7 September 2023

Hilton Food Group plc

 

Interim results for the 28 weeks to 16 July 2023

 

Robust financial performance in line with expectations; strong operational progress

 

Business highlights - strong operational progress across categories and geographies

·    Strong performance in APAC region delivered through partnership with Woolworths

·    Core meat category continued to perform well; new business wins in poultry and food service

·    Seafood recovery on track following management actions

·    Decisive action responding to market changes in vegan and vegetarian category

·    Launch of Swedish food park in Q3 2023

·    Hilton's scale, innovation and technology capabilities underlined via rollout of new free flow mince packaging with core customer, saving 690 tonnes of plastic

·    Continued progress towards meeting ESG commitments, submitted ambitious science-based targets in line with 1.5̊ C

 

Financial highlights - robust financial performance, trading in line with Board expectations

·   Revenue up 5.2% to £2.1bn (2022: £2.0bn) driven primarily by raw material price inflation

 

·   Volumes 0.2% higher at 272,321 tonnes (2022: 271,708 tonnes)

 

Adjusted results

·   Adjusted operating profit up 1.4% to £41.8m (2022: £41.2m)

 

·   Adjusted profit before tax 22.2% lower to £26.8m (2022: £34.4m) impacted by higher interest costs

 

·   Adjusted basic earnings per share down 22.9% to 21.6p (2022: 28.0p)

 

IFRS results

·   Operating profit down 0.6% to £30.6m (2022: £30.8m)

 

·   Profit before tax 42.3% lower to £11.3m (2022: £19.6m)

 

·   Basic earnings per share down 49.7% to 7.6p (2022: 15.1p)

 

·   Net bank debt £216.5m (£211.6m at 2022 year end) (2022: £221.0m)

 

·   Interim dividend of 9.0p (2022: 7.1p)

 

 

Outlook

Hilton Foods is well positioned to continue to trade in line with Board expectations for the rest of the year. Growth prospects are underpinned by recent acquisitions and the continued recovery in seafood, combined with opportunities to develop cross-category business and utilise wider supply chain management expertise. Hilton Foods continues to explore growth opportunities and wider geographic expansion with existing and new customers. With a strong financial position with leverage and headroom at comfortable levels, the outlook for continued progress remains positive.

 

Steve Murrells, Hilton Foods Chief Executive Officer, said:

"I am pleased, in my first set of results as Hilton Food's CEO, to show delivery of a robust performance against a challenging economic backdrop. Our core meat business has continued to perform strongly and we are pleased with the continued recovery in seafood. At the same time, we continue to make progress in our ESG strategy, including delivering packaging innovation to reduce plastic usage and setting more ambitious science-based targets.

 

"I joined Hilton because it is an exciting business with great people, real expertise in producing high-quality food products that consumers want and is a trusted partner to retailers around the world. As I look ahead, I am confident in the opportunities we have to grow, building on our existing partnerships and forging new ones, based on our unique multi-category protein offer."

 

 

A presentation for analysts and investors will be held this morning at 08.30, which will also be webcast. For details please contact hiltonfood@headlandconsultancy.com

 

 

Financial performance - overview:

	2023	2022	Change
	28 weeks to 16 July 2023	28 weeks to 17 July 2022	Reported	Constant currency
Volume 1 (tonnes)	272,321	271,708	0.2%	0.2%
Revenue	£2,123.1m	£2,018.6m	5.2%	5.2%
Adjusted results 2
Adjusted operating profit	£41.8m	£41.2m	1.4%	0.6%
Adjusted profit before tax	£26.8m	£34.4m	-22.2%	-23.1%
Adjusted basic earnings per share	21.6p	28.0p	-22.9%	-24.3%
Adjusted EBITDA	£67.5m	£66.6m	1.3%	0.9%
IFRS results
Operating profit	£30.6m	£30.8m	-0.6%
Profit before tax	£11.3m	£19.6m	-42.3%
Basic earnings per share	7.6p	15.1p	-49.7%
Other measures
EBITDA	£72.3m	£71.9m	0.6%
Net bank debt 3	£216.5m	£221.0m
Interim dividend	9.0p	7.1p	26.8%

 

Notes

1    Volume includes 50% share Portuguese joint venture activities

2    Adjusted results represent the IFRS results before deduction of acquisition intangibles amortisation and exceptional items and also IFRS 16 lease adjustments as detailed in the Alternative performance measures note 16. Unless otherwise stated financial metrics in the Financial and strategic highlights, Review of operations and Financial review refer to the adjusted results

3    Net bank debt represents borrowings less cash and cash equivalents excluding lease liabilities

 

 

Enquiries:

 

Hilton Food Group                                                   Tel: +44 (0) 1480 387214

Steve Murrells, Chief Executive Officer

Matt Osborne, Chief Financial Officer

 

Headland Consultancy Limited                               Tel: +44 (0) 20 3805 4822

Susanna Voyle                                                            Email: hiltonfood@headlandconsultancy.com

Will Smith

Joanna Clark                                                 

 

This announcement contains inside information.

