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High Liner Foods IncorporatedAnnual General MeetingEvent Date/Time: May 14, 2019 — 10:30 a.m. E.T.Length: 36 minutesCorporate participantsTim RorabeckHigh Liner Foods Incorporated — Vice President, Corporate Affairs and Generate CounselHenry DemoneHigh Liner Foods Incorporated — Chairman of the BoardRod HepponstallHigh Liner Foods Incorporated — President & Chief Executive OfficerPaul JewerHigh Liner Foods Incorporated — Executive Vice President and Chief Financial OfficerPRESENTATIONTim Rorabeck — Vice President, Corporate Affairs and Generate Counsel, High Liner Foods IncorporatedGood morning. Could I get everyone to take their seat so we can start on time? Thank you.I am Tim Rorabeck, Executive Vice President, Corporate Affairs and General Counsel of High Liner Foods Incorporated. Welcome, and thank you for joining us today. We are pleased to be hosting our annual general meeting from the founding community of Lunenburg, where the Company first started almost 120 years ago.Before our Chairman calls the meeting to order, I would like everyone to know that our annual meeting is being broadcast live over the internet. We welcome our online guests. For those unable to be with us this morning, the recorded proceedings will be available on the internet together with our results for the first quarter of 2019 at .Before we begin, I need to remind you of our position with respect to any forward-looking statements that may be made during our presentations to you here this morning. Please take a moment to review these statements displayed on the slide.The Company reports its consolidated financial information in US dollars, and the results to be discussed today are stated in US dollars unless otherwise noted. High Liner Foods common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars.Investors are reminded, for purposes of calculating financial ratios, including dividend payout and share price to earnings ratios, they should take into consideration that the Company’s share price and dividend rates are reported in Canadian dollars, while its earnings and financial statements are reported in US dollars.The Company also reports its financial results in accordance with International Financial Reporting Standards, or IFRS, but we also use measures that are not defined under IFRS. Management believes that these non-IFRS measures are important to understand current results and the future income potential of the Company.Thank you for your attention. I would now like to call upon our Chairman, Henry Demone, to open the meeting.Henry Demone — Chairman of the Board, High Liner Foods IncorporatedGood morning, ladies and gentlemen, and thank you, Tim. I’m Henry Demone, Chairman of the Board of Directors. Welcome to our 2019 annual general meeting. I will now call the meeting to order. I will act as Chairman of the meeting.With me today on my immediate left are Rod Hepponstall, our President and CEO; Paul Jewer, our CFO; and Tim Rorabeck, Executive Vice President, Corporate Affairs and General Counsel. Tim will act as secretary of this meeting.AST Trust Company, represented by Cindy Harrett and Pedro Avila, will act as scrutineers. I have one procedural note before we begin. Voting on motions will be conducted by a combination of show of hands and ballot where required. I will describe the ballot process shortly.Notice of the meeting has been duly given, and a copy will be filed with the records of the meeting. I will now ask the secretary to read the notice calling the meeting unless I receive a motion to dispense with this reading.ShareholderI move that reading of the notice [off mic].Shareholder[off mic]Henry DemoneThank you, Chris and Mark. You have heard the motion. All those in favour, please raise their hand. Opposed if any?The motion is carried.The scrutineer advises me that a quorum is present for the meeting. Since a quorum is present, I will declare the meeting to be duly called and properly constituted for the transaction of such business as may properly come before it.The first item of business is the consideration of the minutes of the annual general meeting of shareholders held on May 9, 2018. The minutes, of course, are available for inspection, but in order to expedite the business of this meeting, I would ask for a motion that their reading be dispensed with and they be taken as read and adopted.ShareholderI move that the [off mic].Henry DemoneDo I have a seconder? Yeah.Shareholder[off mic]Henry DemoneYeah. Thank you, Roger and Paul. You have heard the motion. All those in favour, please raise their hand. Contrary minded if any?Motion carried.The scrutineers’ report has now been received. It shows that there are present and in person and is on the way here. Right? Four hundred and thirty-two shareholders representing 16,277,014 shares. They represent 48.76 percent