Hilton Food Group plc

Good morning, everybody. Welcome to Hilton Foods full year results 2023. I'm Steve Morales, the group's chief executive, and I'm presenting today with our chief financial officer, Matt Osborne. We'll share our full year performance this morning, review the progress that we're making in the business versus our strategic priorities and lay out the strength of the platform that we have in place to go after future growth. This has been a good financial performance for the year achieved against a backdrop that has remained volatile. As a group, we've seen a pleasing uptick in group revenues and volumes. In addition, and particularly encouraging, has been the growth in profits, which is largely down to delivering our seafood turnaround ahead of our plan. We've also made progress in further strengthening our balance sheet with notable improvements in our free cash flow, which positions the business well to support future growth opportunities. I'm also pleased to announce the final dividend of 32 pence an increase of 7.7% on the prior year and in line with our progressive dividend policy. Our financial outturn has been driven by the strong operational performance across all the businesses. Our core meat category has performed well in both retail and food service. In APAC, we've seen another strong year of revenue and volume growth, whilst in the UK and Europe, we've shown good resilience given the economic backdrop. Particular credit must go to everyone within our seafood business who have delivered the turnaround ahead of plan and returned the business to full year operating profit. This has created a sustainable business foundation to support future growth. We've responded to market trends in vegan and vegetarian and taken decisive action in the second half of the year to right-size our operational facilities. Meanwhile, easier meals continue to perform strongly, delivering our customers' needs for convenient pre-prepared products. We've continued to focus on our core and grow our multi-category offer with existing customers, whilst targeting new retail relationships, a particular highlight last year being our new long-term partnership deal with Walmart in Canada. Meanwhile, sustainability remains at the heart of the business and our commercial offer, and only last week we had our more ambitious science-based targets approved. Now, this is the slide that I first showed at the half year, and I wanted to take this opportunity to once again reiterate why I believe Hilton Foods has a clear and competitive advantage. These three pillars illustrate that we're a multi-category provider of proteins, an international player of scale, and a business with a market-leading technology offer through green chain solutions. When combined, this brings us competitive advantage in optimizing cost, quality, service, and innovation. Hilton is a business built on a passion for food. As we stand here today, we're continually looking to food skills and innovation, allowing us to enhance our offer by leveraging our world-class insights across all products and all categories. From an international point of view, we've grown from operating in one country with one retail relationship to a business that has strong customer partnerships now around the world. Over the last four years, we have more than doubled group revenues from under 2 billion to 4 billion, driven by our international and our category expansion. Today, 75% of revenues are now outside the UK. And to our industry-leading technology, a clear differentiator, we provide the most efficient supply chain to our partners through scalable robotics and cloud-based infrastructure, allowing retailers to manage their full end-to-end supply chain from specification to product quality and cost of production mapping. We know there are significant opportunities for us to go after. The key for us is to grow incrementally with the partners that we have today, gaining a greater share of their business. But more than this, there is of course potential for a further step change in growth by agreeing more partnerships in new geographies into the future. The key priorities behind me have guided the business to success throughout 2023. Personally speaking, I'd like to thank all of our teams across all our markets for their continued hard work, their contribution and commitment to delivering progress in all these areas. These strategic priorities will continue to be our focus throughout 2024. I'm now going to hand you over to Matt for a deeper dive into the numbers. Matt.

