Annual report
and financial statements
2015
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The specialist
international
retail meat
packing
business
Hilton Food Group plc, the specialist retail
meat packing business supplying major
international food retailers in thirteen
European countries and Australia,
announces its results for the 53 weeks
ended 3 January 2016.
During 2015 Hilton made strong progress
in pursuing its growth strategy, including
the expansion of the Australian joint
venture and the completion of the
major UK capacity expansion project.
We will continue to look for available
opportunities to progressively and
profitably expand the scale and scope
of our operations as they arise using
a business model that has over time
proved to be successful, resilient, relevant
and internationally transferable.
Contents
Overview
Highlights
Where we operate
02
04
Strategic report
Chairman’s introduction
08
Chief Executive’s summary 10
11
11
12
13
13
14
15
Strategic objectives
Business model
Geographical spread
Currency translation
Culture and people
Performance overview
Past and future trends
Outlook and current
trading
Performance and
financial review
2015 Financial
performance
Key performance
indicators
Treasury management
Going concern
statement
Viability statement
Forward looking
statements
15
16
17
18
20
21
21
21
Risk management and
principal risks
Corporate and social
responsibility report
24
Approval of Strategic report 29
22
Financial statements
Consolidated
income statement
Consolidated statement
of comprehensive income
Consolidated
balance sheet
Consolidated statement
of changes in equity
Consolidated cash
flow statement
Notes to the
financial statements
Registered office
and advisors
60
60
61
62
63
64
84
Governance
Board of Directors
Directors’ report
Corporate governance
statement
Report of the
Audit Committee
Report of the Nomination
Committee
Report of the Risk
Management Committee
Directors’ remuneration
report
Directors’ remuneration
policy
Annual report
on remuneration
Statements of Directors’
responsibilities
Independent auditors’
report
32
34
36
39
41
42
43
44
49
53
54
01
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Highlights
Strong progress
02
Hilton Food Group plc Annual report and financial statements 2015 Strategic highlights
The investment made to modernise
and expand the capacity of our
Huntingdon site in the UK, to service
increased volumes for Tesco, was
completed during 2015. The new
production facilities are now fully
bedded in, working well and delivering
the planned operational efficiencies.
The progress of the joint venture with
Woolworths in Australia continues to
be encouraging. A new dedicated retail
packed meat facility, near Melbourne,
operated by the joint venture company,
commenced production on schedule
in September 2015, with the store
roll out plan covering Victoria and
South Australia now completed.
Operating highlights
Volume growth of 5.5%, with growth
in the UK, Ireland and Holland for
Tesco and Albert Heijn with particularly
strong Christmas trading, partly offset
by continuing pressure on consumer
spending in Denmark.
Revenue reduced by 0.4% despite
the volume gains, reflecting the
strengthening of Sterling, which
decreased revenue by 7.4%.
Operating profit at £29.0m 11.3% ahead
of last year (2014: £26.1m) and 20.9%
higher on a constant currency basis.
Investment expenditure returning
to maintenance levels at £13.7m
(2014: £43.3m), following completion of
the major re-investment programmes
undertaken in the UK and Sweden.
A free cash inflow of £31.7m (compared
to an outflow of £2.1m in 2014)
generating net cash balances of £12.7m
at the year end, as compared with net
debt of £7.7m at end of 2014.
Revenue (£m)
£1,094.8m
-0.4%
£981.3m
£1,031.0m
£1,124.8m
£1,099.0m
£1,094.8m
2011
2012
2013
2014
2015
Operating profit (£m)
£29.0m
+11.3%
£25.9m
£26.0m
£25.8m
£26.1m
£29.0m
2011
2012
2013
2014
2015
Closing net cash/(debt) (£m)
A strong ungeared balance sheet
providing a firm platform for
future expansion.
£12.7m
£12.7m
£4.9m
£(5.2)m
£(7.7)m
£(18.7)m
2011
2012
2013
2013
2014
2015
03
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Where we operate
Ireland
Location:
Drogheda
Customer:
Tesco Ireland
United Kingdom
Location:
Huntingdon
Customer:
Tesco UK
Sweden
Location:
Vasteras
Customer:
ICA
Commenced production:
2004
Commenced production
1994
Commenced production:
2004
Netherlands
Location:
Zaandam
Customer:
Albert Heijn
Denmark
Location:
Aarhus
Customer:
Coop Danmark
Commenced production:
2000
Commenced production:
2011
Central Europe
Location:
Tychy, Poland
Customers:
Ahold Central Europe
Rimi Baltics
Tesco Central Europe
Commenced production:
2006
04
Hilton Food Group plc Annual report and financial statements 2015 We are a leading specialist
meat packing business
supplying major international
food retailers
Australia
Location:
Bunbury
Customer:
Woolworths
Commenced joint venture:
2013
Australia
Location:
Melbourne
Customer:
Woolworths
Commenced production:
2015
05
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Strategic
report
Chairman’s introduction
Chief Executive’s summary
Strategic objectives
Business model
Geographical spread
Currency translation
Culture and people
Performance overview
Past and future trends
Outlook and current trading
Performance and financial review
2015 Financial performance
Key performance indicators
Treasury management
Going concern statement
Viability statement
Forward looking statements
Risk management and principal risks
Corporate and social responsibility report
Approval of Strategic report
08
10
11
11
12
13
13
14
15
15
16
17
18
20
21
21
21
22
24
29
07
Hilton Food Group plc Annual report and financial statements 2015 Chairman’s introduction
We have achieved further
volume growth despite
relatively challenging market
conditions in some countries,
with strong underlying
profit progress.
Sir David Naish dl
Non-Executive Chairman
08
Hilton Food Group plc Annual report and financial statements 2015 Strategic delivery
I am pleased to report that continued
strong strategic progress was achieved
during 2015. A new meat processing
facility for Woolworths near Melbourne
in Victoria, operated by the joint venture
company, commenced production on time
in September 2015, with the store roll out
plan across Victoria and South Australia
now completed.
The Board considers that the Group’s
progressive dividend policy maintained
since flotation remains appropriate,
given both the further strategic progress
achieved in 2015 and Hilton’s continuing
strong level of cash generation. With
the proposed final dividend of 1.3p per
ordinary share for 2015, total dividends
paid in respect of 2015 will have increased
by 9.8%, as compared to last year.
The major investment program undertaken
at the Group’s UK facilities in Huntingdon,
involving a significant extension of the
site’s processing and packing capacity, the
addition of a further production unit and
the streamlining and modernisation of the
complete facility has been successfully
completed, with the new facilities now
bedded in and generating improved
operational performances more rapidly
than previously expected.
Group performance and
shareholder returns
Further volume growth was achieved
during 2015, notwithstanding relatively
challenging market conditions in some
countries. Strong underlying profit
progress was achieved despite a material
impact on our profitability reported
in Sterling from adverse exchange
translation movements.
The Group’s net income in 2015 at £20.0m
was 10.8% ahead of 2014 (£18.1m) and
20.7% higher in constant currency terms.
Basic earnings per share at 27.5p were
10% ahead of last year. Hilton continued to
generate significant free cash flow during
2015, which enabled the Group to move
into a positive £12.7m net cash position by
the year end (as compared with net debt of
£7.7m at the end of 2014).
Over the last two years we have made
major new investments to secure
the Group’s future growth potential.
The principal items of expenditure
involved the redevelopment of the
Group’s facilities in Huntingdon to enable
the planned UK volume increases for
Tesco and a re-investment programme
at Vasteras in Sweden. Both projects
were successfully completed in early
2015, providing additional capacity and
delivering considerable improvements in
operational efficiency.
Our Board
The Board is responsible for the long term
success of the Group and to achieve this
it contains an appropriate mix of skills and
depth and a range of practical business
experience, which is available to support
and guide our management teams across
a wide range of countries.
After nine years valuable service
Chris Marsh has stepped down as
a Non-Executive Director and I will
be stepping down as Non-Executive
Chairman following the forthcoming
Annual General Meeting, with Colin Smith
assuming this role. We are delighted to
welcome Christine Cross and John Worby
as new Non-Executive Directors, both
of whom will bring a wide range of skills
and expertise to our business.
I have been privileged to serve on the
Board since just before our Company’s
flotation in 2007, for the last six years as
Non-Executive Chairman. I am pleased
to confirm that there is well planned
succession in the Group. I will continue
to assist the Group on agricultural matters
and would like to take this opportunity to
thank my colleagues on the Board for their
support, counsel and expertise over the six
years of my chairmanship. I am confident
that under the leadership of Colin Smith
and Robert Watson the Group will continue
to make excellent progress.
Annual General Meeting
This year’s AGM will be held at the Old
Bridge Hotel, 1 High Street, Huntingdon,
Cambridgeshire PE29 3TQ on 25 May
2016 at noon and my colleagues and I very
much look forward to seeing those of you
who are able to attend.
Sir David Naish DL
Non-Executive Chairman
30 March 2016
09
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Chief Executive’s summary
Hilton’s medium term growth
outlook remains encouraging
and we expect to make
continued progress.
Robert Watson obe
Chief Executive Officer
10
Hilton Food Group plc Annual report and financial statements 2015 Strategic objectives
Our strategy is focused on supporting our
customers’ brands and their development
in their local markets, whilst achieving
attractive and sustainable rates of
growth in value for our shareholders.
This straightforward approach has
generated growth over an extended period
of time and, with a strong reputation, well
invested modern facilities and a robust
balance sheet, the Group remains well
positioned to achieve continuing progress.
Hilton seeks to build long term customer
and shareholder value by focusing on:
– Growing volumes and extending product
ranges supplied and services provided
to its existing customers;
– Optimising the use of its assets and
investing in new technology and
capacity expansion as required;
– Maintaining a vigilant focus on food
safety and integrity and reducing unit
costs, while improving product quality
and service provision; and
– Entering new territories either with new
customers or in partnership with our
existing customers.
We will continue to pursue disciplined
geographical expansion, whilst at the
same time actively developing, enriching,
deepening and expanding the scope
of our existing business partnerships,
playing a full and proactive role in strongly
supporting our customers and the
successful development of their brands.
Business model
Our business model is the means by which
we deliver on our strategic objectives.
The Hilton business model is proven and
sustainable, whilst being relatively simple
and straightforward. We operate large
scale, extensively automated and robotised
meat processing and packing facilities for
major international multiple retailers on a
dedicated basis. The one exception is in
Central Europe, where our facility in Poland
supplies more multiple retailers in order to
achieve critical mass in terms of volumes
supplied and the consequent ability to
achieve competitive unit packing costs.
Raw material meat is sourced, in close
co-operation with our retail partners, from
local sources and a wide international base
of proven suppliers. It is then processed,
packed and delivered to the retailers’
distribution centres or stores. Our plants
are highly automated and use advanced
robotics for the storage of raw materials
and finished products. Developing robotics
technology has been extended in recent
years both in the production environment
and to the sorting of finished products
by retailer store order, achieving
material supply chain efficiencies for
our customers.
To ensure our continued competitiveness,
we seek to keep ourselves at the
forefront of the meat packing industry.
We constantly seek to drive further
efficiencies, always maintaining a pipeline
of clear identifiable cost reduction
initiatives and an open minded approach
designed to continually challenge the
status quo. We consider our modern,
very well invested facilities to be a key
factor in keeping unit packing costs as low
as possible. Over the past twelve years
we have invested continuously across
all areas of our business, including the
sourcing of raw materials, the design of
packaging materials, increased efficiency
in processing and storage solutions
and updating our IT infrastructure.
Capital expenditure over this period
has totalled over £210m.
11
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Chief Executive’s summary continued
The strength of our long term partnerships
with our retail customers has been a key
driver of our growth since the Group was
formed and will continue to underpin
the Group’s strategy. Hilton’s business
model has proved successful across a
range of European countries, appropriately
adapted in each case by working in close
collaboration with its local customers
to meet their specific requirements.
Our experience to date continues
to indicate that our business model,
appropriately adapted, can be successfully
transferred to a number of new countries.
Geographical spread
The Group’s rapid past expansion has
been based on its established track
record, together with its growing
international reputation and experience
and the recognised success of the close
partnerships it has forged and maintained
with successful retail partners. We are
an international business and the seven
countries in which the Group currently
has production facilities, with the dates
operations commenced in each country,
are set out below:
In Europe we have facilities in six
countries each run by a local management
team enhanced by specialist central
leadership, expertise, advice and support.
These businesses operate under the
terms of five to ten year Long Term Supply
Agreements with our retail partners, either
on a cost plus or agreed packing rate
basis. These contractual arrangements,
combined with our customer dedication,
serve to maximise achievable volume
throughput whilst minimising unit packing
costs. In Australia our joint venture
company receives a volume related
management fee in respect of the facilities
it operates on behalf of Woolworths.
Under the long term agreements we
have in place with our customers the
parameters of our revenue are clearly
defined. As well as income derived from
the supply of retail packed meat products
there are also provisions whereby our
income can be increased or decreased
subject to achievement of certain pre-
agreed and pre-defined key performance
measures and targets.
We are a committed and loyal partner
with a continuing record of delivering
value through quality products with the
highest levels of food safety, traceability
and integrity, whilst providing a range
of services which enable our customers
to evolve and improve their meat supply
chain management. Our customer base
comprises high quality multiple retailers
and our in-depth understanding of our
customers’ needs, together with those
of their consumers, enables us to play
an active role in managing their meat
supply chains whilst providing agile
solutions to supply chain challenges as
they arise. As our customers’ markets
change and competition increases, we
need to keep a constant focus on the
challenges they face so as to be able to
put forward flexible solutions, together
with continuing increases in efficiency and
cost competitiveness.
Year
1994
2000
2004
2004
2006
2011
2013
Country
United Kingdom
Netherlands
Ireland
Sweden
Central Europe
Location
Huntingdon
Zaandam
Drogheda
Vasteras
Tychy, Poland
Denmark
Australia
Aarhus
Bunbury and
Brisbane (2013),
Melbourne (2015)
Customers
Tesco UK
Albert Heijn
Tesco Ireland
ICA
Ahold (2006)
Tesco (2007)
Rimi (2009)
Coop Danmark
Woolworths
12
Hilton Food Group plc Annual report and financial statements 2015 The facility in Tychy supplies Ahold
stores in Czech Republic and Slovakia,
Tesco stores in Hungary, Czech Republic,
Poland and Slovakia and Rimi stores in
Latvia, Lithuania and Estonia. The facility
at Zaandam also supplies Albert Heijn
stores in Belgium.
The joint venture with Woolworths
in Australia involves our joint venture
company managing Woolworths’ meat
processing and packing facilities at
Bunbury in Western Australia, Brisbane in
Queensland and, from September 2015,
a new state of the art meat packing facility
near Melbourne, in Victoria.
Culture and people
To our mind successful businesses are
principally about having the right people
in the right positions at the right time
working together as “one team”, with
local management teams empowered,
encouraged and advised in specialist
areas to enable them to support their
local customers. The Group benefits
from each of its businesses being part
of a larger organisation, which enables
them to share best practice solutions,
including equipment selection, IT solutions
and ways of working along with the
collaborative sharing of new learnings,
ideas and techniques.
Currency translation
In 2015 62% of the Group’s turnover was
earned in countries outside the United
Kingdom, together with 73% of the
volumes of meat delivered. Although these
percentages remain significant they have
declined since last year reflecting the
increase achieved in sales and volumes in
the UK during 2015 and the decline in the
Sterling value of overseas sales.
This wide geographical spread increases
the Group’s resilience by minimising
its reliance on the fortunes of any one
individual economy, but makes its results
reported in Sterling sensitive to changes
in the value of Sterling as compared to the
range of overseas currencies in which the
Group trades.
During 2015 the average exchange rates
for the various overseas currencies
in which the Group trades have all
depreciated significantly against Sterling,
compared with the corresponding period in
2014, the Euro by 10.0%, the Danish Krone
by 10.0%, the Polish Zloty by 10.0%,
the Swedish Krona by 12.4% and the
Australian Dollar by 10.2%.
We are committed to providing an inclusive
working environment where everyone
feels valued, respected and able to fulfil
their potential. We recognise that people
from different backgrounds, countries
and experiences can bring benefits to
our business. We fully recognise the
benefits of gender diversity and details
of the gender composition of our staff
are set out in our Corporate and social
responsibility report.
The Group currently employs 2,833
employees in six European countries.
Our business model is largely
decentralised, with capable, largely
self-sufficient management teams running
our businesses in each local country.
We consider this devolved structure to
be a critical success factor, as it achieves
very close working relationships with our
customers, who benefit from personal,
dedicated, flexible and rapid local support.
The Board fully understands and
appreciates just how much our progress
relies on the effort, personal commitment,
enthusiasm, enterprise and initiative of
our employees. I would like to take this
opportunity, on behalf of the Board, to
personally thank all of them both for their
dedicated efforts during 2015 and their
continuing commitment to the Group’s
on-going growth and development.
13
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Chief Executive’s summary continued
Performance overview
Our business comprises three
separate operating segments:
Central Europe
Operating profit of £2.3m (2014: £2.4m)
on turnover of £74.1m (2014: £82.2m)
Western Europe
Operating profit of £32.1m (2014: £27.1m)
on turnover of £1,020.7m (2014: £1,016.8m)
This operating segment covers the Group’s
businesses in the UK, Ireland, Holland,
Sweden and Denmark. Volume growth
of 5.1% was achieved in 2015, principally
reflecting volume growth in the UK, Ireland
and Holland, driven mainly by gaining
an increased share of our customers’
business in the UK, with the recently
expanded meat processing capacity,
and the introduction of new product lines
in each country. Volumes in Denmark
were reduced with consumer spending
remaining under continuing pressure and
in Sweden volumes remained relatively
steady. Turnover grew by only 0.4%,
but by 7.7% in constant currency terms.
The redevelopment of the Huntingdon
site was completed in 2015. This was a
complex project involving the re-equipping
and re-alignment of the site and the
addition of a further production area
whilst working around a live production
environment with the highest customer
service levels needing to be maintained
throughout the process. The re-equipping
of the Vasteras site in Sweden faced
similar challenges. Both projects were
executed successfully, with improved
operational efficiencies being realised
in addition to the capacity expansion.
In the UK the operational efficiencies were
realised somewhat earlier than predicted
and with a lower level of start-up costs.
In Central Europe the Group’s meat
packing business, based at Tychy in
Poland, supplies customers across Central
Europe, from Hungary to the Baltics.
This multi-customer business supplies
Ahold stores in Czech Republic and
Slovakia, Tesco stores in Hungary, Czech
Republic, Poland and Slovakia and Rimi
stores in Latvia, Lithuania and Estonia.
Volumes increased by 7.8%, but in very
competitive market conditions with
consumer down-trading, unfavourable
exchange rate movements of 10.0%
and lower raw material prices, turnover
decreased by 9.7%.
Central costs and other
Net operating cost £5.4m (2014: £3.4m)
This segment includes our share of the
management fee earned by our joint
venture with Woolworths of £1.2m
(2014: £1.3m), start-up and support costs
in connection with the joint venture of
£1.2m (2014: £0.9m) and central costs of
£5.4m (2014: £3.8m).
In Australia the Group is involved in a
joint venture with Woolworths, under
which it earns a fifty per cent share of
the agreed management fees charged by
the joint venture company to Woolworths
for operating certain Woolworths’ meat
processing and packing plants, based on
the volume of retail packed meat delivered
to Woolworths’ stores. The joint venture
company is currently responsible for
the operation of Woolworths’ Western
Australian meat processing centre in
Bunbury, its Queensland meat processing
centre in Brisbane and the new purpose
built retail packing facility near Melbourne
in Victoria which started production in
September 2015. Start-up costs inevitably
peak in the period immediately before
a new production facility such as that
in Melbourne comes on stream and
then subsequently fall away.
14
Hilton Food Group plc Annual report and financial statements 2015 Outlook and current trading
Hilton’s medium term growth outlook
remains encouraging following the
successful completion of the UK capacity
expansion and site redevelopment project
in Huntingdon and the start of production
with our Australian joint venture partner
at Melbourne.
Notwithstanding competitive market
conditions, overseas currency fluctuations
and pressure on consumer expenditure
Hilton is therefore confident of growing
its business with continued focus on new
product development and range extension.
In the early months of 2016 Hilton’s
operating performance has been in
line with the Board’s expectations.
The Group will continue to explore further
opportunities for geographical expansion
in both domestic and overseas markets
and is well placed to capture those
opportunities as they arise.
Robert Watson obe
Chief Executive
30 March 2016
Past and future trends
Over recent decades as major retail
chains have progressively gained a greater
share of the grocery markets in most
countries, they have increasingly turned
to large scale, centralised meat packing
solutions capable of producing private
label packed meat products more safely
and cost effectively. In doing so, they have
rationalised their supply base, achieving
lower costs with higher food safety, food
integrity, traceability and quality standards.
This has allowed supermarket groups to
focus on their core business and maximise
their return on available retail space
whilst addressing consumers’ continuing
requirement for quality and value.
Grocery retail markets are expected
to remain extremely competitive, with
continuing pressure on consumer
expenditure. The trend towards increased
use of centralised meat packing
solutions is still continuing, however,
albeit at different speeds across the
world. This gives rise to a wide range
of potential future geographical expansion
opportunities for Hilton, but inevitably
in a range of different timescales as
markets develop and change over time.
Within retail markets patterns are
continuing to change fairly rapidly, with
increased internet based ordering and a
growth in the number of “click and collect”
facilities. Following pressures on consumer
expenditure over a number of years there
has been increased use by cost conscious
consumers of local convenience stores and
discount outlets, to shop more frequently
for a reduced overall basket cost per visit
and at a wider range of retail outlets.
These developments which appear to be
structural rather than cyclical will all tend
to reinforce the overall trend towards retail
packed meat, as this is the meat offering in
all these growth areas.
15
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Performance and financial review
A robust financial
performance and a strong
ungeared balance sheet for
potential future expansion.
Nigel Majewski
Chief Financial Officer
16
Hilton Food Group plc Annual report and financial statements 2015 £29.0m
operating profit
£31.7m
free cash flow
Group performance
Hilton’s financial performance was robust
in 2015, despite material headwinds
from adverse currency movements, with
underlying operating profit 20.9% ahead
of last year in constant currency terms.
With investment expenditure returning to
lower levels, continued strong cash flow
generation resulted in a net cash position
at the end of the year, compared with a
net debt position at the end of 2014.This
performance and financial review covers
the main highlights of the Group’s financial
performance and position in 2015.
Basis of preparation
The Group is presenting its results for the
53 week period ended 3 January 2016,
with comparative information for the 52
week period ended 28 December 2014.
The financial statements of the Group are
prepared in accordance with International
Financial Reporting Standards (IFRS) as
adopted by the European Union (EU).
2015 Financial performance
Revenue
Volumes grew overall by 5.5% (4.0% on
a 52 week basis) with volume increases
in the UK, Ireland, Holland and Central
Europe, but lower volumes in Denmark.
