Asia Pacific has stood out as the star performer for Hilton Food Group in the last 12 months and is seen as a significant growth driver for the UK-based private-label protein supplier.
Regional volumes were up 7.2%, outpacing the group increase of 0.7%, which was weighed down by declines of 3% in the UK and 2% in the rest of Europe.
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CEO Steve Murrells, speaking to Just Food to discuss the London-listed company’s annual results, outlined a plan to “continue to expand globally”.
Approaching his one-year anniversary as CEO of the meat, seafood and alternative-protein business, Murrells says Woolworths has helped deliver some of the APAC volume growth in Australia and through the retailer’s Countdown subsidiary in New Zealand.
However, Asia is also playing a part following a supply deal inked by Hilton Food in 2022 with Country Foods in Singapore.
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“We see the APAC-Australasia region encompassing Asia as a real growth opportunity, and we’re seeking to accelerate that,” Murrells explains. “It’s a fertile region. There is still much to go after organically within Woolworths in Australia and their subsidiary in New Zealand.”
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By GlobalDataSoon after becoming CEO last July, Murrells says he embarked on a strategy to “fill the gaps” where Hilton Food wasn’t “selling all of our catalogue of products in all of our countries”.
One such filler is New Zealand, where shellfish has “just landed” supplied from the company’s UK seafood business in Grimsby, where Hilton Food has two sites among the 24 protein factories across the group in ten different countries. The company is also in talks with Countdown for value-add products such as breaded and battered fish.
“There’s still more for us to go for. As a region, we’re very optimistic,” Murrells says, describing APAC as a “significant player” that contributed around £1bn ($1.3bn) to the group’s £4bn revenue in the 12 months to 31 December.
“We started the work with Country Foods into Asia, namely the Singapore area and China. We are in the process of setting up a small international buying team in that region because we want to go faster and access some new partners in that space.
“This is the strength of the Hilton business, in that we’ve got such a diverse, wide-ranging geographical portfolio of businesses – a bit like a graphic equaliser – when one’s a little bit off, we know one will be really strong and play those notes accordingly.”
Seafood bounces back
One such underperformer in the year to 1 January 2023 was Hilton Food’s UK seafood business when challenges around inflation impacted the company’s overall results. Group adjusted operating profit fell 3.3% to £71.1m and adjusted profit before tax dropped 17.4% to £55.5m.
Adjusted operating profit bounced back, however, in the most recent financial year – up 33.5% at the group level at £95m as the seafood business returned to the black. Statutory profit before tax rose 64.2% to £48.6m.
“Clearly, that was a big swing and contributed a significant part of the UK performance but the UK business also was able to perform well profitably,” Murrells explains. However, on seafood, he adds: “We’ve got our mojo back. We’ve got a very firm platform for growth.”
Hilton Food’s facilities in Grimsby are getting investment, with more than £21m pumped into one of the plants so far for automation and robotics, which, Murrells says, will put the company in “good stead for future opportunities to grow volume”.
This year will also see funds injected into the second seafood site in Grimsby and will “provide a reduction in our cost profile so that we can support our fish partners during the next 12-18 months and beyond”.
Over the pond, Hilton Food supplies branded smoked salmon into the US market via its Foppen business unit, which the company acquired in the Netherlands in 2021. Retail partners include Costco in the US as well as Asia.
“We’ve now come through a difficult period and are well placed in what remains a difficult market,” he says.
“There is no doubt there are still significant headwinds for the general public to navigate this year and we want to be able to help our customers provide the best answers and value for money that they can in looking after their customers. Making sure that we’ve got sustainable growth is really important.”
Hilton looks to boost volumes
Among Hilton Food’s priorities are continuing to expand internationally, growing its product range across the proteins it offers and investing in technology.
Restoring volumes is a key focal point across the food manufacturing sector after a period of increasing prices to offset inflationary pressures. It’s no different for Hilton Food, which, despite the volume performance in APAC, saw its group volume growth lag the previous year’s 4.3% gain.
I do see volumes more normalising in the next 12 months
“You can see some parts of our region have had a strong year, namely APAC, and that’s because that’s a maturing part of the business and Woolworths have driven volume very hard,” Murrells says.
