Rod Hepponstall, the CEO of Lunenburg, Nova Scotia, Canada-based High Liner Foods, spent a lot of time talking about his company’s efforts at product innovation during the company’s second-quarter earnings report conference call on Wednesday, 7 August.
The seafood giant, which averages around USD 1 billion (EUR 890 million) of sales annually, reported lower sales and gross profit in the quarter, but also higher earnings before interest, tax, depreciation and amortization (EBITDA).
In the call, Hepponstall said the improvement in adjusted EBITDA, which accounts for the impact of expenses the company does not consider representative of its ongoing operational activities, and which investors and analysts use to make side-by-side comparisons of similar companies, showed High Liner was on the upswing after facing significant business challenges in recent years.
Hepponstall credited the company’s five-step “critical initiative plan” for the turnaround. He also discussed his plan for reversing the company’s declining profitability, which depends in large part of the creation of successful new products and a strategy of finding “the right product, right customer, at the right price,” according to Hepponstall.
“This requires realigning our portfolio to stronger, more profitable, value-added products with broad appeal to retail and foodservice customers across North America,” he said. “We are collaborating with industry-leading suppliers and other industry partners to ensure that High Liner has on-trend and industry-leading innovations. We’re developing and rolling out products for fast-growing, nontraditional areas like snacking, and enhancing packaging to align with changing demographics and to ensure the greatest market appeal and increased frequency of purchase.”
As an example of the types of product innovation High Liner will pursue in the future, Hepponstall pointed to “fish wings,” a reference to the Alaska Wild Wings product High Liner unveiled in June.
“I’m excited about the potential for fish wings, not only because they incorporate a well-established and popular brand and flavor – Frank’s Red Hot Sauce – to support a new type of value-added fish product,” Hepponstall said. “This innovative approach I expect you will see a lot more from High Liner Foods in the future. Using established flavors is an effective way to encourage customers to try something new. It’s working with our Everything Bagel Crusted Cod product as well, and we expect the same success with our fish wings product. As with haddock bites, we are leveraging our North American scale and taking our fish wing innovation to market on a cross-border, multi-channel basis.”
The CEO said High Liner began shipping the Alaska Wild Wings and the company’s Battered Haddie Bites out to customers on 1 August, and expects them to have a positive impact on the company’s second half earnings.
Asked about what other new products the company had in the works, Hepponstall demurred.
“I’d love to give a perspective on the innovation we’ll bring to market but I think my marketing folks would be a little disappointed if I let the cat out of the bag,” he said.
Hepponstall did reveal the company is using market data and its own proprietary data to identify and maximize openings in the market.
“We are looking at data and market opportunities differently than we ever have before,” he said. “We’re identifying customers that fit the High Liner portfolio that are winning and growing faster than the marketplace. So there’s a number of different opportunities that, when we execute better and more efficiently against them, we will certainly like the results.”
He mentioned the company’s limited-time offering link-up with McDonald’s Canada, which saw the firm provide more than 260,000 pounds of Atlantic haddock this spring for a Fish&Chips meal that included two pieces of fish coated with a crunchy batter, served with French fries and tartar dipping sauce. The LTO runs through 20 August and is featured in McDonald’s summer marketing campaign.
“We are strengthening key relationships and winning new business. We are working on several LTO opportunities with national account customers in the U.S. and in the second quarter we supplied value-added seafood products featured as part of two LTOs in Canada run by McDonald’s and another large quick-service restaurant chain,” Hepponstall said. “The impact of these contracts extend beyond the sales period. It is part of a larger strategy to work hand-in-hand with our customers to grow the seafood category, and they are extremely receptive to the ideas and innovation we’re bringing to the table. Of course, these new product innovations will take some time to come to fruition and deliver results.”
Hepponstall also touted the company’s reshaping of the company’s logo and brand as helping the company’s positioning in the marketplace.
“Our refresh of the High Liner brand in Canada continues to be well-received by customers and consumers. We are securing enhanced opportunities for brand placement in stores with more prominent displays showcasing our Captain and value-added products in Canada. We’re also taking advantage of this brand refresh by introducing our new innovations to the U.S. retail market using the High Liner brand,” he said.
Debt reduction remains another priority for High Liner, chief financial officer Paul Jewer said on the conference call. High Liner had USD 146.7 million (EUR 131.1 million) of undrawn borrowing facility as of 29 June and its net debt decreased by USD 47.3 million (EUR 42.3 million) to USD 324.6 million (EUR 290.1 million) in the second quarter of 2019 as compared to Q2 of 2018. The company’s average short-term borrowings outstanding during the first half of 2019 were USD 29.2 million (EUR 26.1 million), compared to USD 60.1 million (EUR 53.7 million) in the second quarter of 2018.
“This USD 30.9 million [EUR 27.6 million] decrease in average short-term borrowings primarily reflects higher payments due to higher cash flow provided by operations, decreased working capital requirements during the latter half of 2018 and the first half of 2019, and decreased dividend payments related to the reduction of the quarterly dividend on the company's common shares,” High Liner said in its report.
Jewer said the company is considering a refinancing of its current operating loan agreements. High Liner holds a USD 180 million (EUR 160.8 million) asset-based working capital credit facility with the Royal Bank of Canada , which expires in April 2021. Additionally, High Liner has a USD 370 million (EUR 330.6 million) term loan facility maturing in April 2021.
“We are in regular contact with our bankers in terms of what the right opportunity would be in terms of refinancing that debt. Our desire would certainly be to get it refinanced well before the one-year maturity of April 2020, not due to April 2021, and we believe the improvements that we’ve made in the business, the reduction in leverage, and favorable market conditions will certainly support us in doing that,” he said.
In concluding his remarks, Hepponstall said he believes that after a period of difficulty, the company is now on the right track.
“We are pleased to be returning to adjusted EBITDA growth in 2019 as a result of the hard work on the productivity and optimization activities. We are confident that top-line growth will come over time as we realign the portfolio, launch innovation and manage through short-term market complexity. In conclusion, we are just getting started on what we can do as an integrated North American organization and I’m very confident in the value-creation opportunities ahead of us,” he said. “Over the last several months, I’ve had the opportunity to turn my focus and attention to our sales area, and I can tell you I certainly see opportunities not only with the enhanced innovation we’re bringing out, but also with enhanced execution and with greater focus on customers and segments that, quite frankly, we can win in.”
Photo courtesy of High Liner Foods
