see some challenges on volume in the U.S. business for the first part of 2017, as we continue to see the trend in terms of the decline in the breaded and battered business. What we are working hard on is sales initiatives in areas, as Keith mentioned, including aquaculture and for species diversification and through innovation efforts on the product side. And at some point, we are fully – we will reach that, that apex, where the sales growth from new products will eventually offset the decline from old product, we are just not there yet.

Okay, great. And could you talk a bit about your outlook for input costs through 2017, and also if you see any further supply chain savings in 2017 in addition to what you have already realized?

I could talk to the input costs and let Paul talk to the other question. I would say that our input cost, at this point, I would say seem to be stable at this point. We don’t see any major disruptions in the supply end of the business on a global scale, which would significantly impact our input costs at this point. And given our long lead of supply, we are typically contracted out five months to six months in advance. So the first half input costs are already known on our business, and so the reality is we are looking at the second half of this year. But at this point, I would say it’s stable.

And on the supply chain optimization side, that’s one of those areas, where frankly you are always looking for opportunities to reduce cost and obviously we are continuing to do that. You won’t see the significant lumpy pieces that have been to our benefit in 2016 and the later part of 2015, where some of that was driven by plant closures and the benefit associated with those plant closures. What I would say is we are still continuing to work through some of the transitional product that occurred as a result of closing our New Bedford plant back earlier in 2016. So where we do hope to see some improvement in plant performance is cycling through that transition period.

That’s great. That’s all for me.

Your next question comes from George Doumet from Scotiabank. Your line is open.

Good afternoon, guys.

Hi, George.

Hi, George.

Can you maybe provide some more granularity around the 8% volume declines in the U.S., is it customer count, is it listings? Maybe even by category, can you maybe break down the frozen, breaded and battered?

Yes, sure. So it’s all in frozen breaded and battered that – in that value-added piece. In fact, we actually had closed in the commodity side of the business and continue to have growth in a couple of the key aquaculture species, such as salmon and shrimp. It’s split between foodservice and retail. It’s in both areas. In retail, a lot of it is in our lower end product, Fisher Boy, which we talked about on our last call. In foodservice, it’s actually no loss of any significant customers. In fact, our performance with the larger distribution companies is good. It’s in that – very sizable for us all other category and it’s nothing specific to point to there, it’s just across the board in that value-added, breaded and battered size of the business. We would note, it is from what we can tell, certainly on retail we have very good visibility and we are outperforming the category, which is declining more than us. And even in foodservice that is our expectation at this point as well that we are outperforming the category and the category continues – it’s a challenging time in the U.S. still in particular in that casual dining sector.

Okay, that’s helpful. Thanks. And just looking at Lent this year versus last year, how should we think about the differences in timing or promotion?

Well, I think the load would be later, which would have last year with an early – that would have pushed volume into the fourth quarter as they loaded for those promotions. And with the transition, I believe, it’s almost 20 days this year, the switch as Easter isn’t until the middle of April if you would see later promotions with more of the volume loaded into March and even some into early April, which traditionally we haven’t seen.

Okay, that’s really helpful. And just to clarify here, on the savings, you mentioned 13.3 million realized this year. There was a little bit realized as well last year. So, how should we think of the remaining amount in 2017?

Well, the remaining amount in 2017 really is the benefit associated with closing New Bedford, right? So, we only had a partial quarter of that in 2016 and we will have the full benefit of that as we move through 2017. So, we believe that by 2017 we will be up to our $20 million positive impact on supply chain. So, that would suggest there is another $5 million or $6 million of EBITDA benefit that could be realized on the supply chain side, but you also have to factor in, George, any impact on absorption associated with some of the volume declines that we are continuing to experience. So, we are pleased we made the moves that we did on the supply chain to get the benefit and now we are focused on keeping that benefit by turning around that volume trend that we are experiencing.

That’s helpful. And just one last one if I may, just on the M&A side. I know the interest in the past has been retail in the U.S. And you have mentioned that category has been declining quite a bit. Just wonder if that’s kind of switch at your lens here or any other – or are you still focused on that? Any other areas you are looking in at this junction, I guess?

