Preliminary Results

RNS Number : 1381J

Hilton Food Group PLC

28 March 2018

 

28^th March 2018

Hilton Food Group plc

A transformational year: significant strategic progress

Hilton Food Group plc, the leading specialist international food packing business, today announces its preliminary results for the 52 weeks ended 31 December 2017.

Financial highlights

	2017	2016	Change
	52 weeks to  31 December 2017	52 weeks to 1 January 2017	Reported	Constant currency
Volume 1 (tonnes)	303,811	275,213	10.4%
Results before exceptional items 2
Revenue	£1,359.5m	£1,234.5m	10.1%	5.7%
Operating profit	£38.3m	£34.3m	11.6%	7.0%
Profit before tax	£37.4m	£33.2m	12.7%	7.9%
Basic earnings per share	37.4p	33.7p	11.0%	5.9%
Results after exceptional items
Revenue	£1,359.5m	£1,234.5m	10.1%
Operating profit	£35.1m	£34.3m	2.3%
Profit before tax	£34.2m	£33.2m	3.0%
Basic earnings per share	33.2p	33.7p	(1.5)%
Net cash	£25.4m	£32.3m
Dividends paid and proposed in respect of the year	19.0p	17.1p	11.1%

Notes

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

2 Exceptional items in 2017 comprise exceptional acquisition costs of £2.8m in connection with the Seachill acquisition together with associated intangibles amortisation of £0.4m

Strategic highlights

·	£80.8m Seachill acquisition adding fish as a new protein funded through a £55.9m equity placement and new bank financing
·	Agreement with Countdown, New Zealand's leading supermarket chain, to build and operate a new production facility from 2020
·	Agreement since the year end to restructure the Australian joint venture and take full operational control of its two existing plants from 1 July 2018
·	Expansion in Central Europe to produce fresh foods including sandwiches, pizza, ready meals and soups
·	Joint venture with Foods Connected, a UK market intelligence data management system company focused on the fresh food supply chain

Operating highlights

·	Higher volumes including the new Seachill and Portugal businesses and growth in Australia and Ireland
·	Turnover up 10.1% reflecting growth of 5.7% on a constant currency basis enhanced by favourable currency translation
·	Growth in operating profit before exceptional items up 11.6% (2.3% after exceptional items) and by 7.0% on a constant currency basis
·	Strong cash generation and an ungeared balance sheet despite the Seachill acquisition
·	Construction of Brisbane facility in Australia progressing with New Zealand facility plans at an advanced stage

Commenting on the results Chief Executive Robert Watson OBE said:

"2017 was a transformational year and we achieved significant strategic progress. We entered into a new protein through the acquisition of Seachill as well as agreement to build a new facility in New Zealand and fresh food expansion in Central Europe. Hilton made good progress with volume and profit growth demonstrating our geographical and operational progress. This momentum has continued into 2018 and we continue to explore further expansion opportunities."

Enquiries

Hilton Food Group	Tel: [phone]
Robert Watson OBE, Chief Executive
Nigel Majewski, Chief Financial Officer

Citigate Dewe Rogerson	Tel: [phone]
Angharad Couch
Ellen Wilton

This announcement contains inside information.

Chairman's introduction

Strategic progress

I am pleased to report outstanding progress in 2017 against our strategic objectives and further expansion of our global footprint.

In January we signed a joint venture agreement with Sonae Modelo Continente, Portugal's leading food retailer, to form Sohi Meat Solutions which supplies a wide range of packaged beef, lamb, veal and pork products. In May we invested in Foods Connected Limited, a market intelligence data management company focused on the fresh food supply chain. In August we announced expansion in Central Europe to produce fresh foods including sandwiches, pizza, ready meals and soups. In October we announced we will expand into New Zealand by constructing a new meat processing facility to supply Countdown Supermarkets which is due to open in 2020. In November we completed the £81m acquisition of Seachill, a leading chilled UK based fish processor and since the year end we have agreed to restructure the Australia joint venture and take full operational control of its two existing plants. Given the growth in business categories and geographies, planning of future resource implications is well in hand.

The Seachill acquisition was funded through an equity placing which raised over £55m and a new bank refinancing putting in place a syndicated facility.

This expansion into a new protein, fresh foods and into new geographical markets provides Hilton with broader foundations to its business.  This, together with the benefit of a new bank refinancing, means Hilton is well positioned for further growth.

Group performance

We grew our volume in 2017 maintaining a trend of continuous growth achieved in every year since Hilton's flotation in 2007. There was strong pre-exceptional operating profit growth of nearly 12% including the benefits of the Seachill acquisition and favourable exchange rate movements (over 2% up after exceptionals) which was achieved despite considerable investment in people and infrastructure to support growth. Pre-exceptional basic earnings per share were 11% above last year (down 1.5% after exceptionals).

Hilton continued to generate significant operating cash flow during 2017. This enabled the Group to end the year with net cash of £25.4m, compared with £32.3m at the end of last year, despite the significant investment made in the Seachill acquisition, net of the equity raised to part fund it.

Our continued investment in our facilities includes new technology to increase capacity, improve operational efficiency and offer innovative solutions to our retailer partners.

There is a continuing climate of local, global and geopolitical uncertainties including the UK's decision to leave the European Union. Although the final terms of Brexit are unknown, Hilton's predominantly local sourcing and operating model leaves us well placed and we are confident that the Hilton business is resilient to weather these uncertainties.

Dividend policy

The Board considers that the Group's progressive dividend policy maintained since flotation remains appropriate, given both the strategic progress achieved in 2017 and Hilton's continuing strong level of cash generation. With the proposed final dividend of 14.0p per ordinary share, total dividends in respect of 2017 will be 19.0p per ordinary share, an increase of 11.1% compared to last year.

Our Board and governance

The Hilton Board is responsible for the long term success of the Group and, 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.

We remain committed to achieving good governance and compliance with the UK Corporate Governance Code including succession planning and maintaining a talent pipeline.

Annual General Meeting

This year's AGM will be held at the Old Bridge Hotel, 1 High Street, Huntingdon, Cambridgeshire PE29 3TQ on 23 May 2018 at noon and my colleagues and I very much look forward to seeing those of you who are able to attend.

