Preliminary Results

RNS Number : 9720I

Hilton Food Group PLC

07 April 2020

7 April 2020

Hilton Food Group plc

Successful strategy execution

Hilton Food Group plc, the leading specialist international food packing business, today announces its preliminary results for the 52 weeks ended 29 December 2019.

Financial highlights

	2019	2018	Change		2019
	52 weeks to 29 December 2019	52 weeks to 30 December 2018	Reported	Constant currency	52 weeks to 29 December 2019
	excl IFRS 16	excl IFRS 16		excl IFRS 16	incl IFRS 16

Volume ¹ (tonnes)	371,715	344,784	7.8%		371,715
Revenue	£1,814.7m	£1,649.6m	10.0%	11.0%	£1,814.7m

Adjusted results ²
Adjusted operating profit	£54.7m	£48.7m	12.4%	13.8%
Adjusted profit before tax	£49.7m	£45.7m	8.8%	10.2%
Adjusted basic earnings per share	46.0p	42.3p	8.7%	10.2%

IFRS results
Operating profit	£52.3m	£46.3m	12.9%		£55.8m
Profit before tax	£47.3m	£43.3m	9.2%		£43.2m
Basic earnings per share	43.6p	39.9p	9.3%		40.5p
Cash flows from operating activities	£55.9m	£53.5m	4.5%		£70.3m
Net debt ³	£88.2m	£26.8m			£271.5m
Dividends paid and proposed in respect of the year	21.4p	21.4p	0.0%		21.4p

Notes

1.	Volume includes 50% share of the Australian, Portuguese and Dutch joint venture activities
2.	Adjusted results represent the IFRS results before deduction of acquisition intangibles amortisation of £2.4m (2018: £2.4m) and IFRS 16 lease adjustments as detailed in the Alternative performance measures note 14. Unless otherwise stated financial metrics in the Chairman's statement, Chief Executive's summary and Performance and financial review refer to the Adjusted results
3.	Net debt excluding the impact of IFRS 16 represents cash, financial assets less borrowings and IAS 17 finance lease liabilities £1.4m (2018: £1.8m). Net debt including the impact of IFRS 16 also includes lease liabilities of £183.2m now recognised on the balance sheet

Strategic highlights

•	New facility opened in Brisbane, Australia with volume ramp up under way
•	Investment in vegetarian product manufacturer, Dalco and acquisition of sous vide manufacturer, SV Cuisine expands the products range
•	Increase in Tesco UK retail packed red meat to 100%
•	New fresh convenience foods facility opened in Poland
•	Agreement to pack red meat for Ahold Delhaize in Belgium with facility due to open in September 2020

Operating highlights

•	Volume growth of 7.8% driven primarily by strong performances in Australia and UK
•	Turnover up 10.0% and 11.0% on a constant currency basis
•	Adjusted operating profit growth of 12.4% and 13.8% on a constant currency basis with IFRS operating profit growth excluding IFRS 16 of 12.9%
•	Strong operating cash generation up 4.5% with a robust balance sheet
•	Significant £99m investment in facilities to support future growth

Commenting on the results Executive Chairman Robert Watson OBE said:

"In 2019, we successfully executed our strategy of continuing to grow and diversify our offering with the opening of our biggest factory yet in Brisbane, Australia, a move into other high growth proteins including vegetarian and sous vide, building on our existing retailer partner relationships and investing in our facilities. We continue to grow volumes and profit and explore opportunities to develop our cross-category business in both our domestic and overseas markets. Whilst the Covid-19 outbreak will test our established business continuity programmes, to date thanks to the dedication and resilience of our teams who have responded superbly, we have risen to the challenge."

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.

Chairman's introduction

Global pandemic

The current evolving Covid-19 outbreak is a fast moving virus which presents major challenges for people and economies across the globe. There is significant uncertainty over the extent of the impact and longevity of the outbreak. Food production is a key industry so our challenge is to keep our facilities open, as part of an integrated supply chain, to ensure that our retailer partners are able to adapt to the currently increasing consumer demand for protein-based products. All of our facilities remain fully operational, and in addition we have established business continuity and flexible buy models and supply options, which may be tested during this period as we continue to play our part in feeding the nation and supporting ongoing demand. The dedication and resilience of our teams will be tested as we respond to this challenge. To date they have responded superbly and have risen to the challenge.

The health and wellbeing of our people is paramount and we have established a number of protocols to protect our people and to minimise contact. We are prioritising those that are most susceptible to Covid-19 including those with underlying health conditions. Travel by our colleagues, in line with government restrictions, is strictly managed as are visitors to, and movements within, our facilities together with extensive cleaning regimes and hand-sanitising stations. We have plans in place to respond to any virus spread within our facilities and to mitigate any resourcing shortfall through additional use of temporary labour.

We are dependent on our key suppliers to maintain a continued supply of raw material and packaging materials and we are in daily contact with them to manage availability and identify key critical product lines which must be delivered and those that could be postponed. There have not been any significant issues experienced to date.

We have a strong balance sheet including significant cash balances of £110m at the year end plus current committed but undrawn loan facilities of £116m. The resilience of the Group in the face of the uncertain challenges presented by Covid-19 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.

So far we have coped well with the challenges and are confident that through our local operating model and financial strength we are well placed.

Strategic progress

I am pleased to report that 2019 was another busy year for Hilton with continued progress against our strategic objectives and the further expansion of our global footprint as we celebrated our 25^th anniversary.

In January we completed a 50% investment in Dalco with options to acquire the remaining 50% in 2024. This enables Hilton to diversify into a further protein and significantly expand its product offering in the fast-growing vegetarian market. In February we acquired SV Cuisine Ltd (formerly HFR Food Solutions Ltd) adding slow cooked products to our range. The fresh convenience foods facility in Poland opened in May with further products successfully launched. In June we increased our participation with Tesco UK to supply 100% of their retail packed red meat requirements. In July we opened our largest facility yet in Brisbane, Australia where we are progressively ramping up volumes. The joint venture transition arrangements in Australia are on track with the transfer of assets to Hilton due to take place at the end of June 2020. Finally we started to expand our seafood and vegetarian offering with our existing retail partners.

We are pleased to announce that we have reached agreement with Delhaize on a collaboration to pack all their red meat requirements starting 1^st of September 2020 from a site in Belgium, covering beef, pork and lamb. Delhaize operates approximately 800 stores in Belgium and Luxembourg. We are also pleased that this represents a further extension of our working relationship with Ahold Delhaize.

We successfully executed our strategy to grow and diversify and continue to explore opportunities to develop our cross category business in both domestic and overseas markets as well as applying our state of the art skills and experience to deliver value to our customers.

Group performance

We grew our volume again in 2019 maintaining a trend of continuous growth achieved in every year since Hilton's flotation in 2007. There was strong operating profit growth of over 12% driven by the opening of our new Australian facility, growth of our UK seafood business and a good performance by the new Dalco joint venture. We continued to invest in people and infrastructure to support future growth across the Group. Basic earnings per share were over 8% higher compared to last year.

Hilton continued to generate strong operating cash flows during 2019 with, as expected, significant capacity investment resulting in year end net debt before adjusting for IFRS 16 of £88.2m compared with net debt of £26.8m at the end of last year. The continued investment in our facilities includes new technology to increase capacity, improve operational efficiency and offer innovative solutions to our retailer partners.

Dividend policy

The Board considers that maintaining the Group's dividend policy since flotation remains appropriate, given the continuing strategic progress achieved in 2019 and Hilton's strong cash generation. With the proposed final dividend of 15.4p per ordinary share , total dividends in respect of 2019 will be 21.4p per ordinary share, unchanged compared to last year.

Our Board and governance

The Hilton Board is responsible for the long term success of the Group and promoting the desired culture. To achieve this, it contains an appropriate mix of skills, depth and diversity and a range of practical business experience, which is available to support and guide our management teams across a wide range of countries. I would like to thank my colleagues on the Board for their support, counsel and expertise during the year.

I am delighted to welcome Rebecca Shelley who joined the Hilton Board as an Independent Non-Executive Director on 1 April 2020. Her market-facing investor relations and communications skills and experience in food and retail sectors further strengthens our capabilities.

We remain committed to achieving good governance and compliance with the UK Corporate Governance Code including succession planning and maintaining a talent pipeline balanced against our desire to preserve an agile and entrepreneurial approach.

The Board is fully aware of its responsibilities to promote the success of the Company for the benefit of its members as a whole under Section 172 of the Companies Act 2006. We take the interests of our workforce and stakeholders fully into account in Board discussions and decision making. Details of the Group's policies and procedures that have been implemented to enhance stakeholder and workforce engagement, which explain how these interests have influenced our decisions are set out in the Governance section of the Annual report.

Sustainability

Hilton recognises its environmental and sustainability responsibilities. Globally, society is demanding increased transparency from food operations, together with measurable progress against ambitious commitments. Many countries are declaring climate emergencies and setting a net zero carbon target. We are committed to continuing to foster the culture of sustainability across all levels of our business. One of our core values is a commitment to working in an ethical, open and honest way to produce products of the highest quality. We use our influence and expertise at a global level to make real change through our partnerships with market leading retailers, driving innovation and supply chain collaboration to deliver sustainable food to our consumers. This ensures that our business is resilient to the ever increasing major environmental, social and economic issues that affect us all. Our strategy demonstrates commitment to transparent science based action in our factories and in our supply chains and ensuring that our products meet the needs of future customers.

Outlook and current trading

Hilton's operating performance since the beginning of 2020 has been in line with the Board's expectations. We reached agreement to expand into Belgium and our facility there is due to open in September 2020. We continue to explore opportunities for further geographical expansion in both our domestic and overseas markets.

While there is significant uncertainty over the extent of the impact and longevity of the Covid-19 outbreak, we have so far coped well with the challenges and are confident that through our local operating model and financial strength we are well placed. Although there is continuing uncertainty concerning post Brexit negotiations on a trade deal and future co-operation with the EU we believe our predominantly local sourcing and operating model is sufficiently resilient to withstand these uncertainties whilst minimising disruption. Further details are in the Risk management section.

