Hilton Food Group Plc

Good morning everybody and welcome to Hills and Foods interim results for 2025. I'm Steve Morrell, Group Chief Executive and I'm joined today by our Chief Financial Officer, Matt Osborne. I'd like to start with an overview of our performance for the period, which has seen us continue to deliver a solid performance and strong strategic progress despite some operating challenges in the market. Over this first half, we've delivered another robust set of numbers, progressing volumes, revenue and profit. Volumes are up 2.5% and this reflects both the relevance of our core ranges and our ability to adapt to market dynamics. Our return on capital employed remains robust at 20.8% and improvement of 0.6 percentage points compared to half one in 2024. and earnings per share increased by 5 percentage points, reaching 26.5 pence. Revenues grew strongly, up 10.4%, demonstrating both the scale of our business and the strength of our customer partnerships. Profit before tax was also up by 3%, to 33.6 million. Our balance sheet remains strong, with net debt at 1.3 times EBITDA, Finally, we're proposing an interim dividend of 10.1 pence per share, representing an increase of 5.2% year on year, underlying our confidence in the long-term growth prospects of the business and in line with our progressive dividend policy. In the first half of the year, we saw a good performance in red meat and convenience with volumes growing 3.1%. This is above market growth and reflects the strength of our customer partnerships, our operations, and our winning product ranges. In contrast, we've seen softer demand in whitefish, mainly as a result of raw material inflation, with higher prices dampening demand. At Poppen, we've seen an impact on operations after certain batches of products did not meet the US import requirements due to the detection of low levels of listeria. To address this, we've relocated our smoked salmon production from our facilities in Greece to the Netherlands for the near term to ensure that we protect availability and our customer service levels. Demand for the product in the US remains strong, underpinned by our supportive customer relationships. We've made good progress in addressing this issue and we're working closely with the FDA to restore uninterrupted supply from Greece. Now turning to our tech stack, we were pleased to have brought in a new investment partner into our foods connected business. This is an important step that will help us unlock and accelerate growth and deliver more value from the platform. Looking globally, our expansion plans are progressing well and both remain on time with our Saudi joint venture with NADAC launching in the second half of 2026. and our Canadian launch with Walmart set for early 2027. At the same time, we've commenced a project that focuses on sharpening our future priorities. This includes optimizing our organization to support expansion and create long-term sustainable value for all. Work on these plans is progressing well, and I look forward to updating once complete. So while we navigate some local issues, The overall picture is one of continued opportunity, strategic progress and future focus. Before moving on, I'd like just to take a moment to share a bit more detail on the market that's helped shape our performance in the first half of the year. Now, throughout half one, we've experienced significant protein inflation with around 60% in cod and haddock and 30% in beef. At the same time, consumer confidence has weakened, which means people are more cautious with their spending. We're also seeing shoppers switching products more frequently, trading down or changing categories, and finally, availability across protein supply chains has remained volatile. In the face of these dynamic market shifts, we've leveraged our core strengths. Our international reach allows us to balance performance across different markets and benefit from the scale. The shift towards more meals being bought from supermarkets and prepared at home, supported by our strong retail partnerships, has worked in our favour as this is the backbone of our business, creating more opportunities to continue to drive volume even in the face of inflation. In conjunction, Our broad product mix and commitment to innovation mean that we can adapt quickly to the changing consumer behaviours and continue to bring new solutions to market such as our new barbecue ranges, great value mince products and premium tier steaks. Lastly, our global sourcing expertise ensures we can secure supply and manage volatility better than many others in the sector. Together, these dynamics shape the backdrop of this performance and guide how we focus our priorities moving forward for the remainder of the year. Now I'll hand over to Matt for a deeper dive into the numbers.