 

 

 

About Hilton

Hilton Foods builds and operates large scale, highly automated facilities for food processing, manufacturing and logistics for leading international retail and food service customers. We are a business of over 7,000 employees, operating from 24 technologically advanced food processing, packing and logistics facilities across 19 markets in Europe, Asia Pacific and North America. For almost thirty years, our business has been built on dedicated partnerships with our customers and suppliers, many forged over several decades, and together we target long-term, sustainable growth and shared value. We supply our customers with high quality, traceable, and assured food products, with high standards of technical excellence and expertise.

 

Cautionary statement

This interim management report contains forward-looking statements. Such statements are based on current expectations and assumptions and are subject to risk factors and uncertainties which we believe are reasonable. Accordingly, Hilton's actual future results may differ materially from the results expressed or implied in these forward-looking statements. We do not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Alternative performance measures (APMs)

Hilton uses Alternative Performance Measures (APMs) to monitor the underlying performance of the Group. Management considers that APMs better reflect business performance and provide useful information in line with how management monitor and manage the business day-to-day.

 

 

 

Review of operations

 

The Group is presenting its interim results for the 28 weeks 16 July 2023, together with comparative information for the 28 weeks to 17 July 2022. These interim results are prepared in accordance with UK-adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Performance overview

A robust business performance in the period saw revenue grow by 5.2% with volumes 0.2% higher. Revenues reflect higher volumes, continued raw material price inflation and also a full period of trading at Foppen following its acquisition in March 2022. The operating margin was steady at 2.0% (2022: 2.0%) although the operating margin per kg increased slightly to 15.3p per kg (2022: 15.2p per kg).

 

Hilton's results, reported in Sterling, are sensitive to changes in the value of Sterling compared to the range of overseas currencies in which the Group trades. Over the 28 weeks to 16 July 2023 there was no significant impact of average exchange rates on our results compared with 2022.

 

UK and Ireland

Adjusted operating profit of £12.8m (2022: £11.8m) on revenue of £701.1m (2022: £695.1m restated)

 

This operating segment covers the Hilton Foods businesses and joint ventures in the UK and Ireland including meat processing facilities in Huntingdon, fish facilities in Grimsby as well as the Fairfax Meadow food service business acquired in 2021.

 

Volumes were 4.4% lower although revenue increased by 0.5% on a constant currency basis. Operating margins increased slightly to 1.8% (2022: 1.7%) reflecting strong core performance as well as the financial recovery in our Seafood business which is on track.

 

Our UK based food service company, Fairfax Meadow continues to grow revenues and win new business. The strategically well-placed customer base offers opportunity to expand the range of Hilton Foods products offered to food service.

 

Europe

Adjusted operating profit of £20.4m (2022: £19.9m) on revenue of £553.8m (2022: £495.8m)

 

This operating segment covers the Group's meat, fish and vegetarian businesses and joint ventures in Holland, Belgium, Sweden, Denmark, Central Europe, Greece and Portugal.

 

Volumes were 1.7% lower although revenue increased by 9.3% on a constant currency basis due to raw material price inflation. Operating margins were 3.7% (2022: 4.0%). The results reflect strong performance in our Central Europe and Scandinavia based businesses and a full period's trading performance for Foppen, the smoked salmon business acquired in March 2022.

 

Operations at our Dalco vegan and vegetarian business in the Netherlands has been impacted by increased raw material costs and changes in consumer purchasing patterns, one key driver of which has been the flight to value during the cost of living crisis. We are proactively restructuring the business which will lead to the closure of our Oss facility to optimise the business at a single site centre of excellence. Our strong product offering, extensive market experience and focus on operational efficiency puts us in a strong position to continue to take advantage of market opportunities in this sector.

 

In June 2021 the Group's facility in Belgium suffered an extensive fire and we continue to work closely with insurers to progress the related claims.

 

APAC

Adjusted operating profit of £16.5m (2022: £13.0m) on revenue of £868.2m (2022: £827.7m)

 

In Australia, the Group operates plants in Bunbury, Western Australia, Melbourne, Victoria and Brisbane, Queensland. We also have a facility in Auckland, New Zealand.