Short and medium term growth is underpinned by new facilities in Belgium and also in New Zealand which is due to open in 2021 together with expanding the seafood, vegetarian and fresh convenience food categories.

Annual General Meeting

This year's AGM will be held at Hilton's offices at 2-8 The Interchange, Latham Road, Huntingdon, Cambridgeshire PE29 6YE on 21 May 2020 at 1pm. Please refer to our website at www.hiltonfoodgroupplc.com/agm-2020 for further guidance which will be regularly updated as the AGM date approaches. I would strongly encourage all shareholders to submit their proxy votes.

Robert Watson OBE

Executive Chairman

6 April 2020

Chief Executive's summary

Strategic objectives

Our strategy continues to be to support our customers' brands and their development in local markets, whilst achieving attractive and sustainable growth in shareholder value. This clear and straightforward approach combined with a strong reputation, well-invested modern facilities and a robust balance sheet has generated growth over an extended period of time.

Hilton seeks to build long term customer and shareholder value by focusing on:

•	Growing volumes and extending product ranges supplied and services provided to its existing customers;
•	Optimising the use of its assets and investing in new technology and capacity expansion as required;
•	Maintaining a vigilant focus on food safety and integrity and reducing unit costs, while improving product quality and service provision; and
•	Entering new territories and markets either with new customers or in partnership with our existing customers.

We will continue to pursue both geographical expansion and range extension, whilst at the same time actively developing, enriching, deepening and expanding the scope of our existing business partnerships, playing a full and proactive role in supporting our customers and the successful development of their brands. We have successfully expanded our product range into new proteins and categories such as seafood, vegetarian, sous vide, food service and fresh convenience foods. We are responding to the Covid-19 challenge of protecting our people, feeding the nation and supporting the demands of our customers.

Business model

The Hilton business model is well proven and sustainable, whilst being relatively simple and straightforward. We operate large scale, extensively automated and robotised food processing, packing and logistics facilities for major international retailers on a largely dedicated basis.

Raw materials are sourced, in conjunction with our retail partners, from a combination of local sources and a wide international base of proven suppliers. It is then processed, packed and delivered to the retailers' distribution centres or stores. Our plants are highly automated and use advanced robotics for the storage of raw materials and finished products. Developing robotics technology has been extended in recent years both in the production environment and to the sorting of finished products by retailer store order, achieving material supply chain efficiencies for our customers.

We seek to keep ourselves at the forefront of the food packing industry, which helps ensure our continued competitiveness. We constantly look to drive efficiencies, always maintaining a pipeline of clear identifiable cost reduction initiatives and an open minded approach designed to continually challenge the status quo. We consider our modern, very well-invested facilities to be a key factor in keeping unit packing costs as low as possible. Over the past fifteen years we have invested continuously across all areas of our business, including the sourcing of raw materials, the design of packaging materials, increased efficiency in processing and storage solutions and updating our IT infrastructure. Group capital expenditure over the period 2003-2019 has totalled £435m.

We operate facilities in seven European countries and three facilities in Australia, each run by a local management team enhanced by specialist central leadership, expertise, advice and support. These businesses operate under the terms of multi-year long term supply agreements with our retailer partners, either on a cost plus, packing rate or volume based reward basis. These contractual arrangements, combined with our customer dedication, serve to maximise achievable volume throughput whilst minimising unit packing costs thereby delivering value to our customers. In Australia, Portugal and the Netherlands, facilities are operated under joint venture companies in which we share the profits. Products from our facilities are sold in fourteen European countries and Australia.

Under the long term supply agreements we have in place with our customers, the parameters of our revenue are clearly defined. As well as income derived from the supply of retail packed food products, there are also provisions whereby our income can be increased or decreased subject to achievement of certain pre-agreed and pre-defined key performance measures and targets designed to align our objectives with those of our customers.

We are a committed and loyal partner with a continuing record of delivering value through quality products with the highest levels of food safety, traceability and integrity, whilst providing a range of services which enable our customers to evolve and improve their food supply chain management. Our customer base comprises high quality retailers and our in-depth understanding of our customers' needs, together with those of their consumers, enables us to play an active role in managing their food supply chains whilst providing agile solutions to supply chain challenges as they arise. As our customers' markets change and competition increases, we need to keep a constant focus on the challenges they face so we can put forward flexible solutions, together with continuing increases in efficiency and cost competitiveness. This flexible approach and understanding of our local markets remains one of our core strengths.

As well as our ability to provide excellent execution locally, we also have at our disposal a wide and deep expertise on a number of areas of specialism, such as engineering, new product development, food related IT applications, category management support, logistics and market intelligence. We are able to apply these skills to a number of markets to support our customers in a cost-effective way.

Business development

The Group's expansion is based on its established and proven track record, international reputation and experience and the recognised success of the close partnerships we have forged and maintained with successful retail partners over many years. Hilton's business model has proved successful in Europe and Australia supplemented by targeted acquisitions. We have demonstrated that this business model is capable of being successfully transferred into new countries adapted with our local customers to meet their specific requirements.

Progress in 2019

There was further success in our UK meat category where we increased our participation with Tesco UK to supply 100% of its retail packed red meat requirements and our Huntingdon facility has been extended accordingly. Our relationship with Tesco was further strengthened through the acquisition of SV Cuisine adding slow cooked products to the range that we offer.

Seachill, now rebranded as Hilton Seafood UK, saw a strong performance in 2019 including a full year in the supply of shellfish and the launch of a new coated fish range together with supply into Australia. Investments in our Grimsby facilities included further automation and a new production line.

In Continental Europe trading has remained generally good. We are delighted to announce our further expansion into Belgium where a facility will open during 2020. Our fresh convenience food facility in Poland was completed during the year together with the launch of further products including ready meals, soups, hummus and meal kits and adding a further customer.

Our new facility in Brisbane, Australia opened significantly ahead of schedule on 29 July 2019 with production transferring across from the satellite facility and volume continues to ramp up. Work continued during the year with Woolworths on the transition of the joint venture which is on track. Construction of our new facility in New Zealand is ongoing and is scheduled to open in early 2021.

Following our investment, the Dalco joint venture has progressed well and listings have been secured with some of our existing retailer customers in Europe and Australia. The Foods Connected joint venture has signed up additional customers and further services are being developed.

On sustainability we made significant progress during 2019 under our strategy "Quality Naturally" including work to increase the recycled content of our plastic trays to 90%. We are involved in promoting sustainable beef and soy and the reduction on the use of fish oils in salmon feed. Our efforts are reflected in improved ratings given by the Business Benchmark on Farm Animal Welfare and a sector-leading 'B' rating from the Carbon Disclosure Project.

Currency translation

The wide geographical spread of the Group increases its resilience by minimising its reliance on any one individual economy. 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. During 2019 the average exchange rates for these overseas currencies have generally weakened against Sterling compared with 2018 which had the effect of reducing revenues by 1.0%.

Performance overview

2019 saw a significant expansion of Hilton's operations thereby building a significantly bigger and more diversified business.

Overall volume which includes the 50% share of the Australian, Portuguese and Dutch joint venture activities increased by 7.8% to 371,715 tonnes (2018: 344,784 tonnes). In 2019 some 69% of the Group's volumes were produced in countries outside the UK.

The performance of our three operating segments is outlined below.

Western Europe

Adjusted operating profit of £53.1m (2018: £ 51.5 m) on turnover of £ 1,633.7 m (2018: £1,550.4m)

This operating segment covers the Group's businesses in the UK, Ireland, Holland, Sweden, Denmark and Portugal. Volume growth was 6.1% driven primarily by UK meat and seafood and the contribution by the new vegetarian and sous vide investments. Trading in other markets was generally good although Dutch volumes were lower. Sales on a constant currency basis grew by 6.2% reflecting the higher volumes. Operating margins eased slightly to 3.2% (2018: 3.3%).

Central Europe

Adjusted operating profit of £ 2.1 m (2018: £2.3m) on turnover of £ 91.2 m (2018: £89.6m)

In Central Europe the Group's meat packing business, based at Tychy in Poland, supplies customers across Central Europe, from Hungary to the Baltics. Volumes decreased by 16.8% amid challenging market conditions partially offset by new fresh convenience food volume. Constant currency sales increased 3.7% primarily due to high pork prices. Operating margins declined slightly to 2.5% (2018: 2.6%).

Australasia

Adjusted operating profit of £9.6m (2018: £5.5m) on turnover of £89.8m (2018: £9.6m)

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 Melbourne, Victoria. We took full operational control of these plants from July 2018.

Performance was driven by volume growth of 36.6% from the new Brisbane facility and our share of the joint venture. Constant currency sales, which excludes the JV activities, increased by 856%. Operating profit increased to £9.6m (2018: £5.5m).

Resourcing for growth: culture and people

Successful businesses are principally about having the right people in the right positions at the right time working together as "one team", with local management teams empowered, encouraged and advised in specialist areas enabling them to support their local customers. The Group benefits from each of its businesses being part of a larger organisation, which enables them to share best practice solutions, including equipment selection, IT solutions and ways of working along with the collaborative sharing of new learnings, ideas and techniques.

We are committed to providing an inclusive working environment where everyone feels valued, respected and able to fulfil their potential. We recognise that people from different backgrounds, countries and experiences can bring benefits to our business. We fully recognise the benefits of gender diversity and details of the gender composition of our staff are set out in our Corporate and social responsibility report.

The Group currently employs over 4,900 colleagues across Europe and Australia. Our business model is largely decentralised, with capable, largely self-sufficient management teams running our businesses in each local country. We consider this devolved structure to be a critical success factor, achieving close working relationships with our customers, who benefit from personal, dedicated, flexible and rapid local support.

The Board fully understands and appreciates just how much our progress relies on the effort, personal commitment, enthusiasm, enterprise and initiative of our employees. I would like to take this opportunity, on behalf of the Board, to personally thank all of them both for their dedicated efforts during 2019 and their continuing commitment to the Group's ongoing growth and development.

