## 5.4 Performance by Segment 

## Canadian Operations 

(All currency amounts in this section are in CAD, unless otherwise noted) 

Our Canadian operations had external sales of $312.6 million in 2013, consistent with the previous year. Sales volume decreased 0.2% to 72.6 million pounds. 

Canadian retail sales volume decreased 1.5% in 2013 compared to 2012, reflecting decreased retail value-added private label sales, partially offset by increased club store sales. The lower private label value-added sales reflect an overall trend being experienced in the seafood marketplace. Retail branded product sales decreased slightly in 2013 compared to 2012; however, 2012 included initial stocking sales of the new  Flame Savours  product that were not repeated in 2013. 

Canadian food service sales volume increased by 1.1% in 2013 compared to 2012. 

Adjusted EBITDA for our Canadian operations increased by $4.6 million to $33.2 million in 2013 compared to $28.5 million in 2012. This increase primarily reflects the lower overall raw material costs in 2013 compared to 2012 and cost savings related to closing our Burin plant in late 2012. 

## U.S. Operations 

(All currency amounts in this section are in USD, unless otherwise noted) 

In the first quarter of 2013 we expedited the closure of our plant in Danvers, increased production at our Newport News and Portsmouth production facilities and relocated U.S food service distribution to Newport News. This was discussed under Section 5.3 “Consolidated Results” of this MD&A. 

We have been focused on maximizing throughput rates and reducing operating costs associated with our U.S. manufacturing facilities and distribution costs are expected to be lower in the first quarter of 2014. Improvements have been made in throughput rates in the U.S. plants but we will not achieve our targets until the second half of 2014. 

As part of the integration of Icelandic USA into our business, certain products have been converted from one brand to another as we solidify our brand positioning and as a result, we can no longer report sales and operating results for High Liner Foods’ pre- Icelandic USA business separate from the post-Icelandic USA results. 

Our U.S. operations had external sales in 2013, including American Pride, of $643.7 million, compared to $629.7 million in 2012. American Pride added $39.7 million in sales. Sales volume for the year, including American Pride, increased by 3.6% to 209.8 million pounds compared to 202.4 million pounds in 2012. 

American Pride added 12.6 million pounds of volume in 2013. 

Excluding American Pride, sales from our U.S. operations decreased by $25.7 million and pounds sold decreased by 5.2 million in 2013 compared to 2012. 

U.S. retail sales volume increased by 0.5% in 2013 compared to the same period last year, reflecting increased sales to club stores and an increase in our retail branded product sales (primarily Sea Cuisine  products which have been heavily promoted in 2013 compared to 2012), partially offset by decreased retail private label value-added sales. As previously explained, the decrease in private label value-added sales reflects an overall trend being experienced in the seafood market place. 

Our U.S. food service sales volumes decreased by 3.8% in 2013 compared to 2012, reflecting: 

• Lower sales to food distributors and restaurants in 2013 related to soft restaurant sales resulting from a sluggish economic recovery in the U.S and severe weather conditions than the previous year keeping diners at home; 

• An earlier Lent in the first quarter of 2013 compared to 2012, which is when seafood products are heavily promoted by restaurants; and 

• Lower food service sales to schools, as schools chose to reduce seafood items from their menus due to uncertainties created from the introduction of new nutritional requirements for these products. 

Adjusted EBITDA for our U.S. operations decreased in 2013 to $53.2 million from $63.1 million in 2012. American Pride contributed $1.5 million in Adjusted EBITDA in 2013 and excluding this amount, Adjusted EBITDA from our U.S. operations decreased by $11.4 million in 2013 compared to 2012. 

Adjusted EBITDA from our U.S. operations was affected by the following items which are primarily the same items listed above that were responsible for the decrease in the Company’s consolidated Adjusted EBITDA in 2013 compared to 2012: 

• Lower overall sales (excluding American Pride); 

• Increased production and distribution costs associated with reduced plant thoughput rates experienced at our U.S. manufacturing facilities since our Danvers plant was closed and relocation of U.S. food service distribution to Newport News in the first quarter of 2013; 

• Higher Sea Cuisine  marketing costs; 

• Lower margins in the first quarter of 2013 on certain food service commodity products as selling price declines were passed on to customers in advance of experiencing lower average costs; and 

• The negative impact of these items on Adjusted EBITDA was partially offset by lower overall raw material costs in 2013, realization of synergies resulting from integrating Icelandic USA and $1.5 million in Adjusted EBITDA from American Pride in 2013. 

## Outlook 

We will continue to focus on our vision to be the leading supplier of frozen seafood in North America. We expect our annual sales will exceed the $1.0 billion mark for the first time in 2014 and we remain committed to growing Adjusted EBITDA to $150 million, although we have extended the period to reach this goal by one year to 2016. 

Our strategy to achieve this has not changed and organic growth, acquisitions and optimizing our supply chain will all play an important role. We are focused on growing our Adjusted EBITDA in 2014. Regarding current pricing on the major seafood species we procure, prices for haddock, scallops and shrimp remain high, 