Thanks, Steve, and good morning, everyone. As Steve's highlighted, we've reported volume growth of 0.7%, with revenue growing by 3.7% to just under £4 billion for the year. Operating profit increased by 33.5% to £95 million, an overall increase of £24 million, with the turnaround of our seafood business driving a significant amount of this, though across all of our regions we've seen operating profit growth. Reflecting these improvements, Our operating profit margin increased from 1.8% in 2022 to 2.4% in 2023. And our conversion margin, which is adjusted to exclude the value of raw materials from revenue, increased from 10.6% to 12.7% in 2023. Profit before tax, after allowing for the impact of increasing interest costs, was £66 million, up 19% on the previous year. With adjusted EPS of 52.8 pence per share, up 17%. And as Steve said, our proposed full year dividend of 32 pence is 7.7% up on last year with dividend cover of 1.7 times. Looking at our balance sheet and our overall capex spend was 56.8 million pounds, marginally up on 2022, while our robust trading performance and delivery of working capital improvements resulted in strong operating cash flows and therefore a significant reduction in our overall net debt position, which ended the year at 140 million pounds with leverage at one times net debt to EBITDA. Revenue grew by 3.7% to £3.99 billion, with constant currency revenue growth of 5.7%. The overall strengthening of sterling continues to present a headwind, both in terms of revenue and profitability, and we've included the average FX rates for 23 and current rates for 24 within a guidance slide in the appendix for your reference. As I said earlier, total volume increased by 0.7%, with increasing prices accounting for a further 4.4% of our revenue growth. whilst changes in mix, largely from the benefits of a full year of ownership of the Fopham business, contributed 0.7%. On a like-for-like basis, so excluding the benefits of acquisitions and the impacts of changes in FX rates, our volume grew by 0.5%, with revenue growth of 4.8%. Looking in more detail at our regional performance, the volume performance in both Europe and the UK and Ireland has remained robust in the face of continuing inflationary pressures in the market. Volume in the UK and Ireland fell by 3%, with revenue up 3.5% on a constant currency basis. In Europe, volumes were down 2%, with revenue up 6.8%, with Europe benefiting from the full year of trading for FOPN compared to nine months in 2022. During the year, we responded quickly to the structural changes in the vegan and vegetarian market and have consolidated our Dalco business into a single site. However, we did see reduced volume and revenue in the segment, albeit this accounts for a relatively small part of the business overall. Volumes in our APAC business continue to be strong. A 7.2% increase, a reflection of more benign food inflation, with more moderate growth expected in 2024, with revenue in APAC up 1.4% at actual effect rates, but up 6.7% on a constant currency basis. Overall, group operating margins have increased from 1.8% in 2022 to 2.4% in 2023. The key building block for this increase was the positive impact of the successful turnaround of our UK seafood business. This has resulted in the business returning to operating profitability in the year, carrying positive momentum into 2024 to continue the recovery further. As I mentioned earlier, we've also had a full year of trading from Foppen, whose added value speciality smoked salmon products are accretive to the overall margin mix in Europe. And in APAC, where we earn an overall cents per kilo fee, the recovery of increased interest costs positively benefited our overall margin, with our more normalized central costs resulting in a partial offset. As we've discussed previously, our de-risked cost pass-through model generates low single-digit operating margins. But we also look at our margins through the lens of the value we add through the conversion costs that we directly control. And on that basis, excluding raw material costs, pass-through and revenue, our enhanced conversion margin increased from 10.6% in 2022 to 12.7% in 2023. The UK and Ireland has seen the strongest year-on-year profit progression, but across all of our regions, we have seen profit growth. Within the UK and Ireland, alongside the seafood recovery, the core red meat business and our Fairfax Meadow food service business continued to perform well. In Europe, operating profits were up 13% overall, with a full year of trading following the acquisition of Foppen, combined with strong performances in our core