Further details of volume growth by
business segment are set out in the Chief
Executive’s summary. Revenue fell by
0.4% (1.9% fall on a 52 week basis) to
£1,094.8m, as compared to £1,099.0m
in 2014, with unfavourable exchange rate
movements more than offsetting the
volume gains.
Operating profit and margin
Operating profit, at £29.0m was 11.3%
(9.0% on a 52 week basis) above the
previous year’s level (2014: £26.1m) and
20.9% higher on a constant currency
basis. The operating profit margin in 2015
was 2.6%, as compared with 2.4% in
2014, reflecting the higher operating profit
level and the operating profit per kilogram
of packed meat sold was 11.9p (11.3p
in 2014).
Net finance costs
Net finance costs, at £1.1m, were
slightly above the previous year’s level
(2014: £0.9m) with higher borrowings.
Interest rates paid have remained at
historically low levels, reflecting continuing
low LIBOR and other interbank rates,
which determine the interest rates
on the Group’s principal borrowings.
Interest cover in 2015 remained high,
but decreased marginally to 28 times,
as compared with 30 times in 2014.
Taxation
The taxation charge for the period was
£6.5m (2014: £5.6m). This represented
an effective taxation rate of 23.2%
compared with 22.4% last year, with a
reduced proportion of profits being earned
in the lower taxed regimes in which the
Group operates.
Net income
Net income, representing profit for the
year attributable to owners of the parent,
at £20.0m (2014: £18.1m) was 10.8%
(8.4% on a 52 week basis) higher than last
year reflecting the increase in operating
profit and 20.7% higher in constant
currency terms.
Earnings per share
Basic earnings per share at 27.5p
(2014: 25.0p) were 10.0% higher than
last year (7.7% on a 52 week basis).
Diluted earnings per share were 27.2p
(2014: 24.7p).
Earnings before interest, taxation,
depreciation and amortisation
EBITDA increased by 16.2% to £48.4m
(2014: £41.7m) reflecting the increase
in operating profit together with higher
depreciation and amortisation charges.
Free cash flow
Cash flow remained strong in 2015, with
the Group generating a £31.7m free cash
inflow before dividends and financing
(2014: free cash outflow £2.1m), after
incurring capital expenditure of £13.7m.
Group borrowings were £40.1m at the end
of 2015 and, with net cash balances of
£52.8m, this resulted in a closing net cash
position of £12.7m, as compared with a
net debt level of £7.7m at the end of 2014.
At the end of 2015 the Group had undrawn
overdraft and loan facilities of £28.3m
(2014: £46.5m).
A strong ungeared balance sheet gives the
Group considerable flexibility for potential
future expansion.
Dividends
The Board aims to maintain a dividend
policy that provides a dividend level
that grows broadly in line with the
underlying earnings of the Group and has
recommended a final dividend of 1.3p per
ordinary share in respect of 2015. This,
together with the first interim dividend of
4.1p per ordinary share paid in November
2015 and the second interim dividend of
9.2p per ordinary share payable in April
2016, represents a 9.8% increase in the
full year dividend, as compared with last
year. The final dividend, if approved by
shareholders, will be paid on 1 July 2016
to shareholders on the register on 3 June
2016 and the shares will be ex dividend
on 2 June 2016.
17
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Performance and financial review continued
Key performance indicators
How we measure our performance
against our strategic objectives
The Board monitors a range of
financial and non-financial key
performance indicators “KPIs” to
measure the Group’s performance
over time in building shareholder
value and achieving the Group’s
strategic priorities. The nine headline
“KPI” metrics used by the Board
for this purpose, together with
our performance over the past
two years, is set out below:
Financial KPIs*
(0.4)%
Revenue growth (%)
2014: (2.3)%
Definition, method of calculation and analysis
Year on year revenue growth expressed as a percentage.
The 2015 decrease reflected volume growth of 5.5%,
which was more than offset by the impact of unfavourable
exchange translation rate movements.
2.6%
Operating profit margin
(% turnover)
2014: 2.4%
Definition, method of calculation and analysis
Operating profit expressed as a percentage of turnover.
The increase in 2015 reflected the increased operating
profit level.
11.9p/kg
Operating profit margin
(pence per kg)
2014: 11.3p/kg
Definition, method of calculation and analysis
Operating profit per kilogram sold.
18
Hilton Food Group plc Annual report and financial statements 2015 £48.4m
EBITDA (£m)
2014: £41.7m
Definition, method of calculation and analysis
Operating profit before depreciation and amortisation.
The increase reflected higher underlying operating profits,
together with higher depreciation and amortisation charges
following the high level of capital expenditure in 2014.
£31.7m
Free cash flow (£m)
2014: £(2.1)m
Definition, method of calculation and analysis
Cash inflow before minorities, dividends and financing.
The improvement reflected growth in operating cash flows
together with the reduction in capital expenditure.
Non-financial KPIs*
5.5%
Growth in volume of
packed meat sales (%)
2014: 3.5%
Definition, method of calculation and analysis
Year on year volume growth, expressed as a percentage.
36.2p/kg
Employee and labour costs
(pence per kilogram)
2014: 39.3p/kg
Definition, method of calculation and analysis
The decrease reflects efficiency gains, continuing low levels
of wage inflation and exchange translation rate movements.
n/a
Gearing ratio (%)
2014: 18%
99.2%
Customer service level (%)
2014: 99.0%
Definition, method of calculation and analysis
Year end net debt as a percentage of EBITDA. The Group
was ungeared at the end of 2015, with a net cash position.
Definition, method of calculation and analysis
Packs of meat delivered as a % of the orders placed.
Little year on year change, with high service levels
being maintained throughout the year.
In addition, a much wider range of financial and operating
KPIs are continuously tracked at business unit level.
*2015: 53 weeks, 2014: 52 weeks.
19
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Performance and financial review continued
Treasury management
Hilton does not engage in any speculative
trading in financial instruments and
transacts only in relation to its underlying
business requirements. The Group’s
policy is designed to ensure adequate
financial resources are made available as
required for the continuing development
and growth of its businesses, whilst taking
practical steps to reduce exposures to
foreign exchange, interest rate fluctuation,
credit, pricing and liquidity risks, as
described below:
Foreign exchange rate movements
and country specific risks
Whilst the presentational currency of the
Group is Sterling, most of its revenues
are earned in other currencies, principally
the Euro, Swedish Krona, Danish Krone
and Australian Dollar. The earnings of
the Group’s overseas subsidiaries are
translated into Sterling at the average
exchange rates for the year and their
assets and liabilities at the year end
closing rates. Changes in relevant currency
parities are monitored on a continuing
basis, with the timing of the repatriation
of overseas profits by dividend payments
and the repayment of any intra-group
loans to UK holding companies paying due
regard to actual and forecast exchange
rate movements.
The Group has to date decided not to
hedge its foreign exchange rate exposures,
but this policy is kept under continuing
review and may be reappraised over
time as the Group’s geographic spread
continues to widen. The Group’s overseas
subsidiaries all have natural hedges in
place as they, for the most part, buy raw
materials, employ people, source services,
sell products and arrange funding in their
local currencies. As a result the Group’s
exposure is in the main limited to its equity
investment in each overseas subsidiary
and its joint venture.
The level of country specific risk currently
remains material for many businesses, in
terms of the impact of macroeconomic
developments, including the impact of
austerity programmes and commodity
price movements in some countries.
The Group sells high quality basic food
products, for which there will always
be continuing demand, to successful
blue chip multiple retailers in developed
countries. Hilton has not to date been
materially adversely affected by the
lengthy recessionary environments seen
in some countries, but will keep any future
identified country specific risks under
continuing review.
Interest rate fluctuation risk
This risk stems from the fact that the
interest rates on the Group’s borrowings
are variable, being at set margins over
LIBOR and other interbank rates which
fluctuate over time. The Board’s policy is
to have an interest rate cap on a proportion
of this borrowing. The Board will review
hedging costs and options should the
current low interest rate environment
change materially.
Customer credit and pricing risks
As Hilton’s customers comprise a small
number of successful and credit worthy
major multiple retailers, the level of credit
risk is considered to be insignificant.
Historically the incidence of bad debts
has been immaterial. Hilton’s pricing is
based predominately either on cost plus
agreements or agreed packing rates with
its customers.
Liquidity risk
This has for many businesses represented
an area of concern over recent years,
given the continuing difficult and uncertain
economic environment in some countries.
Hilton Food Group remains strongly cash
generative, has a robust balance sheet
and has committed banking facilities for
the medium term, sufficient to support
its existing business. All bank positions
are monitored on a daily basis and capital
expenditure above set levels, together with
decisions on intra-group dividends, are all
approved at Board meetings. All long term
debt is arranged centrally and is subject
to Board approval.
20
Hilton Food Group plc Annual report and financial statements 2015 The Directors’ assessment has been
made with reference to the Group’s current
position and strategy taking into account
the Group’s principal risks and how these
are managed, as detailed on pages 22 to
23. The strategy and associated principal
risks, which the Directors review at least
annually, are incorporated in the three year
plan and such related scenario testing as
is required. The three year plan makes
reasoned assumptions in relation to
volume growth based on the position of
our customers and expected changes in
the macroeconomic environment and retail
market conditions, expected changes in
raw material meat, packaging and other
costs, together with the anticipated level
of capital investment required to maintain
our facilities at state of the art levels.
The achievement of the three year plan
is not dependant on any new or expanded
financing facilities.
Forward looking
statements
This Strategic report contains forward
looking statements that are inevitably
subject to risk factors associated with,
amongst other things, economic, political
and business developments which
may occur from time to time across the
countries in which the Group operates. It is
believed that the expectations reflected in
these statements are reasonable based on
current knowledge, but all forward looking
statements and forecasts are inherently
predictive, speculative and involve risk and
uncertainty, simply because they relate to
events and depend on circumstances that
will occur in the future.
Nigel Majewski
Chief Financial Officer
30 March 2016
Going concern statement
The Directors have performed a detailed
assessment, including a review of the
Group’s budget for the 2016 financial
year and its longer term plans, including
consideration of the principal risks faced by
the Company, as detailed on pages 22 and
23. Following this review, the Directors are
satisfied that the Company and the Group
have adequate resources to continue to
operate and meet its liabilities as they fall
due for the foreseeable future, a period
considered to be at least 12 months
from the date of signing these financial
statements. For this reason they continue
to adopt the going concern basis for
preparing the financial statements.
The Group’s bank borrowings are detailed
in the financial statements and the
principal banking facilities, which support
the Group’s existing and contracted new
business, are committed, with no renewal
required for three years. The Group is
in full compliance with all its banking
covenants. Future geographical expansion
which is not yet contracted, and which
is not built into our internal budgets
and forecasts, may require additional or
extended banking facilities and such future
geographical expansion will depend on our
ability to negotiate appropriate additional
or extended facilities, as and when they
are required.
The Group’s internal budgets and
forward forecasts, which incorporate all
reasonably foreseeable changes in trading
performance, are regularly reviewed in
detail by the Board and show that it will be
able to operate within its current banking
facilities, taking into account available cash
balances, for the foreseeable future.
Viability statement
In accordance with provision C.2.2 of
the 2014 revision of the UK Corporate
Governance Code, the Directors confirm
that they have a reasonable expectation
that the Group will continue to operate
and meet its liabilities, as they fall due, for
the three years ending in December 2018.
A period of three years has been chosen
for the purpose of this viability statement
as it is aligned with the Group’s three year
plan, which is based on the Group’s current
customers and does not incorporate the
benefits from any potential new contract
gains over this period.
21
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Risk management and principal risks
Risks and risk
management
In accordance with provision C.2.1 of
the 2014 revision of the UK Corporate
Governance Code the Directors confirm
that they have carried out a robust
assessment of the principal risks facing
the Group, including those which could
threaten its business model, future
performance, solvency or liquidity. As a
leading food processor in a fast moving
environment it is critical that the Group
identifies, assesses and prioritises its
risks. This, together with the adoption of
appropriate mitigation actions, enables
us to monitor, minimise and control both
the probability and potential impact of
these risks.
How we manage risk
Responsibility for risk management across
the Group, including the appropriate
identification of risks and the effective
application of actions designed to mitigate
those risks, resides with the Board
which believes that a successful risk
management framework carefully balances
risk and reward, and applies reasoned
judgement and consideration of potential
likelihood and impact in determining
its principal risks. The Group takes a
proactive approach to risk management
with well-developed structures and
range of processes for identifying,
assessing, prioritising and mitigating its
key risks, as the delivery of our strategy
depends on our ability to make sound
risk informed decisions.
Description of risk
The Group is dependent on a small
number of customers who can
exercise significant buying power
and influence when it comes to
contractual renewal terms at
5 to 10 year intervals.
Its potential impact
The Group has a relatively narrow, but
expanding, customer base, with sales to
subsidiary or associated companies of the
Tesco and Ahold groups still comprising
the larger part of Hilton’s revenue in 2015.
The larger retail chains have over many
years increased their market share of meat
products in many countries, as customers
continue to move away from high street
butchers towards one stop convenience
shopping in supermarkets. This has
increased the buying power of the Group’s
customers which in turn increases their
negotiating power with the Group, which
could enable them to seek better terms
over time.
Risk mitigation measures and
strategies adopted
The Group is progressively widening
its customer base and its maintained
high level of investment in state of
the art facilities, which together with
management’s continuous focus on
reducing costs, allow it to operate very
efficiently at very high throughputs
and price its products competitively.
Hilton operates a decentralised,
entrepreneurial business structure, which
enables it to work very closely and flexibly
with its retail partners in each country,
in order to achieve high service levels in
terms of orders delivered, delivery times,
compliance with product specifications
and accuracy of documentation, all backed
by an uncompromising focus on food
safety, product integrity and traceability
assurance. Hilton has long term supply
agreements in place with its major
customers, with pricing either on a cost
plus or agreed packing rate basis.
Risk management process
and risk appetite
All types of risk applicable to the business
are regularly reviewed and a formal risk
assessment is carried out to highlight key
risks to the business and to determine
actions that can reasonably and cost
effectively be taken to mitigate them.
The Group’s Risk Register is compiled
through a combination of business unit
risk registers and Board input. The Board
believes that in carrying out the Group’s
businesses it is vital to strike the right
balance between an appropriate and
comprehensive control environment and
encouraging the level of entrepreneurial
freedom of action required to seek out and
develop new business opportunities, but,
however skilfully this balance between
risk and reward is struck, the business will
always be subject to a number of risks and
uncertainties, as illustrated below.
Not all the risks listed below are within
the Group’s control and others may
be unknown or currently considered
immaterial, but could turn out to be
material in the future. The risks set out
in the following table, together with
our risk mitigation strategies, should be
considered in the context of the Group’s
risk management and internal control
framework, details of which are set out
in the Corporate governance statement.
It must be recognised that systems of
internal control are designed to manage
rather than completely eliminate any
identified risks.
The most significant risks
the Group faces
The six most significant business risks
that the Group faces, are, as might be
expected with an unchanged and relatively
straightforward business model, the
same as in previous years. These risks,
which will continue to affect the Group’s
businesses, together with the measures
we have adopted to mitigate these risks,
are outlined in the table below. This is
not intended to constitute an exhaustive
analysis of all risks faced by the Group,
but rather to highlight those which are
the most significant, as viewed from the
standpoint of the Group as a whole.
22
Hilton Food Group plc Annual report and financial statements 2015 Risk mitigation measures and
strategies adopted
The Group maintains a flexible global
meat supply base, which is progressively
widening as it expands and is continuously
audited to ensure standards are
maintained, so as to have in place a
wide range of options should supply
disruptions occur.
Description of risk
Outbreaks of disease and feed
contamination affecting livestock
and media concerns relating to
these and instances of product
adulteration can impact the
Group’s sales.
Its potential impact
Reports in the public domain concerning
the risks of consuming meat can cause
consumer demand for meat to drop
significantly in the short to medium
term. A food scare similar to the Bovine
Spongiform Encephalopathy (“BSE”)
scare that took place in 1996 or the much
more recent concerns with regard to meat
substitution can affect public confidence
in red meats.
Risk mitigation measures and
strategies adopted
The Group sources its meat from a trusted
raw material supply base, all components
of which meet stringent national,
international and customer standards.
The Group is subject to demanding
standards which are independently
monitored in every country and reliable
product traceability and high welfare
standards from the farm to the consumer
are integral to the Group’s business
model. The Group ensures full traceability
from source to packed product across
all suppliers.
Description of risk
Description of risk
The Group’s growth potential is
dependent on the success of its
customers and the growth of their
packed meat sales.
The Group’s business is reliant on
a small number of key personnel
and its ability to manage growth
and change successfully.
Its potential impact
Its potential impact
The Group is critically dependent on the
skills and experience of a small number
of senior managers and specialists and as
the business develops and expands, the
Group’s success will inevitably depend
on its ability to attract and retain the
necessary calibre of personnel for key
positions, both for managing and growing
its existing businesses and setting up
new ones.
Risk mitigation measures and
strategies adopted
To continue to manage growth
successfully, the Group will carefully
manage its skill resources and continue
to invest in on-the-job training and
career development, together with the
cost effective management of quality
information and control systems, whilst
recruiting high quality new employees, as
required, to facilitate the Group’s ongoing
growth. The continuing growth of Hilton’s
business, together with its growing
reputation, is facilitating the recruitment
of more top class specialists with the
key skill sets required both to support
our existing individual country business
units and manage the Group’s future
geographical expansion.
Description of risk
The Group’s business is dependent
on maintaining a wide and flexible
global meat supply base operating
at standards that can continuously
achieve the specifications set by
Hilton and its customers.
Its potential impact
The Group is reliant on its suppliers to
provide sufficient volume of products, to
the agreed specifications, in the very short
lead times required by its customers, with
efficient supply chain management being a
key business attribute. The Group sources
certain of its meat requirements globally.
Tariffs, quotas or trade barriers imposed by
countries where the Group procures meat,
or which they may impose in the future,
together with the progress of World Trade
Organisation talks and other global trade
developments, could materially affect the
Group’s international procurement ability
but has not done so in recent years.
The Group’s products carry the brand
labels of the customer to whom packed
meat is supplied and it is accordingly
dependent on its customers’ success
in maintaining or improving consumer
perception of their own brand names
and packed meat offerings.
Risk mitigation measures and
strategies adopted
The Group plays a very pro-active role
in enhancing its customers’ brand
values, through providing high quality,
competitively priced products, high service
levels, continuing product and packaging
innovation and category management
support. It recognises that quality and
traceability assurance are integral to its
customers’ brands and works closely
with its customers to ensure rigorous
quality assurance standards are met.
It is continuously measured by its
customers across a very wide range
of parameters, including delivery time,
product specification, product traceability
and accuracy of documentation and targets
demanding service levels across all these
parameters. The Group works closely
with its customers to identify continuing
improvement opportunities across the
supply chain, including enhancing product
presentation, extending shelf life and
reducing wastage at every stage in the
supply chain.
Description of risk
The progress of the Group’s business
is dependent on the macroeconomic
environment and levels of consumer
spending in the countries in which
it operates.
Its potential impact
No business is immune to difficult
economic climates and the consequent
pressure on levels of consumer spending,
such as those seen over recent years
across Europe.
Risk mitigation measures and
strategies adopted
With a sound business model, strong
retail partners and a single minded
focus on minimising unit packing costs,
whilst maintaining high levels of product
quality and integrity, the Group has made
continued progress over recent difficult
economic periods. It expects to be able
to continue to make progress, even if the
current pressures on consumer spending,
as expected, persist in some countries.
23
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Corporate and social responsibility report
Hilton Food Group recognises its social,
ethical and environmental responsibilities
arising from its operations and to the
welfare of employees, customers,
suppliers and the communities in which
we operate. The Group is committed to
working in an ethical, open and honest
manner to produce products of the highest
quality responsibly and sustainably.
The philosophies which underpin our
policies for the environment, regulatory
compliance, health and safety, product
quality and integrity and ethical conduct
are summarised below.
Complete food assurance
from farm to fork
It is essential that consumers have
complete confidence in the meat products
they purchase. Hilton has a pivotal role in
managing a supply chain which starts on
the farm. Oversight of farm and abattoir
standards ensures that the meat products
we produce are of the highest quality.
We recognise that correct product label
information is key to gaining consumer
trust and that the label correctly describes
the provenance of the meat including its
species and country of origin.
Hilton strives, in partnership with our retail
customers, to successfully deliver safe,
consistently high quality, convenient and
ready to use retail packs of beef, lamb,
pork and added value meat products to
ensure the highest level of consumer
satisfaction. Our products are governed by
EU legislation and food safety standards
throughout the meat supply chain.
Additionally our retail partners, who
support the Global Food Safety Initiative,
demand the best animal welfare standards,
food factory standards and quality systems
to enhance their levels of brand integrity.
A short and transparent supply
chain with full traceability
Hilton is committed to ensuring that the
supply chain in which we play a significant
part is as short as possible. Farm reared
animals are slaughtered at abattoirs from
whom Hilton sources its meats and our
food products are delivered directly to our
retail customers for sale in their stores.
Our quality systems provide full traceability
of all the meat that we use.
Flexible local and global
meat sourcing
As specialist retail meat packers, Hilton
can source its primal meat requirements
from the most advanced abattoir plants to
exacting specifications, ensuring quality
and cost effectiveness. Most of our meat
is sourced locally within the EU and also
from other regions such as New Zealand
and South America.
Science and technology play a large part
in the consistent achievement of meat
quality and influence Hilton’s procurement
of meat from large and small suppliers.
Together with our retail partners we ensure
that consumers have the best choice and
can select on the basis of provenance,
quality and price.
Farm standards
Good quality meat can only be produced
from animals reared and handled to
the best animal welfare standards.
Freedom from stress is a fundamental
requirement not only for ethical and
sustainable reasons, but also to achieve
consistent meat quality for consumers.
Farmers design animal nutrition plans
to achieve efficient weight gain and
meet consumer preferences on flavour
and fat content. It is recognised that
the cleanliness of animals presented
for slaughter has a direct impact on the
reduction of pathogen risks associated
with fresh meat.
Abattoir standards
Abattoir standards contribute significantly
to the achievement of consistent meat
quality and Hilton works closely with
our retail partners to set best in class
specifications ensuring humane and
effective stunning and control of microbial
contamination. Also pH and temperature
drop is controlled according to best
scientific practice. Meat is matured and
boned according to clear and enforced
primal specifications that are agreed
between Hilton, its retail customers
and abattoir suppliers. Hilton develops
long term trading partnerships with our
suppliers by facilitating achievement of
our retail customer requirements through
auditing by third party experts and
development of sustainable corrective
action plans where any non-conformances
are identified. We support our suppliers
in applying abattoir standards covering
factory structure, animal welfare standards,
control of contamination through cleaning
and disinfection, temperature controls,
carcass dressing, boning and packing
standards and traceability. Auditing as a
means of challenging standards is now
expected by consumers together with well
established procedures throughout the
food chain.