Thanks Steve, and good morning everyone. It's a pleasure to be here to walk you through our financial performance today. As Steve mentioned, our performance in the first half has been underpinned by the strength of our meat business, which accounts for around 80% of our revenue. and the expertise and commitment of our teams. These key ingredients have enabled us to overcome the impact of market dynamics within the seafood sector and deliver continued volume growth overall. We've been able to capitalise on market opportunities by staying close to our customers and consumers, by driving innovation, improving efficiency and continuing to create value for our stakeholders. With that in mind, let's take a closer look at the numbers. We've delivered volume growth of 2.5% with strong revenue growth of 10.4% on a constant currency basis against a backdrop of significant inflation. On a constant currency basis, operating profit rose by 1.9% driven by sustained volume momentum, particularly in our retail, meats and convenience categories. The operating profit margin decreased from 2.4% in the first half of 2024 to 2.2% in the first half of 2025. impacted by the performance of our seafood business, with margins in our meat business remaining broadly flat despite raw material inflation. Although reflecting our ongoing focus on efficiency, our enhanced conversion margin has increased by 0.5 percentage points. Profit before tax was up 3% to £33.6 million, and after factoring in the impact of the strengthening in pound, was up 0.3% on a reported basis. Adjusted earnings per share grew by 5% to 26.5 pence per share and our interim dividend at 10.1 pence per share is up 5.2% on last year. On the balance sheet side, net debt rose to £202 million following tactical investments in inventory and capital deployed developing our new facility in Canada. Leverage remains comfortable at 1.3 times net debt to EBITDA and capital expenditure for the year stood at £41 million. an increase of £15 million versus half one of 2024, and included £15 million invested in Canada. Overall, revenue grew by 10.4% on a constant currency basis. Alongside volume growth from our meat and convenience food businesses, the primary driver was raw material price inflation in meats across all three regions and significant white flesh inflation in the UK. We've also seen some negative mixed impact from lower cost products forming an increasing proportion of our overall volume, as shoppers clearly look to manage their everyday spend. The strength of sterling remains a headwind, with revenue at actual FX rates up 7.6%, and for reference, we've included our average FX rates as an appendix in the slide pack for you. Now, turning to regional performance, in the UK and Ireland, we've seen significant inflation in both beef, of more than 30%, and whitefish of around 60% year-on-year. Despite this, retail meat volumes have been resilient, and everyday products have remained stickier in shoppers' baskets. However, whitefish volumes have not been immune from the impact of wider inflation, with the UK affected across primary whitefish, coated, and fish cakes, and that's held back overall volume growth. Across Europe, beef price inflation of 27% has also been a primary driver of revenue growth. though the operational disruption we've experienced in serving the US market from Poppen has also impacted volumes. In contrast, our convenience business in Central Europe has continued to go from strength to strength, delivering another period of double-digit volume and revenue growth. In APAC, we've continued to see strong demand, even in the face of significant raw material inflation, demonstrating the resilience of our markets there. Overall, group operating margins have decreased from 2.4% in the first half of 24 to 2.2% in 2025. In the UK and Ireland, we've seen solid profit progression in meat, but overall performance has been held back by weaker profitability in seafood. In Europe, upsides we've seen from the growth in our core meat category and our convenience food ranges has been offset by the impact of reduced volumes from FOPEN following the disruption there. And in APAC, where we earn an overall cents per kilo fee, profit increases reflect continued strong demand with increased volumes being processed in our facilities. After allowing for increased central costs and the benefit of reduced interest costs, group EBT for half one on a constant currency basis was up 3%. Non-underlying costs for the first half totaled £3.3 million compared with 0.3 in the same period last year. and these are excluded from our underlying results. The biggest driver is FOPEN, which accounts for a total of £2 million of these costs, and that relates to the transition of our operation from Greece to the Netherlands, increased inventory provisioning, and increased logistics costs as we're air freighting products to the US to maintain service levels to our customers. We expect these costs to continue into the second half as