Colin Smith OBE

Non-Executive Chairman

27 March 2018

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 straightforward approach has generated growth over an extended period of time and with a strong reputation, well invested modern facilities and a robust balance sheet, the Group remains well positioned to achieve continuing progress.

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 measured 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 such as fish as well as fresh foods including pizzas and soups.

Business model

Our business model is the means by which we deliver on our strategic objectives. The Hilton business model is proven and sustainable, whilst being relatively simple and straightforward. We operate large scale, extensively automated and robotised meat and fish processing and packing facilities for major international multiple retailers on a dedicated basis. Central Europe is an exception where our facility in Poland supplies multiple retailers in order to achieve critical mass in terms of volumes supplied and, as a consequence, gives us the ability to achieve competitive unit packing costs.

Raw material meat and fish is 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 meat and fish 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 thirteen 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 2004-2017 has totalled £238m.

We have facilities in six countries in Europe, each run by a local management team enhanced by specialist central leadership, expertise, advice and support. These businesses operate under the terms of five to ten 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 and Portugal, together with our retailer partners, facilities are operated under joint venture companies who receive volume related management fees.

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 meat and fish 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 meat and fish supply chain management. Our customer base comprises high quality multiple 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 meat and fish 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.

The strength of our long term partnerships with our retail customers has been a key driver of our growth since the Group was formed and will continue to underpin the Group's strategy. Hilton's business model has proved successful across a range of European countries and in Australia, appropriately adapted in each case by working in close collaboration with its local customers to meet their specific requirements. Our experience to date continues to indicate that our business model, appropriately adapted, can be successfully transferred to a number of new countries.

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, food related IT applications, category management support and market intelligence. We are able to apply these skills to a number of markets to support our customers where required, and to do so in a cost-effective way.

Business development

The Group's rapid expansion has been based on its established and proven track record, together with its growing international reputation and experience and the recognised success of the close partnerships it has forged and maintained with successful retail partners. We are an international business and operate production facilities in six countries across Europe and work with joint venture partners in two further countries. Products from these facilities are sold in fourteen European countries and Australia.

Our first facility opened in Huntingdon in 1994 supplying Tesco UK. In 2000 we took over an existing facility in Zaandam, Holland supplying Albert Heijn which also has stores in Belgium. In 2004 new factories were built in Drogheda, Ireland supplying Tesco Ireland and in Vasteras, Sweden supplying ICA Gruppen. Our facility in Tychy, Poland opened in 2006 and supplies Ahold stores in Czech Republic and Slovakia, Tesco stores in Hungary, Czech Republic, Poland and Slovakia and Rimi stores in Latvia, Lithuania and Estonia. Our Danish factory near Aarhus opened in 2011 and supplies Coop Danmark.

We formed a joint venture company with Woolworths in Australia in 2013 which manages their meat processing and packing facilities at Bunbury in Western Australia and a state-of-the-art meat packing facility near Melbourne, Victoria which opened in 2015.

Progress in 2017

Seachill was acquired during the year for £81m. The business was founded in 1998 and has grown to become one of the largest chilled fish processors in the UK, with well-invested facilities and a well-established supply chain based in Grimsby, Lincolnshire. It operates from three sites and supplies a number of UK leading food retail customers. Seachill has successfully innovated and developed new products including The Saucy Fish Co. brand which is the largest chilled wet fish brand in the UK. This extension into a new protein is an exciting development for Hilton which creates the following opportunities:

·	Investing to increase Seachill's capacity and use our experience in robotics and automated processes to deliver higher quality and better value to the customer
·	Expanding into overseas territories alongside our existing key customers and other new business opportunities;
·	Developing innovative new products in the fish category broadening the range of products offered to new and existing customers; and
·	Expanding The Saucy Fish Co. brand into other categories both in the UK and overseas.

At the beginning of the year we signed a joint venture agreement with Sonae to manage their existing meat processing and packing facility in Santarem, Portugal.

We also signed an agreement to construct a new facility in Auckland, New Zealand to supply Progressive Enterprises, a subsidiary of Woolworths, which operates under the Countdown brand. This facility will supply beef, lamb, pork, chicken and added value products and production is expected to commence in 2020.

Our facility in Poland will expand following agreement with Tesco to supply fresh foods into Central Europe including sandwiches, pizzas, ready meals and soups.

Since the year end we have reached agreement with Woolworths to restructure the Australia joint venture and take full operational control of these existing plants from 1 July 2018. After a two year transitional period we will purchase the relevant plant assets. We are currently constructing a new facility in Brisbane, Queensland which Hilton will finance and operate through its Australian subsidiary and progress is on track.

In 2017 some 75% of the Group's volumes were produced in countries outside the UK.

Currency translation

The wide geographical spread of the Group increases its resilience by minimising its reliance on any one individual economy. This means that Hilton's results, as reported in Sterling, are sensitive to changes in the value of Sterling compared to the range of overseas currencies in which the Group trades. During 2017, the average exchange rates for the various overseas currencies in which the Group trades have all appreciated significantly against Sterling, compared with the corresponding period in 2016, specifically, the Euro by 7.2%, the Danish Krone by 7.3%, the Polish Zloty by 10.0%, the Swedish Krona by 5.2% and the Australian Dollar by 8.5%.

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 3,600 employees 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 2017 and their continuing commitment to the Group's ongoing growth and development.

Performance overview

The overall performance of our business was stable across its three separate operating segments boosted by the new acquisition and joint venture as outlined below.

Western Europe

Operating profit before exceptional items of £41.5m (2016: £36.1m) on turnover of £1,267.9m (2016: £1,147.5m)

This operating segment covers the Group's businesses in the UK, Ireland, Holland, Sweden, Denmark and Portugal. Volumes were 14.4% driven higher by new Portugal and Seachill businesses offset by lower consumer demand in Holland. Sales on a constant currency basis grew by 6.5%. Operating margins improved slightly to 3.3% (2016: 3.1%) boosted by new contributions from Seachill and Portugal. Seachill trading in the post-acquisition period was good with profit of £1.8m before charging amortisation. Portuguese income in the year was generated from managing the refurbishing and re-equipping phase activity.