 

Volumes during the period increased strongly by 6.8%. Revenues were 6.8% higher on a constant currency basis. Operating margins increased to 1.9% (2022: 1.6%) partly attributable to the recovery of higher interest costs under our cost plus contract. We continue to see strong performance in the APAC region delivered through our partnership with Woolworths.

 

Strategic progress

Following a challenging 2022, our UK seafood business recovery is progressing well with strong cost recovery plans delivering improvements to financial performance. Investment in automation has enhanced our efficiency and unlocked capacity to support future growth. There is also a new management team in place, who are successfully delivering on our recovery plan.

 

In Q3 2023 we will be launching our new Swedish food park through our retail partnership with ICA. The new facility will use the latest technology and automation to produce a range of new private label products including porridge and soup. It provides opportunity to broaden our customer product portfolio and unlock further growth in the territory.

 

We continue to develop and apply automation, robotics and technology services with our supply chain service offering providing a competitive advantage facing into sector challenges. In Denmark we have extended our crate wash services to other categories, cementing our position as a supply chain partner. We are also extending our services offering into the food service sector with a returnable crate model trial in the UK.

 

Delivery of our ESG commitments continues to progress. We have submitted more ambitious science-based targets which, once validated, will be in line with a 1.5̊ C trajectory. In partnership with retail partners in the UK, Netherlands and Sweden we have launched mince flow wrap, which achieves a 70% reduction in plastic packaging. So far we have saved 690 tonnes of plastic.

 

Investments in our facilities

Hilton continues to invest in all its facilities maintaining state of the art levels required to service our customers' growth, extend the range of products supplied to those customers and deliver both first class service levels and further increases in production efficiency. This investment ensures we can achieve low unit costs and competitive selling prices at increasingly higher levels of production throughput. Capital expenditure during the period was £27.8m (2022: £26.0m) which included investment in the new Sweden food park and in UK factory automation.

 

Financial review

 

Adjusted results represent the IFRS results before deduction of acquisition intangibles amortisation, exceptional items and IFRS 16 lease adjustments. These adjustments are detailed in the Alternative performance measures note 16.

 

Revenue increased by 5.2% to £2,123.1m (2022: £2,018.6m restated) and by 5.2% on a constant currency basis reflecting higher volumes and raw material price inflation. Further details of revenue and volume growth by segment are detailed in the Review of operations above.

 

Adjusted operating profit for the first 28 weeks of 2023 was £41.8m, 1.4% higher than in the previous year (2022: £41.2m) and 0.6% higher on a constant currency basis. The adjusted operating profit margin was in line with H1 2022 at 2.0% (2022: 2.0%) but ahead of the adjusted margin of 1.8% for the 2022 full year. IFRS operating profit for the first 28 weeks of 2023 was £30.6m (2022: £30.8m) after charging exceptional costs of £7.7m (2022: £3.2m).

 

There were IFRS exceptional costs of £7.7m (2022: £3.2m) which related to £5.2m of additional costs incurred following the Belgium fire in 2021, £1.2m on tangible assets impaired due to the anticipated closure of the Dalco Oss facility and £1.3m of reorganisation costs.

 

Adjusted net finance costs excluding exceptional items and lease interest increased to £15.0m (2022: £6.8m) reflecting higher benchmark rates as well as higher borrowings following the Foppen acquisition in March 2022. Interest cover was 2.8 times (2022: 6 times). Similarly IFRS net finance costs increased to £19.3m (2022: £11.2m).

 

The adjusted taxation charge for the period was £6.8m (2022: £8.4m) representing an effective underlying tax rate of 25.2%, compared with 24.3% last year. The IFRS taxation charge was £3.8m (2022: £5.0m) representing an increased effective underlying tax rate of 34.0% (2022: 25.7%) attributable to the exceptional costs.

 

Net income represents profit for the year attributable to owners of the parent. Adjusted net income of £19.3m was 22.6% lower than last year (2022: £25.0m) primarily reflecting the significantly higher unrecoverable interest costs. IFRS net income was £6.8m (2022: £13.5m) impacted by the higher interest and exceptional costs.

 

Adjusted basic earnings per share of 21.6p in the first 28 weeks of 2023 were 22.9% below 28.0p last year reflecting lower net income. Similarly IFRS basic earnings per share was lower at 7.6p (2022: 15.1p).

 

Adjusted EBITDA increased to £67.5m for the period (2022: £66.6m) and IFRS EBITDA was £72.3m (2022: £71.9m).

 

In the first 28 weeks the Group generated £18.9m of cash inflow before acquisitions and financing activities (2022: cash outflow £17.4m). Net cash generated from operations of £48.1m (2022: £8.4m) reflects normalisation of working capital. During the period a further £1.6m was invested in Cellular Agriculture Ltd following the achievement of development milestones.