Past and future trends

Over recent decades major retailers have progressively rationalised their supply base through large scale, centralised packing solutions capable of producing private label packed fresh food products. This achieves lower costs with higher consistent food safety, food integrity, traceability and quality standards allowing supermarket groups to focus on their core retail business whilst addressing consumers' continuing requirement for quality and value. This trend towards increased use of centralised packing solutions is likely to continue, albeit at different speeds across the world, representing potential future geographical expansion opportunities for Hilton.

Consumer buying patterns are evolving with more seafood and vegetarian proteins being eaten. Through Hilton's acquisition of Seachill and investment in Dalco we are well placed to grow our business across these proteins.

Philip Heffer

Chief Executive Officer

6 April 2020

Performance and financial review

Summary of Group performance

This performance and financial review covers the main highlights of the Group's financial performance and position in 2019. Hilton's overall financial performance saw strong growth in volumes, sales, profitability and basic earnings per share. Cash flow generation was strong supporting our continuing significant investment in facilities.

Basis of preparation

The Group is presenting its results for the 52 week period ended 29 December 2019, with comparative information for the 52 week period ended 30 December 2018. The financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU).

The Group has adopted IFRS 16, applying the modified retrospective approach, and has not restated comparatives for the year ended 30 December 2018, as permitted under the specific transitional provisions in the standard. As a result, with the exception of revenue, the statutory results for 2019 are not directly comparable with those of 2018. However, in order to provide a meaningful comparison between the two reporting periods, financial results for 2019 excluding the impact IFRS 16 are also presented.

The Board uses adjusted profit before IFRS 16, acquired intangibles amortisation and exceptional items to measure performance and considers this metric better reflects the underlying performance of the business. The adjustment for acquisition intangibles amortisation of £2.4m (2018: £2.4m) is in connection with the 2017 Seachill acquisition. Unless otherwise stated financial metrics in the Financial highlights, Chairman's introduction, Chief Executive's summary and this Performance and financial review refer to the adjusted results.

2019 Financial performance

Volume and revenue

Volumes, which include 50% share of the Australian, Portuguese and Dutch joint ventures activities, grew by 7.8% in the year driven by higher Tesco UK participation to 100%, new vegetarian and sous vide investments and the Brisbane facility in Australia. Additional details of volume growth by business segment are set out in the Chief Executive's summary. Revenue increased 10.0% and 11.0% on a constant currency basis.

Operating profit and margin

Operating profit of £54.7m (2018: £48.7m) was 12.4% higher than last year and 13.8% higher on a constant currency basis driven by the opening of our new facility in Brisbane, Australia, growth of our UK seafood business and a good performance by the new Dalco joint venture. IFRS operating profit excluding IFRS 16 was 12.9% higher at £52.3m (2018: £46.3m) and £55.8m including IFRS 16. The operating profit margin in 2019 was maintained at 3.0% (2018: 3.0%), and the operating profit per kilogram of packed food sold increased to 14.7p (2018: 14.1p) attributable to changes in the Group's product and geographical mix.

Net finance costs

Net finance costs excluding IFRS 16 increased to £5.0m (2018: £3.0m) reflecting higher borrowings that financed our expansion programme. Interest cover in 2019 decreased to 11 times (2018: 16 times) accordingly. Net finance costs including IFRS 16 were £12.6m.

Taxation

The taxation charge excluding IFRS 16 for the period was £10.1m (2018: £9.1m). The effective tax rate was 20.2% (2018: 19.9%) reflecting a change in the mix of profits taxed at different rates in overseas countries, particularly Australia. The taxation charge including IFRS 16 was £8.0m with an effective tax rate of 18.5%.

Net income

Net income, representing profit for the year attributable to owners of the parent of £37.6m (2018: £34.5m) was 9.0% higher than last year. IFRS net income excluding IFRS 16 was £35.6m (2018: £32.5m) and including IFRS 16 was £33.1m.

Earnings per share

Adjusted basic earnings per share before exceptional items of 46.0p (2018: 42.3p) was 8.7% higher than last year. IFRS basic earnings per share excluding IFRS 16 were 43.6p (2018: 39.9p) and including IFRS 16 were 40.5p. Diluted earnings per share were 40.1p (2018: 39.5p).

Earnings before interest, taxation, depreciation and amortisation (EBITDA)

EBITDA, which is used by the Group as an indicator of cash generation, excluding IFRS 16 increased by 13.3% to £80.1m (2018: £70.7m) reflecting the increase in operating profits together with higher depreciation charges. EBITDA including IFRS 16 was £102.4m.

Free cash flow and net cash position

Operating cash flow was strong in 2019 with cash flows from operating activities of £70.3m (2018: £53.5m). IFRS free cash outflow after capital expenditure of £99.4m and before dividends and financing was £28.5m (2018: £35.5m).

Group bank borrowings were £198.8m (including £1.4m IAS 17 finance liabilities) at the end of 2019 and, with net cash balances of £110.5m, resulted in a closing net bank debt position of £88.2m (2018: £26.8m). Net debt including the impact of IFRS 16 was £271.5m. At the end of 2019 the Group had undrawn committed loan facilities under its syndicated banking facilities of £71.1m (2018: £201.0m) with a further £45.3m added since the end of the year bringing total committed but undrawn loan facilities to £116.4m.

Dividends

The Board aims to maintain a consistent dividend policy and has recommended a final dividend of 15.4p per ordinary share in respect of 2019. This, together with the interim dividend of 6.0p per ordinary share paid in November 2019, represents a full year dividend that is unchanged compared with last year. The final dividend, if approved by shareholders, will be paid on 26 June 2020 to shareholders on the register on 29 May 2020 and the shares will be ex dividend on 28 May 2020.

Key performance indicators

How we measure our performance against our strategic objectives

The Board monitors a range of financial and non-financial key performance indicators (KPIs) to measure the Group's performance over time in building shareholder value and achieving the Group's strategic priorities. The nine headline KPI metrics used by the Board for this purpose, together with our performance over the past two years, is set out below:

	2019 (52 weeks)	2018 (52 weeks)	Definition, method of calculation and analysis
Financial KPIs
Revenue growth (%)	10.0%	21.5%	Year on year revenue growth expressed as a percentage. The 2019 increase mainly reflected volume growth and favourable product and geographical mix.
Adjusted operating profit margin (%)	3.0%	3.0%	Adjusted operating profit expressed as a percentage of turnover. The operating profit margin % in 2019 was consistent with 2018.
Adjusted operating profit margin (pence per kg)	14.7	14.1	Adjusted operating profit per kilogram processed and sold in pence. The increase in 2019 is attributable to changes in the Group's product and geographical mix.
Earnings before interest, taxation, depreciation and amortisation (EBITDA) (£m)	80.1	70.7	Adjusted operating profit before depreciation and amortisation. The increase reflected higher operating profits before higher depreciation charges.
Free cash flow (£m)	(28.5)	(35.5)	IFRS cash outflow before minorities, dividends and financing. Cash flow generation from operating activities was strong at £70m (2018: £53m) before spend on facilities capex spend of £99m (2018: £99m).
Gearing ratio (%)	108.4%	37.9%	Year end net debt excluding leases as a percentage of EBITDA. The increase is due to higher borrowings used to finance our expansion programme.
Non-financial KPIs
Growth in sales volumes (%)	7.8%	13.5%	Year on year volume growth. Volume growth was seen principally in the UK, new vegetarian and sous vide investments and a new facility in Australia.
Employee and labour agency costs (pence per kg)	51.8	48.1	Labour cost of producing food products as a proportion of volume. The increase reflects a change in product mix including a broadening of our product ranges.
Customer service level (%)	96.8%	98.1%	Packs of product delivered as a % of the orders placed. The decrease is due to the start-up of new businesses and projects during the year.

In addition, a much wider range of financial and operating KPIs are continuously tracked at business unit level.

Going concern statement

The Directors have performed a detailed assessment, including a review of the Group's budget for the 2020 financial year and its longer term plans, including consideration of the principal risks faced by the Group. The evolving Covid-19 outbreak has led to an increased demand for protein-based products produced by the Group and the Group's facilities remain fully operational. The Group has established business continuity plans and flexible supply models in order to continue to meet this increased demand. The resilience of the Group in the face of the uncertain challenges presented by Covid-19 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. 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 financial statements. For this reason they continue to adopt the going concern basis for preparing the financial statements.

The Group's bank borrowings as detailed in the financial statements 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 sensitised 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.

The Group's internal budgets and forward forecasts, which incorporate all reasonably foreseeable changes in trading performance, are regularly reviewed in detail 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.

Viability statement

In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, for the three years ending in December 2022. A period of three years has been chosen for the purpose of this viability statement as it is aligned with the Group's three year plan, which is based on the Group's current customers and does not incorporate the benefits from any potential new contract gains over this period.

The Directors' assessment has been made with reference to the Group's current position and strategy taking into account the Group's principal risks, including those in relation to Covid-19, and how these are managed. The strategy and associated principal risks, which the Directors review at least annually, are incorporated in the three year plan and such related scenario testing as is required. The three year plan makes reasoned assumptions in relation to volume growth based on the position of our customers and expected changes in the macroeconomic environment and retail market conditions, expected changes in food raw material, packaging and other costs, together with the anticipated level of capital investment required to maintain our facilities at state of the art levels. The achievement of the three year plan is not dependent on any new or expanded financing facilities.

Cautionary statement

This Strategic 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.

Nigel Majewski

Chief Financial Officer

6 April 2020

Risk management and principal risks

Risks and risk management

In accordance with provision 28 of the 2018 UK Corporate Governance Code the Directors confirm that they have carried out a robust assessment of the emerging and principal risks facing the Group that might impede the achievement of its strategic and operational objectives as well as affect performance or cash position. As a leading food processor in a fast moving environment it is critical that the Group identifies, assesses and prioritises its risks. The result of this assessment is a statement of the principal risks facing the Group together with a description of the main controls and mitigations that reduce the effect of those risks were they to crystallise. This, together with the adoption of appropriate mitigation actions, enables us to monitor, minimise and control both the probability and potential impact of these risks.