Central Europe

Operating profit of £1.2m (2016: £2.1m) on turnover of £91.6m (2016: £87.0m)

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 13.7% with constant currency sales 4.1% lower and operating margins fell to 1.3% (2016: 2.4%) as we continue to adapt our business model to the local environment with performance improving in the second half of the year.

A five year agreement was reached during the year with Tesco to build a state of the art factory in Poland to produce fresh foods including sandwiches, pizza, ready meals and soups. It is expected that production will begin in the first quarter of 2019.

Central costs and other

Net operating cost before exceptional items £4.4m (2016: £3.9m)

This segment includes our share of the management fee earned by our joint venture with Woolworths of £4.3m (2016: £3.1m), start-up and support costs of £1.5m (2016: £0.6m) and central costs of £7.2m (2016: £6.4m). These figures exclude the exceptional one-off acquisition costs of £2.8m. Hilton's share of post-tax joint venture service fees in Australia grew by 42% in the year across the facilities in Melbourne and Western Australia. Start-up and support costs increased as we designed and commenced construction of our new facility in Brisbane, Queensland. Central costs were higher as we progressively increase resources to manage our growth successfully.

Past and future trends

Over recent decades as major retail chains have progressively gained a greater share of the grocery markets in most countries, they have increasingly turned to large scale, centralised packing solutions capable of producing private label packed food products more safely and cost effectively. In doing so, they have rationalised their supply base, achieving lower costs with higher food safety, food integrity, traceability and quality standards. This has allowed supermarket groups to focus on their core business and maximise their return on available retail space whilst addressing consumers' continuing requirement for quality and value.

Grocery retail markets are expected to remain extremely competitive, with continuing pressure on consumer expenditure. The trend towards increased use of centralised packing solutions is likely to continue albeit at different speeds across the world. This gives rise to a wide range of potential future geographical expansion opportunities for Hilton, but inevitably in a range of different timescales as markets develop and change over time.

Within the wider retail market, consumer patterns are continuing to change with increased internet based ordering and delivery together with growth in the number of "click and collect" facilities. Following pressures on consumer expenditure over a number of years, there has been increased use by cost conscious consumers of local convenience stores and discount outlets to shop more frequently for a reduced overall basket cost per visit and at a wider range of retail outlets. These developments which appear to be structural rather than cyclical reinforce the overall trend towards retail packed meat and fish, as this is the offering in all these growth areas.

Outlook and current trading

Hilton's operating performance in the early months of 2018 has been in line with the Board's expectations. The Group will implement the transfer of operational control of the two existing Australian joint venture facilities during the year. We will continue to explore opportunities for further geographical expansion in both domestic and overseas markets and are well placed to capture those opportunities as they arise.

The medium term outlook for Hilton is positive with the integration of the Seachill business together with new factories in Queensland, Australia and New Zealand as well as business extension in Central Europe. These projects and continued focus on product development and range extension lay foundations for strong growth over the next five years.

Robert Watson OBE

Chief Executive

27 March 2018

Performance and financial review

Summary of Group performance

Hilton's financial performance was strong in 2017 with operating profits up 2.3% and 11.6% before exceptional items reflecting constant currency growth of 7.0% boosted by favourable currency movements. Basic earnings per share were 1.5% lower but 11.0% higher before exceptional items (5.9% on a constant currency basis). Cash flow generation was strong offset by the cost of the acquisition. This performance and financial review covers the main highlights of the Group's financial performance and position in 2017.

Basis of preparation

The Group is presenting its results for the 52 week period ended 31 December 2017, with comparative information for the 52 week period ended 1 January 2017. The financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU).

2017 Financial performance

Volume and revenue

Volumes grew by 10.4% in the year including contributions from the Seachill acquisition and the Portugal joint venture as well as in Australia offset by lower volumes in Holland and Central Europe. Additional details of volume growth by business segment are set out in the Chief Executive's summary. Revenue increased 10.1% and by 5.7% on a constant currency basis boosted by higher raw material prices.

Operating profit and margin

Operating profit was £35.1m and £38.3m before exceptional items which was 2.3% and 11.6% respectively above the previous year's level (2016: £34.3m) and 7.0% higher on a constant currency basis. The operating profit margin in 2017 was unchanged at 2.8% (2016: 2.8%), and the operating profit per kilogram of packed food sold was unchanged at 12.5p (2016: 12.5p).

Exceptional items and profits before exceptional items

Costs of £2.8m were incurred during the year in connection with the Seachill acquisition and amortisation of £0.4m was charged on acquired intangible assets. The Board uses profit before exceptional items to measure performance and considers this metric better reflects the performance of the business.

Net finance costs

Net finance costs decreased to £0.9m (2016: £1.1m) reflecting lower borrowings prior to the Seachill acquisition with interest rates remaining at historically low levels. Interest cover in 2017 remained high increasing to 39 times (2016: 31 times).

Taxation

The taxation charge for the period was £7.2m (2016: £6.6m) representing an effective taxation rate of 21.0%. Excluding the exceptional items the effective rate was 19.3% compared with 19.7% in 2016 with the reduction mainly due to lower UK tax rates.

Net income

Net income, representing profit for the year attributable to owners of the parent, before exceptional items, of £28.0m (2016 £24.6m) was 13.7% higher than last year and 8.7% higher on a constant currency basis. Reported net income after exceptional items was £24.9m (2016 £24.6m).

Earnings per share

Basic earnings per share before exceptional items of 37.4p (2016: 33.7p) was 11.0% higher than last year and 5.9% higher on a constant currency basis. Reported basic earnings per share were 33.2p (2016: 33.7p). Diluted earnings per share were 32.8p (2016: 33.2p).

Earnings before interest, taxation, depreciation and amortisation

EBITDA, which is used by the Group as an indicator of cash generation, increased to £56.7m and £59.5m excluding the exceptional items which was 5.7% above last year at constant currency (2016: £54.0m) mainly reflecting the increase in operating profits together with higher depreciation charges.