of the outstanding shares, which are just over 33 million.We will now proceed with the election of directors with voting to occur by way of ballot. If you have already submitted your completed proxy form, there is no need for you to vote again, unless you wish to change your vote.If you did not vote by proxy, or if you wish to change your vote, you should have a ballot. If you need a ballot and did not receive a ballot on your way into the meeting, please raise your hand, and a ballot will be delivered to you by our scrutineers. Anyone else? Anyone else need a ballot?Once we have completed the motions on which voting will be conducted by ballot, I will ask the scrutineers to collect any ballots and tally the votes. I will remind you that all ballots must be signed prior to being collected by the scrutineers.We will now proceed with the motion as stated in the 2019 Management Information Circular accompanying the notice of this meeting. It is proposed that ten persons be nominated as directors at this meeting to hold office until the next annual meeting or until their respective successors are elected or appointed.I declare the meeting open for nominations.Shareholder[off mic]Shareholder[off mic]Henry DemoneYeah. Thank you, David and Peggy. Thank you. Are there any further nominations? Hearing none, I declare the nominations closed.We will now move to vote. If you haven’t already done so, I now ask that you mark your ballot in the applicable area in respect of the motion regarding the director nominations.The next item of business is the appointment of auditors with voting to occur by ballot.ShareholderI move that the firm Ernst & Young LLP is appointed [off mic].ShareholderI second the motion.Henry DemoneThank you, Chris and Robert. You have heard the motion. Is there any discussion on the motion? Hearing none, if you haven’t already done so, I now ask that you mark the applicable box on your ballot.The next item of business deals with the advisory resolution to accept the Company’s approach to executive compensation as described in the 2019 Management Information Circular. The Board of Directors recommends that shareholders vote for the resolution approving the advisory resolution. Voting on this matter will also occur by ballot.I will now ask for a motion.ShareholderChairman, I move [off mic].Shareholder[off mic]Henry DemoneThank you, Charlene and Heather. You have heard the motion. Is there any discussion on the motion? Hearing none, if you haven’t already done so, I now ask that you mark your ballot either for or against the motion. Then please print your name at the bottom of the form and sign it.I will now ask the scrutineers to collect the ballots and count the votes during the balance of the meeting. If you have a ballot to be collected, please raise your hand.We will now proceed to the next item of business. Rod Hepponstall will deliver this year’s annual address to shareholders followed by Paul Jewer, who will review the Company’s financial results for 2018 and the first quarter of 2019.The financial statements and the auditor’s report are presented in the 2018 annual report, which has been delivered to all registered shareholders and those requesting a copy. If anyone did not receive financial statements, additional copies of the annual report are available at the back of the room.Rod?Rod Hepponstall — President & Chief Executive Officer, High Liner Foods IncorporatedGood afternoon. Thank you, Henry.When I joined High Liner Foods in May of 2018, I saw a company with an excellent opportunity ahead of it. With seafood being an under-consumed protein compared to beef, poultry, and pork, and the shifting consumer trend toward healthier sources of protein, it was clear to me that if we could effectively address our challenges, High Liner Foods had a lot of room to grow.Over the next several months, I conducted a very close evaluation of our entire business, visiting our facilities, employees, suppliers, customers, the entire length of our supply chain. And while I saw a strong organizational DNA based on 120 years of deep seafood experience, it was clear to me that significant improvements needed to be made in order to address both internal and external challenges that have been manifesting in weaker financial results and lost growth opportunities.That’s why we’re here, and we are implementing our five critical initiatives you’ve heard so much about. Already, just six months into the turnaround plan, we’re starting to see improved financial performance as a result of our initiatives and anticipate significant further net annualized run rate cost savings can be achieved from these initiatives compared to the initial $10 million when first launched. These cost savings will help us offset top-line challenges we are facing, strengthen our balance sheet, and invest towards a return to profitable organic