 

Cash balances at 16 July 2023 were £79.7m (2022: £96.9m), which with net of borrowings of £296.1m (2022: £317.9m), resulted in net bank debt of £216.5m (£221.0m at 17 July 2022 and £211.6m at 1 January 2023). At 16 July 2023 the Group had undrawn committed facilities under its syndicated banking facilities of £88.1m (£106.4m at 1 January 2023). These banking facilities are subject to covenants comprising net bank debt to EBITDA and interest cover. The Group had significant headroom under these covenants at 16 July 2023 of at least 33% for all these metrics.

 

The Group has maintained a progressive dividend policy since flotation. Hilton Foods remains financially strong with significant cash balances and undrawn loan facilities, and we continue to operate well within our banking covenants. The Board is satisfied that the Group has adequate headroom under its existing facilities, that it is appropriate to continue to operate and to maintain this dividend policy and have approved the payment of an interim dividend of 9.0p per ordinary share (2022: 7.1p). The interim dividend represents an increase of 26.8% on the interim dividend declared in the prior year and reflects a resumption in the interim dividend payout being approximately 30% of the previous year's total dividend. This interim dividend amounting to £8.1m will be paid on 1 December 2023 to shareholders on the register at close of business on 3 November 2023.

 

 

Going concern

The Directors have performed a detailed assessment, including a review of the Group's budget and forecasts for the 2023 financial year and its longer term plans, including consideration of the principal risks faced by the Group. The resilience of the Group has been assessed by applying significant downside sensitivities to the Group's cash flow projections. Allowing for these sensitivities and potential mitigating actions the Board is satisfied that the Group is able to continue to operate well within its banking covenants and has adequate headroom under its existing committed facilities which do not expire until 2027. The Directors are satisfied that the Company and the Group have adequate resources to continue to operate and meet its liabilities as they fall due for the foreseeable future, a period considered to be at least 12 months from the date of signing these interim financial statements. For this reason they continue to adopt the going concern basis for preparing the financial statements.

 

The Group's borrowings are detailed in note 12 to this report and the principal banking facilities which support the Group's existing and contracted new business, are committed. The Group is in full compliance with all its banking covenants and based on forecasts and sensitized projections is expected to remain in compliance. Future geographical expansion which is not yet contracted, and which is not built into our internal budgets and forecasts, may require additional or extended banking facilities and such future geographical expansion will depend on our ability to negotiate appropriate additional or extended facilities, as and when they are required. During the 2022 financial year the Group renewed its banking facilities with a £424m five year revolving credit and term loan facility.

 

The Group's internal budgets and forward forecasts, which incorporate all reasonably foreseeable changes in trading performance, are regularly reviewed by the Board and show that it will be able to operate within its current banking facilities, taking into account available cash balances, for the foreseeable future.

 

The principal risks and uncertainties facing the Group's businesses

Hilton Foods has well developed processes and structures for identifying and subsequently mitigating the key risks which the Group faces. The most significant risks and uncertainties faced by the Group, together with the Group's risk management processes are detailed in the review of Risk management and principal risks on pages 26 to 31 of the Hilton Food Group plc 2022 Annual report. The principal risks and uncertainties identified in that report were:

 

·    The progress of the Group's business is affected by the macroeconomic and geopolitical environment and levels of consumer spending;

·    The Group's growth potential may be affected by the success of its customers and their sales growth;

·    The Group strategy focuses on industry-leading customers who can exercise significant buying power and influence when it comes to contractual renewal terms at 5 to 15-year intervals;

·    As Hilton Foods continues to grow there is more reliance on key personnel and their ability to manage growth, change, integration and compliance across new legislative and regulatory environments. This risk increases as the Group continues to expand with new customers and into new territories with potentially greater reliance on stretched skilled resource and execution of simultaneous growth projects;

·    The Group's business strength is affected by its ability to maintain a wide and flexible global food supply base operating at standards that can continuously achieve the specifications set by Hilton Foods and its customers;

·    Contamination within the upstream supply chain including outbreaks of disease and feed contaminants affecting livestock and fish;

·    Significant incidents such as fire, flood, pandemic or interruption of supply of key utilities could impact the Group's business continuity;

·    The Group's IT systems could be subject to cyber-attacks, including ransomware and fraudulent external email activity. These kinds of attacks are generally increasing in frequency and sophistication;

·    A significant breach of health & safety legislation as complexity increases in managing sites across different product groups and geographies; and

·    The Group's business and supply chain is affected by climate change risks comprising both physical and transition risks. Physical risks include long-term rises in temperature and sea levels as well as changes to the frequency and severity of extreme weather events. Transition risks include policy changes, reputational impacts, and shifts in market preferences and technology.