24
Hilton Food Group plc Annual report and financial statements 2015 Hilton continually develops and refines
testing methods, data collection and
reporting particularly in the key area
of fresh meat. Samples collected
from each delivery are assessed for
compliance to microbiological standards
and compliance to agreed quality
specifications including increasing use of
DNA testing. Results are used to assess
the performance of suppliers and achieve
continuous improvement.
Retail packing at Hilton
The key factors in ensuring that our retail
partners receive products that consistently
achieve agreed shelf lives and meet
customer expectations are top quality
meat from our suppliers, temperature
control and high class standards of
hygiene. We are proud of our modern
specialised meat processing and packing
facilities which use state of the art
production equipment, including a high
degree of automation and use of robotic
equipment which minimises handling.
Our well trained production operatives are
responsible for the quality of Hilton’s retail
partners’ products and they are supported
by highly qualified and experienced quality
assurance and technical teams at each
site. Hilton maintains annual third party
accreditation through FSSC (Food Safety
System Certification) using ISO 22000 and
ISO/TS 22002-1 or the latest BRC (British
Retail Consortium) Global Standard for
Food Safety and we constantly challenge
ourselves through cross auditing of
hygiene and quality system standards
by technical and quality managers from
other Hilton sites and additionally our retail
customer make frequent visits to our sites,
some of which are unannounced. This level
of attention is a valuable part of our
partnership with our retail customers and
gives consumers confidence that Hilton
can consistently meet their expectations.
Temperature control throughout our
storage and production departments is
fundamental to the quality of our products
and this is centrally controlled with
alarm alerts if there is any deviation from
specified temperature requirements.
Specialised highly trained hygiene teams
deep clean our factories every day using
the latest technology and these clearly
specified procedures are verified using
not only trained auditors but also the latest
monitoring equipment. All staff and visitors
can only enter Hilton production facilities
wearing specified personal protective
clothing and by passing through barrier
protected hand washing and sanitising
facilities. The effectiveness of these
entrance procedures is routinely verified
using hand swabbing checks.
Graduate recruitment is fundamental to
Hilton’s future. Our training programme
includes completion of a Masters Degree
in Food Science following which our
trained graduates are placed into key
management roles. We maintain strong
links with academia and technological
advances including Campden BRI, Danish
Meat Research Institute, British Meat
Processors Association and Teagasc
Ireland and through attendance at the
annual International Conference of Meat
Science and Technology.
Partnerships for growth
We forge partnerships across all aspects
of our supply chain to enable us to
strengthen our position as one of the
leading global Business to Business food
companies. Our core competency has
always been building strong and productive
partnerships with our retail customers in
each geographical zone we are active in
to supply high quality products at the right
price to meet their demands. However, in
an ever-changing business environment,
the requirements of a true partnership go
beyond the supply and demand approach.
Our focus is to provide a unique, unrivalled
service to our customers to support their
market growth aspirations. We work
closely with each of our customers to
identify, both global and local, market
trends which will help us create the next
generation of products that will meet
the everyday needs of their consumers.
We have recently established two
culinary innovation centres fully equipped
with state of the art culinary equipment
and staffed by some of the leading
industry chefs and food technologists.
The ambience of our culinary innovation
centres has been designed to create an
open and stimulating environment in which
creativity can flourish.
There is nothing like good food to bring
people together. So it is in our culinary
innovation centres that we discuss and
share concepts with our customers.
Cooking, tasting and then making those
all-important final tweaks to create the
perfect concept. Our skilled chefs and
technologists then set to work on the
scale-up process taking the concepts
from the kitchen pan to industrial products
that can be consistently produced, on an
industrial scale, maintaining organoleptic
quality, product integrity and operational
efficiency throughout the supply chain to
meet all of our customers’ expectations.
With these facilities we deliver exciting,
innovative and delicious product range
extensions, seasonal product ranges and
market leading innovative new products.
We also recognise that, in the culinary
sense, the world is getting smaller.
Through increased travel, celebrity chefs,
the internet, etc. the everyday consumers
have an insatiable appetite for novel,
out-of-the-box culinary experiences.
Whether they are from traditional local
cuisine or exotic fusions of flavour where
the dynamic European cuisine meets the
spicy, exotic and mouth-watering cuisines
of Asia. Rather than develop and maintain
this very specific flavour expertise in-
house we are establishing partnerships
with key suppliers whose core capability is
the development of innovative ingredients.
By working closely in partnership with
our suppliers we can combine our
extensive, in-depth understanding of food
production on an industrial scale with their
expertise to develop a delicious portfolio
of innovative products designed to match
consumer expectations.
In parallel to our ingredient partnerships
we also realise the value of building
stronger alliances with key suppliers of
the processing equipment that is required
to deliver the large volumes of products
that leave our manufacturing sites every
day. Technology is changing at an ever
increasing rate across the food industry
resulting in new and exciting equipment
entering the market which can improve the
efficiency of operations and deliver new
and innovative products whilst continuing
to enhance the stability and security of the
products offered to the consumer.
25
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Corporate and social responsibility report continued
Rather than waiting for new technologies
to arrive on the market we are working
in close partnership with key equipment
suppliers to develop equipment that
specifically meets the needs of our
operations. To facilitate this we are creating
a number of product focused centres of
excellence which are the custodians of our
internal technology know-how where we
focus development programmes carried
out in conjunction with our key partners.
As well as being technology custodians
the centres of excellence are responsible
for the rapid roll out of successful
innovations and developments across
our businesses to ensure we consistently
deliver operational excellence at each of
our manufacturing sites.
Hilton is also closely aligned with our
customers in our desire to minimise the
environmental impact of our operations.
We are therefore developing partnerships
with our key suppliers of packaging
materials as part of our sustainability
agenda. On average over 1.25 million
plastic trays leave our sites every day
and we are conscious of the potential
impact this may have on the environment.
We are therefore working with our
key suppliers in three work streams.
Firstly we are striving to maximise the
use of recyclable trays across the Group
and to date we have currently moved
16% of our production to recyclable trays.
The second work stream is focusing on
the use of re-cycled plastic in our product
trays which results in significantly lower
energy consumption in their manufacture.
Finally we are continuously setting the
industry standard for lighter product
trays which therefore require less plastic.
These are jointly developed and tested
with our key suppliers to ensure that
although lighter they are still robust enough
to maintain the required functionality and
stability attributes.
Awards and innovation
Hilton takes great pride in its products
and we are delighted when the quality
and innovation of these products is
recognised. During 2015 we received
a number of national food and taste
awards. New products launched included
a habanero 3 chilli burger, smoked garlic &
basil and paprika & honey sausages and a
sous vide range as well as cook in the bag
packaging and gluten free products.
Environment
The Group takes all practicable steps
to manage carefully its impact on the
natural environment. Improvements to
our environmental performance can
make a difference to society and we are
committed to assessing the impacts of
our operations on land, water, air and
biodiversity, and to managing our waste,
in all its forms, by reusing or recycling it,
where practicable.
In the context of the total carbon footprint
of retail packed meat the proportion which
can be influenced by Group’s packing
activity is very small indeed as the Group
is not involved in the breeding, growing
and slaughtering of animals and the
packaging formats used for its products
are selected by our customers. The Group
is nevertheless committed, working
closely with its customers, to minimising
its environmental impact.
Regulatory compliance
The Group is in full compliance with
all environmental regulations, permits
and consent limits which apply to each
of its packing plants in each country of
operation and views such compliance
as a high priority, looking to make
continuing improvements with respect
to the environment in all its operations
whilst ensuring that we manage our
environmental performance in accordance
with evolving legal and regulatory
requirements and international standards.
Carbon footprint and
greenhouse gases
The Group has complied with all the
mandatory reporting requirements under
the Companies Act 2006 (Strategic Report
and Directors’ Reports) Regulations 2013.
The Group’s scope 1 and scope 2 carbon
footprint has been calculated using data
gathered through standardised reporting
channels and Defra conversion factors.
An appropriate ratio to express the Group’s
annual emissions in relation to its activities
by way of product volumes produced is
given below.
Scope 1
Scope 2
Total
2015
2014
2013
Tonnes of CO2e
2014
7,977
21,187
29,164
2015
4,100
21,392
25,492
Tonnes of CO2e per
tonne of product
0.11
0.13
0.13
Energy usage
Our processing and packing operations
consume electricity, gas, water and
industrial gases at all our sites and our
management teams work to identify areas
for further efficiency gains in terms of
energy usage. The Group invests heavily
in maintaining state of the art high speed
packing facilities which progressively
reduce energy costs per unit packed.
Over time the development of packing
technology means that any given volume
of meat can be packed with fewer high
speed lines. Performance on water usage
is shown below:
2015
2014
2013
Cm3 of water use
per tonne of product
1.40
1.46
2.04
Waste and packaging
It is estimated that 15 million tonnes of
food is wasted each year in the UK of
which 9 million tonnes is avoidable and
we agree this is economically, socially
and environmentally unacceptable.
Although Hilton’s meat products are
perishable having limited shelf life we
continuously strive, working with our retail
partners to ensure that waste is minimised
and products are available for purchase and
consumption for as long as possible before
the end of their shelf life.
A degree of wastage is unavoidable in our
businesses, as we have to ensure that
our products continually meet stringent
standards for quality and presentation.
We work actively to reduce our usage of
materials and the reduction of product
and packaging waste has a very high
priority across the Group. The yield losses
incurred in processing and packing meat
and packaging wastage are continuously
monitored throughout each day across the
entire product range, at every Hilton site.
Performance on meat yields, being the
percentage by which the weight of meat
purchased as raw material compares with
that incorporated in finished packed meat
products, is minimised by, where possible,
using off-cuts in mince, burgers and
other part processed meat products and
by ensuring that meat purchased meets
tight specifications.
Through the extensive use of state of the
art packaging technology our products
benefit from an extended shelf life
thereby reducing food waste. This benefit
offsets the environmental impact of the
packaging materials and energy used in
its manufacture. Hilton is committed with
its retail partners to adopt best practices
in reducing packaging through use of
lightweight and recyclable materials from
sustainable sources.
26
Hilton Food Group plc Annual report and financial statements 2015 Our people
We recognise that driving our future
growth and development will continue to
depend on our ability to attract, grow, train
and retain the very best managers and
staff and to build progressively stronger
teams at each location. We believe
that a key to our future success lies
in the promotion of properly trained,
knowledgeable and capable management
from within our organisation together with
the ongoing motivation of our teams in
each country.
The Group provides equal opportunity
for employment, training and career
development and promotion regardless
of age, sex, colour, race, religion, ethnic
origin or other minority groupings.
The Group encourages the employment
of disabled people when suitable
vacancies are available and wherever
possible retrains employees who become
disabled to enable them to do work
consistent with their aptitudes and abilities.
Where practicable a flexible approach is
adopted to assist employees to manage a
successful work life balance.
Directors
7
Senior managers
15
Employees
1,032
50
1,801
Total 7
Total 65
Total 2,833
Male
Female
Hilton operates to high standards of
employment practice with policies to
ensure that training, career development
and promotion opportunities are available
to all employees. The Group’s recruitment
practices involve, where possible,
internal promotions. Where there is not
a suitable internal candidate, selection of
suitable individuals for vacant positions
is made using a combination of industry
knowledge and contacts and the use of
external recruitment agencies. All new
senior employees including Directors are
given tailored induction programmes.
The Group’s succession planning is
designed to highlight any forthcoming
vacancies well in advance. Employees are
able to participate directly in the success of
the business by contributing to the Group’s
Sharesave scheme.
The Group has ethnically diverse
workforces who at each location receive
the same terms and conditions for
comparable jobs. Given the geographical
spread of the Group’s operations it is
both inappropriate and impractical to
apply standard employee consultation
and communication procedures
across the Group. Each subsidiary is
accordingly responsible for achieving
and maintaining appropriate consultation
and communication with its employees
which include at all production sites joint
management and employee committee
meetings on health and safety and
meetings with employees and union
representatives to discuss issues
affecting them.
Workplace
Health and safety
One of Hilton’s top priorities is to achieve
continual improvements in health
and safety. The Group requires all its
subsidiaries to achieve high health and
safety standards within their individual
operations. All subsidiaries conduct
regular formal health and safety reviews.
Managers and employees review policies,
processes and procedures in order to
ensure that risks are properly assessed,
with appropriate actions taken in order to
protect the safety of employees. At Board
level Philip Heffer, Chief Operating Officer,
has been assigned responsibility for health
and safety and environmental matters
across the Group’s operational sites.
We monitor and review all incidents and
accidents in the workplace so that we can
take appropriate action to improve working
conditions whilst remaining focused on
reducing both the absolute number of
accidents and the number of serious
accidents. Formal reporting procedures
are in place at every site so that the Group
can monitor safety performance at a local
level. There is a full time safety officer at
each site who monitors the key measures
for safety performance which include
the number of serious and non-serious
accidents and the number of working days
lost through injury, together with short and
long term sickness levels, key statistics
in relation to which for 2015 are shown
as follows:
Average
number of
employees
2,912
2,447
2,243
Serious
accidents
36
33
32
2015
2014
2013
Recorded
accidents
per
100,000
hours
worked
5.2
5.2
6.4
Sickness
rate (%)
3.5%
4.5%
4.9%
27
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Corporate and social responsibility report continued
Community
Supporting our local communities
Hilton’s policy is to recruit locally based
employees wherever possible in order
to benefit the communities within which
our plants are located. Hilton aims to
play a positive role in all the communities
in which it operates and we encourage
employees to become involved with and
support the local communities around our
sites. We recognise the social impacts of
our business and believe in consultation
with local communities about our activities
and about the safety and environmental
impact of our operations.
During 2015, Hilton made charitable
donations amounting to £35,000
(2014: £30,000) comprising small but
regular donations made to local institutions
and sponsorship of personal charitable
initiatives and cultural events.
The Group seeks to be a good neighbour
in all its locations. We are committed to
social responsibility and believe that the
success of our businesses will reflect the
quality of the relationships we build with
our communities and legitimate public
interest groups.
The Group, in common with most
commercial undertakings, employs
external consultants, but, as their services
could be contracted for with other similar
parties, there are, in the opinion of the
Board, no persons with contractual or
other arrangements with the Group which
are essential to its businesses.
Trading relationships with partners
and suppliers
Strong and fair long term relationships with
partners and suppliers are very important
for Hilton. The Group’s approach to
corporate social responsibility is reflected
in the way we behave with our suppliers
which is open, consistent and honest.
In the UK the Group follows the Better
Payment Practice Code which requires a
company to agree the terms of payment
with its suppliers, to ensure its suppliers
are aware of those terms and to abide by
them. The Group policy is also to apply
the requirements of the Code in each
of its subsidiaries.
Ethical standards
Hilton is committed to integrity.
Ethical standards are very important
in relation to the way we conduct our
businesses and all the Group’s employees
are expected to behave ethically in their
work and adhere to the Group’s ethical
standards. As an international group of
companies we are fully aware of the
broad spread of our responsibilities in all
the countries in which we operate from
protecting the environment to safeguarding
the health and safety of our employees,
respecting human rights, ensuring honesty,
integrity and fairness in all our business
dealings and operating our businesses
in a safe and responsible manner.
A whistle-blowing policy is in place
in accordance with which staff can in
confidence raise any concerns about any
actual or potential improprieties in relation
to matters of financial reporting or any
other aspect of the Group’s businesses.
The Group has also implemented an
anti-bribery and anti-corruption policy
to comply with the Bribery Act 2010.
28
Hilton Food Group plc Annual report and financial statements 2015 Approval of Strategic report
Strategic report
Pages 6 to 28 of this Annual report
comprises a Strategic report which
has been drawn up and presented in
accordance with applicable English
company law, in particular Chapter 4A of
the Companies Act 2006, and the liabilities
of directors in connection with this report
shall be subject to the limitations and
restrictions provided by such law.
It should be noted that the Strategic
report has been prepared for the
Group as a whole, and therefore gives
greater emphasis to the Company
and its subsidiaries when viewed as
a composite whole.
Approved by order of the Board
of Directors
Neil George
Company Secretary
30 March 2016
29
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Governance
Board of Directors
Directors’ report
Corporate governance statement
Report of the Audit Committee
Report of the Nomination Committee
Report of the Risk Management Committee
Directors’ remuneration report
Directors’ remuneration policy
Annual report on remuneration
Statements of Directors’ responsibilities
Independent auditors’ report
32
34
36
39
41
42
43
44
49
53
54
31
Hilton Food Group plc Annual report and financial statements 2015 Board of Directors
Executive Directors
Robert Watson obe
Chief Executive
Robert joined Hilton as Chief Executive
in 2002 and has overseen the successful
growth of the Group to date. Prior to this,
he worked for the Foyle Food Group,
based in Northern Ireland of which he was
a founder in 1977. Robert was previously
a board member of the Livestock Meat
Commission and Food For Britain.
Nigel Majewski
Chief Financial Officer
Nigel was appointed CFO of Hilton
in 2006 following 11 years in senior
finance roles with PepsiCo. Prior to that
Nigel gained extensive meat industry
experience in senior finance roles
with Bernard Matthews plc and has
also worked for Royal Dutch Shell and
Whitbread. He is a qualified Chartered
Accountant and has a first class honours
degree in accountancy. Nigel is Chairman
of the Risk Management Committee.
Philip Heffer
Chief Operating Officer
Philip joined the Hilton Food Group
at its inception in 1994, as Managing
Director of the Group’s UK subsidiary
Hilton Foods UK Limited. In his current
role he is responsible for Hilton’s
business with its major customers in
the UK, Ireland, Continental Europe and
Australia. Prior to this, Philip held senior
positions within the RWM Food Group.
He attended Smithfield College and
became an associate member of the
Institute of Meat in 1984.
Theo Bergman
Executive Director
Theo joined Hilton in 2000 as Managing
Director of the Group’s Dutch facility,
Hilton Meats Zaandam and in 2003, he
was appointed to the Group’s Executive
Board as European operations director
responsible for the start up of operations
in Europe and the relationship with Ahold.
His current role is to oversee various
special projects. Prior to joining Hilton,
Theo held senior logistics and general
management positions with Ahold
between 1987 and 2000.
32
Hilton Food Group plc Annual report and financial statements 2015 Non-Executive Directors
Sir David Naish DL
Non-Executive Chairman
Sir David joined the Hilton Food Group
in 2007 as a Non-Executive Director
after retiring from the Chairmanship
of Arla Foods UK plc and was elected
Chairman in 2010. He is a past President
of the National Farmers Union and is
currently Chairman of his family farming
business as well as a Director of Wilson
Insurance Broking Group Limited and
Caunton Engineering Limited and is also
a Non-Executive Director of Produce
Investments plc. Sir David is Chairman
of the Nomination Committee.
John Worby
Non-Executive Director
appointed 22 March 2016
John Worby is a Chartered Accountant
with a wealth of experience in public
companies and the food sector. He was
Group Finance Director at Genus plc
retiring in 2013 and previously was
Group Finance Director and Deputy
Chairman of Uniq plc. John currently
holds Non-Executive Directorships at
Fidessa Group plc and Carr’s Group
plc and formerly was a Non-Executive
Director at Cranswick plc and Connect
Group plc. John is also a member of
the Financial Reporting Review Panel.
Colin Smith obe
Non-Executive Director
Colin joined the Hilton Food Group in
2010 as a Non-Executive Director and
has extensive experience in the food
and distribution industry. A Chartered
Accountant, he was at Safeway plc for
20 years in senior finance roles including
Finance Director and for the last six
years as Chief Executive. Colin has held
a number of board and advisory roles in
the industry including the Chairmanship
of Assured Food Standards and board
advisor to Natures Way Foods. He was
previously a Non-Executive Director of
McBride plc and Chairman of Poundland
Holdings Limited for 10 years until 2012
and thereafter a Non-Executive Director
for a further two years before retiring in
2014. He is currently Chairman of the
social enterprise The Challenge Network.
Colin is Chairman of the Audit Committee
and is the Senior Independent Director.
Christine Cross
Non-Executive Director
appointed 22 March 2016
Christine Cross was originally a food
scientist before devoting the 14 years to
2003 with Tesco in senior roles focusing
on own brand, non-food and global
sourcing. She has since worked globally
with a wide range of food and non-food
retailing businesses and currently holds
Non-Executive Directorships with
Sonae SGPS SA (Portugal), Brambles
Limited (Australia), Kathmandu Holdings
Limited (New Zealand) and several
private companies as well as numerous
advisory roles. Former Non-Executive
Director positions were held until recently
with Next plc and Woolworths Limited
(Australia). Christine is Chair of the
Remuneration Committee.
Chris Marsh
Non-Executive Director until his
retirement on 27 March 2016
Chris joined the Hilton Food Group in 2007
as a Non-Executive Director. Chris is a
corporate broker by background, he joined
Phillips and Drew in 1968 and headed the
Small Cap Corporate broking team at UBS
from 1993 until his retirement in 1998.
From 1999 to 2004 he was a member
of a small corporate finance advisory
team at the Benfield Group. Chris is
currently Non-Executive Chairman of
Webb Capital plc and formerly of Downing
Income VCT plc. Chris was the Senior
Independent Director and Chairman of
the Remuneration Committee.
Sir David Naish, Colin Smith, John Worby,
Christine Cross and Chris Marsh are all
members of the Remuneration, Audit
and Nomination Committees.
Colin Smith, John Worby, Christine
Cross and Chris Marsh are considered
to be independent.
33
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Directors’ report
The Directors present their report together with the audited
financial statements for the 53 weeks ended 3 January 2016.
Reference to other relevant information incorporated into this
report is below.
Strategic report
The Strategic report on pages 6 to 28 sets out the development
and performance of the Group’s business during the financial
year, the position of the Group at the end of the year and a
description of the principal risks and uncertainties facing the
Group. The Group’s financial instruments risk management
objectives and policy are discussed in the treasury risk
management policies section of the Performance and
financial review on page 16.
This Strategic report also includes the Corporate and social
responsibility report on pages 24 to 28 which contains
details of the Group’s employment practices and greenhouse
gas emissions.
Corporate governance and other statutory disclosures
The Corporate governance statement, Board Committee reports
and Directors’ remuneration report on pages 36 to 52 includes
information required by DTR 7.2.
Directors and their interests
The Directors of the Company in office throughout 2015, together
with their biographical details, are as set out on pages 32 and 33.
All the Directors served for the whole of the year under review
unless stated. Chris Marsh retired on 27 March 2016 and John
Worby and Christine Cross were appointed on 22 March 2016.
Details of Directors’ interests in shares are provided in the
Directors’ remuneration report on page 50.