growth.One of our first initiatives was a significant one, regarding we realigned the organization to create one High Liner Foods. When I arrived, it became apparent that High Liner Foods was in many ways operating as two companies, one in the US and one in Canada, that happen to share the same name. Through our organizational realignment, we are now operating as one unified company with a cohesive North American-wide structure.Through the first initiative, which was completed in the fourth quarter of 2018, we have now captured approximately $7 million in annualized run rate cost savings. We have a much stronger foundation in place now to support our subsequent critical initiatives, focused on simplifying our business, optimizing our supply chain, and integrating Rubicon, which together lay the groundwork for our final critical initiative, a return to profitable organic growth.As part of our business simplification initiative, we are now in the process of reviewing our entire product portfolio examining market trends, customer expectations, and financial analytics. Today, only a handful of seafood species accounts for the majority of consumer demand. We are identifying those species and products that have the most potential and shifting our focus away from those that appeal to increasingly small market segments. Our aim is to remove unnecessary complexity, simplify raw materials, ingredients, packaging, in order to focus on margins, growth potential, and on overall customer experience.We’re also making good progress on our supply chain excellence initiative. What we’re aiming to do here is to create an integrated supply chain that operates efficiently across the border and has the capacity to take advantage of future market opportunities. In 2018, we were able to effectively align our Canadian and American warehousing and transportation strategies, and in doing so have increased our operational standards and fill rates. Individual products can now be made in multiple facilities and don’t have to be shipped farther than necessary.We’re very pleased by the progress we’ve made to date and have identified opportunities to expand the scope of this initiative and other cost-savings activities to deliver significantly greater cost savings than originally anticipated. Consulting firm, Altus Partners, has been engaged to accelerate delivering the increased cost savings associated with our expanded scope.Work continues as well on our Rubicon alignment and shrimp growth initiative, where we are developing a collaborative go-to-market strategy that will bring together the best of Rubicon and the best of High Liner Foods. Shrimp remains the second-fastest-growing seafood behind salmon, and we see significant potential for growth. We are focused on bringing shrimp products to market in a more meaningful and succinct way than ever before.In 2018, we integrated and streamlined the shrimp purchasing process across both Rubicon and High Liner Foods, and are now able to leverage Rubicon’s expertise, cross-selling shrimp to existing customers of High Liner Foods.These four critical initiatives set the foundation for our final and ongoing critical initiative, profitable organic growth. This initiative aims to strengthen customer engagement models, understand and shape consumer taste, and increase demand for our seafood products. Over the past year, we have completed an in-depth market assessment and established new planning processes for the entire organization.Through insight, research, partnerships, and a unified North America platform, we are poised to bring a number of innovations to market, including products like our recently introduced Haddock Bites and Everything-Bagel-Crusted Cod products that are on trend, shareable, and appropriate for multiple eating occasions including snacking. It’s about recognizing opportunities and ensuring High Liner Foods is there quickly.We still have a lot of work ahead of us and continue to face pressure on our sales, volume, and margins, but we are starting to see positive impact of our critical initiatives plan on our financial performance as reflected in our results that were released earlier today for the first quarter of 2019. The rest of 2019 necessarily won’t be straightforward or easy, but I’m confident that we’re on the right track.Since joining High Liner Foods, I’ve come to appreciate the Company’s product history, resilience, and tremendous brand recognition. This year marks 120-year anniversary. Companies don’t last for 20 years, let alone 120, without facing challenges and being open to change. We are a company that has weathered rough seas in the past, and I’m confident we will do it again and come out stronger and better for it.The transformation we’re undergoing isn’t easy. And the progress we’re making is a testament to our people, their depth of commitment to High Liner Foods, and