UK-based meat packer Hilton Food Group has once again indicated that it plans to drive organic growth by expanding in new and existing markets. However, Hilton is facing a number of headwinds this year. Rising materials costs, a constrained consumer environment and currency exchange all look set to weigh on full-year profits.
In its trading update, released this morning (19 July), Hilton revealed it has been able to grow first-half revenues, despite challenging conditions in its key markets.
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Hilton benefited from its geographically diverse footprint in the period, with growth in western and central Europe offsetting a continued slowdown in Sweden and product-mix pressure in the UK.
The company said its Danish operations were the primary growth engine in western Europe. Hilton started production in Denmark at the end of the first quarter of last year and it said the store order picking facility has now “started up successfully”.
However, Shore Capital analyst Darren Shirley suggests growth in Denmark could be coming in below management expectations.
“Whilst Denmark is the primary growth driver, we believe volumes remain below previously anticipated levels due to a slowdown in the Danish economy. We also believe the financial performance is hindered by start-up costs from the robotic store picking process, with an improved performance expected as the group moves through the second half,” Shirley writes in a note to investors.
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By GlobalDataA spokesperson for Hilton tells just-food the firm had grown sales in central Europe by exploiting its existing customer relationship with Tesco – which was developed in the UK – to expand in the region.
Hilton, the spokesperson adds, plans to continue to grow sales by moving into new markets and increasing its product offering in existing ones.
“The strategy is to grow organically into new markets. For example, with Denmark they’ve opened up a new market with a new customer, which involves putting a facility in on the ground and growing sales there. That is an example of a new customer. They will also look to grow with existing customers into new territories. For example, that’s what they have done with Tesco in central Europe,” the spokesperson reveals.
Meanwhile, Hilton is also working with existing customers to expand its product offering and roll out new lines. In the Netherlands, the group recently launched a range of spreadable meat products through Ahold’s Albert Heijn. “This shows how they work with customers (in this case Albert Heijn) in overseas territories to align their output to local tastes. They put a lot of energy into this,” the spokesperson said. “They follow an organic growth strategy that remains the focus to grow into new territories with either new or existing customers.”
Hilton would not “rule out” acquisitions but the focus is on organic growth, the spokesperson emphasises.
While Hilton has insisted it is “well-placed” to deliver growth, the group faces a number of headwinds that are likely to impact revenues and profits.
Hilton’s exposure to currency exchange will weigh on the group’s result, as the euro, Swedish krona and Polish zloty are all down on the sterling.
According to Panmure Gordon analyst Graham Jones, currency exchange is expected to trim about 5% off sales in both the first half and full year.
In addition, sales are coming under pressure in a number of European markets from poor consumer sentiment. The weak economic outlook has prompted shoppers to trade down to cheaper cuts of meat – such as mince or burgers – the Hilton spokesperson tells just-food. Hilton’s product-mix has therefore shifted to cheaper, lower margin products.
In addition to these difficulties, Hilton is facing high raw materials costs. “Raw material meat prices have been high for some time and this hasn’t abated,” the spokesperson said.
“Trading has been quite difficult. We have fx headwinds, which isn’t really a trading issue – its an earnings issue – the consumer is under pressure in several European markets, including the UK, and that has led to down trading to cheaper cuts of meat. And there are also high raw material meat prices. Raw material meat prices have been high for some time and this hasn’t abated.”
