Interim results for the 28 weeks to 15 July 2018

 

 

 

Tuesday 11 September 2018

Hilton Food Group plc

 

Interim results for the 28 weeks to 15 July 2018

 

Delivering on our strategies to build a significantly bigger business

 

Hilton Food Group plc, the leading specialist international food packing business, is pleased to announce its interim results for the 28 weeks to 15 July 2018.

 

Financial and strategic highlights

 

	2018	2017	Change
	28 weeks to 15 July 2018	28 weeks to 16 July 2017	Reported	Constant currency
Volume 1 (tonnes)	181,255	160,848	12.7%
Revenue	£863.6m	£690.7m	25.0%	24.5%
Adjusted results 2
Operating profit	£23.6m	£18.8m	25.3%	24.8%
Profit before tax	£22.3m	£18.4m	20.9%	20.3%
Basic earnings per share	21.2p	19.2p	10.4%	10.4%
IFRS results
Operating profit	£22.3m	£18.8m	18.4%
Profit before tax	£21.0m	£18.4m	13.9%
Basic earnings per share	20.0p	19.2p	4.2%
Cash (outflow)/inflow before minorities, dividends and financing	£(7.1)m	£16.1m
Net cash	£5.8m	£38.9m
Interim dividend	5.6p	5.0p	12.0%

Notes

1 Volume includes 50% share of the Australian and Portuguese joint venture activities

2 Adjusted results represent the IFRS results before deduction of acquisition intangibles amortisation £1.3m (2017: £nil). Unless otherwise stated financial metrics in the Financial and strategic highlights, Review of operations and Financial review refer to the Adjusted results

 

 

·	Volume growth driven by UK including Seachill, Ireland and Australia
·	Turnover up 24.5% on a constant currency basis boosted by volume growth and higher unit fish pricing
·	Operating profit up 24.8% on a constant currency basis driven by Seachill acquisition after absorbing higher central costs and set up costs in Australia
·	New Seachill business has delivered on expectations; successful integration into the Group
·	Full operational control of Australian joint venture facilities from July 2018
·	Continued strong cash generation and significant capex in the period with further future investments planned
·	Interim dividend increased from 5.0p to 5.6p, an increase of 12.0%

 

 

Commenting on the results, Executive Chairman Robert Watson OBE said:

 

"Hilton has continued to deliver on its strategies to build a significantly bigger more diversified business. We achieved strong volume and profit growth during the period including the integration of Seachill and the launch of a fresh food offering in Central Europe. We have further extended our geographical reach in Australia where we commenced production and took operational control of two existing facilities whilst constructing a further facility and designing a new facility in New Zealand, which further extends our geographical reach. We remain committed to growing our business through innovation and product development as well as continuing to explore opportunities to expand the business both at home and abroad."

 

Enquiries:

 

Hilton Food Group	Tel: +44 (0) 1480 387214
Robert Watson OBE, Executive Chairman
Philip Heffer, Chief Executive Officer
Nigel Majewski, Chief Financial Officer
Citigate Dewe Rogerson	Tel: +44 (0) 207 638 9571
Angharad Couch
Ellen Wilton

 

This announcement contains inside information.

 

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.

 

 

Review of operations   

The Group is presenting its interim results for the 28 weeks to 15 July 2018, together with comparative information for the 28 weeks to 16 July 2017. The interim results of the Group are prepared in accordance with IAS 34 as adopted by the European Union (EU).

 

The wide geographical spread of the Group's operations across Europe and into Australasia is progressively reducing Hilton's dependence on any one national economy which is a significant strength of the business model.

 

Hilton's results are reported in Sterling and are therefore 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 15 July 2018 the average exchange rates for these overseas currencies have generally strengthened against Sterling compared with the corresponding period in 2017. The Euro, Danish Krone and Polish Zloty strengthened by 2.2% to 3.5% while the Swedish Krona weakened by 3.3% and Australian Dollar weakened by 6.5%.

 

The overall performance in the period was good boosted by the first full inclusion of the Seachill business, recovery of the business in Central Europe and further strategic progress in Australia.

 

Western Europe

 

Operating profit of £24.9m (2017: £20.0m) on turnover of £810.1m (2017: £643.6m)

 

This operating segment covers the Group's businesses in the UK (including Seachill), Ireland, Holland, Sweden, Denmark and the Portuguese joint venture. Volume growth of 11.9% reflects primarily the inclusion of Seachill which was acquired in November 2017. There was also volume growth in the UK and Ireland. Turnover increased by 25.5% on a constant currency basis reflecting the higher volumes boosted by higher unit fish pricing. Operating margins were stable at 3.1% (2017: 3.1%).

 

Good progress has been made in a number of markets supporting our customers with their initiatives. The new Seachill business is integrating well and strategic options for expanding the fish category are being developed. The joint venture in Portugal is showing good progress. In Denmark we invested in the long term relationship with our customer by purchasing the facility freehold property during the period.