So I would say that to clarify we are looking specifically at North America. We would prefer to look at businesses that have a focus on aquaculture. We believe that that’s the biggest opportunity for the organization in terms of whitespace. And I think that, that’s an area that we can continue to build out. That being said, if there is a like company that comes on the market that’s similar to our existing business, we would entertain that. But the growth in the market over the last 12 to 24 months has all be driven by farm – shrimp and farm salmon and so our goal is to pivot in that direction and build out our portfolio, because we think there is opportunity.

Okay, that’s it for me. Thank you.

[Operator Instructions] Your next question comes from Jonathan Lammers from BMO Capital Markets. Your line is open.

Good afternoon.

Hi, Jonathan.

Hi, Jonathan.

On the corporate segment expense, it seemed to increase this quarter year-over-year and sequentially versus the other quarters. Was there anything one-time included in that, maybe some year end items or could you see….

No, there is some currency impact that sometimes hits there based on where we are on currency and our hedging activity. The other piece would be any corporate incentive or sales and marketing incentive piece that maybe there and that is one of the reasons why it would have been higher in 2016 compared to 2015, because 2015 where our earnings actually declined, there was less incentive payment for the organization as a whole.

Okay. So what would be a sustainable run-rate for that segment going forward?

Well, I would suggest on the SG&A side. That’s one area where we try to maintain expenses at a fairly stable level and you get leveraged, obviously, as you are able to grow the remainder of the business. And where we have been able to – the supply chain optimization benefits that we have been able to get have really not hit the SG&A line, they have really hit the supply chain line below gross profit and have positively impacted gross profit. So, I wouldn’t expect anything in the way of any significant increases on SG&A, but I wouldn’t expect anything in the way of any significant decreases either. It really is about driving the gross profit line to fund the improvement in earnings.

Okay. And in the past, you have provided the benefit of supply chain optimization to the results for the quarter, do you have that number for Q4 and on a year-over-year basis?

Yes, so the total for the year was $13.3 million and for the quarter, it was $3.8 million incremental.

Year-over-year versus Q4 ‘15?

Correct.

Okay. And do you have an estimate of the impact to EBITDA in Q4 from disruption from transferring production from New Bedford to other facilities?

Not a number that we have specifically quantified in terms of dollars, but there was some – there was clearly some impact, particularly, in the 2 facilities that were most impacted by volume shift, which would have been a low number again in Newport News. So we do think there was some opportunity as we move through 2017 to see some improvement there.

Okay. And in the MD&A on Page 11, there’s a comment that the impact on annual EBITDA from discontinuing the New Bedford operations is expected to be nominal, going forward. I was surprised by that comment. I would have thought that you would have saved on the cost of operating the New Bedford facility next year versus 2016?

Yes. I don’t have the exact rating in front of me, but I will check it if the nominal impact would have been actually related to the scallop business which was sold, because there was not much in the way of EBITDA being generated by that business. You are absolutely correct that there was benefit associated with closing the plant, which flows through as part of the supply chain optimization benefit.

Okay, I understand. And in the U.S. business, have you lost any particular supply arrangements or was the weakness in volumes just within existing sort of customer arrangements across that other category?

We haven’t lost any business that we know of. In fact, if you look at, as Paul mentioned, the largest accounts that we have, this is with all – it was actually in quite good shape, and most of them are positive. So, it’s really this group of all other where there is softness in the business.

Yes, there is always some, as you can imagine, transition of individual products or individual SKUs in and out of customers, but no overall customer losses that we would point to.

Okay. And on the new products that are in development, are any of the – are any of them commercially ready and have you signed any new supply agreements?

Well, we have some products that are in the market now. Fully-cooked salmon was launched in the Sam’s Club in the fourth quarter, so that is – we are watching that now through the first quarter to see how that uptake is. There are some other products that are slated to be launched in the first quarter of this year and into the second quarter and I would anticipate it will have better understanding of their success at our next conference call.

Okay, thanks for your comments.

[Operator Instructions] We do not have any questions at this time. I will turn the call over to the presenters.

Thank you, everyone for your participation in today’s call. We look forward to updating you with results for the first quarter of 2017 on our next conference call in May.

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