Free cash flow and net cash position

Cash flow was strong in 2017 generating free cash flow before exceptional items, dividends, financing and cost of acquisition of £36.3m (2016: £26.7m) after capital expenditure of £11.9m. Free cash outflow was £47.3m after acquisition costs and exceptional items of £83.6m. Additionally £55.9m was raised through an equity placing.

Group borrowings were £53.4m at the end of 2017 and, with net cash balances of £78.8m including the other financial asset comprising a treasury deposit, resulted in a closing net cash position of £25.4m, as compared with a net cash level of £32.3m at the end of 2016. At the end of 2017 the Group had undrawn committed loan facilities under its new syndicated banking facilities of £160.0m (2016: £99.2m).

Dividends

The Board aims to maintain a dividend policy that provides a dividend level that grows broadly in line with the underlying earnings of the Group and has recommended a final dividend of 14.0p per ordinary share in respect of 2017. This, together with the interim dividend of 5.0p per ordinary share paid in December 2017, represents an 11.1% increase in the full year dividend, as compared with last year. The final dividend, if approved by shareholders, will be paid on 29 June 2018 to shareholders on the register on 1 June 2018 and the shares will be ex dividend on 31 May 2018.

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:

	2017 (52 weeks)	2016 (52 weeks)	Definition, method of calculation and analysis
Financial KPIs
Revenue growth (%)	10.1%	12.8%	Year on year revenue growth expressed as a percentage. The 2017 increase reflected volume growth, higher raw material prices and favourable exchange translation rate movements.
Operating profit margin (%)	2.8%	2.8%	Operating profit excluding the exceptional items expressed as a percentage of turnover. The operating profit margin % was stable between 2016 and 2017.
Operating profit margin (pence per kg)	12.5	12.5	Operating profit excluding the exceptional items per kilogram processed and sold in pence. Performance in 2017 was consistent with 2016.
Earnings before interest, taxation, depreciation and amortisation (EBITDA) (£m)	56.7	54.0	Operating profit before depreciation and amortisation. The increase reflected higher operating profits less the exceptional items, together with higher depreciation charges.
Free cash flow (£m)	(47.3)	26.7	Cash (outflow)/inflow before minorities, dividends and financing. The free cash outflow for the year arose from the £83.6m spend on acquisitions. Free cash flow generation was strong before spend on acquisitions at £36.3m.
Gearing ratio (%)	n/a	n/a	Year end net debt as a percentage of EBITDA. The Group was ungeared at the end of 2016 and 2017 being in a net cash position.
Non-financial KPIs
Growth in sales volumes (%)	10.4%	7.4%	Year on year volume growth. Volume growth was seen principally in the UK, Australia and Portugal.
Employee and labour agency costs (pence per kg)	38.7	38.2	Labour cost of producing meat and fish products as a proportion of volume. The increase reflects wage inflation and exchange translation rate movements.
Customer service level (%)	98.7%	98.6%	Packs of product delivered as a % of the orders placed. Little year on year change,

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 2018 financial year and its longer term plans, including consideration of the principal risks faced by the Group. Following this review, 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 are 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 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 C.2.2 of the 2014 revision of the 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 2020. 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 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 raw material meat and fish, 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.

Forward looking statements

This Strategic report contains forward looking statements that are inevitably subject to risk factors associated with, amongst other things, economic, political and business developments which may occur from time to time across the countries in which the Group operates.  It is believed that the expectations reflected in these statements are reasonable based on current knowledge, but all forward looking statements and forecasts are inherently predictive, speculative and involve risk and uncertainty, simply because they relate to events and depend on circumstances that will occur in the future.

Nigel Majewski

Chief Financial Officer

27 March 2018

Risk management and principal risks

Risks and risk management

In accordance with provision C.2.1 of the 2014 revision of the UK Corporate Governance Code the Directors confirm that they have carried out a robust assessment of the risks facing the Group that might impede the achievement of its strategic and operational objectives as well as might 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 crystalise. 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 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.

The most significant risks the Group faces

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 is dependent on a small number of customers who can exercise significant buying power and influence when it comes to contractual renewal terms at 5 to 10 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 its maintained 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 is dependent on the success of its customers and the growth of their packed meat and fish sales.
Its potential impact	The Group's products predominantly carry the brand labels of the customer to whom packed meat and fish is supplied and it is accordingly dependent on its customers' success in maintaining or improving consumer perception of their own brand names and packed meat and fish 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 dependent on the macroeconomic environment and levels of consumer spending 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, 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 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. 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.

Description of risk	The Group's business is dependent on maintaining a wide and flexible global food supply base operating at standards that can continuously achieve the specifications set by Hilton and its customers.
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 meat and fish 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	Outbreaks of disease and feed contamination affecting livestock and fish and media concerns relating to these and instances of product adulteration can impact the Group's sales.
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 meat and fish 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.

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 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 27 March 2018 and is signed on its behalf by:

Directors

R Watson OBE	Chief Executive
N Majewski	Chief Financial Officer

Consolidated income statement

		2017	2016
		52 weeks	52 weeks
	Notes	£'000	£'000
Continuing operations
Revenue	3	1,359,518	1,234,495
Cost of sales		(1,195,424)	(1,083,667)
Gross profit		164,094	150,828
Distribution costs		(11,953)	(11,089)
Administrative expenses		(118,574)	(108,471)
Exceptional item - acquisition costs	4	(2,843)	-
Share of profit in joint venture		4,387	3,056
Operating profit		35,111	34,324
Finance income	5	66	87
Finance costs	5	(970)	(1,202)
Finance costs - net	5	(904)	(1,115)
Profit before income tax		34,207	33,209
Income tax expense	6	(7,167)	(6,553)
Profit for the year		27,040	26,656
Attributable to:
Owners of the parent		24,887	24,649
Non-controlling interests		2,153	2,007
		27,040	26,656
Earnings per share attributable to owners of the parent during the year
Basic (pence)	7	33.2	33.7
Diluted (pence)	7	32.8	33.2

Consolidated statement of comprehensive income
	2017	2016
	52 weeks	52 weeks
	£'000	£'000
Profit for the year	27,040	26,656
Other comprehensive income
Currency translation differences	2,134	8,266
Other comprehensive income/(expense) for the year net of tax	2,134	8,266
Total comprehensive income for the year	29,174	34,922
Total comprehensive income attributable to:
Owners of the parent	26,801	32,104
Non-controlling interests	2,373	2,818
	29,174	34,922
The notes are an integral part of these consolidated financial statements.

