High Liner CEO: Rubicon paves way for shrimp sector expansion

The acquisition of the US retail supplier opens up new avenues for growth, top executive tells IntraFish.

High Liner Foods will use newly-acquired Rubicon Resources as a means to expand its footprint in the shrimp sector and develop new areas in the US retail market in particular, High Liner President and CEO Keith Decker told IntraFish.

High Liner bought the US-based shrimp importer and distributor last week in a deal worth an estimated $107 million (€98.4 million), giving the group access to a new host of retail clients.

"We’re already quite large in traditional whitefish, and there are a number of aquaculture species that are in the top five in the market," said Decker.

"We feel we’re underrepresented in those species and wanted to broaden that out. We currently import and buy shrimp but wanted to grow in that area."

Decker told IntraFish the industry is high fragmented with the largest US player having a less than 8 percent share of the market. So, "we feel it's important to have purchasing scale to compete effectively in that market and believe Rubicon is an ideal partner for us."

The intention is for Rubicon to continue its operations while High Liner will be able to leverage the company's expertise in sourcing and securing products to improve its US and Canadian businesses. Some of Rubicon's shrimp supply will be sold under the High Liner brand.

Product collaboration

High Liner hopes Rubicon will help the company in its production innovation plans, which hones in on two key areas: improving and expanding core offerings that currently exist in High Liner’s portfolio; and creating and delivering new products to the market that align with emerging consumer trends

“Ideally the types of new products will include aquaculture species, like shrimp, which is experiencing the greatest growth in the marketplace, but represents less than 10 percent of the company’s portfolio based on sales dollars and 6.4 percent by pound," he said.

High Liner added it plans on “cross pollinating our innovation between the companies with packaging and product forms."

Leveraging shrimp expertise

Shrimp is still a low percentage of High Liner’s overall portfolio compared to whitefish, but naturally, that's expected to change.

Decker said Rubicon's long experience in shrimp will be an asset for the entire group.

“Part of the interest in this acquisition for us to the ability to leverage their capabilities on shrimp across some of the High Liner business," he said.

Rubicon currently deals with between 29 million and 30 million pounds of shrimp, and while it has several suppliers, its two main ones in Thailand are both vertically integrated.

The percentage of Rubicon’s shrimp inventories that comes from these two Thai suppliers varies year to year.

“We have supply agreements with them to ensure continuity going forward, but that supply agreement depends on shrimp prices and volume produced by them and others in the industry from year to year,” said High Liner. “They’re incentived to be continued partners to Rubicon and High Liner moving forward.”

Rubicon President and Founder Brian Wynn, along with the two main suppliers in Thailand, are now shareholders in High Liner following the deal.

“We were pleased in Brian and the suppliers’ confidence in High Liner’s growth potential from a share perspective and it ties them to the future success of High Liner," Decker said.

High Liner income falls 25% in first quarter

Read more
Rubicon’s business tends to pick up in the third and fourth quarters because promotions on shrimp tend to run during the holidays, starting around thanksgiving.

"We [High Liner] tend to have lower volumes during that third quarter so that’ll be beneficial for us," Decker said.

In addition, Rubicon is strong in US retail while High Liner is strong in US foodservice and in Canada.

There are a few assets in this deal yet to be realized, as High Liner has not completed the formal evaluation yet, but suspects "there likely are supply agreements so there will be value attributed to that."

Stability, sustainability

Rubicon's annual sales in 2016 were about $234 million (€215.3 million) with pro forma earnings before interest, taxation, depreciation and amortization (EBITDA) of $16 million (€14.7 million).

Rubicon’s volume growth in the last two years was “stable, low single-digit volume growth and we anticipate that to continue as we go forward,” said High Liner during its Wednesday conference call. The gross margin volatility of Rubicon is “remarkably stable” as they’ve been able to pull through during fluctuating raw material prices.

There is at least one question mark. Rubicon is involved in a court case regarding allegations of human trafficking. While High Liner is aware of the suit and will have to wait to see the outcome, Decker said the group was convinced Rubicon's commitment to sustainability is strong.

"We believe that Rubicon and their supplier partners are at the forefront of sustainability and ethical practices," he said.

He noted that Rubicon is a partner of GSSI, where High Liner's Bill DiMento serves as a board member.

Foodservice recovery?

Decker and his colleagues believe demand is growing again at US foodservice.

"We feel that inflection point has been reached. We see today improved foodservice sales, particularly in the US segment going forward," executives said on Wednesday's conference call with analysts.

High Liner said its foodservice business in the United States and Canada is expected to perform better than last year from now to the end of the year.

“We have a few [retail] product launches that will be put out in the market at end of this month with a soft launch and then a bigger push when we get into September," they said.

---

 

For more seafood news and updates, follow us on Facebook and Twitter or sign up for our daily newsletter.