How we manage risk

Responsibility for risk management across the Group, including the appropriate identification of risks and the effective application of actions designed to mitigate those risks, resides with the Board which believes that a successful risk management framework carefully balances risk and reward, and applies reasoned judgement and consideration of potential likelihood and impact in determining its principal risks. The Group takes a proactive approach to risk management with well-developed structures and a range of processes for identifying, assessing, prioritising and mitigating its key risks, as the delivery of our strategy depends on our ability to make sound risk informed decisions.

Risk management process and risk appetite

The Board believes that in carrying out the Group's businesses it is vital to strike the right balance between an appropriate and comprehensive control environment and encouraging the level of entrepreneurial freedom of action required to seek out and develop new business opportunities; but, however skilfully this balance between risk and reward is struck, the business will always be subject to a number of risks and uncertainties, as outlined below.

All types of risk applicable to the business are regularly reviewed and a formal risk assessment is carried out to highlight key risks to the business and to determine actions that can reasonably and cost effectively be taken to mitigate them. The Group's Risk Register is compiled through combining the set of business unit risk registers supplemented by formal interviews with senior executives and Directors of the Group. The Group has a Risk Management Committee which reports regularly to the Audit Committee and Board on the substance of the risk assessment and any changes to the nature of those risks or changes to the likelihood or materiality of the risk in question. The Risk Management Committee also reviews progress in control development and implementation of those key controls related to principal risks listed in this section of the report. Group Internal Audit derives its risk based assurance plan on the controls after considering the Risk Assessment and reports its findings to the Audit Committee. The Risk Management Committee also oversees the scenario based business continuity management exercises.

Not all the risks listed are within the Group's control and others may be unknown or currently considered immaterial, but could turn out to be material in the future. These risks, together with our risk mitigation strategies, should be considered in the context of the Group's risk management and internal control framework, details of which are set out in the Corporate governance statement. It must be recognised that systems of internal control are designed to manage rather than completely eliminate any identified risks.

Emerging risks

Global pandemic

So far we have coped well with the challenges and are confident that through our local operating model and financial strength we are well placed.

Brexit

There is continuing uncertainty concerning post Brexit negotiations on a trade deal and future co-operation with the EU. Potential impacts on the Group include our ability to hire employees from the EU, increased trade tariffs on imported goods, possible border delays, currency volatility and dis-harmonisation of UK and EU regulatory standards in a range of areas. Hilton's exposure is somewhat mitigated through its predominantly local sourcing and operating model. Additionally we meet regularly with relevant industry bodies and have put in place a range of contingency measures including rebalancing supply lines to minimise border crossings, flexible buy models and ongoing communication with suppliers to increase stock holding. Overall we believe that the Hilton business is sufficiently resilient to withstand these uncertainties whilst minimising disruption.

Climate changes

There is increasing concern over the possible impact of climate changes across the world. Such changes could see a higher incidence of extreme weather events such as flooding and long term rises in average temperatures and sea levels. The impact of climate changes could disrupt our supply chains resulting in increased costs and added complexity. Hilton is fully committed to responding to such outcomes and have this under continuous review.

Principal risks

The most significant business risks that the Group faces have changed little as might be expected with an unchanged and relatively straightforward business model. These risks, which will continue to affect the Group's businesses, together with the measures we have adopted to mitigate these risks, are outlined in the table below. This is not intended to constitute an exhaustive analysis of all risks faced by the Group, but rather to highlight those which are the most significant, as viewed from the standpoint of the Group as a whole.

Description of risk

The Group strategy focuses on a small number of customers who can exercise

significant buying power and influence when it comes to contractual renewal terms at 5 to 15 year intervals.

Its potential

impact

The Group has a relatively narrow, but expanding, customer base, with sales to subsidiary or associated companies of the Tesco and Ahold groups still comprising the larger part of Hilton's revenue. The larger retail chains have over many years increased their market share of meat products in many countries, as customers continue to move away from high street butchers towards one stop convenience shopping in supermarkets. This has increased the buying power of the Group's customers which in turn increases their negotiating power with the Group, which could enable them to seek better terms over time.

Risk mitigation measures and strategies

adopted

The Group is progressively widening its customer base and has maintained a high level of investment in state of the art facilities, which together with management's continuous focus on reducing costs, allow it to operate very efficiently at very high throughputs and price its products competitively. Hilton operates a decentralised, entrepreneurial business structure, which enables it to work very closely and flexibly with its retail partners in each country, in order to achieve high service levels in terms of orders delivered, delivery times, compliance with product specifications and accuracy of documentation, all backed by an uncompromising focus on food safety, product integrity and traceability assurance. Hilton has long term supply agreements in place with its major customers, with pricing either on a cost plus or agreed packing rate basis.

Description of risk

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

growth of their packed food sales.

Its potential

impact

The Group's products predominantly carry the brand labels of the customer to whom packed food is supplied and it is accordingly dependent on its customers' success in maintaining or improving consumer perception of their own brand names and packed food offerings.

Risk mitigation measures and strategies

adopted

The Group plays a very proactive role in enhancing its customers' brand values, through providing high quality, competitively priced products, high service levels, continuing product and packaging innovation and category management support. It recognises that quality and traceability assurance are integral to its customers' brands and works closely with its customers to ensure rigorous quality assurance standards are met. It is continuously measured by its customers across a very wide range of parameters, including delivery time, product specification, product traceability and accuracy of documentation and targets demanding service levels across all these parameters. The Group works closely with its customers to identify continuing improvement opportunities across the supply chain, including enhancing product presentation, extending shelf life and reducing wastage at every stage in the supply chain.

Description of risk

The progress of the Group's business is affected by the macroeconomic environment and levels of consumer spending which is influenced by publicity and the decline in the consumption of meat in the countries in which it operates.

Its potential

impact

No business is immune to difficult economic climates and the consequent pressure on levels of consumer spending, such as those seen over recent years across Europe.

Risk mitigation measures and strategies

adopted

With a sound business model including successful diversification within the vegetarian market, strong retail partners and a single minded focus on minimising unit packing costs, whilst maintaining high levels of product quality and integrity, the Group has made continued progress over recent difficult economic periods. It expects to be able to continue to make progress.

Description of risk

Under growth conditions the Group's business is reliant on a small number of key personnel and its ability to manage growth and change successfully. This risk has increased with the Group's continued expansion with new customers and into new territories with potentially greater reliance on stretched skilled resource and execution of simultaneous growth projects.

Its potential

impact

The Group is critically dependent on the skills and experience of a small number of senior managers and specialists and as the business develops and expands, the Group's success will inevitably depend on its ability to attract and retain the necessary calibre of personnel for key positions, both for managing and growing its existing businesses and setting up new ones.

Risk mitigation measures and strategies

adopted

To continue to manage an increased rate of growth successfully, the Group carefully manages its skilled resources including succession planning and maintaining a talent pipeline. The Group is evolving its people capability in line with the geographical expansion and product range. In particular it recognises that the span of management responsibility needs to be balanced with an appropriate management structure within the overall organisation. Hilton continues to invest in on-the-job training and career development, together with the cost effective management of quality information and control systems, whilst recruiting high quality new employees, as required, to facilitate the Group's ongoing growth and in deploying resource to support the growth projects appropriately. The continuing growth of Hilton's business, together with its growing reputation, is facilitating the recruitment of more top class specialists with the key skill sets required both to support our existing individual country business units and manage the Group's future geographical expansion.

Description of risk

The Group's current rate of global growth places significant demands on the effectiveness of integration and compliance across new political, legislative and regulatory environments. This risk is further compounded due to the enormity of the change and programme management activities.

Its potential

impact

The Group's ability to effectively manage simultaneously the requirements of the external and internal environments ensuring first class compliance, change and global programme management systems.

Risk mitigation measures and strategies

adopted

As a Group we have continued to strengthen our in house capabilities delivering strong investment strategies, best in class infrastructure integration and governance and compliance framework. Resources are being put in place and structures reviewed to enhance project management control and oversight. Control systems embedded in project management enable the risks of growth to be appropriately highlighted and managed. To underscore our efforts we have active relationships with strong industry experts across all areas of business growth.

Description of risk

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 and its customers.

Its potential

impact

The Group is reliant on its suppliers to provide sufficient volume of products, to the agreed specifications, in the very short lead times required by its customers, with efficient supply chain management being a key business attribute. The Group sources certain of its food requirements globally. Tariffs, quotas or trade barriers imposed by countries where the Group procures meat, or which they may impose in the future, together with the progress of World Trade Organisation talks and other global trade developments, could materially affect the Group's international procurement ability but has not done so in recent years.

Risk mitigation measures and strategies

adopted

The Group maintains a flexible global food supply base, which is progressively widening as it expands and is continuously audited to ensure standards are maintained, so as to have in place a wide range of options should supply disruptions occur.

Description of risk

Contamination within the supply chain including outbreaks of disease and feed contaminants affecting livestock and fish and media concerns relating to these and instances of product adulteration can impact the Group's sales.

Its potential

impact

Reports in the public domain concerning the risks of consuming certain foods can cause consumer demand to drop significantly in the short to medium term. A food scare similar to the bovine spongiform encephalopathy ("BSE") scare that took place in 1996 or the much more recent concerns with regard to meat substitution can affect public confidence in our products.

Risk mitigation measures and strategies

adopted

The Group sources its food from a trusted raw material supply base, all components of which meet stringent national, international and customer standards. The Group is subject to demanding standards which are independently monitored in every country and reliable product traceability and high welfare standards from the farm to the consumer are integral to the Group's business model. The Group ensures full traceability from source to packed product across all suppliers. Within our factories, Global Food Safety Initiative (GFSI) benchmarked food safety standards and our own factory standard assessments drive the enhancement of the processes and controls that are necessary to ensure that the risks of contaminants throughout the processing, packing and distribution stages are mitigated and traceable should a risk ever materialise.