Directors are subject to reappointment at the Company’s AGM
following the year in which they are appointed. In accordance
with the Company’s Articles of Association one third of the
Board is subject to re-election at each AGM. Accordingly, John
Worby and Christine Cross who were appointed recently together
with Robert Watson retire in accordance with the Articles of
Association at the forthcoming Annual General Meeting and,
being eligible, each offers him or herself for re-election.
Substantial shareholdings
As at the date of this report, the Company is aware or has been
notified of the following interests of 3% or more of the voting
rights of the Company:
There are no disclosures required to be made under LR 9.8.4.
Principal activities
The Group’s activities comprise specialist retail meat packing
for international food retailers.
Results and dividends
The profit before income tax is £28.0m (2014: £25.2m).
Aberforth Partners
Fidelity Mgt & Research
AXA Investment Mgrs
G. Heffer
R. Heffer
Montenaro Asset Mgt
Number of
ordinary
shares
8,624,482
7,087,473
5,186,046
4,174,500
4,174,500
2,434,496
Percentage
of issued
share capital
Nature of
holding
11.80% Indirect
9.70% Indirect
7.09% Indirect
Direct
5.71%
5.71%
Direct
3.33% Indirect
A first interim dividend of 4.1p per ordinary share was paid in
November 2015 and a second interim dividend of 9.2p will be
paid on 1 April 2016. The Directors recommend the payment of
a final dividend for the period which, together with the second
interim dividend, is not reflected in these accounts, of 1.3p per
ordinary share totalling £0.95m, which, together with the two
interim dividends, represents 14.6p per ordinary share for the
year. Subject to approval at the Annual General Meeting, the
final dividend will be paid on 1 July 2016 to members on the
register at the close of business on 3 June 2016. Shares will
be ex dividend on 2 June 2016.
Additionally Directors’ interests in shares total 10.49% and details
are given on page 50.
Political donations
No donations for political purposes were made during the year
(2014: £nil).
34
Hilton Food Group plc Annual report and financial statements 2015 Share capital and control
The following information is given pursuant to Section 992
of the Companies Act 2006:
– the Company has one class of share being ordinary shares of
10p each which have no special rights. The holders of ordinary
shares rank equally and are entitled to receive dividends and
return of capital as declared and to vote at general meetings.
With minor exceptions, there are no restrictions on transfers
of ordinary shares.
Directors’ statement as to disclosure of information to
auditors
The Directors who were members of the Board at the time of
approving the Directors’ report are listed on pages 32 and 33.
Having made enquiries of fellow Directors and the Company’s
auditors, each of these Directors confirm that:
– to the best of each Director’s knowledge and belief, there is
no information relevant to the audit of which the Company’s
auditors are unaware; and
– there are no restrictions on voting rights of ordinary shares.
– each Director has taken all the steps a Director might
reasonably be expected to have taken to be aware of any
relevant audit information and to establish that the Company’s
auditors are aware of that information.
Independent auditors
PricewaterhouseCoopers LLP have expressed their willingness to
continue in office and a resolution proposing their reappointment
will be submitted at the Annual General Meeting.
Annual General Meeting
The Notice convening the Annual General Meeting can be
found in the separate Notice of Annual General Meeting
accompanying this Annual report and financial statements,
and can also be found on the Company’s website at
www.hiltonfoodgroupplc.com/investors/agm.
By order of the Board
Neil George
Company Secretary
30 March 2016
– rights over ordinary shares issued under employee share
schemes are exercisable directly by the employees.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer
of its shares or on voting rights.
– the Company may appoint or remove a Director by an ordinary
resolution of the shareholders. Additionally the Board may
appoint a Director who must retire from office at the following
Annual General Meeting and if eligible then stand for
re-election.
– the Company’s Articles may be amended by a special
resolution of the shareholders.
– the Directors have general powers to manage the business
and affairs of the Company. Additionally the following specific
authorities were passed as resolutions at the Company’s
Annual General Meeting held on 12 May 2015:
– Directors have authority to purchase up to 10% of its own
shares subject to certain conditions.
– Directors have authority, within limits, to exercise the powers
of the Company to allot shares and limited authority to
disapply shareholder pre-emption rights.
Both these authorities expire on the earlier of the date of the
next Annual General Meeting or 12 August 2016.
– the Company has significant long term supply agreements with
customers which the customer may terminate in the event that
ownership of the Company, following a takeover, passes to a
third party which is not reasonably acceptable to that customer.
There are no agreements between the Company and its
Directors or employees providing for compensation for loss
of office or employment that occurs because of a takeover bid.
35
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015
Corporate governance statement
The UK Corporate Governance Code
The Board has prepared this report with reference to the UK
Corporate Governance Code issued by the Financial Reporting
Council in September 2014 which applies to accounting periods
beginning on or after 1 October 2014. The provisions of this Code
can be obtained from www.frc.org.uk/corporate/ukcgcode.cfm.
This statement including the Board Committee reports and
the Directors’ remuneration report on pages 39 to 52 detail how
the Board applies the principles of good governance and best
practice as set out in this UK Corporate Governance Code.
The Directors consider that the Company has during 2015
complied with the ten requirements of this Code, taking into
account the provisions for smaller companies.
The Board
Membership
At the date of this report the Board consists of four Executive
Directors and four Non-Executive Directors whose names,
responsibilities, brief biographies and membership of Board
Committees are set out on pages 32 and 33. The Directors bring
strong judgement and expertise to the Board’s deliberations and
the Board is of sufficient size and diversity to achieve the balance
of skills and experience appropriate for the requirements of
the business.
Non-Executive Directors
The Non-Executive Directors include the Non-Executive Chairman
and the Senior Independent Director. With the exception of the
Non-Executive Chairman, who is presumed under the Code
not to be independent following his appointment, the Board
considers the Non-Executive Directors to be independent.
The Non-Executive Directors do not participate in any of the
Group’s pension arrangements or in any of the Group’s bonus
or share option schemes. There is a clear written division of
responsibilities between the Non-Executive Chairman and the
Chief Executive which has been agreed by the Board.
The Non-Executive Directors met once during the year to
scrutinise the performance of the Executive management.
A further meeting was held without the Non-Executive
Chairman present to assess his performance.
Senior Independent Director
Colin Smith, the Senior Independent Director, is available to
shareholders as an alternative to the Non-Executive Chairman,
Chief Executive and Finance Director. He ensures that he is
available to meet shareholders, as required, and reports any
relevant findings to the Board.
Rotation of Directors
The Company’s Articles of Association provide that one third of
the Directors retire by rotation at each Annual General Meeting
and that all new Directors are subject to re-appointment by
shareholders at the first opportunity following their appointment.
Accordingly, John Worby and Christine Cross who were
appointed recently together with Robert Watson retire in
accordance with the Articles of Association at the forthcoming
Annual General Meeting and, being eligible, each offers him
or herself for re-election.
Directors’ conflicts of interest
Under the Companies Act 2006, the Group’s Directors have
an obligation to avoid any situation where they have a conflict
of interests. The Group has in place procedures that require all
Directors to notify the Group of any conflicts of interest and, for
any such conflicts of interest to be authorised by non-interested
Directors, provided the Company’s Articles allow for this.
During the current financial year the Group were not advised
of nor did the Group identify any such conflicts of interest.
Information and support provided to Board members
Members of the Board and its Committees are given appropriate
documentation in advance of each Board and Committee
meeting. For regular Board meetings these include a detailed
period report on current and forecast trading, with comparisons
against both budget and prior years. For all meetings appropriate
explanatory papers are circulated well in advance on matters
which the Board or Committee will be required to approve or
provide responses.
The Board operates both formally through Board and Committee
meetings and informally through regular contact between
Directors. To assist them in carrying out their responsibilities the
Directors have, in addition to full and timely access to all relevant
information from management in advance of Board meetings, the
right to obtain independent professional advice at the Company’s
expense and the advice and services of the Company Secretary
to enable them to perform their duties as Directors. The Company
Secretary is responsible to the Board, through the Chairman,
for all governance matters. The appointment and removal of
the Company Secretary is determined by the Board as a whole.
Board responsibilities
The Board is collectively responsible for promoting the success
of the Group, within a framework of prudent and effective
controls that enable risk to be assessed and appropriately
managed. It is responsible for setting and approving the strategy
and key policies of the Group and monitoring the progress
towards achieving these objectives. The Board aims to enhance
shareholder value by providing entrepreneurial leadership for the
Group, whilst simultaneously ensuring the appropriate framework
of checks and balances are maintained in place.
36
Hilton Food Group plc Annual report and financial statements 2015 The Board has specific powers reserved to it contained in
a schedule of matters reserved for decision by the Board
which include:
– acquisitions and disposals;
– major trading agreements;
– major capital expenditure projects;
– dividends;
– treasury and risk management policies;
– approval of budgets, half yearly and annual accounts
and interim management statements; and
– the giving of any guarantees or letters of comfort.
The Board meets not less than eight times a year to direct and
control the strategy and operating performance of the Group.
The Board also has responsibility for setting policy and monitoring
from time to time such matters as financial and risk control,
health and safety policy, environmental issues and management
succession and planning. The Board has delegated to the Chief
Executive and the Executive Directors responsibility for the
execution of the agreed strategy and budget and the day-to-day
management of the Group’s operations. Day-to-day decisions in
relation to procurement and supply chain management, factory
operations and customer liaison are delegated to the senior
management teams at each operational site.
Board Committees
The Board has delegated certain responsibilities to the following
Board Committees:
– Nomination Committee;
– Audit Committee;
– Remuneration Committee; and
– Risk Management Committee.
Each Board Committee operates under clearly defined terms
of reference and report regularly to the Board. These terms
of reference are reviewed on a regular basis with any revisions
proposed to the Board for its approval. The Board ensures that
each Committee has sufficient resources to undertake their
duties including access to the Company Secretary and external
advisors as appropriate.
Reports for each Board Committee are included on pages
39 to 52.
Attendance at Board meetings
The following table sets out the Board meeting attendance by
Board members, including the maximum number of meetings
which could have been attended. Attendance at Board
Committee meetings is set out in each Committee report.
Robert Watson
Philip Heffer
Theo Bergman
Nigel Majewski
Sir David Naish
Chris Marsh
Colin Smith
Number of
meetings
10
10
10
10
10
10
10
Number
attended
10
10
7
10
10
10
9
Performance evaluation
The Non-Executive Chairman leads a formal annual performance
evaluation of the Board and its standing Committees and
meets with the Non-Executive Directors at least once a year
to convey his conclusions. During 2015 an internal evaluation
process involved each Director completing a detailed written
questionnaire including the opportunity to comment on any issue
not directly covered by the questionnaire. The responses were
analysed and considered by the Board who have concluded that
the Directors, the Board and its standing Committees continue
to perform effectively. The Non-Executive Directors met once
during the year without the Non-Executive Chairman present in
order to evaluate his performance. An external evaluation process
was last conducted in 2011/12.
Shareholder communications
The Board promotes open communication with shareholders.
The Chief Executive and Chief Financial Officer meet regularly
and have dialogue with institutional shareholders both to discuss
the Group’s performance and prospects and to develop an
understanding of their views which are relayed back to the Board.
The Board’s current assessment of the Group’s position and
prospects are set out in the Strategic report on pages 6 to 28.
Twice a year general presentations are given to analysts covering
the annual and half year results and other reports and forecasts,
together with relevant articles in the financial press, are circulated
to the Board.
The other Executive Directors are available to meet the
Company’s major shareholders if required and the Senior
Independent Director is available to listen to the views of
shareholders, should they have concerns which have not been
previously resolved or which it was inappropriate to voice at prior
meetings. All shareholders have the opportunity to ask questions
at the Company’s Annual General Meeting, which all Directors
and the Chairmen of every Board Committee attend. In addition
the Group’s website containing published information and press
releases can be found at www.hiltonfoodgroupplc.com.
37
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Corporate governance statement continued
Risk management and internal control
The Board of Directors has overall responsibility for the Group’s
systems of internal control including financial, operational and
compliance controls and risk management which operate to
safeguard the shareholders’ investments and the Group’s assets
and for reviewing their continuing effectiveness. Such an internal
control system can only provide reasonable and not absolute
assurance against material misstatement or loss as it is designed
to manage rather than eliminate risk and failure to meet
business objectives.
The Group’s planning and financial reporting procedures include
detailed budgets and a three year strategic plan which are
approved by the Board. Periodic management accounts report
performance compared to the budget and additionally forecasts
are updated through the year. These management accounts
together with half-yearly and annual accounts produced by the
Group’s subsidiary companies are reviewed together with the
methodology used for consolidating these into the periodical,
half-yearly and annual accounts. All financial information published
by the Group is approved by the Board and Audit Committee.
The Chief Financial Officer and Group Financial Controller
are responsible for overseeing the Group’s internal controls.
The management of the Group’s businesses have identified
the key business risks within their operations, considered their
financial implications and assessed the effectiveness of the
control processes in place to mitigate these risks. The Board
has reviewed a summary of these findings and this, together
with its direct involvement in the strategies of the business,
investment appraisal and budgeting processes, has enabled
the Board to report on the effectiveness of the Group’s
internal control systems.
By order of the Board
Neil George
Company Secretary
30 March 2016
The Board has carried out a robust assessment of the principal
risks facing the Company, including those that would threaten
its business model, future performance, solvency or liquidity
which is summarised in the Risk management section on pages
22 to 23.
The Group operates within a clearly defined organisational
structure with established responsibilities, authorities and
reporting lines to the Board. The organisational structure is
designed to plan, execute, monitor and control the Group’s
objectives effectively and ensure internal control becomes
integral to all the Group’s operations. The Board confirms that
the Group’s internal risk based control systems have been fully
operative up to the date of the Annual report being approved,
key ongoing processes and features of which are set out below:
– appropriate mechanisms to identify and evaluate business risk;
– a Group internal audit function which is involved in the review
and testing of the internal control systems and of key risks
across the Group in accordance with an annual programme
agreed with the Audit Committee;
– a strong control environment;
– an information and communication process; and
– a monitoring system and regular Board reviews
for effectiveness.
38
Hilton Food Group plc Annual report and financial statements 2015 Report of the Audit Committee
Chairman’s introduction
I am pleased to report on the activities of the Audit Committee
for the 53 weeks ended 3 January 2016.
Role of the Committee
The Audit Committee is established by the Board of Directors.
Terms of reference formalise the roles, tasks and responsibilities
of the Committee to comply with the UK Corporate Governance
Code and to achieve best practice. The Committee terms of
reference are available and can be found on the Company’s
website at www.hiltonfoodgroupplc.com.
The Committee meets at least three times per year.
Membership of the Committee
Members of the Committee are appointed by the Board on the
recommendation of the Nomination Committee and comprise the
Chairman of the Committee and at least two members who are
the Chairman of the Board and the Independent Non-Executive
Directors. At least one member has recent and relevant financial
experience and between them have a wide experience of
industry and commerce.
Other individuals such as the Chief Executive, Chief Financial
Officer, Internal Auditor and the external auditors may be invited
to attend meetings. The external auditors and the Internal Auditor
have the opportunity for direct access to the Committee without
the Executive Directors being present.
Responsibilities of the Committee
The main responsibilities of the Audit Committee which are
contained in the UK Corporate Governance Code and also
in the Committee’s terms of reference are:
– to monitor the integrity of the financial statements of the
Company and any formal announcements relating to the
Company’s financial performance, reviewing significant
financial reporting judgements contained in them;
– to review the Company’s internal financial controls and internal
control and risk management systems;
– to monitor and review the effectiveness of the Company’s
internal audit function;
– to consider and make recommendations to the Board, to be put
to shareholders for their approval in general meeting, in relation
to the appointment, re-appointment and removal of the external
auditors and to approve the remuneration and terms of
engagement of the external auditors;
– to review and monitor the external auditors’ independence and
objectivity and the effectiveness of the audit process, taking
into consideration relevant UK professional and
regulatory requirements;
– to develop and implement policy on the engagement of the
external auditors to supply non-audit services, taking into
account relevant ethical guidance regarding the provision of
non-audit services by the external audit firm; and to report
to the Board, identifying any matters in respect of which it
considers that action or improvement is needed and making
recommendations as to the steps to be taken;
– to meet with the external auditors and the head of internal audit
at least once a year without management being present; and
– to report to the Board on how it has discharged
its responsibilities.
Attendance at meetings of the Audit Committee
Colin Smith
Sir David Naish
Chris Marsh
Nigel Majewski
Number of
meetings
4
4
4
4
Number
attended
4
4
4
4
How the Committee has discharged its responsibilities
During 2015 the Committee met four times at appropriate
intervals in the financial reporting and audit cycles. The work
of the Committee during the year focused on the key areas
set out below.
Monitoring the integrity of the financial statements
including significant judgements
The Group’s accounting policies were reviewed which
included an assessment of the Group’s cost plus contracts in
relation to IFRIC 4 to determine whether they contain a lease.
The Committee was satisfied that these cost plus contracts
typically contain benchmarking clauses allowing customers to
obtain competitive pricing or to source from a competitor, that
product inputs are traded in active markets and that product
selling prices are updated frequently resulting in pricing that
is, in substance, a market price. On this basis the Committee
concluded that the criteria for determining whether the
Group’s cost plus contracts contain a lease are not met. It was
considered that there were no other critical accounting estimates
or judgements involved in the application of the Group’s
accounting policies.
The external auditors identified complex supplier arrangements
as an area of audit focus and the Committee fully considered
this issue. An overview of Hilton’s business relationships with its
retailer partners is contained in the ‘Business model’ section of
the Chief Executive’s summary on page 11 and information on
the accounting policies adopted relating to revenue recognition
are set out in note 2 on page 65. As Hilton’s contracts with
its customers include pre-agreed and pre-defined revenue
parameters, performance measures and targets there were no
significant estimates or judgements involved in the application
of these accounting policies.
The Committee reviewed half and full year financial reports
including the application of accounting policies, estimates and
judgements in their preparation, the clarity and completeness of
the disclosures and also held discussions with management and
the external auditors. The Annual report and financial statements
were, taken as a whole, considered to be fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Group and Company’s performance,
business model and strategy. The Committee considered going
concern and the Group’s longer term viability and concluded
that the Group should be considered as a going concern.
Thereafter the Committee recommended that the Board approve
these financial reports for publication and that the letter of
representation to the external auditors be signed.
39
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Report of the Audit Committee continued
Non-audit services and fees
Hilton has implemented a policy on the use of external auditors
for non-audit services designed to preserve the independence of
the external auditors. This policy categorises non-audit services
into (i) continuing services which the Committee permits
external auditors to undertake subject to a price cap, (ii) irregular
or significant services requiring Committee approval on a case
by case basis and (iii) non-permitted services.
The level of non-audit fees was reviewed which in 2015 at
£107,000 represents 43% of audit fees which is below the
proposed EU cap of 70%. Further details of these costs can be
found in note 6 on page 72. The Committee considers that this
low level of non-audit fees does not affect the independence of
the external auditors.
Conclusion
The Committee considers that the work performed as detailed
above demonstrates that the Committee continues to operate
effectively and discharges its responsibilities.
I will be available to shareholders at the forthcoming Annual
General Meeting to respond to any questions relating to the
work of the Committee.
On behalf of the Audit Committee
Colin Smith obe
Chairman
30 March 2016
Risk management and internal controls
During the year the Internal Auditor reported to the Committee
on the internal audit work performed and on key focus areas
for future work. The Group’s Risk Register was also updated.
The Committee concluded that the internal audit function
remains effective.
A review of whistle-blowing showed that no concerns had
been raised about possible wrongdoing in financial reporting or
other matters.
External audit
The Committee oversees the relationship with, and the
performance of, the external auditors. Meetings were held
before the audit to agree their audit plan and after their audit
work to discuss their key audit findings.
The current external auditors, PricewaterhouseCoopers LLP, were
appointed in 2007. Their lead partner is rotated every five years
to ensure continued objectivity and independence. Hilton is not
subject to the provision in the UK Corporate Governance Code
that the external audit contract should be put out to tender at
least every ten years. The EU Audit Regulation and Directive
covering mandatory audit firm rotation and tendering is expected
to be implemented in the UK during 2016 which could require
formal audit re-tendering for the 2017 financial year.
PricewaterhouseCoopers LLP annually confirm their compliance
with UK regulatory and professional requirements including
ethical standards and that their objectivity is not compromised.
Their audit work is subject to independent partner and quality
control reviews. Potential independence threats through
the provision of non-audit services are mitigated through
various safeguards.
The Committee continues to be satisfied with the performance of
PricewaterhouseCoopers LLP and have therefore recommended
to the Board that they should continue as the Group’s auditors at
the forthcoming Annual General Meeting.
40
Hilton Food Group plc Annual report and financial statements 2015 Report of the Nomination Committee
Chairman’s introduction
I am pleased to report on the activities of the Nomination
Committee for the 53 weeks ended 3 January 2016.
Role of the Committee
The Nomination Committee is established by the Board
of Directors. Terms of reference formalise the roles,
tasks and responsibilities of the Committee to comply
with the UK Corporate Governance Code and to achieve
best practice. The Committee terms of reference are
available and can be found on the Company’s website at
www.hiltonfoodgroupplc.com. The Nomination Committee
leads the process for Board appointments.
The Committee meets on an as required basis.
Membership of the Committee
Members of the Committee comprise all the
Non-Executive Directors.
Responsibilities of the Committee
The main responsibilities of the Nomination Committee which are
contained in the UK Corporate Governance Code and also in the
Committee’s terms of reference are:
– to review the structure, size and composition of the Board
including skills, knowledge, experience and diversity (including
gender) and make recommendations to the Board with regard
to any changes;
– to give consideration to succession planning for Directors and
other senior executives and identify appropriate candidates
for the approval of the Board;
– to oversee new appointments to the Board;
– to review the results of the Board performance evaluation
relating to the composition of the Board; and
– to review the time requirements of Non-Executive Directors.
Attendance at meetings of the Nomination Committee
Sir David Naish
Chris Marsh
Colin Smith
Number of
meetings
1
1
1
Number
attended
1
1
1
How the Committee has discharged its responsibilities
During 2015 the Committee met once in a continuing
stable environment.
The Committee considered the composition of the Board noting
that two Non-Executive Directors were nearing the completion
of nine year terms with Hilton. The Committee considered and
recommended the appointments of John Worby and Christine
Cross as Non-Executive Directors to replace Chris Marsh and
myself during 2016.
Hilton continues to develop management structures to promote
its talent pipeline as part of a succession planning process
covering the Directors and senior management positions.
Hilton prefers where possible to recruit these positions from
internal candidates. Accordingly processes are being developed
to assess the current management population against criteria for
larger management roles they could potentially fill in the future
and put in place individual development plans.
The Chairman has discussions with each Director to review and
agree their training and development needs.
Conclusion
The Committee considers that the work performed as detailed
above demonstrates that the Committee continues to operate
effectively and discharges its responsibilities.
I will be available to shareholders at the forthcoming Annual
General Meeting to respond to any questions relating to the
work of the Committee.