 

Cost of living crisis, increasing interest rates and the Russia-Ukraine War

The macroeconomic and geopolitical landscape, exacerbated by the Ukrainian war and increasing interest rates, is having an unprecedented impact on our supply chains, operations, consumers and customers. Energy price volatility and an acute cost of living crisis is impacting consumer spending and eating habits, although we are expecting this to ease as the rate of food price inflation slows.

 

We recognise the impact of increasing interest costs on all businesses and we continue to focus on ways of reducing our exposure including through the use of cash pooling and exploring working capital financing.

 

Our continued focus on cost control, innovation and factory efficiency is enabling us to manage the inflationary pressures the industry is currently facing. Through our strong customer relationships we are able to support consumers to navigate through these challenging times.

 

Brexit

We continue to monitor the UK and EU regulatory and trade environments as they evolve and amend processes and operations as required. We are working closely with our customers and supply chains to ensure preparation for the implementation of the Windsor Framework in Q4 2023. Our focus on technology and automation further reduces our risk exposure in this area.

 

The risks and uncertainties outlined above had no material adverse impact on the results for the 28 weeks to 16 July 2023 and are expected to remain virtually unchanged for the remainder of the 2023 financial year.

 

Steve Murrells

Chief Executive Officer

 

Matt Osborne

Chief Financial Officer

 

6 September 2023

 

Statement of Directors' responsibilities

The Directors confirm that the condensed consolidated interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

 

(a) an indication of important events that have occurred during the first 28 weeks and their impact on the condensed set of financial statements, and a description of principal risks and uncertainties for the remaining 24 weeks of the financial year; and

(b) material related party transactions in the first 28 weeks and any material changes in the related party transactions described in the last annual report.

 

The maintenance and integrity of the Hilton Food Group plc website is the responsibility of the Directors; the work carried out by the authors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that might have occurred to the interim financial statements since they were initially presented on the website.

 

The Directors of Hilton Food Group plc are listed in the 2022 Hilton Food Group plc Annual report and financial statements. On 3 July 2023 Philip Heffer stepped down from the Board and Steve Murrells CBE joined the Board as Group CEO. There have been no other changes in Directors since 2 January 2023. A list of current Directors is maintained on the Hilton Food Group plc website at https://www.hiltonfoods.com/.

 

On behalf of the Board

 

Robert Watson OBE

Chairman

 

Matt Osborne

Chief Financial Officer

Condensed Consolidated Income statement

 

			28 weeks	28 weeks
			ended	Restated (note 2)
			16 July 2023	17 July 2022
Continuing operations	Note		£'000	£'000
Revenue	4		2,123,139	2,018,597
Cost of sales			(1,901,347)	(1,831,173)
Gross profit			221,792	187,424
Distribution costs			(24,224)	(18,314)
Other administrative expenses			(159,980)	(135,849)
Exceptional items	5		(7,743)	(3,183)
Total administrative expenses			(167,723)	(139,032)
Share of profit in joint ventures and associates			772	721
Operating profit	4		30,617	30,799
Finance income			43	19
Other finance costs			(19,386)	(11,191)
Exceptional finance costs	5		-	(75)
Total finance costs			(19,386)	(11,266)
Finance costs - net			(19,343)	(11,247)
Profit before income tax			11,274	19,552
Income tax expense			(4,062)	(6,526)
Exceptional tax credit	5		228	1,502
Total income tax expense	6		(3,834)	(5,024)
Profit for the period			7,440	14,528
Profit attributable to:
Owners of the parent			6,770	13,455
Non-controlling interests			670	1,073
			7,440	14,528
Earnings per share for profit attributable to owners of the parent
- Basic (pence)	8		7.6	15.1
- Diluted (pence)	8		7.5	14.9
The above condensed consolidated income statement should be read in conjunction with the accompanying notes
Condensed Consolidated Statement of comprehensive income
			28 weeks ended	28 weeks ended
			16 July 2023	17 July 2022
			£'000	£'000
Profit for the period			7,440	14,528
Other comprehensive income/(expense)
Currency translation differences			(1,498)	(714)
(Loss)/gain on cash flow hedges			(3,252)	1,756
Other comprehensive income/(expense) for the period net of tax			(4,750)	1,042
Total comprehensive income for the period			2,690	15,570
Total comprehensive income attributable to:
Owners of the parent			2,201	14,421
Non-controlling interests			489	1,149
			2,690	15,570
The above condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Condensed Consolidated Balance sheet