“I do see volumes more normalising in the next 12 months and 2024, especially in the UK, as we can see a level of deflation in some sectors starting to happen. When that happens, you see volumes start to take a tick-up.”
Nevertheless, it’s not straight-forward to predict the volume shifts across the protein case in which Hilton Food plays.
“It’s difficult to be specific because we’re a protein provider of choice, which means that protein sectors can go up very quickly and come down very quickly.
“If you said to me, where was my view three or four weeks ago, it would arguably be a bit different as it is to now, looking at certain commodities that are now starting to go up in price like lamb, for example. But, generally, we do see a notch down [in prices] with deflation coming through. We can see that clearly in utilities.
“That, in general, will drive a tick-up in volumes. We’re setting the UK up with that in mind. I’m hopeful that you’ll start to see that play out in the months to come this year and will get back to a more normalised level.”
Headwinds persist
However, the early signs are that 2024 might not pan out to be the year that some food manufacturers were hoping for in terms of volume regeneration and the calming of geopolitical headwinds.
“Never before have we had to deal with these tectonic global impacts – Brexit, Covid, the cost-of-living crisis, the Ukrainian war and the effect that had on supply chains,” Murrells suggests.
“Something like a quarter of the world’s population will be going to the polling booths this year. With that level of change happening in governments across the world and the impact still playing out clearly in the Middle East as well, things are going to take longer to be more normalised.
“I’m not sure people quite know what normal is anymore. We can see continual headwinds…it doesn’t appear that ‘24 is going to be suddenly the year where it gets easier.”
In the UK specifically, a new potential headwind has appeared on the horizon – Brexit-related import charges applied to some goods coming in from the EU, effective from the end of April. They could be inflationary too, in the wider scheme of things.
“It certainly will have an impact in some of the fish areas where we source outside of UK waters but this is why it’s so important to drive automation through your facilities,” Murrells counters.
Businesses that aren’t investing in automation will find life very much harder
“And to help people going through the difficult times, price will continue to be critical. Therefore, the investment that we’re making every year – between £50m and £60m in our facilities today – bringing automation and efficient production through machinery, all of that is designed to be able to pass the benefit of that back to our partners to allow them to pass the benefit of that back to their customers.
“Those businesses that aren’t investing in automation, I think will find life very much harder in the months and years to come.”
Last year’s supply deal with Walmart in Canada for beef, pork, lamb, added-value meats and fish will likely provide a fillip to Hilton Food’s volumes. However, work has not got underway yet to build a new factory in Canada to service that agreement inked in September.
“We will put a spade in the ground this year at some point to start the building of the new factory but this won’t come online until 2027,” Murrells says. “It takes us about 18 months to get fully up to full production.”
He adds with optimism: “Equally, there may be an opportunity prior to the facility being completed for us to supply frozen fish.
“What we experience where we do these super deals is that over time, the scope of what we start with grows because we’re able to demonstrate the success of the Hilton offer and delivering and growing that partner’s market share.”
Hilton “fans” of alt-meat
Murrells has previously talked about the softness in the meat-alternatives category, where Hilton Food offers vegan and vegetarian products through its Netherlands-based Dalco Food business.
Last year saw the consolidation of the two Dutch plants into one, with the facility in Oss closing and the production of meat-free sausages, chicken and burgers shifting to Oosterhout. The decision at the time was put down to the “market restructure” in the category.
“We remain a fan of that sector,” Murrells insists. “It remains an important market for our partners around the world.
“Two of the reasons why I think there’s a global resetting in this marketplace was around how do we make it more affordable for more people and how do we improve the experience around taste and flavour.”
Hilton Food has now “started to rightsize the business”, he says.
“I think there’s real confidence and acceptance when you’re a business of our size, that, at some point, one of your op cos won’t be firing on all cylinders.
“But we’ve been able to demonstrate that when that does happen, we act quickly, we rightsize the business, and they come out of it stronger, as we’ve done with seafood. And we’re doing exactly the same thing with our vegetarian business in Holland.
“Clearly the steps that we’re taking, going from two sites to one, moving to retail packing everything ourselves rather than going through a co-packer, and working with new partners, will mean that when we get through this period of change, where we’re seeing many overleveraged brands fall by the wayside, we will be well placed and fit and able to take a bigger slice of the market.”