On behalf of the Nomination Committee
Sir David Naish DL
Chairman
30 March 2016
41
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Report of the Risk Management Committee
Chairman’s introduction
I am pleased to report on the activities of the Risk Management
Committee for the 53 weeks ended 3 January 2016.
Role of the Committee
The Risk Management Committee is established by the
Board of Directors. Terms of reference formalise the roles,
tasks and responsibilities of the Committee to comply with the
UK Corporate Governance Code and to achieve best practice.
It seeks to focus and co-ordinate risk management activities
throughout the Group in order to facilitate the identification,
evaluation and management of key business risks.
The Committee meets at least six times per year.
Membership of the Committee
Members of the Committee are appointed by the Board and
comprise the Finance Director, subsidiary company operations
managers, the Group Internal Auditor, the Group IT manager
and other personnel throughout the Group as required.
Responsibilities of the Committee
The main responsibilities of the Risk Management
Committee are:
– to raise the level of management awareness of and
accountability for risks faced by the business;
– to embed risk management into the Group culture;
– to provide a mechanism for risk management issues to be
discussed and disseminated;
– to oversee and advise the Board on the current risk exposures
of the Group and future risk strategy; and
– to provide advice on the co-ordination of risk management
strategies across the Group ensuring they receive the
appropriate level of sponsorship and support.
Attendance at meetings of the Risk Management
Committee and how it has discharged its
responsibilities
During 2015 the Committee met eleven times (of which Nigel
Majewski attended nine meetings) and focused on the key areas
set out below.
– monitoring, identification and evaluation of potential risks
to all the Hilton businesses;
– independent buildings risk assessments and emergency
power solutions;
– developing business continuity management systems with
disaster recovery exercises conducted at various sites each
year; and
– the further development of a sister site support network
across the Group in the event of any business interruption to
a particular operating unit. Functionality includes identification
of spare capacity and establishment of central labelling
equipment to significantly shorten reaction times making
possible rapid support across the Group.
Conclusion
The Committee considers that the work performed as detailed
above demonstrates that the Committee continues to operate
effectively and discharge its responsibilities.
I will be available to shareholders at the forthcoming Annual
General Meeting to respond to any questions relating to the
work of the Committee.
On behalf of the Risk Management Committee
Nigel Majewski
Chairman
30 March 2016
42
Hilton Food Group plc Annual report and financial statements 2015 Directors’ remuneration report
Chairman’s introduction
I am pleased, as Non-Executive Chairman of the Board, to
present the Directors’ remuneration report for the 53 weeks
ended 3 January 2016. As explained below since the end of
2015 the previous Chairman of the Remuneration Committee
Chris Marsh retired and the new Chair Christine Cross appointed
as a Non-Executive Director of Hilton. As Christine has not yet
attended any Remuneration Committee meetings and therefore
not yet cognisant on Hilton remuneration matters I am presenting
this Remuneration report for this year only.
This report sets out the Company’s policy on Directors’
remuneration as well as information on remuneration paid to
Directors for the 53 weeks ended 3 January 2016. The report
complies with the requirements of The Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 and has been prepared in line with the
recommendations of the Code and the UK Listing Authority
Listing Rules (the ‘Listing Rules’).
Responsibilities of the Committee
The main responsibilities of the Remuneration Committee which
are contained in the UK Corporate Governance Code and also in
the Committee’s terms of reference are:
– setting the remuneration policy for all Executive Directors
and the Company’s Non-Executive Chairman;
– approving the design of, and determining the targets for, any
performance-related pay schemes operated by the Company
and to approve the aggregate annual payments made under
such schemes;
– reviewing the design of all share incentive plans for approval
by the Board and shareholders; and
– recommending and monitoring the level and structure
of remuneration for senior management.
Attendance at meetings of the Remuneration Committee
Good strategic progress was achieved in 2015 and strong
underlying profit progress was made despite a material impact
on our profitability reported in Sterling from adverse exchange
translation movements.
Chris Marsh
Sir David Naish
Colin Smith
Number of
meetings
3
3
3
Number
attended
3
3
3
Role of the Committee
Remuneration policy is delegated by the Board to the
Remuneration Committee established by the Board of Directors.
Terms of reference formalise the roles, tasks and responsibilities
of the Committee to comply with the UK Corporate Governance
Code and to achieve best practice. The Committee’s terms of
reference are available and can be found on the Company’s
website at www.hiltonfoodgroupplc.com.
The Committee meets at least twice per year.
Membership of the Committee
Members of the Committee are appointed by the Board on
the recommendation of the Nomination Committee and in
consultation with the Chairman of the Remuneration Committee.
In 2015 the Committee comprised the Non-Executive Directors
(Chris Marsh and Colin Smith) and the Non-Executive Chairman
of the Board (Sir David Naish) who was considered to be
independent on appointment. Chris Marsh stepped down from
the Board in March 2016 and Sir David Naish will step down in
May after the AGM. Following their appointment to the Board
on 22 March 2016 John Worby and Christine Cross joined the
Remuneration Committee and Christine Cross was appointed
as its Chairman.
Other individuals such as the Chief Executive and external
advisors may be invited by the Committee to attend meetings
as and when required.
Directors’ remuneration major decisions and
substantial changes
The Committee made the following major decisions during
the year:
Basic salaries
In the year the Committee undertook a review of Company and
individual performance, changes in responsibility and levels of
increase in the sector for the broader UK employee population.
Theo Bergman has stepped down from the role of Chief
Operating Officer for Continental Europe thereby increasing the
responsibilities of the other Executive Directors, in particular Philip
Heffer who has taken over the Chief Operating Officer role for
the whole Group. In considering the appropriate salary for each
Executive Director we have set this in context of comparable
rates in the market. The Committee agreed basic salary increases
of 10% for Robert Watson and 6% for Philip Heffer and Nigel
Majewski effective from 1 January 2016. Theo Bergman’s salary
is unchanged.
Annual bonus for Executive Directors
A 2015 non-financial metric award of 20.0% of salary was granted
out of a maximum of 20% of salary reflecting the significant
strategic progress and the strong 20.9% underlying increase
in operating profit at constant currency rates achieved by the
Company during 2015. Under the financial metric 55.54% of
salary is payable out of a maximum of 105% of salary reflecting
the increase in actual net income in 2015 over the 2014
net income.
The 2016 Executive Director bonus scheme financial element
will have a threshold award of 20% for achieving the 2015 actual
net income level rising to 105% for performance of at least
118% of 2016 budgeted net income. A further non-financial
element of up to 20% of salary will remain available based on
individual achievement against personal and strategic targets
aggregating to a 125% of salary maximum bonus opportunity for
the Executive Directors. Following a change in his circumstances
Theo Bergman will not participate in the 2016 bonus scheme.
43
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Directors’ remuneration report continued
Long term incentive schemes
During 2015 a grant of nil cost options under the Long Term
Incentive Plan was approved with vesting subject to an EPS
performance condition. Threshold performance is EPS growth
of 6% per annum where 10% of the options will vest rising to
EPS growth of at least 18% per annum where 100% of the
options will vest. There was a further invitation under Hilton’s
Sharesave Scheme during the year.
Statement of voting at Annual General Meeting
This Directors’ remuneration report (other than the Directors’
remuneration policy) is subject to a non-binding resolution at each
AGM. The Directors’ remuneration policy is subject to a binding
resolution every three years or sooner where any changes are
made. The resolution to approve the 2014 Directors’ remuneration
report was unanimously passed on a show of hands at the AGM
held in the year. The proxy vote was as follows:
External advisors
The Committee has appointed New Bridge Street (part of Aon plc)
to provide advice on remuneration matters and are satisfied
that such advice is objective and independent. The amount paid
for these services during the year amounted to £3,799 and no
other services to the Company are provided. New Bridge Street
is a member of the Remuneration Consultants Group and is a
signatory to its code of conduct.
Resolution type
Votes for
%
Votes against
%
Votes withheld
Approve Directors’
remuneration report
Advisory
48,108,978
97.3%
1,337,377
2.7%
12,578
Share scheme dilution limits
The Company applies established good governance restrictions
over the issue of new shares under all its share schemes of 10%
in 10 years and 5% in 10 years for discretionary schemes. As at
3 January 2016 the headroom available under these limits was
3.3% and 0% respectively.
No changes are proposed to the Directors remuneration policy.
An advisory resolution on the Directors’ remuneration report
(other than the Directors’ remuneration policy) will be proposed
at Hilton’s 2016 AGM.
Directors’ remuneration policy
The Committee considers that the Group’s remuneration policies should encourage a strong performance culture and emphasise long
term shareholder value creation in order to be aligned with its shareholders’ interests.
The policy set out below was passed by a binding shareholder vote at the Company’s 2014 Annual General Meeting effective from
the date of that meeting. The policy will be subject to further binding votes every three years or sooner where any changes are made.
No changes are proposed and the policy is reproduced below for completeness and transparency.
The following table summarises all elements of pay which make up the total remuneration opportunity for Directors, and details how
each element is operated and links to the Company’s strategy.
Element
Basic salary
Purpose and link
to strategy
To recruit and reward
executives of a suitable
calibre for the role and
duties required
Benefits
To provide market
competitive benefits
to ensure the retention
of employees
Operation
Normally reviewed annually by the
Committee with effect from 1 January,
taking account of Company performance,
individual performance, changes in
responsibility and levels of increase for
the broader UK employee population
(or their local market where relevant).
Reference is also made to median levels
within relevant FTSE and industry
comparators.
The Committee considers the impact
of any basic salary increase on the total
remuneration package.
The Company typically provides:
– Company car and fuel;
– Private healthcare; and
– Other ancillary benefits, including
relocation expenses (as required).
Maximum opportunity
There is no prescribed maximum annual
increase. The Committee is guided by
the general increase for the broader UK
employee population (or their local market
where relevant) but on occasions may need
to recognise, for example, development
in roles assigned, changes in levels of
responsibility, and/or specific
retention issues.
Value of benefits is based on the cost to
the Company and is not pre-determined.
44
Hilton Food Group plc Annual report and financial statements 2015
Element
Pension
Purpose and link
to strategy
To provide adequate
retirement benefits
Annual
bonus
To encourage and
reward delivery of the
Company’s operational
objectives
Long term
incentives
To encourage and
reward delivery of the
Company’s strategic
objectives and provide
alignment with its
shareholders’ interests
through the use of
share option schemes
All employee
share schemes
To encourage employee
share ownership and
thereby increase their
alignment with
shareholders
Maximum opportunity
Up to 15% of basic salary for Robert
Watson, Philip Heffer and Nigel Majewski
and for Theo Bergman up to 24% of basic
salary, holiday allowance and bonus (in
compliance with a legacy arrangement).
Up to 125% of basic salary.
100% of salary for all Executive Directors,
but in exceptional circumstances such as
recruitment or retention, the limit may be
increased to 200% of salary.
The same ESOS maximum opportunity
as for LTIP above.
Maximum savings up to the UK
statutory limit.
Operation
Employer contributions are made to
money purchase pension schemes at
the rates set out in Executive Directors’
service contracts.
In certain circumstances a salary
supplement may be paid in lieu of such
pension contributions.
The annual bonus scheme for Executive
Directors is based on performance against
the following metrics:
– Financial element based on achieving
financial targets including the Group net
income level adjusted for exceptional
items; and
– Non-financial element based on individual
Executive Director achievement against
personal and strategic targets.
There are no deferred elements. Any
bonus paid is subject to claw-back in
circumstances of exceptional misstatement
or misconduct.
Under its Long Term Incentive Plan (LTIP)
Hilton makes an annual award of conditional
shares or nil cost options. Awards are
granted subject to continued employment
and satisfaction of challenging performance
conditions measured over three years to be
satisfied by the issue of new shares or
transfer of existing shares. An Employee
Benefit Trust has been set up in connection
with this plan.
Awards granted under the current policy
are subject to the achievement of EPS
performance targets determined at
the date of grant with up to 25% vesting
at threshold performance.
Awards are subject to claw-back for three
years following vesting in circumstances of
material misstatement, error or misconduct.
There are no plans to grant further options
under Hilton’s Executive Share Option
Scheme (ESOS) in the foreseeable future
although the ability to do so is retained as
an alternative to LTIP awards. Any grants
would be subject to performance conditions
determined prior to grant.
All employees are eligible to join Hilton’s
Sharesave Scheme (HMRC approved for
the UK and Ireland) and make regular
savings for a three year period following
which they have six months to exercise
the options granted.
No performance conditions attach to
options granted under the Scheme.
45
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Directors’ remuneration report continued
Element
Non-Executive
Director fees
Purpose and link
to strategy
To attract and retain
a high-calibre
Non-Executive
Chairman and
Non-Executive
Directors by offering
a market competitive
fee level
Operation
The Non-Executive Directors receive the
fees set out in their letters of appointment.
A base fee is augmented for Committee
Chairmanship or membership to take into
account the additional time commitment
and responsibilities associated with
those committees.
Maximum opportunity
As for the Executive Directors, there is
no prescribed maximum annual increase.
The Committee is guided by the general
increase for the broader UK employee
population but on occasions may need
to recognise, for example, change in
responsibility, and/or time commitments.
Non-Executive Director remuneration
is determined by the Non-Executive
Chairman and the Executive Directors.
The Non-Executive Chairman’s
remuneration is determined by
the Remuneration Committee.
Notes
1. The remuneration policy for the Executive Directors is designed with regard to the policy for employees across the Group as a whole. For example, the Committee
takes into account the general base salary increase for the broader UK employee population when determining the annual salary review for the Executive
Directors. There are some differences in the structure of the remuneration policy for the Executive Directors and other senior employees, which the Remuneration
Committee believes are necessary to reflect the different levels of responsibility of employees across the Company. The key differences in remuneration policy
between the Executive Directors and employees across the Group are the increased emphasis on performance related pay and the inclusion of a share based long
term incentive plan for Executive Directors. There is a lower aggregate incentive quantum at below executive level with levels driven by market comparatives and
the impact of the role. Long term incentives are not provided outside of the most senior executives as they are reserved for those viewed as having the greatest
potential to influence Group levels of performance.
2. The choice of the annual bonus financial element based on net income metric aligns the bonus for a given year to the overall financial performance for that year.
Threshold performance is at the previous year net income thereafter on a sliding scale with the maximum bonus paid at a stretching margin above current year
budgeted net income.
3. The long term incentive EPS metric was chosen as it aligns the incentive with long term returns to shareholders.
4. Long term incentive and sharesave schemes are operated in accordance with their respective Scheme and other rules under which the Committee has some
discretion relating to their administration which is consistent with market practice. Under the LTIP such discretion covers:
– treatment of awards in the event of good leavers (including determination of good leaver status), death and intervening events (including variations in capital
and change of control) which address vesting date, exercise period and reduction in number of vesting options;
– in exceptional circumstances such as recruitment or retention the grant limit may be increased to 200% of salary;
– minor alterations to benefit the plan administration, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control
or regulatory treatment; and
– where an event has occurred such that it would be appropriate to amend the performance condition so long as the altered performance condition is not
materially less difficult to satisfy.
46
Hilton Food Group plc Annual report and financial statements 2015 Other policy information
Element
Non-UK based
Directors and foreign
currency translation
Description
Directors may be employed who are based outside of the UK and therefore subject to the employment laws and
accepted practice for that country which may be different to those in the UK. The Committee will ensure that
any future overseas based Directors are remunerated on an equivalent basis as in the UK albeit that it may be
necessary to satisfy local statutory requirements.
Remuneration to Theo Bergman is paid in Euro which, for disclosure purposes, is translated into Sterling at the
average exchange rate for the relevant year.
The Directors’ current shareholdings total 10.49% of the Company’s shares. Therefore the Committee has not
set a share ownership guideline as the Committee considers these shareholdings to be significant and sufficient
to align their interests to the longer term performance of the Company.
The remuneration package for a new Executive Director would be set in accordance with the terms of the
Company’s approved remuneration policy in force at the time of appointment. For the appointment of a new
Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the approved
remuneration policy in force at that time.
The salary for a new Executive Director may be set below the normal market rate, with phased increases over
the first few years as the Executive Director gains experience in their new role.
The Committee may offer additional cash and/or share-based elements when it considers these to be in the
best interests of the Company and its shareholders. Such payments would reflect and be limited to remuneration
relinquished when leaving the former employer and would reflect (as far as possible) the nature and time
horizons attaching to that remuneration and the impact of any performance conditions. Shareholders will be
informed of any such payments at the time of appointment.
For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role
will be allowed to pay out according to its terms. In addition, any other ongoing remuneration obligations existing
prior to appointment may continue.
For external and internal Executive Director appointments, the Committee may agree that the Company will
meet certain relocation expenses where appropriate.
Payments for loss of office are made in accordance with the terms of the Directors’ service contracts as below.
In accordance with its terms of reference the Committee ensures that contractual terms on termination, and any
payments made, are fair to the individual, and the Company, that failure is not rewarded and that the duty to
mitigate loss is fully recognised.
The Committee is always interested in shareholder views and is committed to an open dialogue. All feedback is
considered when making policy decisions. The Committee will seek to engage with major shareholders on any
proposed significant changes to its remuneration policies.
The Committee takes into account the general employment reward packages of employees across the Group
when setting policy for Executive Director remuneration. Employees have not previously been actively consulted
on Director remuneration policies but this may be considered in future where appropriate.
Share ownership
Approach to
recruitment
Payment for
loss of office
Consideration
of shareholder views
Consideration
of employment
conditions elsewhere
in the Group
47
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Directors’ remuneration report continued
Director service contract and other relevant information
Provision
Term
Executive Directors
All appointed on 24 April 2007 with no fixed term
Non-Executive Directors
Sir David Naish 3 years from 27 March 2013 extended
to 25 May 2016
Colin Smith 3 years from 1 October 2013
John Worby and Christine Cross 3 years from
22 March 2016
Every 3 years
6 months for both the Company and the Director
None
None
Re-election at AGM Every 3 years
Notice period
Termination payment /
payments in lieu
of notice
12 months for both the Company and the Director
Up to 12 months’ salary in lieu of notice.
If a claim is made against the Company in relation to
a termination (e.g. for unfair dismissal), the Committee
retains the right to make an appropriate payment in
settlement of such claims as considered in the best
interests of the Company. Additional payments in
connection with any statutory entitlements (e.g. in
relation to redundancy) may be made as required.
On termination no bonus is payable and outstanding
share awards will lapse unless the Committee
determines good leaver circumstances apply.
Remuneration
entitlements
Change of control
External
appointments
In good leaver circumstances and subject to
performance conditions a pro-rata bonus may
be payable at the Company’s discretion. Outstanding
share awards may vest subject to time pro-rating
and the performance conditions being satisfied.
There are no enhanced terms in relation to a change
of control
External appointments can be held and earnings
retained from such appointments with the
Company’s permission
There are no enhanced terms in relation to a change
of control
N/A
Inspection
Executive Director service agreements and Non-Executive Director appointment letters are available for inspection at the Companies
registered office.
Legacy arrangements
For the avoidance of doubt, in approving this policy report, authority is given to the Company to honour any commitments entered
into with current or former Directors (such as the payment of a pension or the unwinding of legacy share schemes) that have been
disclosed to shareholders in previous remuneration reports. Details of any payments to former Directors will be set out in the Annual
report on remuneration as they arise.
Remuneration paid to Theo Bergman is subject to Dutch laws and accepted practices. The Dutch Minimum Wages and the Minimum
Holiday Allowance Act provides that an employer is obliged to pay a holiday allowance equal to a certain percentage, currently 8%, of
the employee’s basic salary. In the UK such holiday allowance is generally included within the employee basic salary. Additionally the
terms of the Dutch industry specific pension scheme, to which Mr Bergman has belonged since before the acquisition by Hilton of the
Dutch business, currently stipulate that the pension percentage contribution is applied to basic salary, holiday allowance and bonus
although this may be subject to change in the future.
48
Hilton Food Group plc Annual report and financial statements 2015 Annual report on remuneration
This section is subject to audit.
Single total figure table of remuneration
The remuneration of individual Directors is set out below.
53 weeks to 3 January 2016
Executive Directors
Robert Watson
Philip Heffer
Theo Bergman
Nigel Majewski
Non-Executive Directors
Sir David Naish
Chris Marsh
Colin Smith
Total
52 weeks to 28 December 2014
Executive Directors
Robert Watson
Philip Heffer
Theo Bergman
Nigel Majewski
Non-Executive Directors
Sir David Naish
Chris Marsh
Colin Smith
Total
Notes
1. Salary and fees
Salary
and fees
£’000
Benefits
£’000
Annual
bonus
£’000
Long term
incentive
£’000
Pension
£’000
Total
£’000
387
310
320
310
90
50
50
1,517
47
45
19
29
–
–
–
140
292
234
223
234
–
–
–
983
–
–
–
–
–
–
–
–
58
46
115
40
–
–
–
259
784
635
677
613
90
50
50
2,899
Salary
and fees
£’000
Benefits
£’000
Annual
bonus
£’000
Long term
incentive
£’000
Pension
£’000
Total
£’000
376
301
343
301
90
50
50
1,511
43
40
21
29
–
–
–
133
150
120
127
120
–
–
–
517
–
–
–
–
–
–
–
–
57
45
110
40
–
–
–
252
626
506
601
490
90
50
50
2,413
2015 salaries reflect a 3% increase on 2014. The salary disclosed in respect of Theo Bergman includes an 8% holiday allowance.
2. Annual bonus
Under the 2015 annual bonus financial element formula, threshold performance was 2014 net income £18.1m, achievement of which earned a 20% of salary
bonus. Thereafter the bonus was calculated on a sliding scale including a 38% of salary bonus for achieving the 2015 budgeted net income level of £19.1m
up to a maximum 105% of salary bonus for achieving the stretch target of 115% of 2015 budgeted net income being £22.6m. A non-financial element bonus
of up to 20% was available aggregating to a 125% maximum bonus opportunity.
Actual 2015 net income was £20.0m exceeding that achieved in 2014 being 104.7% of 2015 budgeted net income resulting in a financial element bonus
of 55.54% of salary. The Committee considered that good strategic progress had been made with very strong underlying profit progress and accordingly awarded
a 20% of salary non-financial metric bonus out of a potential 20% of salary. Therefore a total bonus of 75.54% of salary (excluding Theo Bergman’s holiday
allowance) is payable for the year to each Executive Director.
In 2014 net income exceeded the threshold achieving 92.0% of 2014 budgeted net income which resulted in a financial element bonus of 24.2% of salary.
A 15.8% of salary bonus was paid to each Executive Director in respect of the non-financial metric in view of excellent strategic progress. Accordingly a total
bonus of 40.0% of salary was paid during the year.
3. Long term incentive
Long term incentives comprise the number of share options under the Company’s share plans where the achievement of performance targets ended in the year
multiplied by the difference between the share price on the date of vesting and the exercise price.