we recover our business. The second item is linked to the Future Focus project that Steve talked about, with 1.3 million costs in the first half. This reflects the commencement of the work stream and some initial reorganisation of positions within the business, supporting long-term efficiency and growth with work continuing in the rest of the year and beyond. Overall, while these non-underlying costs have increased year on year, they are tied directly to protecting supply, ensuring continuity of customers and investing in future success for the group. The Group's balance sheet remains strong, allowing us to continue to invest in growth. This has also enabled us to take tactical decisions to increase inventory, ensuring we'll continue to deliver excellent service levels to our customers during peak trading periods in the second half of 2025 and into 2026. We, of course, continue to make targeted investments in our existing facilities, keeping our operations running smoothly and efficiently, and also supporting capacity expansion and our wider growth. In the first half, we invested £26 million in core capex and £15 million in our expansion in Canada. With our progressive dividend policy, we've also returned £22 million to shareholders in the first half of the year. Reflecting our investment in inventory and planned increased capex, net debt at the end of the half was £202.4 million, an increase of £65 million from half on 2024 and £71 million higher than the end of the year. We remain focused on sustainable growth, continued operational excellence and delivering value for stakeholders. Our investment programme is key to maintaining our competitive edge and accelerating growth. Our core capital expenditure includes £12 million of maintenance capex that continues to protect the core of our operations by maintaining the market-leading standards that our teams and our customers expect and trust. The remaining £13.7 million is focused on growth and efficiency, including capacity increases in Hilton and further investment in our Swedish facility where we've installed Frozenberg production lines, which is a new category for us in partnership with IKA. Alongside this, we've spent £4.6 million on other efficiency projects across the group. We've continued to invest in our facility in Canada and have spent £15 million during the first half of the year, bringing our total spend to date to £21 million. Our total investment this year is now projected to be around £40 million, with our overall investment expected to be around £80 million. These increases result from shifting economic conditions, which have led to higher anticipated equipment and infrastructure costs. However, the opportunity remains highly attractive and continues to exceed our hurdle rates. A disciplined approach to capital allocation ensures we remain at the forefront of our industry, balancing the requirements of maintaining our competitive advantage, driving our efficiency and supporting growth, delivering value for our customers, partners, and investors alike. Our financial strategy is built on a solid foundation of comfortable leverage and a resilient balance sheet, positioning us well to support both our existing business and new ventures. Reflecting tactical decisions we've made to build inventory and progress in our growth ambitions, as I've said, our net debt has increased by £71 million compared to the end of 2024, with leverage increasing by 0.4 times versus the end of last year. but this for me remains at comfortable levels, and with reducing interest costs, interest cover increased to 5.4 times. As I said, we have comfortable leverage, and I remain confident we have the financial strength to continue to seize growth opportunities as they arise. We have a well-structured funding framework, and as we previously shared, our bank facilities are enhanced by the use of lease financing and supply chain financing provided by our customers, where we have margins that are lower than our bank facilities. The group's underlying business model is highly cash-generative and in a robust financial position, supported by strong balance sheet and comfortable leverage, which gives us both the confidence and ability to invest in future growth. Our commitment to a disciplined approach to capital allocation gives us a framework to ensure that our investments are targeted to protect our core business, maintaining the high standards our customers expect, and unlocking sustainable growth opportunities, driving attractive shareholder returns through supporting business development, enabling geographic expansion, and selective complementary M&A. In conclusion, these results demonstrate our resilience in the challenging market, delivering robust performance today while investing for tomorrow. Supported by the strength of our business model, we remain confident in our ability to drive sustainable growth and deliver long-term returns. I now hand you back to Steve to take you through the business update.