meat businesses in Benelux, Scandinavia, and Central Europe. This, though, is partially offset by the impact on our Dowco business of the wider challenges facing the vegan and vegetarian markets. Volume growth in our APAC region has driven strong profit growth, albeit tempered by the ongoing impact of strengthening sterling, with operating profit up 13% and constant currency growth of 19%. After allowing for increased central costs and the impact of interest rate rises, PBT for the year on a constant currency basis was up 20.3% and up 19% at actual FX rates to 66 million pounds. Our business continues to generate strong cash flows with an operating cash conversion ratio of 3.2 times for the full year. Operating cash flows have increased by £95 million compared to 2022 to £154.5 million, benefiting from strong EBITDA and working capital cash inflows. In the year, we've seen strong working capital cash inflows with the levels of inventory held in the business being optimised in all regions, with strong December trading also resulting in working capital improvements. Underlying free cash flow. after consistent levels of maintenance capital spend was 134 million, and overall free cash flow after expansionary capex was 96 million. We introduced our medium-term financial ambitions in November, and these included a sustainable cash conversion level of 1.5 times and an overall leverage target of less than two times. Our strong cash flows leave us with overall debt of 140 million, a £72 million reduction compared to the end of 2022, with net debt to EBITDA reducing from 1.8 times to one times. Our strong balance sheet, combined with undrawn bank facilities in excess of 100 million and a supportive bank group, provides us with the opportunity to invest in achieving sustainable growth in both our existing core business and through wider geographic expansion. Looking at CapEx in more detail, we've invested £58.6 million in total this year, with £38.5 million of expansion we spend to support growth in our business, and with £20 million of maintenance capital, which keeps the facilities we operate at the high standards our customers rightly expect. The majority of our investments in the year have continued to focus on our businesses in the UK and Ireland, and in Europe. In the UK, investments in automation are delivering efficiency benefits in our sites in Huntington and in Grimsby, and have played a key role in supporting the recovery of our seafood business. In Europe, we've invested 10 million pounds in our foodbark in Sweden, which commits production in quarter three, and delivers incremental growth with our partner, IKA. Our medium-term ambitions are to invest less than £50 million per year in our core business. Though looking forward to 2024, we anticipate spending ahead of this at around £60 million as we have a strong pipeline of expansionary investments in our core business that exceed our returns hurdles. The Group's ROCI improved by 3.5 percentage points to 18.3% for 2023. We've spoken before about the investments we've made and about how the investments we've made in APAC are now additive to the overall Group Rocky as the capital we've invested in those businesses matures. In 2023, we've also seen the positive impact of the turnaround of the UK seafood business, which is driven just under two thirds of the rocky improvement. And looking ahead, in the shorter term, we'll see our investment in Hilton Foods Canada dilute rocky marginally, but as we ramp up and the facility matures, we expect to see longer term sustained rocky benefits during the initial term of the agreement and beyond, with our overall rocky moving towards the 20% ambition we've set ourselves. The group is in a strong financial position with a strong balance sheet and conservative leverage that gives us both the confidence and ability to support future growth. Our approach to capital allocation gives us a framework to ensure that our investments are targeted to protect our core business and unlock sustainable growth opportunities, driving attractive shareholder returns through expansion in the core business, geographic expansion supercharges, and selective complementary M&A. Finally, we set out our medium-term financial ambitions in November, and as we've seen this morning, we've made significant progress towards each of them in the year. We remain committed to these ambitions as the guardrails for the business and firmly believe that focusing on their delivery will ensure long-term success and attractive, sustainable returns. I'll now hand you back to Steve to take you through a business update. Thank you.