For 2015 there are incentive awards options under the Long Term Incentive Plan due to vest during 2016 subject to performance conditions covering the three
years 2013-2015. The earnings per share performance metric for that period fell short of the threshold 5% compound annual growth target and accordingly
it is expected that there will be 0% vesting.
In 2014 there were incentive awards options under the Long Term Incentive Plan due to vest during 2015 subject to performance conditions covering the three
years 2012-2014. The earnings per share performance metric for that period fell short of the threshold 6% compound annual growth target and accordingly there
was 0% vesting.
4. Pension
Payments were made during 2015 and 2014 to money purchase pension schemes or in lieu as a salary supplement at rates of up to 15% of basic salary
for Robert Watson, Philip Heffer and Nigel Majewski and up to 24% of basic salary, holiday allowance and bonus for Theo Bergman (in compliance with
a legacy arrangement).
5. Payments to past directors
No payments were made to former directors in 2015 or 2014.
6. Payments for loss of office
No payments for loss of office were made in 2015 or 2014.
49
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Directors’ remuneration report continued
Director shareholding and share interests
Details of Director shareholdings and changes in outstanding share awards were as follows:
Director
Robert Watson
Philip Heffer
Theo Bergman
Nigel Majewski
Sir David Naish
Chris Marsh
Colin Smith
Type
Shares
Share options
Share options
Share options
Total share options
Nil cost options
Nil cost options
Nil cost options
Nil cost options
Total nil cost options
Shares
Share options
Share options
Share options
Share options
Share options
Total share options
Nil cost options
Nil cost options
Nil cost options
Nil cost options
Total nil cost options
Shares
Share options
Total share options
Nil cost options
Nil cost options
Nil cost options
Nil cost options
Total nil cost options
Shares
Share options
Share options
Share options
Total share options
Nil cost options
Nil cost options
Nil cost options
Nil cost options
Total nil cost options
Shares
Shares
Shares
At
28 December
2014
3,016,380
130,610
1,955
–
132,565
141,585
102,228
71,046
–
314,859
4,181,030
120,301
144,206
104,488
1,955
–
370,950
113,268
81,830
56,836
–
251,934
328,333
113,610
113,610
119,437
88,374
60,828
–
268,639
91,760
104,488
1,955
–
106,443
113,268
81,830
56,836
–
251,934
60,000
30,000
50,000
Granted
(note 5)
Lapsed
–
–
–
–
–
2,142
–
2,142
(141,585)
–
–
–
–
–
86,359
–
86,359 (141,585)
–
–
–
–
2,142
2,142
–
–
–
69,088
69,088
–
–
–
–
–
67,260
67,260
–
–
2,142
2,142
–
–
–
69,088
69,088
–
–
–
–
–
–
(113,268)
–
–
–
(113,268)
–
–
(119,437)
–
–
–
(119,437)
–
–
–
–
(113,268)
–
–
–
(113,268)
At
3 January
2016
2,926,380
130,610
1,955
2,142
134,707
–
102,228
71,046
86,359
259,633
4,181,030
120,301
144,206
104,488
1,955
2,142
373,092
–
81,830
56,836
69,088
207,754
328,333
113,610
113,610
–
88,374
60,828
67,260
216,462
91,760
104,488
1,955
2,142
108,585
–
81,830
56,836
69,088
207,754
60,000
30,000
50,000
Exercise
price
(pence)
Earliest
exercise
date
246.00
460.25
420.00
nil
nil
nil
nil
199.50
174.75
246.00
460.25
420.00
nil
nil
nil
nil
10.05.13
01.04.17
01.06.18
26.06.15
08.05.16
28.04.17
20.04.18
12.05.11
01.05.12
10.05.13
01.04.17
01.06.18
26.06.15
08.05.16
28.04.17
20.04.18
Latest
exercise
date Notes
1
2
4
4
10.05.20
01.10.17
01.12.18
26.06.22
08.05.23
28.04.24
20.04.25
3(a)
3(b)
3(c)
3(d)
12.05.18
01.05.19
10.05.20
01.10.17
01.12.18
26.06.22
08.05.23
28.04.24
20.04.25
246.00
10.05.13
10.05.20
nil
nil
nil
nil
26.06.15
08.05.16
28.04.17
20.04.18
26.06.22
08.05.23
28.04.24
20.04.25
246.00
460.25
420.00
nil
nil
nil
nil
10.05.13
01.04.17
01.06.18
26.06.15
08.05.16
28.04.17
20.04.18
10.05.20
01.10.17
01.12.18
26.06.22
08.05.23
28.04.24
20.04.25
1
2
2
2
4
4
3(a)
3(b)
3(c)
3(d)
1
2
3(a)
3(b)
3(c)
3(d)
1
2
4
4
3(a)
3(b)
3(c)
3(d)
1
1
1
Notes
1. There is no requirement for Directors to hold shares in the Company. All shares are beneficially owned with the exception of 1,280,917 shares held by various
family trusts of which Robert Watson is a trustee. Additionally 750,000 shares held by Robert Watson have been pledged as security on a personal loan. Since the
year end Robert Watson and Nigel Majewski have exercised 130,610 and 104,488 share options respectively. There have been no other changes in the interests
of Directors between 3 January 2016 and the date of this report.
2. Executive Share Option Scheme awards which have vested.
3. Nil cost options granted under the Long Term Incentive Plan which are subject to a performance condition of compound growth in the Group’s earnings per share
over three financial years commencing with the year in which the awards were granted.
a) Awards vest on a sliding scale between 25% for 6% EPS compound annual growth and 100% for at least 14.5% EPS compound annual growth.
b) Awards vest on a sliding scale between 25% for 5% EPS compound annual growth and 100% for at least 10% EPS compound annual growth.
c) Awards vest on a sliding scale between 25% for 8% EPS compound annual growth and 100% for at least 13% EPS compound annual growth.
d) Awards vest on a sliding scale between 10% for 6% EPS compound annual growth and 100% for at least 18% EPS compound annual growth.
4. Share options granted under Hilton’s all employee Sharesave Scheme.
5. Face value of the nil cost option awards granted in the year were Robert Watson £387,106, Philip Heffer £309,685, Theo Bergman £301,491 and Nigel Majewski
£309,685 based on the actual share price at date of grant of 448.25 pence on 17 April 2015.
50
Hilton Food Group plc Annual report and financial statements 2015 Further information
Statement of implementation of remuneration policy in the 2016 financial year
Base salaries
For 2016 Executive Director salaries have increased by 10% for Robert Watson and 6% for Philip Heffer and Nigel Majewski.
These increases reflect comparable market rates and the additional responsibilities taken on referred to earlier in this report.
Theo Bergman’s salary is unchanged.
Robert Watson
Philip Heffer
Theo Bergman
Nigel Majewski
2015
£’000
387
310
320
310
2016
£’000
426
328
320
328
Note
The base salary for Theo Bergman for both years include holiday allowance and are translated at the 2015 average exchange rate.
Annual bonus
The maximum annual bonus in 2016 will be 125% of salary for Robert Watson, Philip Heffer and Nigel Majewski. This bonus will
be payable subject to stretching targets around net income (up to 105% of salary) and personal and strategic targets (up to 20% of
salary). As financial targets are set with reference to the budget, they are therefore considered commercially sensitive. The Committee
will disclose targets on a retrospective basis. In view of Theo Bergman’s changed circumstances he will not be entitled to a
2016 bonus.
2016 long term incentive awards
The Committee will make a decision on whether to make a 2016 grant of nil cost award, their timing and the EPS targets to be
set following the Annual report approval date. Details of new grant and performance conditions will be published via a Regulatory
Information Service.
TSR performance graph
The graph below shows the Total Shareholder Return performance (TSR) (share price movements plus reinvested dividends) of
the Company compared against the FTSE Small Cap Index covering the seven years 2009 to 2015. The FTSE Small Cap Index is,
in the opinion of the Directors, the most appropriate index against which the TSR of the Company should be measured.
Total Shareholder Return
Hilton Food Group – Total Return Index
FTSE All Small – Total Return Index
500
400
300
200
100
0
2009
2010
2011
2012
2013
2014
2015
51
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Directors’ remuneration report continued
Chief Executive Officer remuneration seven year trend
Total remuneration (£’000)
Annual bonus (as a percentage of the maximum)
Long term incentive vesting (as a percentage of the maximum)
2009
584
85%
n/a
2010
2011
2012
730
644
53%
63%
100% 100%
593
10%
100%
2013
610
42%
n/a
2014
626
32%
0%
2015
784
60%
0%
Note
There were no long term incentive awards that were due to vest dependent on a performance period ending in 2009 or 2013.
Chief Executive Officer remuneration percentage change
2015 percentage increase over 2014
Salary
Benefits
Annual bonus
CEO
3.0%
9.3%
94.1%
Company
average
2%
n/a
n/a
Note
The majority of employees do not receive benefits or annual bonus and so there is no meaningful data. An alternative comparator
group is senior management for whom the percentage changes for salary, benefits and annual bonus were 2%, 2% and
65% respectively.
Relative importance of spend on pay
The following table sets out for the comparison total spend on pay with dividends.
Staff costs (note 8 to the financial statements)
Dividends payable
2015
£’000
73,639
10,662
2014
£’000
74,570
9,649
%
change
-1%
11%
Note
Dividends payable comprises any interim dividends paid in respect of the year plus the final dividend proposed for the year but not
yet paid.
On behalf of the Board
Sir David Naish DL
Non-Executive Chairman of the Board
30 March 2016
52
Hilton Food Group plc Annual report and financial statements 2015 Statements of Directors’ responsibilities
Directors’ responsibilities for the
preparation of the Annual report
and financial statements
The Directors are responsible for preparing the Annual report
and the financial statements in accordance with applicable
law and regulations.
Responsibility statement of the
Directors in respect of the Annual
report and financial statements
Each of the current Directors whose names and functions are
set out on pages 32 and 33, confirm that to the best of their
knowledge and belief:
– the Group and parent company financial statements, prepared
in accordance with applicable UK law and in conformity with
IFRS, as adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit of the Group
and the Company; and
– the management reports, which comprise the Strategic
report and the Directors’ report, include a fair review of the
development and performance of the business and the position
of the Group and the Company, together with a description
of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board of
Directors on 30 March 2016 and is signed on its behalf by:
Robert Watson obe
Chief Executive
Nigel Majewski
Chief Financial Officer
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have prepared the Group and parent company
financial statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and the Group and
the profit or loss of the Group for that period.
In preparing these financial statements the Directors are
required to:
– select suitable accounting policies and then apply
them consistently;
– make judgements and accounting estimates that are
reasonable and prudent;
– state whether applicable IFRS as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements; and
– prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Group will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and which disclose with reasonable accuracy at any
time the financial position of the Company and the Group and
to enable them to ensure that the financial statements and the
Directors’ remuneration report comply with the Companies Act
2006 and, as regards the Group financial statements, Article 4
of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors’ are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual report and financial
statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Group’s performance, business
model and strategy.
53
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Independent auditors’ report
to the members of Hilton Food Group plc
Report on the financial statements
Our opinion
In our opinion:
– Hilton Food Group plc’s Group financial statements and
Company financial statements (the “financial statements”)
give a true and fair view of the state of the Group’s and of the
Company’s affairs as at 3 January 2016 and of the Group’s
profit and the Group’s and the Company’s cash flows for the
53 week period (the “period”) then ended;
– the Group financial statements have been properly prepared
in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
– the Company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the
Companies Act 2006; and
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the
IAS Regulation.
What we have audited
The financial statements, included within the Annual Report and
Financial Statements (the “Annual Report”), comprise:
– the consolidated balance sheet and Company balance sheet as
at 3 January 2016;
– the consolidated income statement and the consolidated
statement of comprehensive income for the period then ended;
– the consolidated cash flow statement and Company cash flow
statement for the period then ended;
– the consolidated statement of changes in equity and the
Company statement of changes in equity for the period then
ended; and
– the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
The financial reporting framework that has been applied in the
preparation of the financial statements is IFRSs as adopted by the
European Union, and applicable law and, as regards the Company
financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
Our audit approach
Overview
Materiality
– Overall Group materiality: £1,419,000 which represents 5% of
profit before tax.
Audit scope
– The Group comprises a holding Company, six trading
subsidiaries and four intermediary holding companies. All of
these components were subject to audits of their complete
financial information.
– The Group also holds a 50% investment in an Australian joint
venture. This was not significant to the Group and was not
therefore subject to audit procedures.
Area of focus
– Customer supply arrangements.
The scope of our audit and our area of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing
the risks of material misstatement in the financial statements.
In particular, we looked at where the Directors made subjective
judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering
future events that are inherently uncertain. As in all of our audits
we also addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias
by the Directors that represented a risk of material misstatement
due to fraud.
The risks of material misstatement that had the greatest effect
on our audit, including the allocation of our resources and effort,
are identified as an “area of focus” in the table below. We have
also set out how we tailored our audit to address this specific
area in order to provide an opinion on the financial statements
as a whole, and any comments we make on the results of our
procedures should be read in this context. This is not a complete
list of all risks identified by our audit.
54
Hilton Food Group plc Annual report and financial statements 2015 Area of focus
How our audit addressed the area of focus
Customer supply arrangements
The Group has entered into a number of rebate and incentive
arrangements with its customers.
Rebates and incentives are calculated based on agreed
contracted rates and volumes of sales to customers over the
term of the contracts.
As the arrangements are based on contracted rates and known
sales volumes there is little judgement or estimation required
around the recognition of these amounts accurately and in the
appropriate accounting period.
However, owing to the number of agreements in place and the
range of contractual terms included within those agreements
there is an increased risk that the application of those terms
might be calculated inaccurately, omitted from the calculation or
included in the incorrect accounting period.
Significant audit effort was therefore required to obtain
sufficient evidence that there was no material misstatement in
this regard.
Furthermore, the Group occasionally agrees variations to
these arrangements with its customers during the term of the
contract. This can result in a change in agreed rates applied in
the calculation of the rebate and incentive amounts.
We therefore focused our work on the appropriate reflection
of these variations in the Directors’ calculations, including
assessing whether all variations with a material impact had
been included in the calculation.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic
structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Group is structured as a parent Company with ten
subsidiary undertakings:
– six trading subsidiaries located in the United Kingdom, the
Republic of Ireland, the Netherlands, Poland, Denmark and
Sweden, all of these entities are required to have statutory
audits under local legislation; and
– four intermediary holding companies, all located in the United
Kingdom and all requiring statutory audits.
All of these entities are audited by PwC network firms with the
exception of the subsidiary located in Netherlands.
In addition to these eleven entities the Group has a 50% interest
in a joint venture Company located in Australia. We did not
consider this Company to be significant to the Group and it
was not therefore subject to audit procedures.
We obtained and read copies of open customer supply
agreements in order to understand the impact of these
arrangements on the financial statements.
We held discussions with the Directors and inspected minutes
of Board discussions and determined, based on that evidence
and the fact that we did not identify any omitted agreements
through our audit procedures in other areas, that the list of
contracts management had provided was complete.
We selected a sample of rebate and incentive accruals and
agreed them to the contracts. Based on these procedures
we determined that the amounts had been recognised in the
correct period and calculated appropriately based on the correct
contracted rates in the agreement and sales amounts in the
accounting ledgers (which we had audited).
We tested that variations in contracts and/or rates had been
reflected in the accrual calculations and determined, based on
these procedures, that they had been correctly reflected.
We also selected rebate and incentive payments made after
the period end and checked that, where appropriate, they were
accrued in the financial statements and found that they were.
The key procedures we adopted in respect of working with all
component auditors were:
– Issuing formal Group reporting instructions, which set out our
requirements for the component auditors, together with our
assessment of audit risks in the Group;
– Planning discussions were held with all component auditors in
order to agree those requirements, discuss the Group audit
risks and to identify any component specific risks;
– High level analysis of the financial information of the
component by the Group engagement team;
– Attending, with Group management, the component clearance
meeting held between the component auditors and local
management; and
– Obtaining signed audit opinions that the component financial
information was properly prepared in accordance with IFRSs
as adopted by the European Union.
55
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015
Independent auditors’ report continued
to the members of Hilton Food Group plc
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing
and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the
effect of misstatements, both individually and on the financial
statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report
and the Directors’ Report for the financial period for which
the financial statements are prepared is consistent with the
financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if,
in our opinion:
Overall Group materiality
£1,419,000 (2014: £1,259,000).
How we determined it
5% of profit before tax.
Rationale for benchmark applied
We have applied this benchmark, a generally accepted auditing
practice, in the absence of indicators that an alternative
benchmark would be appropriate.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £100,000
(2014: £100,000) as well as misstatements below that amount
that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the Directors’
statement, set out on page 21, in relation to going concern.
We have nothing to report having performed our review.
– information in the Annual Report is:
– materially inconsistent with the information in the audited
financial statements; or
– apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group and Company
acquired in the course of performing our audit; or
– otherwise misleading.
We have no exceptions to report.
– the statement given by the Directors on page 53, in accordance
with provision C.1.1 of the UK Corporate Governance Code (the
“Code”), that they consider the Annual Report taken as a whole
to be fair, balanced and understandable and provides the
information necessary for members to assess the Group’s and
Company’s position and performance, business model and
strategy is materially inconsistent with our knowledge of the
Group and Company acquired in the course of performing
our audit.
We have no exceptions to report.
Under ISAs (UK & Ireland) we are required to report to you if we
have anything material to add or to draw attention to in relation
to the Directors’ statement about whether they considered it
appropriate to adopt the going concern basis in preparing the
financial statements. We have nothing material to add or to draw
attention to.
– the section of the Annual Report on page 40, as required by
provision C.3.8 of the Code, describing the work of the Audit
Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report.
As noted in the Directors’ statement, the Directors have
concluded that it is appropriate to adopt the going concern basis
in preparing the financial statements. The going concern basis
presumes that the Group and Company have adequate resources
to remain in operation, and that the Directors intend them to do
so, for at least one year from the date the financial statements
were signed. As part of our audit we have concluded that the
Directors’ use of the going concern basis is appropriate. However,
because not all future events or conditions can be predicted,
these statements are not a guarantee as to the Group’s and
Company’s ability to continue as a going concern.
The Directors’ assessment of the prospects of the Group
and of the principal risks that would threaten the
solvency or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we
have anything material to add or to draw attention to in relation to:
– the Directors’ confirmation on page 21 of the Annual Report,
in accordance with provision C.2.1 of the Code, that they have
carried out a robust assessment of the principal risks facing the
Group, including those that would threaten its business model,
future performance, solvency or liquidity.
We have nothing material to add or to draw attention to.
– the disclosures in the Annual Report that describe those risks
and explain how they are being managed or mitigated.
We have nothing material to add or to draw attention to.
56
Hilton Food Group plc Annual report and financial statements 2015 – the Directors’ explanation on page 21 of the Annual Report, in
accordance with provision C.2.2 of the Code, as to how they
have assessed the prospects of the Group, over what period
they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures
drawing attention to any necessary qualifications
or assumptions.
We have nothing material to add or to draw attention to.
Under the Listing Rules we are required to review the Directors’
statement that they have carried out a robust assessment of
the principal risks facing the Group and the Directors’ statement
in relation to the longer-term viability of the Group. Our review
was substantially less in scope than an audit and only consisted
of making inquiries and considering the Directors’ process
supporting their statements; checking that the statements
are in alignment with the relevant provisions of the Code; and
considering whether the statements are consistent with the
knowledge acquired by us in the course of performing our audit.
We have nothing to report having performed our review.
Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
– we have not received all the information and explanations we
require for our audit; or
– adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Directors’ remuneration report – Companies Act
2006 opinion
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of Directors’ remuneration
specified by law are not made. We have no exceptions to report
arising from this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of the
Corporate governance statement relating to ten further provisions
of the Code. We have nothing to report having performed
our review.
Responsibilities for the financial
statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statements of Directors’
responsibilities set out on page 53, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of:
– whether the accounting policies are appropriate to the Group’s
and the Company’s circumstances and have been consistently
applied and adequately disclosed;
– the reasonableness of significant accounting estimates made
by the Directors; and
– the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
Directors’ judgements against available evidence, forming
our own judgements, and evaluating the disclosures in the
financial statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with the
audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
Kevin MacAllister (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Belfast
30 March 2016
The maintenance and integrity of the Hilton Food Group plc website is the responsibility of
the Directors; the work carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for any changes that may
have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
57
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 58
Hilton Food Group plc Annual report and financial statements 2015 Financial
statements
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the financial statements
Registered office and advisors
60
60
61
62
63
64
84
59
Hilton Food Group plc Annual report and financial statements 2015 Consolidated income statement
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Share of profit in joint venture
Operating profit
Finance income
Finance costs
Finance costs – net
Profit before income tax
Income tax expense
Profit for the year
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per share attributable to owners of the parent during the year
Basic (pence)
Diluted (pence)
Consolidated statement
of comprehensive income
Profit for the year
Other comprehensive income
Currency translation differences
Other comprehensive income for the year net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
The notes on pages 64 to 83 are an integral part of these consolidated financial statements.
2015
53 weeks
£’000
2014
52 weeks
£’000
1,094,822
(957,067)
137,755
(10,091)
(99,887)
1,222
28,999
97
(1,148)
(1,051)
27,948
(6,489)
21,459
20,017
1,442
21,459
27.5
27.2
1,098,990
(966,809)
132,181
(10,541)
(96,462)
884
26,062
102
(976)
(874)
25,188
(5,638)
19,550
18,071
1,479
19,550
25.0
24.7
Notes
5
9
9
9
10
11
11
2015
53 weeks
£’000
21,459
(2,739)
(2,739)
18,720
2014
52 weeks
£’000
19,550
(4,761)
(4,761)
14,789
17,552
1,168
18,720
13,625
1,164
14,789
60
Hilton Food Group plc Annual report and financial statements 2015 Consolidated balance sheet
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Current income tax assets
Cash and cash equivalents
Total assets
Equity
Equity attributable to owners of the parent
Ordinary shares
Share premium
Employee share schemes reserve
Foreign currency translation reserve
Retained earnings
Reverse acquisition reserve
Merger reserve
Non-controlling interests
Total equity
Liabilities
Non-current liabilities
Borrowings
Deferred income tax liabilities
Current liabilities
Borrowings
Trade and other payables
Current income tax liabilities
Total liabilities
Total equity and liabilities
Notes
2015
£’000
13
14
15
21
16
17
18
22
19
21
19
20
67,230
10,073
2,396
1,000
80,699
18,272
96,095
–
52,806
167,173
247,872
7,286
8,191
901
(4,489)
82,829
94,718
(31,700)
919
63,937
4,938
68,875
28,405
1,654
30,059
11,728
136,537
673
148,938
178,997
247,872
Group
2014
£’000
72,642
12,547
1,234
771
87,194
22,029
115,609
1,532
35,586
174,756
261,950
7,259
7,235
441
(2,024)
72,717
85,628
(31,700)
919
54,847
4,786
59,633
32,573
1,875
34,448
10,687
157,182
–
167,869
202,317
261,950
2015
£’000
–
–
102,985
–
102,985
–
470
11
150
631
103,616
7,286
8,191
–
–
17,120
32,597
–
71,019
103,616
–
103,616
–
–
–
–
–
–
–
–
103,616
Company
2014
£’000
–
–
102,985
–
102,985
–
53
30
333
416
103,401
7,259
7,235
–
–
13,470
27,964
–
71,019
98,983
–
98,983
–
–
–
–
4,418
–
4,418
4,418
103,401
The notes on pages 64 to 83 are an integral part of these consolidated financial statements.