Thanks, Matt. Thank you. are the four strategic priority areas which have continued to guide where we focus our efforts. Growing our global footprint, expanding our multi-category offer, building further expertise as a supply chain partner and leveraging tech as a key driver of value. Now let's take a closer look at what we've been working on and how far we've come, starting with growing our global footprint. Hilton Foods Canada, in partnership with the world's number one retailer, Walmart, remains on time to launch early 2027. We held the ceremonial groundbreaking with great support from the senior team at Walmart Canada and representatives from local government agencies. They all supported the project and the progress that we're making. The build is now well underway. As part of our continued range planning, we've already completed over 80 product evaluations and we've kick-started the packaging artwork process. We expect returns to exceed our hurdle rates and this growth opportunity remains highly attractive despite the raised capital spend mentioned earlier. Looking ahead, in quarter four, we will begin the fit-out process with our automation teams commencing work in the building and we expect to see revenues and profit contribution from this project in early 2027 to be in line with those guided at our full year results back in April. Our joint venture with NADAC in Saudi Arabia is making very good progress as well and remains firmly on schedule. As you will recall, this is a capital light entry into a new market where we are developing a primary butchery facility alongside secondary retail packing. This will enable us to process and supply high-quality meat products to a growing number of retailers, many of whom are expected to move away from in-store butchery over time. Our projected return on capital employed is in line with hurdle rates and we are confident that this initiative will deliver strong returns and secure a valuable first mover advantage in the market. Construction of the main facility and the joint venture packing plant is advancing well and we're preparing for equipment installation, commissioning and testing to begin in quarter four. Alongside the build, we're developing the product range and packaging for both the NADAC branded meat offer that will allow us to tap into strong local demand while also engaging positively with local retailers to expand private label opportunities further. This combination of branded and private label supply positions us well to serve a fast-growing and attractive market. We expect the first revenue contribution to come through in the second half of next year and profit contribution from 2027. The breadth of our offer, combined with the exciting new product launches, is driving the strength of our multi-category proposition and ensuring that we meet evolving consumer needs as some households seek greater value whilst others seek premium ranges for more special occasions at home. As part of this, we've launched a new marinated to cook range designed to encourage bigger basket spends through strong promotions, such as three for 20 Aussie dollars, supporting Woolworths in winning our share. And in Europe, we've successfully launched frozen burgers in Sweden, which is performing well and builds on our food park offer. Across our private label ranges, we've introduced mixed meat options to deliver great value where we've incorporated low-cost proteins such as pork and chicken and combined it with beef in mince, in burgers, and in meatballs across Europe and APAC. We've also strengthened our trade partnerships with retailers worldwide through seasonal promotions and exceptional execution, including Easter campaigns in the UK and limited additional seasonal convenience ranges in Central Europe. These initiatives... highlight how we're adapting to market conditions while delivering value, choice and growth for our business and customers. Our focus on premiumisation remains unwavering, guided by insight from different markets. In the UK and APAC, we've expanded our premium range with Wagyu steaks, burgers and grass-fed beef, offering high-quality options that elevate the dining experience. In Ireland and the Netherlands, we've refreshed our barbecue offer, extended our ranges further on trend flavors, and brought a level of convenience through oven-friendly foil trays. These initiatives consistently deliver premium, relevant, and engaging products with a strong pipeline plan for the second half of the year. Now, turning to supply chain resilience, our leadership remains critical to ensuring both security and long-term growth. With markets tightening across Europe and inflation on the rise, our global procurement expertise has been critical in helping us mitigate local supply shortages for our customers. Looking ahead, we expect these skills to remain important in the second half of the year. A good example is in Sweden, where we've expanded the Hilton Hackster brand, offering high-quality meat sourced globally at affordable prices. As a reminder, back in April, we signalled a softening of our whitefish demand across the sector. Our front-footed approach has enabled us to get ahead of this through operational efficiency and sourcing. Over the past six months, we've continued to successfully pass through cost impacts and previous investments in automation have brought about supportive yield and labour efficiencies. In addition, we've opened up new geographical regions for sourcing cod and haddock and commenced early trialling of alternative species. At the same time, we've continued to grow our seafood ranges in the APAC market. While this has been ongoing, our focus on innovation to kickstart demand in the UK has continued and starts with the launch of Harry Ramsden's brand later this month. Another good example is the recent work completed on mince packaging, where we took an end-to-end approach in our Australian business. This created many savings, the highlights being a reduction in plastic of 200 tonnes, a reduction in emissions and costs, and improvement in store productivity. At the end of July, we secured a strategic investment in Foods Connected from the APAC's Global Impact Fund. As a result, the business will receive $22 million in cash while retaining a 26% stake in the Foods Connected business. This partnership will build on Foods Connected's success and accelerates its next phase of growth by bringing in capital and Apex's technology expertise. As a reminder, the platform delivers real-time data to optimize supply chains, improve cost efficiency, quality control, risk and visibility, and of course, sustainability. Foods Connected continues to be a key enabling tool and delivers exceptional service to our business and our customers. APACS recognizes Food Connected's potential to scale globally, supporting businesses that tackle social and environmental challenges as well. This investment creates value for all, while allowing us to retain an attractive stake in a high-growth enterprise. Additionally, we continue to deploy automation to improve efficiencies, trial AI in our manufacturing operations, and we've recently initiated a rollout of our enhanced factory management ERP system across our global operations, enhancing connectivity and scalability. Turning to ESG, we remain committed to delivering our sustainability goals and are aligned with our customers' priorities. Earlier this year, we published our second standalone sustainability report built around the three pillars of people, planet and product. Further to this, we've been recognised with a CDPA rating for supply collaboration and shortlisted for awards for manufacturer and net zero strategy of the year. This reflects both our ambition and our progress. Our people drive this important work and I'm grateful for their incredible dedication to the business. They are our greatest asset and I'd like to thank them for their unwavering commitments. We continue to invest in them, building our talent pipeline, using apprenticeships, internships and graduate programs, which builds the leadership capability and the cross-cultural experience that we need going forward. Finally, as you can see from this slide, Within our own operations, we're making progress on lowering our energy and gas usage enabled by our international teams sharing best practice across the group. These achievements highlight our commitment to driving meaningful impact, delivering progress through our close collaboration with our customers, our suppliers and their communities. Looking ahead, we expect our retail meat business to continue to perform strongly. Nonetheless, we do expect market headwinds in seafood to remain while we manage Foton's operational challenges. Our focus is on delivering our full year results supported by our growth pipeline across two new geographies built on a resilient core business. Overall, we are well positioned with a differentiated and scalable business model underpinned by our sharp focus on the future. Finally, I wanted just to turn to our investment case and our inherent long-term strengths. At the heart of this business is our track record of maintaining long-term partnerships with some of the best retailers in the world. Our meat business continues to outperform the market in all the regions that we operate in. Our strong balance sheet allows us to unlock new opportunities with access to a large addressable market outside the UK and our Rokey performance driven by our ability to deleverage quickly, drives exceptional returns. When combined, it is these attributes which I believe represent a powerful combination to achieve our long-term growth and value for all. At this point, I'll open to the floor for questions and just ask that you could share your name and the institute that you represent. Thank you. Charles, good morning.