Consolidated balance sheet

			Group	Company
		2017	2016	2017	2016
	Notes	£'000	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	9	80,596	70,396	-	-
Intangible assets	10	73,263	8,584	-	-
Investments		10,273	4,847	102,985	102,985
Deferred income tax assets		1,624	1,058	-	-
		165,756	84,885	102,985	102,985
Current assets
Inventories		51,458	24,382	-	-
Trade and other receivables		137,380	118,608	54,237	41
Current income tax assets		-	33	-	-
Other financial asset		7,913	-	-	-
Cash and cash equivalents		70,853	59,304	204	208
		267,604	202,327	54,441	249
Total assets		433,360	287,212	157,426	103,234
Equity
Equity attributable to owners of the parent
Ordinary shares		8,135	7,355	8,135	7,355
Share premium		62,335	7,273	62,335	7,273
Employee share schemes reserve		5,723	5,250	-	-
Foreign currency translation reserve		4,880	2,966	-	-
Retained earnings		108,358	96,419	15,937	15,685
Reverse acquisition reserve		(31,700)	(31,700)	-	-
Merger reserve		919	919	71,019	71,019
		158,650	88,482	157,426	101,332
Non-controlling interests		5,094	6,613	-	-
Total equity		163,744	95,095	157,426	101,332
Liabilities
Non-current liabilities
Borrowings	12	38,056	17,409	-	-
Deferred income tax liabilities		6,166	1,505	-	-
		44,222	18,914	-	-
Current liabilities
Borrowings	12	15,268	9,567	-	-
Trade and other payables		209,586	163,636	-	1,902
Current income tax liabilities		540	-	-	-
		225,394	173,203	-	1,902
Total liabilities		269,616	192,117	-	1,902
Total equity and liabilities		433,360	287,212	157,426	103,234
The notes are an integral part of these consolidated financial statements.
The financial statements were approved by the Board on 27 March 2018 and were signed on its behalf by:

R. Watson OBE	N. Majewski
Director	Director

Hilton Food Group plc - Registered number: 06165540

Consolidated 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 4 January 2016		7,286	8,191	901	(4,489)	82,829	(31,700)	919	63,937	4,938	68,875
Profit for the year		-	-	-	-	24,649	-	-	24,649	2,007	26,656
Other comprehensive income
Currency translation differences		-	-	-	7,455	-	-	-	7,455	811	8,266
Total comprehensive income for the year		-	-	-	7,455	24,649	-	-	32,104	2,818	34,922
Issue of new shares		69	1,423	-	-	-	-	-	1,492	-	1,492
Adjustment in respect of employee share schemes		-	(1,949)	3,823	-	-	-	-	1,874	-	1,874
Tax on employee share schemes		-	(392)	526	-	-	-	-	134	-	134
Dividends paid	8	-	-	-	-	(11,059)	-	-	(11,059)	(1,143)	(12,202)
Total transactions with owners		69	(918)	4,349	-	(11,059)	-	-	(7,559)	(1,143)	(8,702)
Balance at 1 January 2017		7,355	7,273	5,250	2,966	96,419	(31,700)	919	88,482	6,613	95,095
Profit for the year		-	-	-	-	24,887	-	-	24,887	2,153	27,040
Other comprehensive income
Currency translation differences		-	-	-	1,914	-	-	-	1,914	220	2,134
Total comprehensive income for the year		-	-	-	1,914	24,887	-	-	26,801	2,373	29,174
Issue of new shares		780	55,062	-	-	-	-	-	55,842	-	55,842
Adjustment in respect of employee share schemes		-	-	188	-	-	-	-	188	-	188
Tax on employee share schemes		-	-	285	-	-	-	-	285	-	285
Dividends paid	8	-	-	-	-	(12,948)	-	-	(12,948)	(3,892)	(16,840)
Total transactions with owners		780	55,062	473	-	(12,948)	-	-	43,367	(3,892)	39,475
Balance at 31 December 2017		8,135	62,335	5,723	4,880	108,358	(31,700)	919	158,650	5,094	163,744
Company
Balance at 4 January 2016		7,286	8,191	-	-	17,120	-	71,019	103,616
Profit for the year		-	-	-	-	9,624	-	-	9,624
Total comprehensive income for the year		-	-	-	-	9,624	-	-	9,624
Issue of new shares		69	1,423	-	-	-	-	-	1,492
Adjustment in respect of employee share schemes		-	(1,949)	-	-	-	-	-	(1,949)
Tax on employee share schemes		-	(392)	-	-	-	-	-	(392)
Dividends paid	8	-	-	-	-	(11,059)	-	-	(11,059)
Total transactions with owners		69	(918)	-	-	(11,059)	-	-	(11,908)
Balance at 1 January 2017		7,355	7,273	-	-	15,685	-	71,019	101,332
Profit for the year		-	-	-	-	13,200	-	-	13,200
Total comprehensive income for the year		-	-	-	-	13,200	-	-	13,200
Issue of new shares		780	55,062	-	-	-	-	-	55,842
Dividends paid	8	-	-	-	-	(12,948)	-	-	(12,948)
Total transactions with owners		780	55,062	-	-	(12,948)	-	-	42,894
Balance at 31 December 2017		8,135	62,335	-	-	15,937	-	71,019	157,426