Description of risk

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

Its potential

impact

Such incidents could result in systems or manufacturing process stoppages with consequent disruption and loss of efficiency which could impact the Group's sales.

Risk mitigation measures and strategies

adopted

The Group has robust business continuity plans in place including sister site support protocols enabling other sites to step in with manufacturing and distribution of key product lines where necessary. Continuity management systems and plans are suitably maintained and adequately tested including building risk assessments and emergency power solutions. There are appropriate insurance arrangements in place to mitigate against any associated financial loss.

Description of risk

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.

Its potential

impact

The Group's operations are underpinned by a variety of IT systems. Loss or disruption to those IT systems or extended times to recover data or functionality could impact the Group's ability to effectively operate its facilities and affect its sales and reputation.

Risk mitigation measures and strategies

adopted

The Group has a robust IT control framework which is tested frequently by internal staff and by specialist external bodies. This framework is established as the key control to mitigate cyber risk and is applied consistently throughout the Group. The increased prominence of IT risk is mitigated by investments in IT infrastructure and now forms a regular part of the Group Risk Management Committee agenda and presentations to the Board. In accordance with Group strategy IT risk is considered when looking at new ventures and control measures implemented in new sites follow the Group common standards. There is internal training and resources available with emphasis on prevention, user awareness and recovery. Increasingly, IT forms part of site business continuity exercises which test and help develop the capacity to respond to possible crises or incidents. The technical infrastructure to prevent attacks and the resilience to recover are continuously developed to meet emerging threats. IT systems including financial and banking systems are configured to prevent fraudulent payments.

Note: References in this preliminary announcement to the Strategic report, the Corporate and social responsibility report, the Directors' report and the Corporate Governance statement are to reports which will be available in the Company's full published accounts.

Responsibility statement of the Directors in respect of the Annual report and financial statements

Each of the Directors whose names and functions are set out below confirms that to the best of their knowledge and belief:

•

the Group and parent company financial statements, which have been prepared in accordance with applicable law and in conformity with IFRS, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the Company; and

•

the management reports, which comprise the Strategic report and the Directors' report, include a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties they face.

This responsibility statement was approved by the Board of Directors on 6 April 2020 and is signed on its behalf by:

Directors

R Watson OBE	Executive Chairman
N Majewski	Chief Financial Officer

Consolidated income statement

		2019	2018
		52 weeks	52 weeks
	Notes	£'000	£'000
Continuing operations
Revenue	3	1,814,667	1,649,591
Cost of sales		(1,566,715)	(1,440,193)
Gross profit		247,952	209,398
Distribution costs		(22,778)	(18,283)
Administrative expenses		(175,811)	(150,030)
Share of profit in joint ventures		6,406	5,213
Operating profit		55,769	46,298
Finance income	4	96	49
Finance costs	4	(12,709)	(3,015)
Finance costs - net	4	(12,613)	(2,966)
Profit before income tax		43,156	43,332
Income tax expense	5	(7,996)	(8,626)
Profit for the year		35,160	34,706

Attributable to:
Owners of the parent		33,065	32,534
Non-controlling interests		2,095	2,172
		35,160	34,706
Earnings per share attributable to owners of the parent during the year
Basic (pence)	6	40.5	39.9
Diluted (pence)	6	40.1	39.5

Consolidated statement of comprehensive income

	2019	2018
	52 weeks	52 weeks
	£'000	£'000
Profit for the year	35,160	34,706
Other comprehensive expense
Currency translation differences	(4,175)	(671)
Other comprehensive expense for the year net of tax	(4,175)	(671)
Total comprehensive income for the year	30,985	34,035

Total comprehensive income attributable to:
Owners of the parent	29,186	31,788
Non-controlling interests	1,799	2,247
	30,985	34,035

The notes are an integral part of these consolidated financial statements.

Balance sheet

			Group	Company
		2019	2018	2019	2018
	Notes	£'000	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	8	226,562	158,549	-	-
Intangible assets	9	69,539	66,960	-	-
Lease: Right of Use Asset	10	178,293	-	-	-
Investments		11,758	5,209	157,221	157,221
Trade and other receivables		662	1,227	-	-
Deferred income tax assets		2,270	1,653	-	-
		489,084	233,598	157,221	157,221
Current assets
Inventories		91,337	82,190	-	-
Trade and other receivables		214,611	172,465	10,272	272
Current tax assets		-	769	-	-
Other financial asset		-	7,813	-	-
Cash and cash equivalents		110,514	80,234	122	82
		416,462	343,471	10,394	354
Total assets		905,546	577,069	167,615	157,575

Equity
Equity attributable to owners of the parent
Ordinary shares		8,173	8,160	8,173	8,160
Share premium		64,251	63,628	64,251	63,628
Employee share schemes reserve		4,139	5,505	-	-
Foreign currency translation reserve		255	4,134	-	-
Retained earnings		140,192	124,923	24,172	14,768
Reverse acquisition reserve		(31,700)	(31,700)	-	-
Merger reserve		919	919	71,019	71,019
		186,229	175,569	167,615	157,575
Non-controlling interests		5,711	5,677	-	-
Total equity		191,940	181,246	167,615	157,575

Liabilities
Non-current liabilities
Borrowings	11	175,370	107,923	-	-
Lease liabilities	10	132,790	1,503	-	-
Deferred consideration		3,318	-	-	-
Deferred income tax liabilities		4,116	6,104	-	-
		315,594	115,530	-	-
Current liabilities
Borrowings	11	21,969	5,118	-	-
Lease liabilities	10	51,843	290	-	-
Trade and other payables		321,771	274,885	-	-
Current tax liabilities		2,429	-	-	-
		398,012	280,293	-	-
Total liabilities		713,606	395,823	-	-
Total equity and liabilities		905,546	577,069	167,615	157,575


The notes are an integral part of these consolidated financial statements.

The financial statements were approved by the Board on 06 April 2020 and were signed on its behalf by:

R. Watson	N. Majewski
Director	Director

Hilton Food Group plc - Registered number: 06165540

The Company has taken advantage of the exemption in Section 408 Companies Act 2006 not to publish its individual income statement, statement of comprehensive income and related notes. Profit for the year dealt with in the income statement of Hilton Food Group plc amounted to £27,200,000 (2018: £14,800,000).

Statement of changes in equity

		Attributable to owners of the parent
		Share capital	Share premium	Employee share schemes reserve	Foreign currency translation reserve	Retained earnings	Reverse acquisition reserve	Merger reserve	Total	Non-controlling interests	Total equity
Group	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2018		8,135	62,335	5,723	4,880	108,358	(31,700)	919	158,650	5,094	163,744
Profit for the year		-	-	-	-	32,534	-	-	32,534	2,172	34,706
Other comprehensive income
Currency translation differences		-	-	-	(746)	-	-	-	(746)	75	(671)
Total comprehensive income for the year		-	-	-	(746)	32,534	-	-	31,788	2,247	34,035
Issue of new shares		25	1,293	-	-	-	-	-	1,318	-	1,318
Adjustment in respect of employee share schemes		-	-	(238)	-	-	-	-	(238)	-	(238)
Tax on employee share schemes		-	-	20	-	-	-	-	20	-	20
Dividends paid	7	-	-	-	-	(15,969)	-	-	(15,969)	(1,664)	(17,633)
Total transactions with owners		25	1,293	(218)	-	(15,969)	-	-	(14,869)	(1,664)	(16,533)
Balance at 30 December 2018		8,160	63,628	5,505	4,134	124,923	(31,700)	919	175,569	5,677	181,246

Profit for the year		-	-	-	-	33,065	-	-	33,065	2,095	35,160
Other comprehensive income
Currency translation differences		-	-	-	(3,879)	-	-	-	(3,879)	(296)	(4,175)
Total comprehensive income for the year		-	-	-	(3,879)	33,065	-	-	29,186	1,799	30,985
Issue of new shares		13	623	-	-	-	-	-	636	-	636
Adjustment in respect of employee share schemes		-	-	(1,445)	-	-	-	-	(1,445)	-	(1,445)
Tax on employee share schemes		-	-	79	-	-	-	-	79	-	79
Dividends paid	7	-	-	-	-	(17,796)	-	-	(17,796)	(1,765)	(19,561)
Total transactions with owners		13	623	(1,366)	-	(17,796)	-	-	(18,526)	(1,765)	(20,291)
Balance at 29 December 2019		8,173	64,251	4,139	255	140,192	(31,700)	919	186,229	5,711	191,940

Company
Balance at 1 January 2018		8,135	62,335	-	-	15,937	-	71,019	157,426
Profit for the year		-	-	-	-	14,800	-	-	14,800
Total comprehensive income for the year		-	-	-	-	14,800	-	-	14,800
Issue of new shares		25	1,293	-	-	-	-	-	1,318
Dividends paid	7	-	-	-	-	(15,969)	-	-	(15,969)
Total transactions with owners		25	1,293	-	-	(15,969)	-	-	(14,651)
Balance at 30 December 2018		8,160	63,628	-	-	14,768	-	71,019	157,575

Profit for the year		-	-	-	-	27,200	-	-	27,200
Total comprehensive income for the year		-	-	-	-	27,200	-	-	27,200
Issue of new shares		13	623	-	-	-	-	-	636
Dividends paid	7	-	-	-	-	(17,796)	-	-	(17,796)
Total transactions with owners		13	623	-	-	(17,796)	-	-	(17,160)
Balance at 29 December 2019		8,173	64,251	-	-	24,172	-	71,019	167,615

The notes are an integral part of these consolidated financial statements.