Charles Hall from Hill Heights. Is that on? Yeah, that's on. Steve, you mentioned sharpening future priorities. I know you're going to talk about this more in future, but can you just give us a bit more colour on what areas you're looking at? Is this costs? Is this products, regions, customers?

So look, we're now into my third year. The first two years was all about getting this business back to health and coming through the difficult period of 22. I think we've done that well and we're set much stronger than we were when I came in. This piece of work now is about the future and actually us looking about where we want to go, what we want to be over the next 10 years so we can make sure that we are as strong and relevant as we have been over the last 10 years. And so it will be a full end-to-end review, Charles, across everything that we do, but most importantly about where we think the market will go in the mid to the long term.

And when do you expect to give more details on this?

That will be in the new year. The work's progressing well, but I'd like to think that we could announce an update, certainly at the four-year results.

And will this bring some cost savings as well as some changes in direction?

Well, look, cost savings isn't something that we suddenly think is a good idea. It's a continual piece of work that's going on in the business. It's about making sure that we're fit for the future and that we're structurally set up to do that.

Got it, thanks. And Max, just on the return on capital on Walmart Canada, understandable that the CapEx cost has increased, but can you just talk us through how it still meets your return thresholds with that high cost base?

Well, so it was an attractive investment for us in the first place and the increased cost there, we're talking about it today. We're working closely with Walmart on the build and ultimately the protections we have and they have within the contract allows us to be confident in terms of returns going forward and how that plays out over the long term of the contract. That is.

Clive? Sorry, David.

Morning everybody. David McNeill from Dr. Newmis. First question is a general question on UK consumer. Perhaps for you, Steve. And just how you're seeing the current environment and what the outlook for the rest of the year is and how that matches with your anticipation around Christmas. And then the second one is specifically around where do we think we are in the journey on the sort of whitefish inflation journey and your ability to sort of deliver new products to help offset some of that volume decline?

Yeah. Thanks, Damien. There is no doubt, and I think I said it, that there is a softening in consumer outlook. But as you mentioned, we are, as always, well set for a good Christmas. And I think what we've been able to do is whilst there has been a softening overall, we've still been able to find opportunities where we can premiumize our offer. And we've still been able to make sure that we can help our partners provide the best value for money so that they can help their customers whose purse strings are getting a little bit tight. And I think that comes back to one of our core capabilities around insight and data and working back from what the customer needs are so whilst it is softening across the piece we think we are well set with our ability to grow relevant ranges be with the right retailers who obviously have their golden quarter coming up shortly and so I think as I've echoed we've got capabilities to move through this It's not for the faint-hearted that we can grow volumes in an inflationary market in the way that we've done and I think that sets us up for the second half of the year. On the journey on whitefish, the opportunities that we've already put in place to move from Pacific cod and haddock to Atlantic, but more importantly to now start looking to introduce bassa as a replacement or HAKE. And just to give you some form of context, BASA is around about 50% cheaper than Cod and Haddock. And HAKE is about 15 to 20% cheaper. What we're doing though, bear in mind that Cod and Haddock is a bit of the mainstay of what people have grown up on, is through our own brands, testing the market and helping customers get comfortable about the product that's now started to evolve. I think that will go down well because people do need help and then we'll accelerate quickly in bringing those alternative species on board. Clive?