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

Consolidated cash flow statement

			Group	Company
		2017	2016	2017	2016
		52 weeks	52 weeks	52 weeks	52 weeks
	Notes	£'000	£'000	£'000	£'000
Cash flows from operating activities
Cash generated from operations	13	54,986	50,066	-	-
Interest paid		(970)	(1,202)	-	-
Income tax (paid)/received		(7,561)	(7,460)	41	-
Net cash generated from operating activities		46,455	41,404	41	-
Cash flows from investing activities
Acquisition of subsidairy, net of cash acquired		(80,901)	-	-	-
Investment in joint ventures		(3,177)	-	-	-
Disposal of investment		46	-	-	-
Purchases of property, plant and equipment		(10,456)	(15,744)	-	-
Proceeds from sale of property, plant and equipment		140	430	-	-
Purchases of intangible assets		(1,476)	(647)	-	-
Interest received		66	87	-	-
Dividends received		-	-	13,200	9,625
Dividends received from joint venture		2,008	1,184	-	-
Net cash (used in)/generated from investing activities		(93,750)	(14,690)	13,200	9,625
Cash flows from financing activities
Proceeds from borrowings		42,695	-	-	-
Repayments of borrowings		(16,560)	(14,870)	-	-
Repayment of inter-company loan		-	-	(56,139)	-
Issue of ordinary shares		57,465	1,492	57,465	1,492
Equity raise costs		(1,623)	-	(1,623)	-
Other financial asset		(7,913)	-	-	-
Dividends paid to owners of the parent		(12,948)	(11,059)	(12,948)	(11,059)
Dividends paid to non-controlling interests		(3,892)	(1,143)	-	-
Net cash generated from/(used in) financing activities		57,224	(25,580)	(13,245)	(9,567)
Net increase/(decrease) in cash and cash equivalents		9,929	1,134	(4)	58
Cash and cash equivalents at beginning of the year		59,304	52,806	208	150
Exchange gains on cash and cash equivalents		1,620	5,364	-	-
Cash and cash equivalents at end of the year		70,853	59,304	204	208
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 specialist retail meat packing business supplying major international food retailers in fourteen European countries and Australia.

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 31 December 2017 (prior financial year 52 weeks to 1 January 2017).

This preliminary announcement was approved for issue on 27 March 2018.

2 Summary of significant accounting policies

The accounting policies are consistent with those of the annual financial statements for the year ended 1 January 2017.

Basis of preparation

The consolidated 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 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 31 December 2017 and 1 January 2017 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 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 eight 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 and viii) Central costs and other including the share of profit from the joint venture in Australia. 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 and Central costs and other comprise the other reportable segments.

From a product perspective the Executive Directors consider that the Group has only one identifiable product, wholesaling of food protein products including meat and fish. 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:
			Central  costs and other				Central costs and other
	Western	Central		2017	Western	Central		2016
	Europe	Europe		Total	Europe	Europe		Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Total segment revenue	1,305,712	91,625	-	1,397,337	1,175,989	87,023	-	1,263,012
Inter-segment revenue	(37,819)	-	-	(37,819)	(28,512)	(5)	-	(28,517)
Revenue from external customers	1,267,893	91,625	-	1,359,518	1,147,477	87,018	-	1,234,495
Operating profit/(loss)/segment result before exceptional items	41,496	1,195	(4,377)	38,314	36,137	2,129	(3,942)	34,324
Exceptional item - acquisition costs	-	-	(2,843)	(2,843)	-	-	-	-
Acquisition intangibles amortisation	(360)	-	-	(360)	-	-	-	-
Operating profit/(loss)/segment result after exceptional items	41,136	1,195	(7,220)	35,111	36,137	2,129	(3,942)	34,324
Finance income	16	49	1	66	18	69	-	87
Finance costs	(902)	-	(68)	(970)	(956)	-	(246)	(1,202)
Income tax (expense)/credit	(8,032)	(241)	1,106	(7,167)	(7,263)	(427)	1,137	(6,553)
Profit/(loss) for the year	32,218	1,003	(6,181)	27,040	27,936	1,771	(3,051)	26,656
Depreciation and amortisation	20,306	903	130	21,339	18,581	999	126	19,706
Additions to non-current assets	8,781	653	2,506	11,940	14,892	1,294	205	16,391
Segment assets	379,268	18,603	33,865	431,736	259,355	18,477	8,289	286,121
Current income tax assets				-				33
Deferred income tax assets				1,624				1,058
Total assets				433,360				287,212
Segment liabilities	208,020	9,201	45,689	262,910	179,658	8,992	1,962	190,612
Current income tax liabilities				540				-
Deferred income tax liabilities				6,166				1,505
Total liabilities				269,616				192,117

Sales between segments are carried out at arm's length. Revenue from external customers reported to the Executive Directors is measured in a manner consistent with that in the income statement.

The Executive Directors assess the performance of each operating segment based on its operating profit before exceptional items. 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 four principal customers (comprising groups of entities known to be under common control), Tesco, Ahold, Coop Danmark and ICA Gruppen. 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.

Analysis of revenues from external customers and non-current assets are as follows:
	Revenues from external customers		Non-current assets excluding deferred tax assets
	2017	2016	2017	2016
	£'000	£'000	£'000	£'000
Analysis by geographical area
United Kingdom - country of domicile	564,287	488,106	130,291	43,020
Netherlands	304,844	294,308	5,444	8,183
Sweden	223,796	208,974	14,009	15,715
Republic of Ireland	78,187	64,452	5,719	5,666
Denmark	103,728	91,637	3,969	7,594
Central Europe	84,676	87,018	3,743	3,649
Australia	-	-	957	-
	1,359,518	1,234,495	164,132	83,827
Analysis by principal customer
Customer 1	647,724	570,062
Customer 2	321,326	317,740
Customer 3	239,767	225,657
Customer 4	101,860	89,936
Other	48,841	31,100
	1,359,518	1,234,495

4 Exceptional item

Transaction costs of £2.8m including due diligence, legal and stamp duty were incurred during the year in connection with the acquisition of Seachill UK Limited.
5 Finance income and costs
	2017	2016
Group	£'000	£'000
Finance income
Interest income on short term bank deposits	64	82
Other interest income	2	5
Finance income	66	87
Finance costs
Bank borrowings	(563)	(915)
Finance leases	(67)	(162)
Other interest expense	(340)	(125)
Finance costs	(970)	(1,202)
Finance costs - net	(904)	(1,115)

6 Income tax expense
	2017	2016
Group	£'000	£'000
Current income tax
Current tax on profits for the year	7,673	7,091
Adjustments to tax in respect of previous years	(80)	(91)
Total current tax	7,593	7,000
Deferred income tax
Origination and reversal of temporary differences	(504)	(56)
Adjustments to tax in respect of previous years	78	(391)
Total deferred tax	(426)	(447)
Income tax expense	7,167	6,553

Deferred tax charged directly to equity during the year in respect of employee share schemes amounted to £174,000 (2016: credited £111,000).