Cash flow statements

			Group	Company
		2019	2018	2019	2018
		52 weeks	52 weeks	52 weeks	52 weeks
	Notes	£'000	£'000	£'000	£'000
Cash flows from operating activities
Cash generated from operations	12	90,376	66,166	-	-
Interest paid		(12,709)	(3,015)	-	-
Income tax paid		(7,410)	(9,666)	-	-
Net cash generated from operating activities		70,257	53,485	-	-

Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired		591	-	-	-
Investment in joint ventures		(5,246)	-	-	-
Purchases of property, plant and equipment		(98,555)	(98,412)	-	-
Proceeds from sale of property, plant and equipment		198	308	-	-
Purchases of intangible assets		(830)	(930)	-	-
Interest received		96	49	-	-
Dividends received		-	-	27,200	14,800
Dividends received from joint venture		4,995	9,958	-	-
Net cash (used in)/generated from investing activities		(98,751)	(89,027)	27,200	14,800

Cash flows from financing activities
Proceeds from borrowings		95,596	69,646	-	-
Repayments of borrowings		(8,311)	(8,163)	-	-
Payment of lease liability		(14,776)	-	-	-
Issue of inter-company loan		-	-	(10,000)	-
Issue of ordinary shares		636	1,047	636	1,047
Other financial asset		7,513	-	-	-
Dividends paid to owners of the parent		(17,796)	(15,969)	(17,796)	(15,969)
Dividends paid to non-controlling interests		(1,765)	(1,664)	-	-
Net cash generated from/(used in) financing activities		61,097	44,897	(27,160)	(14,922)

Net increase/(decrease) in cash and cash equivalents		32,603	9,355	40	(122)
Cash and cash equivalents at beginning of the year		80,234	70,853	82	204
Exchange gains on cash and cash equivalents		(2,323)	26	-	-
Cash and cash equivalents at end of the year		110,514	80,234	122	82

The notes are an integral part of these consolidated financial statements.

Notes to the financial statements

1 General information

Hilton Food Group plc ('the Company') and its subsidiaries (together 'the Group') is a leading specialist international food packing business supplying major international food retailers in fourteen European countries and Australia. The Company's subsidiaries are listed in a note to the full financial statements.

The Company is a public limited company incorporated and domiciled in the UK. The address of the registered office is 2-8 The Interchange, Latham Road, Huntingdon, Cambridgeshire PE29 6YE. The registered number of the Company is 06165540.

The Company maintains a Premium Listing on the London Stock Exchange.

The financial year represents the 52 weeks to 29 December 2019 (prior financial year 52 weeks to 30 December 2018).

This preliminary announcement was approved for issue on 6 April 2020.

2 Summary of significant accounting policies

The accounting policies are consistent with those of the annual financial statements for the year ended 30 December 2018, with the exception of changes to the way the Group accounts for leases following the adoption of IFRS 16 Leases.

IFRS 16 - Leases

This note explains the impact of the adoption of IFRS 16 "Leases" on the Group's condensed consolidated financial information and discloses the new accounting policies that have been applied from 31 December 2018. The Group has adopted IFRS 16 early, applying the modified retrospective approach, and has not restated comparatives for the reporting period ended 30 December 2018, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 31 December 2018.

Adjustments recognised on adoption of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 "Leases". These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 31 December 2018. The weighted average lessee's incremental borrowing rates applied to leases ranged from 1.8% - 5.2% and were dependent on tenor of the property lease liabilities and the country in which the lease agreement was entered into.

For leases previously classified as finance leases the Group has recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application. The measurement principles of IFRS 16 are only applied after that date.

	£'000
Operating lease commitment disclosed as at 30 December 2018	100,106
Less: short term and low value leases recognised on a straight line basis	(1,463)
Add: Adjustments as a result of changes to treatment of extension and termination options	16,765
Add: Increase in lease liabilities resulting from changes to assessment of purchase options	51,518
Less: Impact of discounting using incremental borrowing rates	(25,771)
Lease liability recognised following adoption of IFRS 16	141,155
Add: Existing finance lease liabilities at 30 December 2018	1,793
Opening lease liability recognised at 31 December 2018	142,948

Of which were:
Current lease liabilities	22,053
Non-current lease liabilities	120,895
	142,948

Right-of use assets for all leases were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to those leases recognised in the balance sheet as at 30 December 2018.

The recognised right-of-use assets relates to leases of land and buildings and other assets classes.

	29 December 2019	31 December 2018
	£'000	£'000
Land and buildings	132,940	77,748
Other leased assets	45353	62,899
Total	178,293	140,647

The change in accounting policy affected the following items in the balance sheet on 31 December 2018:

-	property, plant and equipment - decrease by £930,000
-	right-of-use assets - increase by £140,647,000
-	prepayments and other receivables - decrease by £840,000
-	lease liabilities - increase by £141,155,000
-	other liabilities - decrease by £2,278,000

There was no deferred tax impact.

The impact was an increase in total assets and total liabilities of £138,877,000.

The Group's 2018 financial statements included the disclosure of expected opening balances for right of use assets and lease liabilities of £94m-98m, however this has been re-assessed to be £140.6m as summarised above. This re-assessment has resulted following a further review of how purchase options were reflected in

expected lease cash flows.

Practical expedients applied

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

-	the exclusion of leases with a remaining lease term of less than 12 months as at 31 December 2018, from the calculation of right-of-use assets and lease liabilities;
-	the exclusion of leases of low value assets;
-	exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application; and
-	the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4 "Determining whether an Arrangement contains a Lease".

Group leasing activities and accounting treatment

The Group's leases relate to property leases for a number of food processing facilities, leases of plant and equipment and leases of motor vehicles. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions

Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases in accordance with IAS 17. Payments made under operating leases were charged to profit or loss on a straight-line basis over the period of the lease.

From 31 December 2018, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the repayment of the lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. The depreciation is being charged to administration expenses in the Group's Income Statement, in-line with where depreciation has previously been recorded.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

-	fixed payments (including in-substance fixed payments), less any lease incentives receivable;
-	variable lease payments that are based on an index or a rate;
-	the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and,
-	payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Right-of-use assets are measured at cost comprising the following:

-	the amount of the initial measurement of lease liability;
-	any lease payments made at or before the commencement date less any lease incentives received; and
-	any initial direct costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office equipment.

Extension and termination options

Extension and termination options are included in a number of property leases across the Group. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

Basis of preparation

The consolidated and company financial statements of Hilton Food Group plc have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated and company financial statements have been prepared on the going concern basis. The reasons why the Directors consider this basis to be appropriate are set out in the Performance and financial review.

The financial statements are presented in Sterling and all values are rounded to the nearest thousand (£'000) except when otherwise indicated.

The financial information included in this preliminary announcement does not constitute statutory accounts of the Group for the years ended 29 December 2019 and 30 December 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

3 Segment information

Management have determined the operating segments based on the reports reviewed by the Executive Directors that are used to make strategic decisions.

The Executive Directors have considered the business from both a geographic and product perspective.

From a geographic perspective, the Executive Directors consider that the Group has nine operating segments: i) United Kingdom; ii) Netherlands; iii) Republic of Ireland; iv) Sweden; v) Denmark; vi) Central Europe including Poland, Czech Republic, Hungary, Slovakia, Latvia, Lithuania and Estonia; vii) Portugal; viii) Australasia and ix) Central costs. The United Kingdom, Netherlands, Republic of Ireland, Sweden, Denmark and Portugal have been aggregated into one reportable segment 'Western Europe' as they have similar economic characteristics as identified in IFRS 8. Central Europe, Australasia and Central costs comprise the other reportable segments.

In the prior year, Central costs included both the new Australasian segment and Central costs. 2018 segmental information has been restated to present these separately.

From a product perspective the Executive Directors consider that the Group has only one identifiable product, wholesaling of food protein products including meat, fish and vegetarian. The Executive Directors consider that no further segmentation is appropriate, as all of the Group's operations are subject to similar risks and returns and exhibit similar long term financial performance.

The segment information provided to the Executive Directors for the reportable segments is as follows:
			Australasia	Central costs				Australasia	Central costs
	Western	Central			2019	Western	Central			2018
	Europe	Europe			Total	Europe	Europe			Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Total revenue	1,671,113	94,330	89,772	-	1,855,215	1,584,185	100,102	9,640	-	1,693,927
Inter-co revenue	(37,457)	(3,091)	-	-	(40,548)	(33,781)	(10,555)	-	-	(44,336)
Third party revenue	1,633,656	91,239	89,772	-	1,814,667	1,550,404	89,547	9,640	-	1,649,591
Operating profit/(loss) segment result	53,178	2,299	12,840	(10,110)	58,207	51,456	2,307	5,522	(10,603)	48,682
Intangibles amortisation	(2,438)	-	-	-	(2,438)	(2,384)	-	-	-	(2,384)
Operating profit/(loss) segment result	50,740	2,299	12,840	(10,110)	55,769	49,072	2,307	5,522	(10,603)	46,298
Finance income	5	-	91	-	96	4	45	-	-	49
Finance costs	(2,931)	(301)	(7,523)	(1,954)	(12,709)	(1,614)	(14)	(55)	(1,332)	(3,015)
Income tax (expense)/credit	(9,452)	(412)	393	1,475	(7,996)	(9,796)	(461)	(350)	1,981	(8,626)
Profit/(loss) for the year	38,362	1,586	5,801	(10,589)	35,160	37,666	1,877	5,117	(9,954)	34,706

Depreciation and amortisation	28,086	1,928	15,286	122	45,422	21,121	1,035	185	123	22,464
Additions to non-current assets	30,867	19,160	48,941	417	99,385	45,643	6,681	44,432	2,586	99,342

Segment assets	494,662	46,920	348,293	13,401	903,276	431,896	26,590	102,971	13,190	574,647
Current income tax assets					-					769
Deferred income tax assets					2,270					1,653
Total assets					905,546					577,069

Segment liabilities	272,609	29,742	329,449	75,261	707,061	248,562	17,239	81,621	42,297	389,719
Current income tax liabilities					2,429					-
Deferred income tax liabilities					4,116					6,104
Total liabilities					713,606					395,823

Sales between segments are carried out at arm's length.

The Executive Directors assess the performance of each operating segment based on its operating profit before exceptional items and amortisation of acquired intangibles. Operating profit is measured in a manner consistent with that in the income statement.