The financial statements on pages 58 to 83 were approved by the Board on 30 March 2016 and were signed on its behalf by:
R. Watson obe
Director
Hilton Food Group plc – Registered number: 06165540
N. Majewski
Director
61
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Consolidated statement of changes in equity
Group
Balance at 30 December 2013
Profit for the year
Other comprehensive income
Currency translation differences
Total comprehensive income for
the year
Issue of new shares
Adjustment in respect of
employee share schemes
Tax on employee share schemes
Dividends paid
Total transactions with owners
Balance at 28 December 2014
Profit for the year
Other comprehensive income
Currency translation differences
Total comprehensive income for
the year
Issue of new shares
Adjustment in respect of
employee share schemes
Tax on employee share schemes
Dividends paid
Total transactions with owners
Balance at 3 January 2016
Company
Balance at 30 December 2013
Profit for the year
Total comprehensive income for
the year
Issue of new shares
Adjustment in respect of
employee share schemes
Tax on employee share schemes
Dividends paid
Total transactions with owners
Balance at 28 December 2014
Profit for the year
Total comprehensive income for
the year
Issue of new shares
Adjustment in respect of
employee share schemes
Tax on employee share schemes
Dividends paid
Total transactions with owners
Balance at 3 January 2016
Attributable to owners of the parent
Notes
Share
capital
£’000
7,216
–
Share
premium
£’000
5,885
–
Employee
share
schemes
reserve
£’000
857
–
Foreign
currency
translation
Retained
reserve
earnings
£’000
£’000
2,422 63,989
– 18,071
Reverse
acquisition
reserve
£’000
(31,700)
–
Merger
reserve
£’000
Total
£’000
919 49,588
– 18,071
Non-
controlling
Total
interests
equity
£’000
£’000
4,670 54,258
1,479 19,550
–
–
43
–
–
–
43
7,259
–
–
–
27
–
–
–
27
7,286
–
–
794
406
150
–
1,350
7,235
–
–
–
516
408
32
–
956
8,191
7,216
–
5,885
–
–
43
–
794
–
–
–
43
7,259
–
–
27
–
–
–
27
7,286
406
150
–
1,350
7,235
–
–
516
408
32
–
956
8,191
12
12
12
12
–
–
–
(4,446)
–
(4,446) 18,071
–
–
–
–
–
–
(4,446)
(315)
(4,761)
– 13,625
837
–
1,164 14,789
837
–
(151)
(265)
–
(416)
441
–
–
–
–
–
–
(9,343)
(9,343)
(2,024) 72,717
–
–
–
–
(31,700)
–
–
–
–
255
(115)
(9,343)
(8,366)
919 54,847
255
–
(115)
–
(10,391)
(1,048)
(1,048)
(9,414)
4,786 59,633
–
–
–
–
–
20,017
(2,465)
–
(2,465) 20,017
–
–
–
–
–
–
–
–
–
–
20,017
1,442 21,459
(2,465)
(274)
(2,739)
17,552
543
1,168 18,720
543
–
342
118
–
460
901
–
–
–
–
–
–
(9,905)
(9,905)
(4,489) 82,829
–
–
–
–
(31,700)
–
–
–
–
750
150
(9,905)
(8,462)
919 63,937
750
–
150
–
(10,921)
(1,016)
(1,016)
(9,478)
4,938 68,875
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,922
10,891
10,891
–
–
–
–
–
(9,343)
–
–
(9,343)
– 13,470
– 13,555
– 13,555
–
–
–
–
–
–
–
–
–
(9,905)
(9,905)
17,120
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
71,019 96,042
10,891
–
–
–
10,891
837
–
–
–
–
406
150
(9,343)
(7,950)
71,019 98,983
– 13,555
– 13,555
543
–
–
–
–
–
408
32
(9,905)
(8,922)
71,019 103,616
The notes on pages 64 to 83 are an integral part of these consolidated financial statements.
62
Hilton Food Group plc Annual report and financial statements 2015 Consolidated cash flow statement
Cash flows from operating activities
Cash generated from operations
Interest paid
Income tax (paid)/received
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Interest received
Dividends received
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Repayment of inter-company loan
Issue of ordinary shares
Dividends paid to owners of the parent
Dividends paid to non-controlling interests
Net cash (used in)/generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange losses on cash and cash equivalents
Cash and cash equivalents at end of the year
2015
53 weeks
£’000
50,960
(1,148)
(4,553)
45,259
(13,676)
77
(54)
97
–
(13,556)
3,336
(6,157)
–
543
(9,905)
(1,016)
(13,199)
18,504
35,586
(1,284)
52,806
Group
2014
52 weeks
£’000
47,626
(976)
(5,530)
41,120
(31,830)
129
(11,599)
102
–
(43,198)
36,193
(21,923)
–
837
(9,343)
(1,048)
4,716
2,638
34,642
(1,694)
35,586
2015
53 weeks
£’000
Company
2014
52 weeks
£’000
–
(72)
54
(18)
–
–
–
–
13,600
13,600
–
–
(4,403)
543
(9,905)
–
(13,765)
(183)
333
–
150
–
(171)
87
(84)
–
–
–
–
11,000
11,000
–
–
(2,266)
837
(9,343)
–
(10,772)
144
189
–
333
Notes
24
18
The notes on pages 64 to 83 are an integral part of these consolidated financial statements.
63
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Notes to the financial statements
1 General information
Hilton Food Group plc (“the Company”) and its subsidiaries (together “the Group”) is a specialist retail meat packing business
supplying major international food retailers in thirteen European countries and Australia. The Company’s subsidiaries are listed
in note 15.
The Company is a public limited company incorporated and domiciled in the UK. The address of the registered office
is 2–8 The Interchange, Latham Road, Huntingdon, Cambridgeshire PE29 6YE. The registered number of the Company
is 06165540.
The Company maintains a Premium Listing on the London Stock Exchange.
The financial year represents the 53 weeks to 3 January 2016 (prior financial year 52 weeks to 28 December 2014).
These consolidated financial statements were approved for issue on 30 March 2016.
The Company has taken advantage of the exemption in Section 408 Companies Act 2006 not to publish its individual income
statement, statement of comprehensive income and related notes. Profit for the year dealt with in the income statement of
Hilton Food Group plc amounted to £13,555,000 (2014: £10,891,000).
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all of the years presented, unless otherwise stated.
Basis of preparation
The consolidated financial statements of Hilton Food Group plc have been prepared under the historical cost convention and in
accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), IFRIC interpretations and
the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on the going concern basis. The reasons why the Directors consider
this basis to be appropriate are set out in the Performance and financial review on page 21.
The financial statements are presented in Sterling and all values are rounded to the nearest thousand (£’000) except when
otherwise indicated.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial
statements are disclosed in note 4.
Basis of consolidation
These consolidated financial statements comprise the financial statements of Hilton Food Group plc (“the Company”), its subsidiaries
and its share of profit in joint ventures, together, (“the Group”) drawn up to 3 January 2016. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the policies adopted by the Group.
A subsidiary is an entity controlled, either directly or indirectly, by the Company, where control is the power to govern the financial
and operating policies of the entity.
All inter-company balances and transactions, including unrealised profits arising from inter-group transactions, are eliminated
on consolidation.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition
is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
Acquisition costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value
of the Group’s share of the identifiable net assets acquired is recorded as goodwill.
Joint ventures are all entities which the Group exercises joint control and has an interest in the net assets of that entity.
Investments in joint ventures are accounted for using the equity method of accounting. Under the equity method, the investment
is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or
loss of the investee after the date of acquisition.
The Group’s share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition
movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment
to the carrying amount of the investment.
64
Hilton Food Group plc Annual report and financial statements 2015 International Financial Reporting Standards
(a) New standards, amendments and interpretations effective in 2015
None
(b) New standards, amendments and interpretations issued but not yet effective, are subject to EU endorsement and not early adopted
Amendment to IAS 1 ‘Presentation of financial statements’ on disclosure initiative (1 January 2016)
Amendment to IAS 7 ‘Statement of cash flows’ on disclosure initiative (1 January 2016) (*)
Amendment to IAS 16 ‘Property, plant and equipment’ and IAS 38 ‘Intangible assets’ on clarification of acceptable methods
of depreciation and amortisation (1 January 2017)
Amendment to IAS 16 ‘Property, plant and equipment’ and IAS 41 ‘Biological assets’ regarding bearer plants (1 January 2016) (*)
Amendment to IAS 16 ‘Property, plant and equipment’ on depreciation (1 January 2016) (*)
Amendment to IAS 19 ‘Employee benefits’ on defined benefit plans (1 February 2015)
Amendment to IAS 27 ‘Separate financial statements’ (1 January 2016)
Amendment to IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates’ on sale or contribution of assets
(1 January 2016) (*)
IFRS 9 ‘Financial instruments’ and amendment to IFRS 9 ‘Financial instruments’ on general hedge accounting (1 January 2018) (*)
Amendment to IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates’ on investment entities applying
the consolidation exemption (1 January 2016) (*)
Amendment to IFRS 11 ‘Joint arrangements’ on acquisition of an interest in a joint operation (1 January 2016)
IFRS 14 ‘Regulatory deferral accounts’ (1 January 2016) (*)
IFRS 15 ‘Revenue from customers with contracts’ (1 January 2018) (*)
IFRS 16 ‘Leases’ (1 January 2019) (*)
(*) Not yet endorsed by the EU
Other than IFRS 16 none of these IFRSs, IFRIC interpretations or amendments are expected to have a material impact on the Group or
the Company.
There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the
Group or Company.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the
Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the
Group. Revenue may be increased and/or decreased by reference to a range of pre-agreed and pre-defined performance measures.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits
will flow to the Group and the criteria set out in the following paragraph have been met.
The Group sells meat in the wholesale market. Sales of goods are recognised when a Group entity has delivered products to the
customer and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery does not occur
until the products have been shipped to the location specified by the customer, the risks of obsolescence and loss have been
transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance
provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing performance of operating segments,
has been identified as the Group’s Executive Directors.
65
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 2 Summary of significant accounting policies (continued)
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Sterling,
which is the Company’s functional and the Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
(c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows:
– assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
– income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rate on the dates of the transactions); and
– all resulting currency translation differences are recognised in other comprehensive income and disclosed as a separate component
of equity in a foreign currency translation reserve.
When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the
income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity
are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment in value. Historical cost
includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with
the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is
derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they
are incurred.
Depreciation is calculated using the straight line method to allocate the cost of property, plant and equipment to their residual values
over their estimated useful economic lives, as follows:
Leasehold buildings and improvements
Plant and machinery
Fixtures and fittings
Motor vehicles
Annual rate
4%–14%
14%–33%
14%–33%
25%
Land is not depreciated. Assets in the course of construction are not depreciated until commissioned.
The residual value and useful economic lives of property, plant and equipment are reviewed, and adjusted if appropriate, at each
balance sheet date. An asset’s carrying value is written down to its recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount. These impairment losses are recognised in the income statement. Following the recognition of
an impairment loss, the depreciation charge applicable to the asset is adjusted prospectively in order to systematically allocate the
revised carrying amount, net of any residual value, over the remaining useful economic life.
66
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued Intangible assets
(a) Goodwill
Goodwill on acquisitions of subsidiaries and purchase of non-controlling interests is included in ‘intangible assets’, tested annually for
impairment and carried at cost less accumulated impairment losses. Goodwill represents the excess of the cost of the acquisition or
purchase over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary or non-controlling interest at
the date of acquisition.
(b) Computer software
Acquired software licences are stated at cost less accumulated amortisation and are capitalised on the basis of the costs incurred to
acquire and bring to use the specific software. These costs are amortised on a straight line basis over their useful economic lives of
three to seven years.
Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred.
(c) Product licences
The costs of acquiring product licences are capitalised and amortised on a straight line basis over their expected useful economic lives
of five to ten years.
Investments
Investments in subsidiary undertakings and joint ventures are carried at cost less provision for impairment.
Impairment of non-financial assets
Assets that have an indefinite useful economic life, for example goodwill, are not subject to amortisation and are tested annually
for impairment.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell, and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash
flows (cash generating units). Non-financial assets other than goodwill that have suffered impairment are reviewed for possible
reversal of the impairment at each reporting date.
Financial assets
(a) Classification
The Group classifies all of its financial assets as loans and receivables. Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities
greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and
receivables comprise ‘trade and other receivables’ and ‘cash and cash equivalents’ in the balance sheet.
(b) Recognition and measurement
Loans and receivables are recognised initially at fair value and subsequently carried at amortised cost using the effective
interest method.
(c) Impairment of financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is
objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss
event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated. For loans and receivables category, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have
not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and
the amount of the loss is recognised in the consolidated income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is either determined on the first in first out basis or by the
‘retail method’ depending on the subsidiary. The ‘retail method’ computes cost on the basis of selling price less the appropriate
trading margin. Cost comprises material costs, direct wages and other direct production costs together with a proportion of production
overheads relevant to the stage of completion of work in progress and finished goods and excludes borrowing costs. Net realisable
value represents the estimated selling price less costs to completion and appropriate selling and distribution costs. Provision is made,
where necessary, for slow moving, obsolete and defective inventories.
Trade and other receivables
Trade receivables represent amounts due from customers for goods sold or services performed in the ordinary course of business.
If collection is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method less provision for impairment.
67
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 2 Summary of significant accounting policies (continued)
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short term deposits with an original maturity of three months
or less. Bank overdrafts are shown on the balance sheet within borrowings in current liabilities.
Share capital and reserves
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
The share premium and employee share schemes reserve represents the premium on new shares issued in connection with and
the fair value of share options outstanding under the Group’s share schemes respectively.
The foreign currency translation reserve represents the cumulative currency differences arising on the translation of the Group’s
overseas subsidiaries.
The merger and reverse acquisition reserves arose during 2007 following the restructuring of the Group.
Trade and other payables
Trade payables represent obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers. Accounts payable are classified as current liabilities if payment is due within one year. If not, they are presented
as non-current liabilities.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
Borrowings
All borrowings are recognised initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortised
cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement
over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is
no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity
services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the balance sheet date.
Borrowing costs directly attributable to an acquisition, construction or production of a qualifying asset are capitalised as part of the
cost of that asset. All other borrowing costs are recognised in the income statement in the period in which they are incurred.
Leases
Assets acquired under a lease which transfers substantially all of the risks and rewards of ownership to the Group, are capitalised
as property, plant and equipment at the lower of their fair value and the present value of the minimum lease payments and are
depreciated over the shorter of their useful economic lives and their lease term with any impairment being recognised in accumulated
depreciation. Amounts payable under such leases (finance leases), net of transaction costs, are classified as current and non-current
liabilities based on the lease payment dates. Lease payments are treated as consisting of capital and interest elements and the
interest is charged to the income statement in proportion to the reducing capital element outstanding.
Leases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases. The annual
rentals under operating leases are charged to the income statement as incurred on a straight line basis over the period of the lease.
Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent
that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other
comprehensive income or directly in equity, respectively.
The current income tax charge represents the expected tax payable or recoverable on the taxable profit for the year using tax laws
enacted or substantively enacted at the balance sheet date.
Deferred income tax is recognised, using the liability method, on all temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted
for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have
been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
68
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the
reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Pensions and other post-employment benefits
The Group operates defined contribution schemes for certain employees in the UK, Ireland, the Netherlands and Denmark and
contributes to a state administered money purchase scheme in Poland. The Group pays contributions to publicly or privately
administered pension insurance plans and has no further payment obligations once the contributions have been made.
The contributions are recognised as an employee benefit expense when they are due.
In the Netherlands and Sweden the Group contributes to industry-wide pension schemes for its employees. Although having some
defined benefit features, the Group’s liability to these schemes is limited to the fixed contributions which are recognised as an
expense when they are due. Accordingly the Group has accounted for these schemes as defined contribution schemes.
Share-based payments
The Group operates a number of equity settled share-based compensation plans. The fair value of the employee services received
in exchange for the grant of options is recognised as an expense with a corresponding adjustment to equity. The total amount to be
expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-
market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected
to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest based on
non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with
a corresponding adjustment to equity. All adjustments to equity are recognised as a separate component of equity in an employee
share scheme reserve. When the options are exercised, the Company issues new shares. The proceeds received net of any directly
attributable transaction costs are credited to share capital (nominal value) and share premium.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the consolidated financial statements in the period
in which the dividends are approved by the Company’s shareholders.
3 Financial risk management
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk including price risk, foreign exchange risk and cash flow
interest rate risk, credit risk and liquidity risk. The Group has in place a risk management programme that seeks to limit the adverse
effects on the financial performance of the Group by monitoring the foregoing risks.
(a) Market risk
(i) Price risk
The Group is not exposed to equity securities price risk as it holds no listed or other equity investments. The Group is exposed to
commodity price risk which is significantly mitigated through its customer agreements which are on a cost plus or agreed packing
rate basis.
(ii) Foreign exchange risk
The Group is exposed to foreign exchange risk in the normal course of business in its overseas operations, principally on transactions
in Euros, Swedish Krona, Danish Krone and Polish Zloty, although such risk is mitigated as natural hedges exist in each operation
through matching local currency cash flows. The Group regularly monitors foreign exchange exposure and to date has deemed it
not appropriate to hedge its foreign exchange position.
(iii) Cash flow interest rate risk
The Group’s interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. The Group seeks to manage exposure to interest rate risk through interest rate caps over the majority of its long
term borrowings.
(iv) Sensitivity analysis
Group
Annual effect of a change in Group-wide interest rates by 0.5%
Annual effect of a change in exchange rates to the GBP £ by 10%
Income
statement
£’000
146
-146
1,871
-1,531
2015
Equity
£’000
146
-146
6,317
-5,168
Income
statement
£’000
92
-92
2,056
-1,682
2014
Equity
£’000
92
-92
6,202
-5,074
69
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 3 Financial risk management (continued)
(b) Credit risk
The Group is exposed to credit risk in respect of credit exposures to its retail customer partners and banking arrangements.
The Group, whose only customers comprise blue chip international supermarket retailers, has implemented policies that require
appropriate credit checks on potential customers before sales are made and in relation to its banking partners. The Group’s maximum
exposure to credit risk is £143.7m (2014: £146.8m) as stated in note 27.
(c) Liquidity risk
The Group monitors regular cash forecasts to ensure that it has sufficient cash to meet operational needs whilst maintaining sufficient
headroom on its undrawn committed borrowing facilities and without breaching its banking covenants. The Group held significant
cash and cash equivalents of £52.8m (2014: £35.6m) and maintains a mix of long term and short term debt finance.
The Group’s financial liabilities measured as the contractual undiscounted cash flows mature as follows:
Less than one year
Between one and two years
Between two and five years
Over five years
Borrowings
£’000
12,155
11,948
15,024
–
Finance leases
£’000
317
326
1,025
1,286
2015
Trade and other
payables
£’000
132,970
–
–
–
Borrowings
£’000
11,468
7,092
24,409
–
Finance leases
£’000
329
337
1,062
1,732
2014
Trade and other
payables
£’000
152,702
–
–
–
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of a gearing ratio. This ratio is calculated as net debt divided by EBITDA. Net debt is calculated
as total borrowings (including ‘current and non-current borrowings’ as shown on the consolidated balance sheet) less cash and cash
equivalents. EBITDA is calculated as operating profit before significant interest, tax, depreciation and amortisation. There was gearing
of nil as at the year end (2014: 18%).
Fair value estimation
The carrying value of trade receivables (less impairment provisions) and trade payables are assumed to approximate their fair values.
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current
market interest rate that is available to the Group for similar financial instruments. The Directors consider that there is a single level of
fair value measurement hierarchy for disclosure purposes.
4 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.
Some of Hilton’s long term supply contracts are on a cost plus basis. IFRIC 4 requires that such arrangements are reviewed to
determine whether they contain a lease. These cost plus agreements typically contain benchmarking clauses which allow our
customers to obtain competitive pricing or to source its supply from a competitor. Additionally product inputs and packaging are
traded in active markets which are monitored by our customers and furthermore product selling prices are updated on a frequent basis
thereby resulting in pricing that is, in substance, a market price. On this basis the criteria in IFRIC 4 for determining whether these
agreements contain a lease are not met.
During 2015 and 2014 there were no critical accounting estimates or other judgements in relation to the application of the Group’s
accounting policies.
70
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued 5 Segment information
Management have determined the operating segments based on the reports reviewed by the Executive Directors that are used
to make strategic decisions.
The Executive Directors have considered the business from both a geographic and product perspective.
From a geographic perspective, the Executive Directors consider that the Group has seven operating segments: i) United Kingdom;
ii) Netherlands; iii) Republic of Ireland; iv) Sweden; v) Denmark, vi) Central Europe including Poland, Czech Republic, Hungary, Slovakia,
Latvia, Lithuania and Estonia and vii) Central costs and other including the share of profit from the joint venture in Australia. The United
Kingdom, Netherlands, Republic of Ireland, Sweden and Denmark have been aggregated into one reportable segment ‘Western
Europe’ as they have similar economic characteristics as identified in IFRS 8. Central Europe and Central costs and other comprise
the other reportable segments.
From a product perspective the Executive Directors consider that the Group has only one identifiable product, wholesaling of meat.
The Executive Directors consider that no further segmentation is appropriate, as all of the Group’s operations are subject to similar
risks and returns and exhibit similar long term financial performance.