I’m proud of what we’ve accomplished over the past year. And I’m excited for our return to profitable growth, overseen by our captain, who, like the rest of the Company, has undergone a bit of a makeover to better reflect today’s industry and consumer.I’d like to thank all of our employees for their continued hard work and dedication, as well as our customers and shareholders for their continued support.Finally, I’d like to recognize Chairman Henry Demone, who, after a long and distinguished career at High Liner Foods spanning more than three decades, will retire as Chairman immediately following today’s AGM. On behalf of incoming Chairman Robert Pace and the rest of the board, I want to express our sincere appreciation to Henry, whose vision, value, and leadership have been instrumental in making High Liner Foods the North American leader it is today. Henry, we thank you for your years of service to High Liner Foods and wish you continued success and good health in your retirement.I’ll now invite Paul to the podium to review our financial performance in 2018 and the first quarter of 2019.Paul Jewer — Executive Vice President and Chief Financial Officer, High Liner Foods IncorporatedThank you, Rod, and good morning, everyone. Please note that during my financial review today, all comparisons to fiscal 2018 are relative to fiscal 2017, and our comparisons to the first quarter of 2019 are relative to the first quarter of 2018.There are five significant items to be aware of for purposes of assessing our year-over-year performance in 2018. The first item is the organizational realignment completed in the fourth quarter of 2018. It resulted in a 14 percent reduction of our salaried workforce, termination benefits of approximately $4.8 million, of which 3.5 million was recognized in 2018, and annualized run rate cost savings of $7 million.The second item relates to the $8.5 million recovery of product recall losses that were recognized in the third quarter of 2018 related to our 2017 product recall. This was the first recovery installment from the ingredients supplier. A second recovery of $8.5 million was recognized in the first quarter of 2019 for a total recovery of $17 million. As a result, we have fully recovered the $13.5 million in losses recognized during fiscal 2017, and an additional 3.5 million related to business disruption. No further recoveries are expected.The third item relates to additional US tariffs of 10 percent that were levied by the US administration on certain Chinese imports, including seafood, effective September 24, 2018. These tariffs were increased to 25 percent effective last Friday, May 10th. A portion of our raw material is imported into China for primary processing and then exported to the US for sale and secondary processing. We have begun implementing plans including pricing actions and other supply chain initiatives to mitigate the financial impact of these tariffs.The fourth item is the acquisition of Rubicon, a US shrimp importer, in the second quarter of 2017. In 2018, this acquisition had the impact of increasing sales volume by 7.5 million pounds, sales by $35.1 million, gross profit by $4.4 million, and adjusted EBITDA by $1.2 million as a result of incorporating Rubicon’s results for the full year.The final item to be aware of is a noncash income tax recovery of $11.2 million that was recognized in 2017 attributable to the reduction in the US federal corporate income tax rate from 35 percent to 21 percent that came into effect on January 1, 2018, under the Tax Cuts and Jobs Act enacted on December 22, 2017, and was not attributable to an operational or market-driven event.This slide shows that in 2018, sales volume, represented by the dotted line, decreased by 7.8 million pounds to 284 million pounds, and sales dollars, represented by the blue bars, decreased by $5.3 million to $1,048,500,000.On this slide, adjusted EBITDA is represented by the gray bars, and the dotted line represents adjusted EBITDA expressed as a percentage of sales. In 2018, adjusted EBITDA decreased by $3.6 million to $62.5 million, and as a percentage of sales, adjusted EBITDA decreased to 6 percent compared to 6.3 percent.In addition to lower sales, the decrease in adjusted EBITDA reflects raw material cost increases, unfavourable changes in product mix, US plant inefficiencies, and increased distribution expenses, partially offset by price increases, improved efficiency in our Canadian plant, lower SG&A expenses, and the impact of incorporating Rubicon’s results for a full year.On this next slide, the blue bars represent diluted earnings per share, or diluted EPS, which were $0.50 in 2018 compared to $0.97 in 2017. The gray bars represent adjusted diluted EPS, which were $0.51 in 2018 compared to $0.93 in 2017. The dotted line represents return on equity, which was 5.8 percent for 2018 compared to 12.1 