The amounts provided to the Executive Directors with respect to total assets and liabilities are measured in a manner consistent with that of the financial statements. The assets are allocated based on the operations of the segment and their physical location. The liabilities are allocated based on the operations of the segment.

The Group has five principal customers (comprising groups of entities known to be under common control), Tesco, Ahold, Coop Danmark, ICA Gruppen and Woolworths. These customers are located in the United Kingdom, Netherlands, Republic of Ireland, Sweden, Denmark and Central Europe including Poland, Czech Republic, Hungary, Slovakia, Latvia, Lithuania and Estonia and Australasia.

Analysis of revenues from external customers and non-current assets are as follows:
	Revenues from external customers		Non-current assets excluding deferred tax assets
	2019	2018	2019	2018
	£'000	£'000	£'000	£'000
Analysis by geographical area
United Kingdom - country of domicile	960,919	856,611	180,418	135,760
Netherlands	281,807	296,621	3,967	5,424
Sweden	197,085	206,610	9,322	11,744
Republic of Ireland	88,526	87,696	4,474	5,294
Denmark	105,319	102,866	17,323	19,589
Central Europe	91,239	89,547	26,546	9,374
Australasia	89,772	9,640	244,764	44,760
	1,814,667	1,649,591	486,814	231,945
Analysis by principal customer
Customer 1	980,224	901,585
Customer 2	301,296	316,788
Customer 3	208,230	220,684
Customer 4	103,233	100,792
Customer 5	89,772	9,640
Other	131,912	100,102
	1,814,667	1,649,591

4 Finance income and costs
	2019	2018
Group	£'000	£'000
Finance income
Interest income on short term bank deposits	91	46
Other interest income	5	3
Finance income	96	49
Finance costs
Bank borrowings	(3,514)	(1,869)
Interest on lease liabilities	(7,694)	(60)
Other interest expense	(1,501)	(1,086)
Finance costs	(12,709)	(3,015)
Finance costs - net	(12,613)	(2,966)

5 Income tax expense
	2019	2018
Group	£'000	£'000
Current income tax
Current tax on profits for the year	10,681	8,926
Adjustments to tax in respect of previous years	(87)	(253)
Total current tax	10,594	8,673
Deferred income tax
Origination and reversal of temporary differences	(2,875)	(136)
Adjustments to tax in respect of previous years	277	89
Total deferred tax	(2,598)	(47)
Income tax expense	7,996	8,626

Deferred tax credit directly to equity during the year in respect of employee share schemes amounted to £79,000 (2018: credit £20,000).

Factors affecting future tax charges

The Group operates in numerous tax jurisdictions around the world and is subject to factors that may affect future tax charges including transfer pricing, tax rate changes and tax legislation changes.

The prevailing UK corporation tax rate of 19% was substantively enacted as part of the Finance Act 2019 on 12 March 2019. This rate was due to reduce to 17% from April 2020, however, in the budget on 12 March 2020 it was announced that the main rate of UK corporation tax will be held at 19%. The deferred tax assets and liabilities are calculated reflecting appropriate rates.

The tax on the Group's profit before income tax differs from the theoretical amount that would arise using the standard rate of UK Corporation Tax of 19% (2018: 19%) applied to profits of the consolidated entities as follows:

	2019	2018
	£'000	£'000
Profit before income tax	43,156	43,332
Tax calculated at the standard rate of UK Corporation Tax 19% (2018: 19%)	8,200	8,233
Expenses not deductible for tax purposes	367	737
Joint venture received net of tax	(1,217)	(990)
Adjustments to tax in respect of previous years	190	(164)
Profits taxed at rates other than 19% (2018: 19%)	694	804
Deferred tax on IFRS 16	(280)	-
Other	42	6
Income tax expense	7,996	8,626

There is no tax impact relating to components of other comprehensive income.

6 Earnings per share

Basic earnings per share are calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has share options for which a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

			2019		2018
Group		Basic	Diluted	Basic	Diluted
Profit attributable to owners of the parent	(£'000)	33,065	33,065	32,534	32,534
Weighted average number of ordinary shares in issue	(thousands)	81,665	81,665	81,482	81,482
Adjustment for share options	(thousands)	-	836	-	981
Adjusted weighted average number of ordinary shares	(thousands)	81,665	82,501	81,482	82,463
Basic and diluted earnings per share	(pence)	40.5	40.1	39.9	39.5

7 Dividends
	2019	2018
Group and Company	£'000	£'000
Final dividend in respect of 2018 paid 15.8p per ordinary share (2017: 14.0p)	12,893	11,400
Interim dividend in respect of 2019 paid 6.0p per ordinary share (2018: 5.6p)	4,903	4,569
Total dividends paid	17,796	15,969

The Directors propose a final dividend of 15.4p per share payable on 26 June 2020 to shareholders who are on the register at 29 May 2020. This dividend totalling £12.6m has not been recognised as a liability in these consolidated financial statements.

8 Property, plant and equipment
	Land and buildings (including leasehold improvements)	Plant and machinery	Fixtures and fittings	Motor vehicles	Total
Group	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January 2018	48,435	215,390	13,695	345	277,865
Exchange adjustments	421	80	(80)	1	422
Additions	29,472	67,853	932	155	98,412
Disposals	(3,019)	(463)	(420)	(149)	(4,051)
At 30 December 2018	75,309	282,860	14,127	352	372,648
Accumulated depreciation
At 1 January 2018	24,944	160,930	11,269	126	197,269
Exchange adjustments	135	666	(69)	1	733
Charge for the year	3,166	15,682	989	84	19,921
Disposals	(2,939)	(382)	(420)	(83)	(3,824)
At 30 December 2018	25,306	176,896	11,769	128	214,099
Net book amount
At 1 January 2018	23,491	54,460	2,426	219	80,596
At 30 December 2018	50,003	105,964	2,358	224	158,549

Cost
At 31 December 2018	75,309	282,860	14,127	352	372,648
IFRS 16 transfer to Right-of-Use asset	(3,484)	-	-	-	(3,484)
Exchange adjustments	(1,940)	(11,328)	(597)	(3)	(13,868)
Acquisition	33	817	-	-	850
Additions	23,592	72,176	2,712	75	98,555
Transfer to intangible assets	-	(953)	-	-	(953)
Disposals	-	(1,031)	(199)	(150)	(1,380)
At 29 December 2019	93,510	342,541	16,043	274	452,368
Accumulated depreciation
At 31 December 2018	25,306	176,896	11,769	128	214,099
IFRS 16 transfer to Right-of-Use asset	(2,600)	-	-	-	(2,600)
Exchange adjustments	(608)	(7,172)	(513)	(2)	(8,295)
Charge for the year	3,586	18,818	1,321	76	23,801
Disposals	-	(876)	(198)	(125)	(1,199)
At 29 December 2019	25,684	187,666	12,379	77	225,806
Net book amount
At 29 December 2019	67,826	154,875	3,664	197	226,562

Depreciation charges are included within administrative expenses in the income statement.

The cost and net book amount of property plant and equipment in the course of its construction included above comprise plant and machinery £37,708,439 (2018: £52,923,000).

Additions includes £5,600,000 transferred from Right-of-use assets in the year (note 15).

9 Intangible assets
	Computer software	Brand and customer relationships	Goodwill	Total
Group	£'000	£'000	£'000	£'000
Cost
At 1 January 2018	5,357	21,907	44,793	72,057
Exchange adjustments	(14)	-	-	(14)
Additions	930	-	-	930
At 30 December 2018	6,273	21,907	44,793	72,973
Accumulated amortisation
At 1 January 2018	3,125	360	-	3,485
Exchange adjustments	(15)	-	-	(15)
Charge for the year	159	2,384	-	2,543
At 30 December 2018	3,269	2,744	-	6,013
Net book amount
At 1 January 2018	2,232	21,547	44,793	68,572
At 30 December 2018	3,004	19,163	44,793	66,960

Cost
At 31 December 2018	6,273	21,907	44,793	72,973
Exchange adjustments	(173)	-	-	(173)
Acquisition	-	653	2,789	3,442
Additions	830	-	-	830
Transfer from property, plant & equipment	953	-	-	953
Disposals	(25)	-	-	(25)
At 29 December 2019	7,858	22,560	47,582	78,000
Accumulated amortisation
At 31 December 2018	3,269	2,744	-	6,013
Exchange adjustments	(148)	-	-	(148)
Charge for the year	183	2,438	-	2,621
Disposals	(25)	-	-	(25)
At 29 December 2019	3,279	5,182	-	8,461
Net book amount
At 29 December 2019	4,579	17,378	47,582	69,539

Amortisation charges are included within administrative expenses in the income statement.

Goodwill Impairment Testing

Goodwill includes £44,793,000 relating to the acquisition of the Seachill business in 2017. The recoverable amount of the Seachill cash generating unit was determined on a value-in-use basis, using cash flow projections based on one-year budgets approved by the board and longer term financial projections, and exceeded the carrying amount. The key assumptions used in the value-in-use calculations are projected EBITDA, the pre-tax discount rate and the growth rate used to extrapolate cash flows beyond the projected period. EBITDA is based on past experience adjusted to take account of the impact of expected changes to sales prices, volumes, business mix and margin. Cash flows are discounted at 11% and a growth rate of 2% has been used to extrapolate cash flows.

Goodwill of £2,789,000 has been recognised, during the year, following the acquisition of SV Cuisine Limited (formerly HFR Food Solutions Limited) in February 2019. SV Cuisine will form a separate cash generating unit for impairment testing purposes, which will begin in the following financial year.

Sensitivity to changes in assumptions

The calculation is most sensitive to changes in the assumptions used for projected cash flow, the pre-tax discount rate and the growth rate. Management considers that reasonably possible changes in assumptions would be an increase in discount rate of one percentage point, a reduction in growth rate of 1 percentage point or a 10% reduction in budgeted cash flow. As an indication of sensitivity, when applied to the value-in-use calculation neither a 1% reduction in growth rate, a 10% reduction in budgeted cash flow, nor a 1% increase in the discount rate would have resulted in an impairment of goodwill in the year.