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 19.25% (2016: 20%) applied to profits of the consolidated entities as follows:

	2017	2016
	£'000	£'000
Profit before income tax	34,207	33,209
Tax calculated at the standard rate of UK Corporation Tax 19.25% (2016: 20%)	6,585	6,642
Expenses not deductible for tax purposes	610	317
Joint venture income not taxable	(838)	(611)
Adjustments to tax in respect of previous years	(2)	(482)
Profits taxed at rates other than 19.25% (2016: 20%)	486	495
Other	326	192
Income tax expense	7,167	6,553
There is no tax impact relating to components of other comprehensive income.

7 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.

			2017		2016
Group		Basic	Diluted	Basic	Diluted
Profit attributable to owners of the parent	(£'000)	24,887	24,887	24,649	24,649
Weighted average number of ordinary shares in issue	(thousands)	74,977	74,977	73,247	73,247
Adjustment for share options	(thousands)	-	820	-	945
Adjusted weighted average number of ordinary shares	(thousands)	74,977	75,797	73,247	74,192
Basic and diluted earnings per share	(pence)	33.2	32.8	33.7	33.2

8 Dividends
	2017	2016
Group and Company	£'000	£'000
Second interim dividend in respect of 2016 paid nil p per ordinary share (2016: 9.2p)	-	6,725
Final dividend in respect of 2016 paid 12.5p per ordinary share (2016: 1.3p)	9,248	951
Interim dividend in respect of 2017 paid 5.0p per ordinary share (2016: 4.6p)	3,700	3,383
Total dividends paid	12,948	11,059

The Directors propose a final dividend of 14.0p per share payable on 29 June 2018 to shareholders who are on the register at 1 June 2018. This dividend totalling £11.4m has not been recognised as a liability in these consolidated financial statements.

9 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 4 January 2016	39,008	163,643	9,024	298	211,973
Exchange adjustments	1,909	16,426	931	5	19,271
Additions	344	14,480	714	206	15,744
Reclassification	103	(267)	1,636	-	1,472
Disposals	(1,464)	(1,522)	(257)	(155)	(3,398)
At 1 January 2017	39,900	192,760	12,048	354	245,062
Accumulated depreciation
At 4 January 2016	19,080	118,079	7,404	180	144,743
Exchange adjustments	1,405	12,237	773	1	14,416
Charge for the year	2,713	13,666	795	84	17,258
Reclassification	-	-	1,508	-	1,508
Disposals	(1,464)	(1,426)	(256)	(113)	(3,259)
At 1 January 2017	21,734	142,556	10,224	152	174,666
Net book amount
At 4 January 2016	19,928	45,564	1,620	118	67,230
At 1 January 2017	18,166	50,204	1,824	202	70,396
Cost
At 2 January 2017	39,900	192,760	12,048	354	245,062
Exchange adjustments	621	5,203	391	5	6,220
Acquisition (note 11)	7,159	10,108	246	-	17,513
Additions	756	8,536	1,061	103	10,456
Disposals	(1)	(1,217)	(51)	(117)	(1,386)
At 31 December 2017	48,435	215,390	13,695	345	277,865
Accumulated depreciation
At 2 January 2017	21,734	142,556	10,224	152	174,666
Exchange adjustments	480	4,179	339	2	5,000
Charge for the year	2,731	15,042	748	82	18,603
Disposals	(1)	(847)	(42)	(110)	(1,000)
At 31 December 2017	24,944	160,930	11,269	126	197,269
Net book amount
At 31 December 2017	23,491	54,460	2,426	219	80,596

Land and buildings are held under short leaseholds. Details of bank borrowings secured on assets of the Group are given in note 12. 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 £3,281,000 (2016: £1,980,000).

Property, plant and equipment include the following amounts where the Group is a lessee under a finance lease:

	2017	2016
	£'000	£'000
Cost - capitalised finance leases	3,626	3,487
Accumulated depreciation	(2,527)	(2,254)
Net book amount	1,099	1,233
Included in assets held under finance leases are land and buildings with a net book amount of £1,099,000 (2016: £1,233,000).

10 Intangible assets
	Product licences	Computer software	Brand and customer relationships	Goodwill	Total
Group	£'000	£'000	£'000	£'000	£'000
Cost
At 4 January 2016	18,745	4,092	-	836	23,673
Exchange adjustments	1,756	437	-	-	2,193
Additions	-	647	-	-	647
Reclassifications	-	(1,472)	-	-	(1,472)
Disposals	(216)	(1)	-	-	(217)
At 1 January 2017	20,285	3,703	-	836	24,824
Accumulated amortisation
At 4 January 2016	9,890	3,710	-	-	13,600
Exchange adjustments	1,288	413	-	-	1,701
Charge for the year	2,241	207	-	-	2,448
Reclassifications	-	(1,508)	-	-	(1,508)
Disposals	-	(1)	-	-	(1)
At 1 January 2017	13,419	2,821	-	-	16,240
Net book amount
At 4 January 2016	8,855	382	-	836	10,073
At 1 January 2017	6,866	882	-	836	8,584
Cost
At 2 January 2017	20,285	3,703	-	836	24,824
Exchange adjustments	432	198	-	-	630
Acquisition (note 11)			21,907	43,957	65,864
Additions	-	1,484	-	-	1,484
Disposals	-	(28)	-	-	(28)
At 31 December 2017	20,717	5,357	21,907	44,793	92,774
Accumulated amortisation
At 2 January 2017	13,419	2,821	-	-	16,240
Exchange adjustments	370	185	-	-	555
Charge for the year	2,237	139	360	-	2,736
Disposals	-	(20)	-	-	(20)
At 31 December 2017	16,026	3,125	360	-	19,511
Net book amount
At 31 December 2017	4,691	2,232	21,547	44,793	73,263

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

11 Business combinations

On 6 November 2017 the Group completed the acquisition of Seachill UK Limited ("Seachill" previously Icelandic Group UK Limited) a leading producer and distributor of fresh and frozen seafood products.