 

Central Europe

 

Operating profit of £1.2m (2017: £0.4m) on turnover of £51.5m (2017: £47.1m)

 

Our facility at Tychy in Southern Poland supplies Ahold stores in the Czech Republic and Slovakia, Tesco stores in the Czech Republic, Hungary, Poland and Slovakia and Rimi stores in Latvia, Lithuania and Estonia. Volumes increased by 2.9% with constant currency sales up 5.6% and operating margins recovered to 2.3% (2017: 0.8%) as the business continues its performance resurgence.

 

The supply of fresh foods commenced during the period and work is continuing to build a state of the art factory in Poland.

 

Central costs and other

 

Net operating cost £2.5m (2017: £1.6m) on turnover of £2.0m (2017: £nil)

 

This segment includes the results of our operations in Australasia and also central costs.

 

In Australia the Group operates a joint venture with Woolworths, under which it earns a 50% share of the agreed service fees charged by the joint venture company based on the volume of retail packed meat delivered to Woolworths' stores produced by its plants in Bunbury, Western Australia and Truganina, Victoria. We took full operational control of these plants from July 2018. We also supported our customer by commissioning a mince production line from a satellite facility in Brisbane, Queensland during the period. Accordingly volumes increased by 27.6% over 2017. We continue to construct a new facility in Brisbane where work is very well advanced and we are also designing a new facility in New Zealand. Start-up and support costs increased as a result of these activities. Our profit including service fee income and turnover after deducting operating costs during the period was £1.8m (2017: £1.7m).

 

Central costs were higher at £4.3m (2017: £3.3m) as we progressively increase resources to manage our growth successfully.

 

Strategic progress

 

Hilton's relationship with Woolworths has progressed into a new phase with the restructuring of the joint venture. We took full operational control of the Bunbury and Truganina plants under 15 year supply agreements with the employees transferring to Hilton and we will acquire the plant assets following a two year transitional period. This extension to the current partnership will enable Hilton to continue to service Woolworths with best in class quality, availability and innovative meat products across Woolworth's expansive store network.

 

Investment in our existing facilities

 

Hilton continues to invest in all its European facilities maintaining the state of the art levels required to service its 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 that we can achieve low unit costs and competitive selling prices at increasingly higher levels of production throughput. Capital expenditure during the period was £40.6m (2017: £4.4m) including investments in the new Australian facility and Central Europe fresh food factory and also the purchase of the existing Danish facility.

 

Outlook

 

Hilton continues to develop its business and deliver year-on-year volume growth through focusing on quality and value for money for the consumer. With new projects including opportunities to expand the fish category, well invested production facilities, a broad geographic customer spread, and flexible procurement capabilities, the Group is well equipped for future growth and expects results for the full year to be in line with the Board's expectations.

 

Hilton continues to explore further opportunities for expansion and is well placed to capture those opportunities as they arise. The Group's financial position remains strong and we will continue to explore opportunities to invest and grow the business in both domestic and overseas markets.

 

 

Financial review

Hilton's underlying financial performance continued to be good. Volumes increased by 12.7% reflecting growth in the UK including Seachill, Ireland, and Australia. Turnover increased by 25.0% to £863.6m (2017: £690.7m) and by 24.5% on a constant currency basis. Further details of turnover and volume growth by segment are detailed in the Review of operations above.

 

Operating profit for the first 28 weeks of 2018 was £23.6m, 25.3% higher than in the previous year (2017: £18.8m) and 24.8% higher on a constant currency basis including contribution from the recent Seachill acquisition and recovery in Central Europe. IFRS operating profit for the first 28 weeks of 2018 was £22.3m (2017: £18.8m). The operating profit margin at 2.7% was unchanged compared to last year (2017: 2.7%).

 

Net finance costs increased to £1.3m (2017: £0.4m) mainly reflecting higher borrowings to finance the Seachill acquisition and its working capital. Interest cover was 17 times (2017: 43 times).

 

The taxation charge for the period was £3.9m (2017: £3.2m) representing an effective underlying rate of tax of 17.4% slightly lower than 17.6% in 2017. The IFRS taxation charge was £3.6m (2017: £3.2m) representing an effective underlying rate of tax of 17.3%.

 

Net income, representing profit for the year attributable to owners of the parent, of £17.3m was 22.2% above last year (2017: £14.1m) reflecting higher operating profit partially offset by higher interest and taxation charges. IFRS net income was £16.2m (2017: £14.1m).

 

Basic earnings per share in the first 28 weeks of 2018, at 21.2p, were 10.4% above last year's level reflecting the growth in operating profit partly offset by the impact of shares issued in connection with the Seachill acquisition. IFRS basic earnings per share were 20.0p (2017: 19.2p).

 

EBITDA increased to £35.5m for the period (2017: £29.6m) broadly reflecting the new Seachill contribution.