Yeah, thank you Clive Black from Shore Capital. I've got three questions, I'll ask them one at a time and they follow on from Charles and Damien to a degree. First of all, in terms of your return on capital, building in Saudi Arabia as well, do you remain confident that you can maintain at or above your aspired 20% level?

Just going with the one question or are we going to go with three?

I do want a time because I'm old and got a bad memory.

Yeah, very much so. We know that with the investment in Canada, we will see a dilution. We've clearly chosen to invest in inventory as well, which has seen evolution too, but overall confident long-term that we'll be delivering returns in excess of the 20% hurdle rate without doubt.

Okay, that's clear. And then from Damien's question about whitefish, we can see that you've got a, hopefully there's a one-off issue in Fopland, but in 2022 when you came into the business, Steve, I think you were a bit surprised by the informality of fish sourcing. at Hilton, across both whitefish and salmon, how much formality have you introduced into fish sourcing and to what extent does that give you confidence or a better feel for your supply chain going forward?

Yeah, you'll recall that we very quickly up-weighted and up-skilled the capability of the team in Grimsby and with the procurement that we've now got, I'd say they are leading in the understanding of fish stocks, fish movement, species opportunity. And that's important because we've got to provide solutions for retailers because they can see the dynamic shift, certainly in the movement of fish. And so we're well set, I would say. That's a much stronger muscle that we have today than we had two years ago, Clive. And, you know, I think it's really important to make the point this is a demand issue. And as we've demonstrated, we're finding smart ways to try and kick-start demand, but also dumbing down on the operation, making sure that our yields continue to improve, making sure our labour is really efficient. And most importantly, where that is obvious, making sure that our partners... absorb the cost inflation that we're seeing.

Okay, thank you. And then lastly, turning to beef, are you surprised about the robustness of beef volumes given the price of beef? And what are the driving forces from your perspective behind beef inflation? And do you see those stabilising or persisting? Because obviously you're a global player, so it's not just about beef in Britain and Ireland.

Yeah, I... That's a good question. Beef has shown itself to be extremely resilient, probably much more resilient if we've been facing this three or four years ago, but as we know there's been a kind of a recovery in the sector. We don't really see it coming off a great deal. And as we've said, it's not just in the UK, it's across Europe, and it's equally across the APAC region. But again, in the APAC region, we see our meat business growing market share. We see great volumes coming through from that business. So again, there seems to be a resilience level that people can continue to buy beef products, even at the levels that they are today. Now, we have to be patient. Careful here, we have to keep on doing everything that we're doing, getting the balance between products that appeal to shoppers on a budget, but also where we can see opportunities in the offer, premium in the ways that we've described, we'll continue to put our foot on the pedal. Driving all of this, we know are a number of issues, but in essence, the tightening of availability is what's behind the main reason and I think that then plays to our strengths as being one of the best how we procure a product on a global basis how we start to look at complementing the beef herd with the dairy herd and that work is well underway Thank you Matt's in the front

Thanks very much. Matthew Webb from Investec. I wonder if you'd just help me to understand the increase both in the inventory level and the capex guidance a bit more fully. To what extent in both cases is that driven by inflation, by higher costs, whether that's of the inventory or the equipment, and to what extent is it your decision to take volume levels up, again, whether that's the volume of inventory or either the quantity or quality of the equipment. And on the CapEx side, to the extent that it's your decision, what will be driving that? Is it a reaction to the never-ending increase in labour costs?

We'll tag team it. Shall I just do the bit about the inventory bit? So, The most important thing for us is to make sure that we can provide the full availability at the right time and be able to cover the peaks that come when our partners really go after activity or during those seasonal events. And then secondly, the technology that is allowing a greater level of long-term storage which by definition matures and creates a great quality product, has moved at such a pace that there is much more opportunity to build stock when typically product would be short than ever before. And the combination of those two things are actually what we're now describing in tactically facing into those important progressions. That will be very much done shoulder to shoulder with our partners. But it's designed to make sure that they delight their customers and we don't let them down. Matt, do you want to just come back on the capital?