No indicators of impairment were identified in respect of other, amortised, intangible assets and therefore no impairment review has been undertaken.

10 Leases

(i) Amounts recognised in the balance sheet

The balance sheet includes the following amounts relating to leases:

	Land & Buildings	Equipment	Vehicles		Total
Group	£'000	£'000	£'000		£'000
Opening net book amount as at 31 December 2018 ⁽¹⁾	77,748	60,725	2,174		140,647
Exchange Adjustments	(4,060)	(1,828)	(77)		(5,965)
Additions	67,975	108	1,432		69,515
Acquisition	232	-	-		232
Transfer to tangible fixed assets	(5,660)	-	-		(5,660)
Remeasurements, reclassification and scope changes	6,547	(8,066)	43		(1,476)
Depreciation	(9,842)	(8,260)	(898)		(19,000)
Closing net book amount at 29 December 2019	132,940	42,679	2,674		178,293

Lease liabilities			2019		31 Dec 2018⁽¹⁾
Group			£'000		£'000
Current			51,843		22,053
Non-current			132,790		120,895
			184,633		142,948

1 - In the previous year the Group only recognised lease assets and lease liabilities in relation to leases that were classified as finance leases under IAS 17, 'Leases'. The assets were presented as property, plant and equipment and the liabilities as part of the group's borrowings. For adjustments recognised on adoption of IFRS 16 on 31 December 2019, refer to note 2.

Maturity analysis - contractual undiscounted cashflows					2019
Group					£'000
Less than one year					58,130
One to five years					50,625
More than five years					125,049
Total lease liabilities					233,804

(ii) Amounts recognised in the consolidated income statement

The income statement shows the following amounts related to leases:

Depreciation charge on right-of-use assets			2019		2018⁽²⁾
Group			£'000		£'000
Buildings			9,842		273
Plant & equipment			8,260		-
Vehicles			898		-
			19,000		273

Interest expenses (included in finance costs)			7,694		60

Expenses relating to short-term leases (included in costs of goods sold and administrative expenses)			790		-

Expenses relating to leases of low-value assets that have not been shown above as short-term (included n costs of goods sold and administrative expenses)			22		-

2 - Amounts presented in respect of 2018 are in respect of leases previously classified as finance leases under IAS 17, 'Leases'

The total cash outflow for leases in 2019 was £28,943,000.

11 Borrowings
				2019		2018
Group				£'000		£'000
Current
Bank borrowings				21,969		5,118
Non-current
Bank borrowings				175,370		107,923
Total borrowings				197,339		113,041

Due to the frequent re-pricing dates of the Group's loans, the fair value of current and non-current borrowings is approximate to their carrying amount.
The carrying amounts of the Group's borrowings are denominated in the following currencies:
				2019		2018
Currency				£'000		£'000
UK Pound				68,244		51,377
Euro				25,728		23,478
Polish Zloty				7,502		-
Australian Dollar				85,614		38,186
New Zealand Dollar				10,251		-
				197,339		113,041

Bank borrowings are repayable in quarterly instalments from 2019 - 2022 with interest charged at LIBOR (or equivalent benchmark rates) plus 1.3% - 1.6%. Bank borrowings are subject to joint and several guarantees from each active Group undertaking.

The Group has undrawn committed loan facilities of £71.1m (2018: £201.0m) with the loan facilities expiring in 2022.

The undiscounted contractual maturity profile of the Group's borrowings is described in a note to the full financial statements.

Group net debt of £88,247,000 (2018: net debt of £26,787,000) comprises borrowings, noted above, of £197,339,000 (2018: £113,041,000) cash and cash equivalents of £110,514,000 (2018: £80,234,000), other financial assets of £nil (2018: £7,813,000), and finance leases previously recognised under IAS 17 of £1,422,000 (2018: £1,793,000). Including total lease liabilities Group net debt is £271,458,000 (2018: £26,787,000).

12 Cash generated from operations
	2019	2018
Group	£'000	£'000
Profit before income tax	43,156	43,332
Finance costs - net	12,613	2,966
Operating profit	55,769	46,298
Adjustments for non-cash items:
Share of post tax profits of joint venture	(6,406)	(5,213)
Depreciation of property, plant and equipment	42,801	19,921
Amortisation of intangible assets	2,621	2,543
Amortisation of contract assets - charged to revenue	1,273	2,068
Gain on disposal of non-current assets	(22)	(81)
Adjustment in respect of employee share schemes	(1,445)	(238)
Changes in working capital:
Inventories	(9,494)	(30,742)
Trade and other receivables	(49,054)	(34,006)
Prepaid expenses	(1,956)	660
Trade and other payables	51,272	53,362
Accrued expenses	5,017	11,594
Cash generated from operations	90,376	66,166

The parent company has no operating cash flows.

13 Related party transactions and ultimate controlling party

The Directors do not consider there to be one ultimate controlling party. The companies noted below are all deemed to be related parties by way of common Directors.

Sales and purchases made on an arm's length basis on normal credit terms to related parties during the year were as follows:

Group	2019	2018
Sales	£'000	£'000
Sohi Meat Solutions Distribuicao de Carnes SA - fee for services	3,246	3,236
Sohi Meat Solutions Distribuicao de Carnes SA - recharge of joint venture costs	352	790
Dalco B.V.	117	-

Group	2019	2018
Purchases	£'000	£'000
Foods Connected Limited	340	142


Amounts owing from related parties at the year end were as follows:
	Owed from related parties
	2019	2018
Group	£'000	£'000
Woolworths Meat Co. Pty Limited	-	5
Foods Connected Limited	-	170
Sohi Meat Solutions Distribuicao de Carnes SA	348	3,940
Dalco B.V.	117	-
	465	4,115

Amounts owing to related parties at the year end were as follows:
	Owed to related parties
Foods Connected Limited	66	-

The acquisition of SV Cuisine Limited (formerly HFR Food Solutions Limited) is considered to be a related party transaction as prior to acquisition Philip Heffer, the Hilton Food Group CEO, held a 30% interest in and was a director of the acquired business. Additionally Graham Heffer and Robert Heffer, both directors of the Group's subsidiary Hilton Food Solutions Limited, each held a 30% shareholding in, and were, and still are, directors of SV Cuisine Limited.

The Company's related party transactions with other Group companies during the year were as follows:
	2019	2018
Company	£'000	£'000
Hilton Foods Limited - dividend received	27,200	14,800

At the year end £10,272,000 was owed by Hilton Foods Limited (2018: £272,000) and £nil (2018: £nil) was owed by Hilton Foods UK Limited.

Details of key management compensation are given in a note to the full financial statements .

14 Alternative performance measures

The Group's performance is assessed using a number of alternative performance measures (APMs).

The Group's alternative profitability measures are presented before exceptional items, amortisation of certain intangible assets acquired through business combinations and the impact of IFRS 16 (as summarised in note 2).

The measures are presented on this basis, as management believe they provide useful additional information about the Group's performance and aids a more effective comparison of the Group's trading performance from one period to the next.

Adjusted profitability measures are reconciled to unadjusted IFRS results on the face of the income statement below.

52 weeks ended 29 December 2019
	Reported	Add back: IFRS 16 Depreciation and interest	Less: IAS 17 Lease accounting costs	Reported - excl IFRS 16	Add back: Amortisation of acquisition intangibles	Adjusted
	£'000	£'000	£'000	£'000	£'000	£'000
Operating profit	55,769	18,820	(22,315)	52,274	2,438	54,712
Net finance costs	(12,613)	7,641	-	(4,972)	-	(4,972)
Profit before income tax	43,156	26,461	(22,315)	47,302	2,438	49,740

Profit for the period	35,160	24,849	(22,315)	37,694	1,975	39,669
Less non-controlling interests	(2,095)	(370)	364	(2,101)	-	(2,101)
Profit attributable to members of the parent	33,065	24,479	(21,951)	35,593	1,975	37,568

Depreciation and amortisation	46,673*	(18,820)	-	27,853	(2,438)	25,415
EBITDA	102,442	-	(22,315)	80,127	-	80,127

Earnings Per Share	pence			pence		pence
Basic	40.5			43.6		46.0
Diluted	40.1			43.1		45.5

*Includes £1,273,000 amortisation of contract assets charged to revenue.

52 weeks ended 30 December 2018
	Reported	Add back: Amortisation of acquisition intangibles	Adjusted
	£'000	£'000	£'000
Operating profit	46,298	2,384	48,682
Net finance costs	(2,966)	-	(2,966)
Profit before income tax	43,332	2,384	45,716

Profit for the period	34,706	1,931	36,637
Less non-controlling interests	(2,172)	-	(2,172)
Profit attributable to members of the parent	32,534	1,931	34,465

Depreciation and amortisation	24,451	(2,384)	22,067
EBITDA	70,749	-	70,749

Earnings Per Share	pence		Pence
Basic	39.9		42.3
Diluted	39.5		41.8

Segmental operating profit reconciles to adjusted segmental operating profit as follows:

52 weeks ended 29 December 2019
	Reported	Add back: IFRS 16 Depreciation	Less: IAS 17 Lease accounting costs	Reported - excl IFRS 16	Add back: Amortisation of acquisition intangibles	Adjusted
	£'000	£'000	£'000	£'000	£'000	£'000
Western Europe	50,740	5,405	(5,488)	50,657	2,438	53,095
Central Europe	2,299	467	(628)	2,138	-	2,138
Australasia	12,840	12,948	(16,199)	9,589	-	9,589
Central costs	(10,110)	-	-	(10,110)	-	(10,110)
Total	55,769	18,820	(22,315)	52,274	2,438	54,712

52 weeks ended 30 December 2018
	Reported	Add back: Amortisation of acquisition intangibles	Adjusted
	£'000	£'000	£'000
Western Europe	49,072	2,384	51,456
Central Europe	2,307	-	2,307
Australasia	5,522	-	5,522
Central costs	(10,603)	-	(10,603)
Total	46,298	2,384	48,682

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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