 

In the first 28 weeks the Group absorbed £7.1m of cash outflow, before minorities, dividends and financing (2017: cash inflow £16.1m) with net cash generated from operations of £28.8m (2017: £21.4m) being offset by significant capital expenditure. Cash balances at 15 July 2018 were £83.2m including the other financial asset comprising a treasury deposit which, net of borrowings of £77.4m, resulted in a net cash position of £5.8m (£38.9m net cash at 16 July 2017 and £25.4m net cash at 31 December 2017). At 15 July 2018 the Group had undrawn committed loan facilities of £128.4m (£160.0m at 31 December 2017).

 

The Directors have approved the payment of an interim dividend of 5.6p per ordinary share (2017: 5.0p). This interim dividend amounting to £4.6m will be paid on 30 November 2018 to shareholders on the register at close of business on 2 November 2018.

 

Going concern

 

The Group's bank borrowings are detailed in note 10 to the condensed consolidated interim financial information and the principal banking facilities which support the Group's existing and contracted new business are committed, with no renewal required until 2022. The Group is in compliance with all its banking covenants. Future expansion which is not yet contracted for, and which is not built into internal budgets and forecasts, may require additional or extended banking facilities and such future expansion will depend on our ability to negotiate appropriate additional or extended facilities as and when required.

 

The financial position of the Group including its cash flows, liquidity position and borrowings are described above, with its business activities and the factors likely to affect its future development, performance and position being covered in the Review of operations above. As at the date of this report the Directors have a reasonable expectation that the Group has adequate resources and, having reassessed the principal risks, consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

 

The principal risks and uncertainties facing the Group's businesses

Hilton 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 21 to 24 of the Hilton Food Group plc 2017 Annual report and financial statements. The principal risks and uncertainties identified in that report, which remain unchanged, were:

 

·	The Group is dependent on a small number of customers who exercise significant buying power and influence when it comes to contractual renewal terms at 5 to 10 year intervals;
·	The Group's growth potential is dependent on the success of its customers and the future growth of their packed meat and fish sales;
·	The progress of the Group's business is dependent on the macroeconomic environment and levels of consumer spending in the countries in which it operates;
·	Under growth conditions the Group's business is reliant on a number of key personnel and its ability to manage growth and change successfully;
·	The Group's business is dependent on maintaining a wide and flexible global food supply base operating at standards that can continuously achieve the specifications set by Hilton and its customers;
·	Outbreaks of disease and feed contamination affecting livestock and fish and media concerns relating to these and instances of product adulteration can impact the Group's sales;
·	Significant incidents such as fire, flood or interruption of supply of key utilities could impact the Group's business continuity; and
·	The Group's IT systems could be subject to cyber attacks including fraudulent external email activity.

 

These risks and uncertainties are expected to remain unchanged for the remainder of the 2018 financial year. The UK's decision to leave the European Union is not considered a material risk as it will logically only affect product flows between EU countries and those outside the EU, which in the Hilton context are fairly limited, with most of Hilton's sales in each country made to its retail partner in that country. The risks and uncertainties outlined above had no material adverse impact on the results for the 28 weeks to 15 July 2018.

 

Robert Watson OBE	Philip Heffer
Executive Chairman	Chief Executive Officer

 

10 September 2018

 

 

Statement of Directors' responsibilities

The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union 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 during the first 28 weeks and their impact on the condensed interim 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 related party transactions described in the last annual report.

 

The Directors of Hilton Food Group plc were listed in the Hilton Food Group plc Annual report and financial statements 2017. Since 31 December 2017 Colin Smith left the Board and Angus Porter was appointed to the Board. A list of current Directors is maintained on the Hilton Food Group plc website at www.hiltonfoodgroupplc.com.

 

On behalf of the Board

 

 

Robert Watson OBE

Executive Chairman

 

Nigel Majewski

Chief Financial Officer

 

 

 

 

 

 

Income statement

 

 

		28 weeks ended	28 weeks ended
		15 July 2018	16 July 2017
Continuing operations	Notes	£'000	£'000
Revenue	4	863,623	690,737
Cost of sales		(755,662)	(608,566)
Gross profit		107,961	82,171
Distribution costs		(8,472)	(5,939)
Administrative expenses		(81,199)	(61,274)
Share of profit in joint venture		4,022	3,880
Operating profit	4	22,312	18,838
Finance income		27	17
Finance costs		(1,372)	(448)
Finance costs - net		(1,345)	(431)
Profit before income tax		20,967	18,407
Income tax expense	5	(3,633)	(3,232)
Profit for the period		17,334	15,175
Profit attributable to:
Owners of the parent		16,244	14,144
Non-controlling interests		1,090	1,031
		17,334	15,175
Earnings per share for profit attributable to owners of the parent
- Basic (pence)	7	20.0	19.2
- Diluted (pence)	7	19.7	19.0