Yeah, in terms of capital, we're talking Canada here specifically, I think. The first thing, Charles, we work really closely with our partner at all stages in the build process. So all decisions that we're taking around investment levels, any... any changes we make to specifications are all in conjunction with the partner. The driving force really is, and this is an investment we're making over two years, there's significant inflation in the equipment costs, there's significant inflation in wider infrastructure costs, and actually if we look in Canada, cost of delivery of installation, cost of labour, etc. has increased significantly as well. So it's really driven by that. I think if we look at what we're doing, we could choose to make the facility less automated, less cutting edge, but ultimately that doesn't benefit us or our customer in the longer term. So these are decisions that we're making over the course of a 10-plus year contract, not necessarily off the back of what we're seeing as relatively short-term economic challenges that we're facing into. And that's how we work clearly with our partners. These are long-term partnerships with decisions made for the long-term, not in reaction to what we're necessarily seeing in the market today or tomorrow.

Got it. That's very clear. Can I just follow up, though? Does that have any implications for the likely future level of CapEx in other parts of your business? Because I'd imagine there's probably a regional element to cost, but presumably there's some global issues.

Yes, there are some global issues, and we are seeing... prices increase. I think there's a different dynamics in Canada to what we may be seeing in Europe and APAC. But yes, so there are potential inflationary impacts. Again, it's a shorter term point. When we're investing, we're investing in these lines, these facilities for five, ten plus years. So making sure we make the right decision for the long term rather than short term decisions based on where we see markets.

I think it's The investment around automation, for example, isn't the panacea of everything. We're skilled at it, we do it well, we know that it drives down labour costs. But at the same time, you have to have a continual manufacturing excellence approach that's looking at how you can run these factories without spending a load of money on a lot of kit and depreciating it through the P&L. And that's very much in the DNA of the business. and making sure that we then share best practice across our regions so that we have a consistent approach. That's as important, I think, for us, whilst, as Matt says, we're thoughtful about where we deploy that capital spend relative to the country opportunities that are there and available.

That's really helpful. Thanks very much.

Aaron?

Morning, Darren Shelley from Shaw Capital. I wonder if you could just talk us through the timeline of how the challenges have evolved at Foppen and how you see the future timeline as you get back to some more normal operation, please.

Do you want to start or do you want me to start? Look, I think the first thing is to say that what we've experienced with Foppen is incredibly rare. but then I think equally it's probably taking us longer than we thought it would do, and we've obviously learning how the process of testing and working with the FDA is longer than we probably anticipated. Important, I think, to say that the relationship with the FDA is very, very strong and has been really collaborative since the beginning. Last week we had a full week's audit with their auditors. That audit went very well. There were no measures that came out of that and that then allows us to now move to a stage where we can put our petition back to the FDA in order for them to effectively give us a date when we can start to supply unaffected out of the FOPN issue. So it's taking us a little bit longer than we would have thought. It's very rare for us, but we're doing it collaboratively with them. I of course want to get this done as quickly as possible. I think realistically we know that will take a few more months for them to go through their regulatory protocols. In truth, Under the whole Trump changes, the focus on government costs has seen the FDA's inspectorship be reduced quite significantly, which has brought another slight headwind into the process. So very rare. We're confident in our action plan. We had a very good audit last week. We're working collaboratively with them.

How long is this?

So the incident actually happened at the back end of 2024. As you know, we have significant stock already built up in the US. So as we move through this issue, we recognize that we had the stock already sitting there, which meant that there wasn't an impact to the performance of the business. As that stock, however, has started to flow through and therefore moving production out of the effective site to our Dutch facility, there has been a gap that's opened up in terms of refilling that pipeline. And it's the refilling of that pipeline from around about quarter to this year that's now starting to cause us some indigestion that we've already mentioned about.

I think Steve said we've switched production from Greece to the Netherlands. I talked about it earlier. We're producing product there. We're air freighting it into the US to make sure we're seeing uninterrupted supply. That will continue into the rest of this quarter and until we're back up and running in Greece, we'd expect normal operations to continue to conclude. The unknown is out of our control. The FDA process is taking a little bit longer than we would have anticipated even when we were sat talking to you last time in April.

And just a lot of the chatter coming into the results was around FOP and but more about sort of tariffs and demand. I mean have you seen any impact in terms of retailer demand at all or is it all about the supply end and the challenges?

Yeah when we were here last Aaron you're right kind of tariff gate was building. Where it settled is that there was always a 5% tariff. There's now a 15% tariff, so an additional 10% has gone on. Our partners, all of them, have accepted that tariff, so our margin is protected, and we've not seen a fall-off in demand during that period of time. So this is still a product that our partners and their customers want. Thank you.

