Canadian seafood processor High Liner Foods saw its in half-year net profit plummet on the back of costs related to the acquisition of Icelandic Group.
Net income for the six months of the year ending 30 June slides 80.9% to C$2.8m (US$4.4m). Adjusted EBITDA slumped 64.6% to C$48.1m, while sales declined 46% to C$148.3m.
The company said it continues to remain ahead of schedule with the integration of Icelandic USA, which it acquired in November along with Icelandic Group's Asian operations for US$230.6m.
High Liner Foods president and CEO Henry Demone said: "We are confident that the successful integration will strengthen our leadership position in the US frozen seafood food service market."
High Liner Foods Reports Favourable Second Quarter 2012 Operating Results and Increases Dividend by 10%
LUNENBURG, NS, Aug. 8, 2012, 2012 (Canada NewsWire via COMTEX) --- Canadian retail remains strong; Icelandic USA integration ahead of plan -
High Liner Foods Incorporated (TSX: HLF; HLF.A), the leading North American value-added frozen seafood company, today reported financial results for the thirteen- and twenty-six-week periods ended June 30, 2012. All amounts are reported in Canadian dollars.
Financial and operational highlights for the second quarter and first twenty-six weeks of 2012 include (all comparisons are relative to the second quarter and first twenty-six weeks of 2011, unless otherwise noted):
-- Sales for the second quarter increased by 42.9% to $219.0 million from $153.3 million; -- Adjusted EBITDA(1) for the second quarter increased by 52.0% to $16.5 million from $10.9 million; -- Reported net income for the second quarter, including one-time costs of the Icelandic USA acquisition, of $1.0 million, or diluted earnings per share ("EPS") of $0.06, compared with $4.8 million, or diluted EPS of $0.31, in the second quarter of 2011 ($2.8 million, or diluted EPS of $0.18, for the first twenty-six weeks of 2012, compared to $14.5 million, or diluted EPS of $0.94, the first twenty-six weeks of 2011); -- Adjusted Net Income(2) of $5.5 million, or Adjusted diluted EPS of $0.36, compared with $5.5 million, or Adjusted diluted EPS of $0.36, in the second quarter of 2011 ($19.5 million, or diluted EPS of $1.27, for the first twenty-six weeks of 2012, compared to $15.4 million, or diluted EPS of $1.00, the first twenty-six weeks of 2011); -- The integration of Icelandic USA is ahead of plan.
"We are pleased to report another good quarter that saw sales and Adjusted EBITDA grow by 42.9% and 52.0%, respectively, largely due to the inclusion of Icelandic USA and continued improvement in Canadian retail performance," said Henry Demone, president and CEO. "Our results were slightly tempered on a year-over-year basis by the timing of the Lenten period, which fell mostly in the first quarter of this year. Nonetheless, on a pro forma basis that assumes Icelandic USA had been part of our operations for the same period in 2011, our U.S. operations experienced a strong 14.5% growth in Adjusted EBITDA. In Canada, our retail sales continued the strong growth seen in the first quarter, bolstered in part by the introduction of our 'Flame Savours' fire-roasted premium fillets at the beginning of the year. We recorded a 10.6% increase in total Canadian dollar sales and a 15.0% growth in retail sales volume. We are also pleased to announce that we continue to be ahead of schedule with the integration of Icelandic USA, and we expect to benefit from an early completion that solidifies our leadership position in the food service frozen seafood market."
Financial Results
Nearly 70% of the Company's operations, assets, and liabilities, are denominated in U.S. dollars or are impacted by the Canadian/U.S. dollar exchange rate. As such, foreign currency fluctuations affect the reported values of individual lines on the Company's balance sheet and income statement.
Sales for the second quarter increased to $219.0 million from $153.3 million for the same period a year ago. The 42.9% increase in sales was achieved as a result of the Icelandic USA acquisition and overall organic sales increases from our pre-Icelandic USA business. The weaker Canadian dollar resulted in an increase in the value of reported sales by $4.0 million, or 3.3%. Sales in domestic currency, which excludes the impact of currency translation, were $217.7 million compared with $156.0 million for the second quarter of 2011. Total sales volume increased by 37.0% to 61.5 million pounds, with Icelandic USA accounting for 36.0% and the pre-Icelandic USA volume growing by 1.0%. For comparison purposes, assuming that Icelandic USA had been part of High Liner's operations in the comparable period in 2011, total sales increased by 1.8% while total sales volume declined by 1.8%; however, year to date, total sales increased by 6.9% and total sales volume increased by 0.9%. The second quarter was affected by the timing of the Lenten period, which transpired mostly in the first quarter this year versus the later timing in 2011.
Adjusted EBITDA for the second quarter increased by 52.0% to $16.5 million, or 7.5% of sales, from $10.9 million, or 7.1% of sales, for the same period in 2011. The increase in Adjusted EBITDA was due to higher sales volumes resulting from the addition of Icelandic USA and higher selling prices, partially offset by higher seafood and other input costs. For comparison purposes, assuming that Icelandic USA had been part of High Liner's U.S. operations in the second quarter of 2011, Adjusted EBITDA increased by 7.3% year over year. Synergies achieved in the quarter were $2.0 million and year to date were $3.0 million.
Net income for the quarter was $1.0 million, or diluted EPS of $0.06, compared with net income of $4.8 million, or diluted EPS of $0.31, for the second quarter of 2011. Net income was negatively impacted by after-tax one-time integration costs related to the Icelandic USA acquisition expensed during the quarter as well as asset impairment costs, higher amortization of intangible assets, and higher financing costs. Excluding the one-time integration costs, asset impairment, non-cash expense from revaluing an embedded derivative associated with the long-term debt, as the interest rate is not less than LIBOR of 1.5%, which is currently greater than prevailing interest rates, and stock-based compensation expense, Adjusted net income was $5.5 million, or Adjusted diluted EPS of $0.36, equal to the previous year.
Free cash flow(4) was $40.8 million for the rolling four quarters ended June 30, 2012. This allowed the Company to reduce interest-bearing debt by $34.1 million from $382.4 million at December 31, 2011 to $348.3 million at June 30, 2012.
Dividends
Today, the Board of Directors of the Company approved a quarterly dividend of $0.11 per Common and Non-Voting Equity Share payable on September 15, 2012 to shareholders of record on September 1, 2012. This represents a 10.0% increase from the $0.10-per-share quarterly dividend paid on June 15, 2012, reflecting the Board's continued confidence in the Company's operations, and the third dividend increase over the last seven quarters.
Outlook
"We remain ahead of schedule in combining the operations of Icelandic USA with our existing operations, and expect to be rewarded with synergies a few months earlier than anticipated for 2013," said Henry Demone. "We are confident that the successful integration will strengthen our leadership position in the U.S. frozen seafood food service market. Equally important, we are pleased to be able to sustain the improved performance at our Canadian operations, driven by our sales and marketing programs and introduction of the 'Flame Savours' product in the retail market earlier this year, and expect this momentum to continue for the rest of the year. While the quarter reflects flat Adjusted earnings per share versus last year due to timing issues and higher fixed interest and amortization expenses, the acquisition of Icelandic USA remains accretive on a year-to-date basis and we expect it to be so for the full year. Lastly, consistent with our comments last quarter, we expect to see input cost improvements during the second half of the year as a result of earlier price decreases for several key raw materials. All these should help deliver operating strength as we enter the second half of 2012."