Thanks, Matt. I wanted to take this opportunity to outline the prevailing market trends that we've been seeing and how we as a group have a relevant offer supporting our customers in responding to consumer needs. What sets us apart is our ability to respond to fast moving trends, deliver via our catalogue of products and then roll out at scale and pace. Through our insight and food innovation teams across the business, we work in close partnership with our customers, setting them up to win, whether that be through an increased focus on everyday affordability or greater indulgence at special occasions. Similarly, we've bolstered our customer offer in the face of consumer demands for healthier, more convenient meals, while also prioritising more sustainable choices of which packaging has been a key focus. It is a highly relevant product offer which is supporting our organic growth amongst current customers. As well as there being plenty of white space for us to go after across geographies and categories, there is also considerable opportunity to achieve incremental growth in existing markets. Demonstrated by the light blue outlines on this chart, this is what we've done over the past year. To bring a few examples of the progress to life, as Matt said, We've launched our fresh food park in partnership with our long-term standing retail partner, IKA, in Sweden, which launched in quarter three last year, and has also recently commenced supplying a similar product portfolio to our Danish business. We've launched a new range of UK ready-to-cook products in partnership with Tesco and capitalized on our bacon processing expertise in Ireland, launching with a complimentary new leading retailer, Dunn's. We've also started to engage new customer relationships in Central Europe, UK seafood, and our UK food service business, Fairfax Meadow, securing a pipeline for growth for the future. And most recently, we've expanded the portfolio of fish products that we supply to countdown stores in New Zealand, starting with shellfish. In addition, we've expanded our presence in North America and Asia through our Foppen acquisition and recent Walmart announcement. These incremental wins and gains, albeit in their early stages, give us a presence and a foothold into new categories for future development. As you can see from the pictures on this slide, we have outstanding products right away across all of our categories. driven by our passion for food and combined with our supply chain model, which puts the needs of the customer at the heart of the decision making of our local teams. And they've worked tirelessly in partnership with their customers to drive success. I'm now going to take you through each of our core product categories, the progress that we've made, and how they're underpinned by our strengthening supply chain. Meat is our heritage and where it all started. It is our core category and underpins everything that we do. We've maintained a robust performance across the geographies that we operate in. And key to this has been ensuring we have the right products available at the right price. Growth in our APAC region has remained strong throughout the year and we've continued to make progress in reducing the weight of the packaging we use and the recyclability which has underpinned the success of the rollout of our flow wrap packaging format for mince products, and we're exploring trials in the burger category to roll this out further with Albert Hein. Fairfax Meadow is our entirely complimentary UK food service business, which will be celebrating its 50th anniversary later this year. They are established and recognised leaders as catering butchers in the food service sector. Their expertise, their service and the strength of their long-term partnerships were recognised recently as Mitchell & Butler's Food Supplier of the Year, in addition to winning the Catering Butcher of the Year at the Meat Management Awards. Their excellence and expertise best place Fairfax in their sector, adding Shepard Neame, The Alchemist and The Restaurant Group as new customers in 2023. In our ambitions to be the protein partner of choice, we have further grown our poultry offer across Europe and APAC, including extending our own brand, Hackster, in Scandinavia to include chicken products. We've also extended our sortation service provision in Denmark to support our partner Co-op through their peak festive trading period and extended our responsibility for the management of Albert Heinz protein supply chain. During the year, we were pleased to return our seafood business to full year operating profits ahead of plan. We're confident that the measures that we've put in place now provide a strong platform and leave us well-placed to go after future growth. The business has simplified its operations, including a reduction in our ranges, while driving the core through more popular products, including profitable special buys. We've successfully recovered the cost inflation, whilst also winning new business in the year. And where it makes sense, bringing together the best of our fish operations in Europe with those in the UK. Our joint venture with Agito, part of Green Chain Solutions, has underpinned the cost-out plan delivering the 21 million investment program in automation. This has helped the business create a sustainable, lower cost base by reducing reliance on labor and improving the efficiency of the key processes through end-of-line automation. Through a lower sustainable cost base, including driving operational efficiency, yield optimization, waste reduction, and better buying, The business carries positive momentum into this year following a strong finish to 2023. Looking forward, we fixed the problems of 22 and we continue to focus on the improvement plans. We have a strong platform for sustainable growth and we're pushing on to the next phase. Vegan and vegetarian is a small proportion of our mix. That said, we took timely action to right-size the footprint of our facilities, consolidating