High Liner Foods reported a significant drop in third-quarter sales, amounting to a USD 41.5 million (EUR 36.5 million) decrease compared to 2017.
High Liner’s sales dropped from USD 282.7 million to 241.2 million (EUR 248.8 million to 212.3 million) in the third quarter. Gross profit decreased by USD 4.3 million (EUR 3.8 million) from USD 48.3 million to USD 44 million (EUR 42.5 million to 38.7 million).
The Lunenburg, Nova Scotia, Canada-based company's earnings before interest, taxes, depreciation, and amortization (EBITDA) also decreased from USD 17.3 million to USD 14.2 million (EUR 15.2 million to 12.5 million), a difference of USD 3.1 million (EUR 2.7 million).
In a conference call on 8 November, High Liner CEO Rod Hepponstall was clear that the path to bring the company back to profitability would take time and significant effort.
"Our disappointing third-quarter financial performance reflects challenges in both the external operating environment and our internal operations, and reinforces the need for action to realign the business and drive cost efficiencies," he said. "We started this process in July, shortly after I joined the company, focusing first on our executive realignment and have moved quickly to realign the rest of the organization.”
Falling sales have led High Liner to focus heavily on what Hepponstall has called a “realignment” plan, with emphasis on consolidating the roles currently split between the company’s locations in Canada and the United States.
“It was immediately clear to me when joining the company that we needed to break down organizational silos,” Hepponstall said. “We have already realigned and organized our structure top to bottom.”
The reorganization has included significant layoffs totaling 14 percent of its workforce. Initially, that will incur a USD 4.5 million (EUR 3.9 million) restructuring charge, but will in the long run result in USD 10 million (EUR 8.8 million) in savings.
The “organizational realignment” is just the first step of the company’s five-point plan to shift back to profitability over the next 12 to 15 months. Hepponstall said the second step in the plan is “business simplification,” with a focus on reducing the company’s expansive product portfolio.
“Right now we offer in excess of 1,500 products across 30 species,” Hepponstall said.
The review of the portfolio will focus on profitable products and the elimination of underperforming products, but Hepponstall did not offer details on what’s on the chopping block.
The third part of the plan, according to High Liner, is “supply chain excellence.”
According to Hepponstall, that plan includes integrating the supply chain and creating “cross-border operating systems” in order to increase efficiency and reduce costs.
“As we take the complexity out of our business, we will take the pressure off of our supply chain,” he said.
The fourth part of the plan is focused on the realignment of Rubicon Resources, a value-added frozen seafood company located in Lunenburg, Nova Scotia, Canada that High Liner acquired in 2017.
Initially, that acquisition benefited the company, but the loss of a lucrative contract with Sam’s Club led to decreased sales for the new acquisition.
Despite the significant loss in sales by Rubicon, Hepponstall said the “rationale for acquiring Rubicon remains sound.”
“Now that our structure supports one High Liner Foods, it will be easier to align with Rubicon’s business processes,” he said. “Rubicon will become our shrimp center of excellence.”
The final point of High Liner’s plan aims at profitable organic growth via product innovation and “market leadership.”
“That work is already underway in earnest,” Hepponstall said.
The company plans to target 2020 as the first year the company will be back to profitability.
“We do expect that our current headwinds will continue in 2019," Hepponstall added.
Higher prices for the company’s main species, because of both supply and demand and the additional cost of tariffs imposed during the U.S.-China trade war, have done little to help the company. However, Hepponstall remained optimistic about the future of High Liner, citing growing consumer trends in seafood.
“We see the market as a tremendous opportunity. We see seafood growing, we think it’s a healthy market for us,” he said. “The good news is that demand for seafood continues to be strong, and High Liner is well positioned to meet this demand.”