percent for 2017.During 2018, net debt decreased by $27.3 million to $360.6 million at the end of fiscal 2018. Net debt to rolling 12-month adjusted EBITDA was 5.8 times at the end of 2018 compared to 5.9 times at the end of 2017.In just a moment, I will discuss the financial results for the first quarter of 2019, but we’ll share now that this ratio improved to five times at the end of the first quarter. We expect this ratio will continue to improve throughout the remainder of this year to reflect a reduction in the dividend rate on our common shares, improved cash flow management, and the acceleration of cost-saving activities.This slide shows our 10-year dividend history. In the news release we issued earlier today, we shared that after an extensive review of its capital allocation strategy, the board elected to revise the quarterly dividend to C$0.05 per common share, or C$0.20 on an annual basis. This will free up approximately $10 million annually in cash flow that will support the reduction and refinancing of debt to create a stronger balance sheet.It also brings the dividend back in line with our previously disclosed dividend guidance for a payout of 30 to 35 percent of adjusted diluted EPS relative to 2018 and Q1 2019 financial results. The board will continue to review capital allocation priorities through the course of our turnaround plan and expects to revisit the dividend level once we have returned to profitable organic growth.Let me now talk briefly about the financial results for the first quarter of 2019 that were released earlier today. As you can see in this chart, sales volume, represented by the dotted line, decreased in the first quarter by 9.6 million pounds to 78.5 million pounds. This decrease reflects lower sales volume in our foodservice and retail businesses, including lower sales volume as a result of a major customer loss in the latter half of fiscal 2018 and the exit of low-margin business.Also, Easter was later in 2019 than in 2018, shifting some sales volume to the second quarter of 2019 compared to the same period last year. Sales dollars, represented by the blue bars, decreased in the first quarter of 2019 by $41.8 million to $277.4 million, mainly due to lower sales volume and changes in product mix, partially offset by price increases related to raw material cost increases.The chart on this slide shows adjusted EBITDA, in the gray column, increased in the first quarter by $8 million to $32.2 million. And as a percentage of sales, adjusted EBITDA increased to 11.6 percent compared to 7.6 percent. The increase in adjusted EBITDA reflects the inclusion of $5.5 million of the $8.5 million product recovery received in the first quarter of 2019; the impact of adopting the new lease standard, IFRS 16, at the beginning of fiscal 2019; and a decrease in distribution and SG&A expenses.The favourable impact of these items on adjusted EBITDA were partially offset by lower gross profit, which decreased in the first quarter by $4.5 million due to lower sales volume and raw material cost increases, partially offset by price increases, favourable product mix related to the exit of low-margin business, and improved plant efficiency.If you are interested in a more detailed review of our financial results for the first quarter of 2019, I invite you to listen to the conference call we will be holding later today at 2:00 p.m. Eastern.That concludes my financial review. As I invite Henry back to the podium, I would like to take this opportunity, on behalf of the employees of High Liner Foods, to thank him and wish him all the best with his retirement.Henry?Henry DemoneYeah. Thank you, Paul and Rod, for those kind comments.Having conferred with our scrutineers, based on the ballots cast today, I declare the following results.The directors nominated in the 2019 Management Information Circular were appointed by shareholders. I would ask each nominee present to stand as she or he is introduced: Joan Chow, Rob Dexter, David Hennigar, Jill Hennigar, Rod Hepponstall, Shelly Jamieson, Jolene Mahody, Andy Miller, Robert Pace, Frank vanSchaayk are duly elected directors of the Company until the 2020 annual general meeting or until their respective successors are elected or appointed. Ladies and gentlemen, your Board of Directors.And I would add that one of the issues you read a lot about these days is gender equity on boards, and we’re a four out of ten, which is nice to see. Right?The appointment of Ernst & Young LLP as auditors with remuneration fixed by the Board of Directors was approved. And the shareholders have voted to accept the approach to executive compensation disclosed in the 2019 Management Information Circular delivered in advance of this annual general meeting of shareholders.A detailed report on the number of votes cast for and against the resolutions will be published following the meeting.Are