two sites into one. This was completed earlier this year. The team at our Dalco site have completed a full product portfolio review and is working to unlock new co-manufacturing partnerships and opportunities that remain within our private label relationships. This business represents an additional lever to pull in the case of any upturn in consumer sentiment and we are well placed within a market that we anticipate will naturally have fewer players over time. Moving to our final food category, easier meals. This category includes food for now, ready meals, pre-prepared meal centres and highly localised convenient products. It showcases our love of food, our local insight, and our manufacturing expertise, and demonstrates our prowess in innovation, creating new solutions that better meet our customers' needs by launching new product ranges. Some of the highlights within this category include relaunching the Tesco sandwich and wrap offer in Central Europe, resulting in sales growth of 25%, driven through improving the quality of the products that we offer. We also launched healthier ready meals, enabling shoppers to meet their aspirations of healthier food in more convenient formats, which are also performing ahead of expectations. Growth in our ready-ticket ranges have also flourished with new wins in Europe, UK and Australia. In September, we announced our long-term partnership with Walmart in Canada. Back at our investor day in November, we shared a theoretical returns profile of a supercharger-style deal. Deals like this do take a long time, but they generate attractive returns over the initial agreement term and beyond. I believe that Walmart's decision to partner with Hilton in building the most highly automated, multi-category, state-of-the-art facilities is a testament to the strength of our unique offer and our expertise. This is a partnership that serves to underline the strength of our international capability. And while we remain in the early stages of onboarding, design and execution, we're confident of the future opportunities that lie ahead with this iconic retailer. We're continuing to develop our partnership with Walmart and design the product ranges for beef, pork, lamb and seafood, and explore further areas of opportunities, full production, is expected during the first half of 2027. Green Chain Solutions is a key ingredient to our competitive advantage, supporting our facilities to be highly automated and ultimately market leading, as previously illustrated in our seafood operational improvement plan. Complementing our product offer, Green Chain Solutions brings a benefit to our customers in ways others simply cannot reach. Through our assets of Agito and Connected, we're creating efficiencies and prioritizing traceability, two of the most important aspects for the modern retailer. As shared in our Investor Day, we are at the early stages of commercializing green chain solutions, but in the year just gone, the team have already landed new business wins, extending their reach into new geographies outside of the Hilton Food customer base. The Sustainable Protein Plan underpins everything that we do, and not least our sustainability commitments and progress are crucial to our commercial offer for both our customer and their customers. We continue to invest in developing our people and their expertise, and we've maintained our CDP climate rating, making improvements in both soy and forest disclosures. Since 2020, we've reduced our scope one and two emissions by 14% and made significant progress in improving our packaging, both reducing absolute weight by almost 2,000 tons and 70% of our packaging is now recyclable. We've raised the bar in each of our facilities, reducing food waste and also investing in renewable energy sources and adopting best practices in our energy management system recognized by our multi-site ISIO 50001 accreditation across 10 of our facilities last year. We recently submitted more ambitious science-based targets in line with one and a half degrees centigrade which were validated last week. As you can see behind me, our revised, more ambitious science-based targets have been validated by SBTI as part of the business's commitment to reach net zero by 2048, two years ahead of schedule. This includes accelerated targets to reduce scope one, two, and three emissions across areas including greenhouse gas emissions, energy, industrial sources, forestry, land and agriculture, and builds on Hilton Fu's continued efforts to progress its sustainable protein plan that was first set out in 2022. Turning to the outlook, it continues to be a challenging and unpredictable market. However, we are well-placed for the year ahead and continue to trade in line with expectations for the start of 2024. The business has a strong financial position and we're focused on making progress towards our medium term financial ambitions to support the business's drive for future growth. I remain confident that we're well placed and there are many opportunities for further growth through existing partnerships, highly complementary M&A or wider geographic expansion. In summary, this is a robust set of results delivered through strong operational progress across all aspects of the business. Our core categories have performed well and our seafood business is back on track and fit for future growth. The Hilton Food business model and competitive advantage deliver a real USP, optimising cost, quality, service and innovation. This sets us apart from the competition within our existing long-term customer partnerships and best places us for continued future success. Looking to the year ahead, I'd like to share my focus with you. Put simply, that's on executing the plan, ensuring our partner relationships remain strong, continuing to strengthen the balance sheet and drive sustainable growth. Thank you very much. We'll now take questions from the floor. Could I ask, when you do ask your question, that you just share your name and the institute that you represent?