Katy Askew

Analysis: Steady year for Hilton sets stage for growth

By Katy Askew | 10 January 2014

Hilton sets stage for growth

Hilton sets stage for growth

Hilton Food Group today (10 January) confirmed its full-year performance is "in-line" with expectations following a fiscal year that positions the UK meat group for future growth through new business wins and geographical expansion. 

In a trading update released this morning, Hilton said its results in fiscal 2013 had met the board's expectations.

In western Europe, the company offset weakness in Ireland and sluggishness in Sweden with growth in Holland, Denmark and the UK. The group won new volumes in the UK, introduced new products in Holland and benefited from investments in a new production line in Denmark. In central Europe, Hilton said its performance was "in line" despite "challenging" trading conditions.

Significantly this year, Hilton also established a joint venture with Australian retailer Woolworths plc, marking the UK meat group's first foray in the country.

"Hilton's joint venture in Australia continues to make good progress," the company revealed. "New packaging formats have been launched for pork, lamb and beef in Western Australia and a large part of the Bunbury plant reconfiguration has now been completed. In Victoria, preparation for the construction of the new facility in Melbourne is underway. We are also now providing support to Woolworths with the operation of its Brismeats facility near Brisbane."

According to Panmure Gordon analyst Graham Jones, the expansion of the arrangement with Woolworths suggests "the relationship continues to develop well".

While Jones anticipates flat 2013 profits, he nevertheless highlighted the year has been "strategically significant" for the development of the group.

"Over the next three years to 2016 we expect Hilton to deliver 60% EPS growth driven, in particular, by new business in the UK and Australia," Jones wrote in a note to investors.

In the coming year, Hilton has flagged it expects challenging trading conditions to continue. The company has grappled with weak consumer sentiment in in markets like central Europe, Sweden and Ireland and it would seem that conditions are unlikely to ease significantly in the near-term.

However, Hilton's business model focuses on leveraging its broad geographic spread by offsetting weakness in some regions but building growth in others. This is a key strategic plank for Hilton because a diverse geographic base offers some protection against the often volatile swings in costs and pricing the company must grapple with. 

Hilton's recently inked deal with Tesco in the UK, for example, is expected to offset ongoing weakness elsewhere in Europe over the next year. 

Shore Capital analyst Darren Shirley therefore retained his forecast for 2014. "Such pressure is expected to be wholly offset by the new agreement with Tesco, which should begin to contribute in the second half of 2014, we leave our 2014 forecast unchanged at CPTP of GBP27.6m (US$45.3m), EPS of 28.0p, yoy growth of 13.2%," he wrote this morning.

Hilton's expansion in Australia would seem to leave the group well-positioned to accelerate growth in the coming years.

By expanding in Australia Hilton has once again moved to extend its geographic reach. Announcing the deal back in January, Hilton hinted it will be able to leverage its relationship with Woolworths to open up the Australian market and deepen its involvement in Asia Pacific.

The tie-up with Woolworths is Hilton's first move outside Europe and potentially suggests the group is increasingly looking to fresh geographies and new markets to fuel growth. Indeed, the company has previously emphasised it plans to use its "strong balance sheet" to drive further geographical expansion.

In the longer term, then, it is probable the UK meat packer will be evaluating new ways it can expand in the Asia Pacific region. The tie-up with Woolworths represents a first step in that journey.

Sectors: Financials, Meat & poultry, Private label

Companies: Hilton Food Group

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