The acquisition provides the Group with the opportunity to sell a broader range of protein products which is seen as an attractive and sustainable area to develop and grow its business. The Seachill business presents an attractive growth opportunity in the frozen seafood space, where Hilton does not have a presence. Hilton hopes to offer adjacent food categories to its existing customer base. Changing consumer tastes and preferences for a healthier lifestyle make fish an attractive food category.

The Group acquired 100% of the share capital of Seachill UK Limited for consideration of £80.8m in cash.

Fair value of assets acquired	£m
Property, plant and equipment	17.5
Brand and customer relationship intangibles	21.9
Inventories	22.9
Trade and other receivables	11.9
Cash and cash equivalents	9.9
Trade and other payables	(31.9)
Current income tax liabilities	(0.7)
Deferred tax	(4.7)
Borrowings	(10.0)
Fair value of net assets acquired	36.8
Goodwill	44.0
Consideration	80.8

The above reflects the initial assessment of fair value and remains subject to amendment for one year from the date of acquisition. Goodwill has arisen and mainly relates to the strategic benefits for Hilton of diversifying its product portfolio into the seafood market.

The fair value of properties acquired was established from a review carried out by external qualified surveyors. The properties have been revalued at their existing use value giving consideration to the highest and best use of the properties. The values of other current assets and liabilities have been adjusted to amounts to be realised or paid respectively.

Brand intangibles have been recognised primarily relating to its Saucy Fish Co brand for which trademarks have been secured over a wide geographic area. The brand is sold by our retailer customers and is also directly marketed to consumers. Brand recognition is one of the key drivers of success in this market. Customer relationship intangibles have been recognised which relate to the supply agreements that the business has in place with its customers. The fair values of brand and customer relationship intangibles of £21.9m have been aggregated as it is considered that they are inextricably linked with their value each dependent on the other. These intangibles are being amortised over a useful economic life of 9 - 10 years.

Trade and other receivables acquired includes trade receivables all of which are expected to be collected and therefore the fair value recognised is £11.9m.

In the year acquisition related costs of £2.8m have been recognised within exceptional acquisition costs (see note 4).

Since 6 November 2017 Seachill has contributed revenue of £41.9m, operating profit before exceptional items of £1.8m and profit before tax and exceptional items of £1.8m.

If the acquisition of Seachill had taken place at the start of the financial period, the enlarged Hilton Food Group would have recognised revenue of £1,578.9m, operating profit before exceptional items of £46.3m and profit before tax and exceptional items of £44.9m.

12 Borrowings
	2017	2016
Group	£'000	£'000
Current
Bank borrowings	14,989	9,348
Finance lease liabilities	279	219
	15,268	9,567
Non-current
Bank borrowings	36,206	15,319
Finance lease liabilities	1,850	2,090
	38,056	17,409
Total borrowings	53,324	26,976
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:
	2017	2016
Currency	£'000	£'000
UK Pound	51,195	15,500
Euro	2,129	2,309
Swedish Krona	-	9,167
	53,324	26,976

Bank borrowings are repayable in quarterly instalments by 2019 - 2022 with interest charged at LIBOR 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 £160.0m (2016: £99.2m) 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.

The minimum lease payments and present value of finance lease liabilities is as follows:

	Minimum lease payments		Present value
	2017	2016	2017	2016
Group	£'000	£'000	£'000	£'000
No later than one year	340	377	279	219
Later than one year and no later than five years	1,359	1,603	1,198	1,139
Later than five years	679	1,069	652	951
	2,378	3,049	2,129	2,309
Future finance charges on finance leases	(249)	(740)	-	-
Present value of finance lease liabilities	2,129	2,309	2,129	2,309

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. The fair value of the Group's finance lease liabilities is £2,378,000 (2016: £2,956,000). The fair values are based on cash flows discounted using the European Central Bank benchmark main refinancing operations fixed interest rate of 0% (2016: 0%).

13 Cash generated from operations
	2017	2016
Group	£'000	£'000
Profit before income tax	34,207	33,209
Finance costs - net	904	1,115
Operating profit	35,111	34,324
Adjustments for non-cash items:
Share of post tax profits of joint venture	(4,387)	(3,056)
Depreciation of property, plant and equipment	18,603	17,258
Amortisation of intangible assets	2,736	2,448
Loss on disposal of non-current assets	209	(75)
Adjustment in respect of employee share schemes	188	1,874
Changes in working capital:
Inventories	(3,538)	(4,250)
Trade and other receivables	(928)	(9,824)
Prepaid expenses	(2,244)	(889)
Trade and other payables	931	11,960
Accrued expenses	8,305	296
Cash generated from operations	54,986	50,066
The parent company has no operating cash flows.

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

		2017	2016
Group		£'000	£'000
Hilton Food Solutions Limited		12,540	5,564
Woolworths Limited and subsidiaries - recharge of joint venture costs		329	1,010
Sohi Meat Solutions Distribuicao de Carnes SA - fee for services		4,349	-
Sohi Meat Solutions Distribuicao de Carnes SA - recharge of joint venture costs		209	-
Amounts owing from related parties at the year end were as follows:
		Owed from related parties
		2017	2016
Group		£'000	£'000
Hilton Food Solutions Limited		2,222	978
Woolworths Limited and subsidiaries		14	69
Foods Connected Limited		170	-
Sohi Meat Solutions Distribuicao de Carnes SA		4,515	-
The Company's related party transactions with other Group companies during the year were as follows:
		2017	2016
Company		£'000	£'000
Hilton Foods Limited - dividend received		13,200	9,625
Hilton Foods Limited - acquisition funding		54,237	-
Hilton Foods UK Limited - payment for group relief		-	11
At the year end £54,237,000 was owed by Hilton Foods Limited (2016: £1,902,000 owed to Hilton Foods Limited) and £nil (2016: £41,000) was owed by Hilton Foods UK Limited.
Details of key management compensation are given in a note to the full financial statements.

 

END

 

 

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