Thanks. It's Andrew Ford from Peel Hunt. Just a couple for me. The first one, labouring a point on the whitefish. I just wonder if you could give a bit more detail as to how difficult that transition is to the BASA product. Which customers is it easier to get that, products and customers, is it easier to get that done with and why so much is takeover over the other alternative? I'll start with that one. I'll come back to the next one.

It's an intuitive question because we are having to help our partners realise that this is an inevitability coming. Quotas are getting tighter on haddock and cord and we need to find alternative species. So we're guiding them because when you do make these moves, you have to make sure customers come on the way. But that's going well. I think this is probably worth just saying, this is a really good example of what we've said about fish. It's very price elastic. So as we've talked about all morning, it's a demand issue on whitefish. But I can equally sit here and say our salmon business, where we've got deflation, on a like-and-like basis, is growing by 12%. So this is the normal rhythm of a commodity product that we see demand falling off when it gets to a certain level. Now, as we've already mentioned, beef has seemed to be a bit more resilient in that regard. But clearly where we see prices falling, then demand goes up. But I think this will be with us for some while, and therefore moving quickly to alternative species is the way forward.

Great, thanks, Steve. And the next one, a question on the Foods Connected, the new investment you've had from APAX. I just wondered what the... what the mutual sort of obligations are around that. Clearly it's an important investment for them and they can see the potential of the product. But what do they expect from you and what are you expecting from them in more of a contractual sense? That would be helpful to understand.

I mean, we're really pleased with this. We've always said that Foos Connected had potential for real value enhancing. And I think this collaboration with APACS will really now... pump prime this opportunity and allow us to go and spend our monies elsewhere but also I think it keeps the balance sheet clean because we remain with a 26% stake that's an incentive for them to scale really quickly and what attracted them I think about the opportunity was the importance that this provides to our retail partners and very important therefore that the service that we continue to get from them and the Foos Connected team is first class because that connection with our retail partners, those relationships are even stickier. They can see the texture here. As I say, they are better equipped to scale and pump prime this service And so we're very excited about what they can bring to the table. We've got a tight governance structure in place so that we are working together. And I think it's a good example of how we're starting to think as an organisation. This is, I think, a smart move for us. Get some cash out that keeps us very much involved with it.

It's just a pulling up. Is there sort of a shared... target for that, you know, for Foods Connected now? So what were built into the underlying assumptions, you know, at that stage in those discussions? Can you give any colour on that, sort of what you expect revenue growth to be for Foods Connected? Or is it still just more of an operational? Because before it was always just run as an operational functionality of Hilton Foods. Just wondered if that has changed to more of a revenue... I think so.

From our perspective, we won't be booking revenue anymore. It becomes a share of their income, I think. not for me to comment on what APEX's revenue targets will be for Foods Connected, but I think the point Steve makes is we see and they see real opportunity in this business. And the fact that we've brought in this investment doesn't mean it diminishes the value we see for our business as well. And as you mentioned, the contractual obligations we have mean we will continue to have great service and support in all of the key aspects of Foods Connected as we've had over the last five plus years as well.

I mean, we'd always seen at least a five times increase in revenues over the next three to five years. APAC see considerably more. And that's because they'll put their shoulder to the wall. It's what they do. And as we said, we treated this as a tech business quite different to how we run the core business. And it was very much about getting out of the top line. So I think we all believe that this can move at pace.

Thank you very much. Thanks Andrew.

Hi guys, this is Anupam Malhotra from Panmure Librem. I just have one question on the inventory holdings and the increase that you've seen in this half. Do you feel that this needs to be a permanent part of the business now given the direction that we've heard has been going for the past few years and given the quota cuts that you have been seeing and there's overfishing

We're just looking for the reason that if we do think this is going to become more of a permanent issue from a sourcing point of view, then how we equip ourselves with cold storage capability is an important consideration. So we're just looking at that.

Just on that as well, I think these decisions we're taking, they're made in full discussion and agreement with the partners as well. This is not going out and doing this without consultation. This is fully supported, making sure that we're clear with our customers that we're able to deliver the customer service they expect and the volumes that the consumers are expecting as well.

You should be able to charge them for it as well as a service?

In a way? We work in partnership with Monit and for us it's the right thing to do ultimately.

I'm just going to check. Thank you.

We've got no further questions at the moment so Steve I'll hand back to you for closing remarks.

Great. Thank you very much. Thank you everybody. I thought that was a really robust set of Q&A and no doubt we'll get to see a few of you in the coming days. Thank you.