there any questions or other items of business to bring before the meeting? You drove all the way down to Lunenburg in the rain so there must be a question somewhere. Yes?Q&AAudience MemberI heard on the way down that there was a rumour regarding McDonald’s hamburger. Have you people made any arrangements with them about selling products or whatever?Henry DemoneWe actually do have an agreement to sell fish and chips with McDonald’s nationwide that’s based on local haddock. It’s not a full menu item but it’s a limited-time offer that will run for several months nationwide. So that’s—I know that for sure. In terms of other issues with McDonald’s, I’m not aware of them at this time. Yes?Audience Member[off mic] And I also got a question for our new President. I want to say what an excellent job, Henry, you’ve done. But a question for your new President is I go into a Loblaws store one day and your pan-seared haddock in a box, $12.99. Then I go in the next week, it’s $7.99. Then I go over to Sobeys and I get 20 points if I buy this one, saying, hey, what’s the difference between $7.99 and $12.99. It’s $5 now. Do we eat that box? I don’t think so because I don’t think Westons are.So where—is our margin squeezed? Is there product that’s left somewhere in the warehouse, and we have to sell it out in a hurry, and the store is putting it on sale. I buy the product, and I’m a fan of it, and I know other people that do. And I’m just wondering, when I get all these bonus points and these discounts and all that stuff, it’s only certain times, too, of the year, I noticed. I’m just wondering if it’s a—and it always seems to be the same fish products that are good products, so.Rod HepponstallWell, thank you for purchasing the product, and I’m glad you’re getting some bonus points associated with that. I would tell you, the price differences that you experience by banner has more to do with the customer strategy and their pricing strategy than it does, candidly, our arrangement with the customer. So Loblaws, Sobeys, and other retailers have different strategies as to how they price their products. Some are a everyday low price. Some have a high-low strategy and a variety of other things. So my suspicion is, is without knowing all the facts, that’s the difference that you experience as a consumer.Audience Member[off mic] That’s all.Rod HepponstallI’m sorry. I didn’t hear the rest of it.Audience MemberI just wondered, sir, if we were giving the product away for next to nothing, no margin.Rod HepponstallNo.Henry DemoneAre there any further questions?ShareholderMr. Chairman, I move that on behalf of [off mic].ShareholderI second the motion.Henry DemoneThank you, Shelly and David. All those in favour, please raise your hand. I’m sure that no one is opposed.Motion carried.Are there any other items of business or questions to come before the meeting? Well, hearing none, that brings us to the close of the official business to be conducted at this meeting.As you’ve already heard, this will be my last annual general meeting as Chairman. It has truly been an honour for me to serve High Liner Foods for the past 35 years, 30 of which have been in a leadership position.This is also a great time for me to move on to the next phase of my life, and the main reason I can do this with such confidence is this gentleman on my left here, our CEO, Rod Hepponstall, who came to High Liner Foods with an outstanding track record in the food business and now has a great handle on our business. And the encouraging first quarter results delivered in spite of challenging market conditions are really a sign of great things to come.I also want to thank Robert Pace for agreeing to become Chairman of the Board. Robert is a successful entrepreneur and also serves as Chairman of CN, another iconic and somewhat larger Canadian company. So thank you, Robert, for that.We all owe a debt of gratitude to David Hennigar and his extended family. They stood behind the Company during a really very challenging period in the late 1980s and the early 1990s and have been supportive shareholders ever since. So thank you, David, to you and your family.And finally, I want to thank the many people who come to work every day at High Liner Foods to produce great quality seafood products that provide delicious meals to millions of families across North America.So as the business of the meeting has now been completed, I will ask that a shareholder move a resolution to terminate this meeting.Shareholder[off mic]Henry DemoneThank you, Peggy.All those in favour, please raise their hands. Opposed, if any.Motion is carried.I declare the annual general meeting of shareholders is terminated, and we invite everybody to stay with us and enjoy a piece of birthday cake to celebrate our 120th anniversary. So thank you very much. ................
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