The segment information provided to the Executive Directors for the reportable segments is as follows:
Total segment revenue
Inter-segment revenue
Revenue from external customers
Operating profit/(loss)
/segment result
Finance income
Finance costs
Income tax expense
Profit/(loss) for the year
Depreciation and amortisation
Additions to non-current assets
Segment assets
Current income tax assets
Deferred income tax assets
Total assets
Segment liabilities
Borrowings
Current income tax liabilities
Deferred income tax liabilities
Total liabilities
Western
Europe
£’000
1,020,844
(187)
1,020,657
32,107
20
(1,066)
(6,959)
24,102
18,205
12,905
Central
Europe
£’000
74,165
–
74,165
2,255
76
–
(455)
1,876
1,036
547
Central costs
and other
£’000
2015
Total
£’000
– 1,095,009
–
(187)
– 1,094,822
Western
Europe
£’000
1,018,368
(1,534)
1,016,834
(5,363)
1
(82)
925
(4,519)
28,999
97
(1,148)
(6,489)
21,459
27,115
20
(667)
(5,902)
20,566
122
278
19,363
13,730
14,354
42,492
Central
Europe
£’000
82,156
–
82,156
2,426
81
–
(502)
2,005
1,186
824
Central costs
and other
£’000
2014
Total
£’000
– 1,100,524
–
(1,534)
– 1,098,990
(3,479)
1
(309)
766
(3,021)
26,062
102
(976)
(5,638)
19,550
96
113
15,636
43,429
224,739
17,836
4,297
165,283
9,411
1,976
240,231
15,949
3,467
190,316
7,521
1,163
246,872
–
1,000
247,872
176,670
–
673
1,654
178,997
259,647
1,532
771
261,950
199,000
1,442
–
1,875
202,317
Sales between segments are carried out at arm’s length. Revenue from external customers reported to the Executive Directors
is measured in a manner consistent with that in the income statement.
The Executive Directors assess the performance of each operating segment based on its operating profit. Operating profit
is measured in a manner consistent with that in the income statement.
The amounts provided to the Executive Directors with respect to total assets and liabilities are measured in a manner consistent
with that of the financial statements. The assets are allocated based on the operations of the segment and their physical location.
The liabilities are allocated based on the operations of the segment. The Group interest bearing reorganisation loan is not considered
to be a segment liability.
71
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 5 Segment information (continued)
The Group has four principal customers (comprising groups of entities known to be under common control), Tesco, Ahold, Coop
Danmark and ICA Gruppen. These customers are located in the United Kingdom, Netherlands, Republic of Ireland, Sweden, Denmark
and Central Europe including Poland, Czech Republic, Hungary, Slovakia, Latvia, Lithuania and Estonia.
Analysis of revenues from external customers and non-current assets are as follows:
Revenues from
external customers
Non-current assets
excluding deferred tax assets
Analysis by geographical area
United Kingdom – country of domicile
Netherlands
Sweden
Republic of Ireland
Denmark
Central Europe
Analysis by principal customer
Customer 1
Customer 2
Customer 3
Customer 4
Other
2015
£’000
39,784
9,445
13,752
3,999
9,757
2,962
79,699
2014
£’000
40,200
10,645
13,828
4,351
13,821
3,578
86,423
2015
£’000
2014
£’000
441,673
257,398
182,621
55,880
83,174
74,076
1,094,822
513,401
284,560
197,608
81,634
17,619
1,094,822
391,139
266,049
197,603
60,289
101,754
82,156
1,098,990
472,883
299,779
212,698
99,996
13,634
1,098,990
6 Auditors’ remuneration
Services provided by the Company’s auditor and its associates
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditors and
its associates:
Group
Fees payable to the Company’s auditors for the audit of the parent company and consolidated
financial statements
Fees payable to the Company’s auditors and its associates for other services:
– The audit of the Company’s subsidiaries pursuant to legislation
– Other services pursuant to legislation
– Services relating to taxation
– All other services
Total fees payable to the Company’s auditors and its associates
Fees payable to other auditors in respect of services provided to subsidiary undertakings
7 Expenses by nature
Group
Changes in inventories of finished goods and goods for resale
Raw materials and consumables used
Employee benefit expense (note 8)
Depreciation and amortisation – owned assets
Depreciation and amortisation – leased assets
Repairs and maintenance expenditure on property, plant and equipment
Trade receivables – impairment
Hire of plant and machinery
Transportation expenses
Operating lease payments
Foreign exchange (gains)/losses
Other expenses
Total cost of sales, distribution costs and administrative expenses
2015
£’000
2014
£’000
121
125
47
104
3
400
51
129
138
43
59
9
378
53
2015
£’000
1,009
893,813
73,639
19,213
150
11,178
70
888
10,052
6,756
(217)
50,494
1,067,045
2014
£’000
407
903,841
74,570
15,470
166
10,894
35
801
10,476
7,070
59
50,023
1,073,812
72
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued 8 Employee benefit expense
Group
Staff costs during the year
Wages and salaries
Social security costs
Share options granted to Directors and employees
Other pension costs
Group
Average number of persons employed (including Executive Directors) during the year by activity
Production
Administration
Group
Key management compensation (including Directors)
Salaries and short term employee benefits, including termination benefits
Post-employment benefits
Share-based payments
Group
Directors’ emoluments
Aggregate emoluments
Company contribution to money purchase pension scheme
2015
£’000
62,383
7,797
750
2,709
73,639
2015
Number
2,325
587
2,912
2015
£’000
3,396
325
525
4,246
2015
£’000
2,640
259
2,899
2014
£’000
62,450
8,830
255
3,035
74,570
2014
Number
2,271
581
2,852
2014
£’000
3,403
328
179
3,910
2014
£’000
2,161
252
2,413
Further details of Directors’ emoluments and share interests are given in the Directors’ remuneration report.
There are no other employees of the Company other than the Directors. Employee expense of the Company amounted to £nil
(2014: £nil).
9 Finance income and costs
Group
Finance income
Interest income on short term bank deposits
Interest on income taxes
Finance income
Finance costs
Bank borrowings
Finance leases
Exchange (losses)/gains on foreign currency borrowings
Other interest expense
Finance costs
Finance costs – net
2015
£’000
2014
£’000
90
7
97
(920)
(161)
(3)
(64)
(1,148)
(1,051)
97
5
102
(765)
(189)
22
(44)
(976)
(874)
73
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 10 Income tax expense
Group
Current income tax
Current tax on profits for the year
Adjustments to tax in respect of previous years
Total current tax
Deferred income tax
Origination and reversal of temporary differences
Adjustments to tax in respect of previous years
Total deferred tax
Income tax expense
2015
£’000
6,787
(18)
6,769
(389)
109
(280)
6,489
2014
£’000
4,795
47
4,842
704
92
796
5,638
Deferred tax credited directly to equity during the year in respect of employee share schemes amounted to £118,000
(2014: £265,000 charge).
The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the standard rate
of UK Corporation Tax of 20.25% (2014: 21.5%) applied to profits of the consolidated entities as follows:
Profit before income tax
Tax calculated at the standard rate of UK Corporation Tax 20.25% (2014: 21.5%)
Expenses not deductible/(income not taxable) for tax purposes
Adjustments to tax in respect of previous years
Profits taxed at rates other than 20.25% (2014: 21.5%)
Other
Income tax expense
There is no tax impact relating to components of other comprehensive income.
2015
£’000
27,948
5,659
371
91
375
(7)
6,489
2014
£’000
25,188
5,415
(37)
139
133
(12)
5,638
11 Earnings per share
Basic earnings per share are calculated by dividing the profit attributable to owners of the parent by the weighted average number
of ordinary shares in issue during the year.
Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. The Company has share options for which a calculation is done to determine the
number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s
shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares
calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
Group
Profit attributable to owners of the parent
Weighted average number of ordinary shares in issue
Adjustment for share options
Adjusted weighted average number of ordinary shares
Basic and diluted earnings per share
(£’000)
(thousands)
(thousands)
(thousands)
(pence)
Basic
20,017
72,748
–
72,748
27.5
2015
Diluted
20,017
72,748
970
73,718
27.2
12 Dividends
Group and Company
Final dividend in respect of 2014 paid 9.5p per ordinary share (2014: 9.1p)
Interim dividend in respect of 2015 paid 4.1p per ordinary share (2014: 3.8p)
Total dividends paid
Basic
18,071
72,379
–
72,379
25.0
2015
£’000
6,919
2,986
9,905
2014
Diluted
18,071
72,379
714
73,093
24.7
2014
£’000
6,590
2,753
9,343
The Directors declared a second interim dividend of 9.2p which is to be paid on 1 April 2016 and propose a final dividend of 1.3p per
share payable on 1 July 2016 to shareholders who are on the register at 3 June 2016. These dividends totalling £7.7m have not been
recognised as a liability in these consolidated financial statements.
74
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued 13 Property, plant and equipment
Group
Cost
At 30 December 2013
Exchange adjustments
Additions
Reclassification
Disposals
At 28 December 2014
Accumulated depreciation
At 30 December 2013
Exchange adjustments
Charge for the year
Reclassification
Disposals
At 28 December 2014
Net book amount
At 30 December 2013
At 28 December 2014
Cost
At 29 December 2014
Exchange adjustments
Additions
Reclassification
Disposals
At 3 January 2016
Accumulated depreciation
At 29 December 2014
Exchange adjustments
Charge for the year
Reclassification
Disposals
At 3 January 2016
Net book amount
At 3 January 2016
Land and
buildings
(including
leasehold
improvements)
£’000
Plant and
machinery
£’000
Fixtures and
fittings
£’000
Motor
vehicles
£’000
26,162
(909)
13,176
(754)
–
37,675
16,328
(535)
1,966
(492)
–
17,267
9,834
20,408
37,675
(724)
3,521
–
(1,464)
39,008
17,267
(460)
3,737
–
(1,464)
19,080
153,085
(9,319)
17,473
3,344
(4,368)
160,215
106,567
(6,364)
11,391
2,582
(4,265)
109,911
46,518
50,304
160,215
(5,167)
9,391
(235)
(561)
163,643
109,911
(3,573)
12,219
(72)
(406)
118,079
11,151
(636)
1,165
(2,672)
(454)
8,554
8,805
(476)
1,006
(2,090)
(443)
6,802
2,346
1,752
8,554
(250)
755
53
(88)
9,024
6,802
(188)
860
21
(91)
7,404
19,928
45,564
1,620
311
(3)
16
82
(109)
297
133
(1)
74
–
(87)
119
178
178
297
(1)
9
–
(7)
298
119
–
68
–
(7)
180
118
Total
£’000
190,709
(10,867)
31,830
–
(4,931)
206,741
131,833
(7,376)
14,437
–
(4,795)
134,099
58,876
72,642
206,741
(6,142)
13,676
(182)
(2,120)
211,973
134,099
(4,221)
16,884
(51)
(1,968)
144,743
67,230
Land and buildings are held under short leaseholds. Details of bank borrowings secured on assets of the Group are given in note 19.
Depreciation charges are included within administrative expenses in the income statement.
The cost and net book amount of property plant and equipment in the course of its construction included above comprise plant and
machinery £1,654,000 (2014: £1,209,000).
Property, plant and equipment include the following amounts where the Group is a lessee under a finance lease:
Cost – capitalised finance leases
Accumulated depreciation
Net book amount
2015
£’000
3,011
(1,794)
1,217
2014
£’000
3,195
(1,742)
1,453
Included in assets held under finance leases are land and buildings with a net book amount of £1,217,000 (2014: £1,453,000).
75
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 14 Intangible assets
Group
Cost
At 30 December 2013
Exchange adjustments
Additions
At 28 December 2014
Accumulated amortisation
At 30 December 2013
Exchange adjustments
Charge for the year
At 28 December 2014
Net book amount
At 30 December 2013
At 28 December 2014
Cost
At 29 December 2014
Exchange adjustments
Additions
Reclassifications
Disposals
At 3 January 2016
Accumulated amortisation
At 29 December 2014
Exchange adjustments
Charge for the year
Reclassifications
Disposals
At 3 January 2016
Net book amount
At 3 January 2016
Product
licences
£’000
Computer
software
£’000
Goodwill
£’000
Total
£’000
8,833
(977)
11,449
19,305
7,789
(525)
892
8,156
1,044
11,149
19,305
(560)
–
–
–
18,745
8,156
(408)
2,142
–
–
9,890
4,441
(475)
150
4,116
3,661
(414)
307
3,554
780
562
4,116
(137)
54
182
(123)
4,092
3,554
(109)
337
51
(123)
3,710
836
–
–
836
–
–
–
–
836
836
836
–
–
–
–
836
–
–
–
–
–
–
14,110
(1,452)
11,599
24,257
11,450
(939)
1,199
11,710
2,660
12,547
24,257
(697)
54
182
(123)
23,673
11,710
(517)
2,479
51
(123)
13,600
8,855
382
836
10,073
Amortisation charges are included within administrative expenses in the income statement.
76
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued 15 Investments
Investments in subsidiaries
Investments in subsidiary undertakings are recorded at cost, which is the fair value of consideration paid.
Company
At 29 December 2014 and 3 January 2016
The subsidiary undertakings of the Group are:
Subsidiary undertakings
Hilton Foods UK Limited
Hilton Meats Zaandam BV
Hilton Foods (Ireland) Limited
HFG Sverige AB
Hilton Foods Danmark A/S
Hilton Foods Ltd Sp zoo
Hilton Food Solutions Limited
Hilton Foods Limited
Hilton Meats Holland Limited
Hilton Food Group (Europe) Limited
Hilton Foods Asia Pacific Limited
Hilton Food.com Limited
Country of incorporation
or registration
Northern Ireland
Netherlands
Republic of Ireland
Sweden
Denmark
Poland
England & Wales
Northern Ireland
Northern Ireland
Northern Ireland
England & Wales
Northern Ireland
Nature of business
Specialist meat packing
Specialist meat packing
Specialist meat packing
Specialist meat packing
Specialist meat packing
Specialist meat packing
Meat trading
Holding company
Holding company
Holding company
Holding company
Dormant
2015
£’000
102,985
2014
£’000
102,985
(%) Proportion of
ordinary shares held by
Parent
–
–
–
–
–
–
–
100
–
–
–
–
Group
100
80
100
100
100
100
55
–
80
100
100
100
All subsidiary undertakings are included in the consolidation. The Company’s voting rights in its subsidiary undertakings are the same
as its effective interest in its subsidiary undertakings.
Investments in joint ventures
The Group uses the equity method of accounting for its interest in joint ventures. The aggregate movement in the Group’s
investments in joint ventures is as follows:
Group
At 29 December 2014
Profit for the period
Effect of movements in foreign exchange
At 3 January 2016
2015
£’000
1,234
1,222
(60)
2,396
2014
£’000
405
884
(55)
1,234
Where relevant, management accounts for the joint venture have been used to include the results up to 3 January 2016. The Group’s
share of the net assets, income and expenses of the joint venture are detailed below:
Net assets
Income
Expenses
Taxation
Profit after tax
The joint venture of the Group is:
Joint venture
Woolworths Meat Co. Pty Ltd
Country of incorporation
or registration
Australia
Nature of business
Specialist meat packing
2015
£’000
2,396
1,711
(1)
(488)
1,222
2014
£’000
1,234
1,744
(481)
(379)
884
(%) Proportion of
ordinary shares held by
Parent
–
Group
50
77
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 16 Inventories
Group
Raw materials and consumables
Finished goods and goods for resale
2015
£’000
15,192
3,080
18,272
2014
£’000
17,846
4,183
22,029
The cost of inventories recognised as an expense and included in cost of sales amounted to £894,822,000 (2014: £904,248,000).
The Group charged £289,000 in respect of inventory write-downs (2014: £201,000). The amount charged has been included in cost
of sales in the income statement.
17 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Amounts owed by Group undertakings
Amounts owed by related parties (see note 26)
Other receivables
Prepayments
2015
£’000
85,869
(165)
85,704
–
605
4,628
5,158
96,095
Group
2014
£’000
105,345
(213)
105,132
–
33
6,028
4,416
115,609
The carrying amounts of trade and other receivables are denominated in the following currencies:
Currency
UK Pound
Euro
Swedish Krona
Danish Krone
Polish Zloty
Australian Dollar
2015
£’000
16,262
46,866
19,033
9,464
3,865
605
96,095
Group
2014
£’000
32,683
48,299
20,636
11,092
2,866
33
115,609
2015
£’000
–
–
–
470
–
–
–
470
2015
£’000
470
–
–
–
–
–
470
Company
2014
£’000
–
–
–
53
–
–
–
53
Company
2014
£’000
53
–
–
–
–
–
53
The fair values of trade and other receivables are the same as their carrying value. The maximum exposure to credit risk is the fair
value of each class of receivable mentioned above.
Trade receivables impaired and the amount of the impairment provision was £165,000 (2014: £213,000). The individually impaired
receivables mainly relate to invoices which are in dispute. It was assessed that a portion of the receivables is expected to be
recovered. The trade receivables that were impaired were all overdue by more than six months. There were no other trade receivables
which were overdue. The other classes within trade and other receivables do not contain impaired assets. The trade receivables which
are not impaired or overdue are all less than 30 days old.
Movements on the provision for impairment of trade receivables are as follows:
Group
At 29 December 2014
Provision for receivables impairment
Receivables written off during the year as uncollectable
Exchange differences
At 3 January 2016
2015
£’000
213
136
(181)
(3)
165
2014
£’000
48
375
(207)
(3)
213
78
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued 18 Cash and cash equivalents
Cash at bank and on hand
19 Borrowings
Group
Current
Bank borrowings
Finance lease liabilities
Non-current
Bank borrowings
Finance lease liabilities
Total borrowings
2015
£’000
52,806
Group
2014
£’000
35,586
2015
£’000
150
2015
£’000
11,562
166
11,728
26,428
1,977
28,405
40,133
Company
2014
£’000
333
2014
£’000
10,531
156
10,687
30,304
2,269
32,573
43,260
Due to the frequent re-pricing dates of the Group’s loans, the fair value of current and non-current borrowings is approximate to their
carrying amount.
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Currency
UK Pound
Euro
Swedish Krona
2015
£’000
25,080
2,144
12,909
40,133
2014
£’000
30,737
2,425
10,098
43,260
Borrowings are repayable in quarterly instalments by 2019. Interest on borrowings in Sterling is charged at LIBOR plus 1.6% subject
to interest rate caps over £12m of borrowings where LIBOR is capped at 2.5%. Interest on borrowings in Swedish Krona is charged
at STIBOR plus 1.6% subject to interest rate caps over SEK 75m of borrowings where STIBOR is capped at 3%.
Bank borrowings totalling £37,989,000 (2014: £40,835,000) are secured by fixed and floating charges over the assets of the individual
Group borrowers and through joint and several guarantees from each active Group undertaking.
The Group has undrawn overdraft and loan borrowing facilities of £28.3m (2014: £46.5m) which expire after one year.
The undiscounted contractual maturity profile of the Group’s borrowings is described in note 3.
The minimum lease payments and present value of finance lease liabilities is as follows:
Group
No later than one year
Later than one year and no later than five years
Later than five years
Future finance charges on finance leases
Present value of finance lease liabilities
Minimum lease payments
Present value
2015
£’000
317
1,351
1,282
2,950
(807)
2,143
2014
£’000
329
1,398
1,732
3,459
(1,034)
2,425
2015
£’000
166
1,977
–
2,143
–
2,143
2014
£’000
156
2,269
–
2,425
–
2,425
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. The fair value of
the Group’s finance lease liabilities is £2,843,000 (2014: £3,315,000). The fair values are based on cash flows discounted using the
European Central Bank benchmark main refinancing operations fixed interest rate of 0.05% (2014: 0.05%).
79
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 20 Trade and other payables
Trade payables
Amounts owed to Group undertakings
Social security and other taxes
Accruals and deferred income
2015
£’000
114,072
–
3,567
18,898
136,537
Group
2014
£’000
133,284
–
4,480
19,418
157,182
2015
£’000
–
–
–
–
–
Company
2014
£’000
–
4,403
–
15
4,418
The fair value of trade and other payables are the same as their carrying value.
21 Deferred income tax
Group
At 31 December 2012
Exchange differences
Income statement credit
Adjustment in respect of employee share schemes
At 29 December 2013
Exchange differences
Income statement (charge)/credit
Adjustment in respect of employee share schemes
At 28 December 2014
The following is the reconciliation of the deferred tax balances in the balance sheet:
Group
Deferred tax liabilities
Deferred tax assets
Accelerated
capital
allowances
£’000
(686)
103
(808)
–
(1,391)
52
178
–
(1,161)
Other timing
differences
£’000
540
–
12
(265)
287
–
102
118
507
2015
£’000
(1,654)
1,000
(654)
Total
£’000
(146)
103
(796)
(265)
(1,104)
52
280
118
(654)
2014
£’000
(1,875)
771
(1,104)
Other timing differences principally relate to share-based payments. The deferred income tax liability above includes £150,000
(2014: £150,000) which is estimated to reverse within 12 months. The deferred income tax asset above is not expected to reverse
within 12 months.
22 Ordinary shares
Issued and fully paid ordinary shares of 10p each
At 29 December 2014
Issue of new shares relating to employee incentive schemes
At 3 January 2016
Number
of shares
(thousands)
72,588
274
72,862
2015
£’000
7,259
27
7,286
Group
2014
£’000
7,216
43
7,259
2015
£’000
7,259
27
7,286
Company
2014
£’000
7,216
43
7,259
All ordinary shares of 10p each have equal rights in respect of voting, receipt of dividends and repayment of capital.
80
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued 23 Share-based payment
Executive share option scheme
Under the Group’s executive share option scheme share options are granted to Executive Directors and to selected senior
employees. The exercise price of the granted options is equal to the market price of the shares on the date of the grant. The options
are exercisable starting three years from the grant date subject to the Group achieving its target growth in earnings per share over
the period plus 3%. The options have a contractual option term of 10 years. The Group has no legal or constructive obligation to
repurchase or settle the options in cash.
All employee sharesave scheme
These schemes are open to all eligible employees of the Group (including the Executive Directors) who make regular savings
over a three year period. The exercise price of the granted options is equal to the market price of the shares on the date of the
grant. The options are exercisable starting three years from the grant date and must be exercised within six months thereafter.
No performance conditions are attached to the options granted under the scheme.
Long Term Incentive Plan (LTIP)
Under the Group’s Long Term Incentive Plan nil cost share options are granted to Executive Directors and to selected senior
employees. The options are exercisable starting three years from the grant date subject to the Group achieving a minimum earnings
per share compound growth target. Awards will vest on a sliding scale with 10%-25% of the maximum award applied at the minimum
EPS growth target of 5%-8% per year with the full award vesting where EPS growth is at least 10%-18% per year. The options have a
contractual option term of 10 years. The Group has no legal or constructive obligation to repurchase or settle the options in cash.
Movements in the number of share options outstanding and their related exercise prices are as follows:
At 30 December 2013
Granted
Exercised
Lapsed
At 28 December 2014
Granted
Exercised
Lapsed
At 3 January 2016
Executive share option
Options
(’000)
1,601
–
(431)
–
1,170
–
(274)
–
896
Exercise price
(pence)
210.54
–
194.18
–
216.56
–
198.28
–
222.16
Options
(’000)
–
472
–
(41)
431
348
–
(191)
588
Sharesave
Exercise price
(pence)
–
464
–
464.94
463.54
420.00
–
460.27
438.83
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry date
October 2017
December 2017
December 2018
May 2018
May 2019
May 2020
June 2022
May 2023
April 2024
April 2025
Type of scheme
Sharesave
Sharesave
Sharesave
Executive share option
Executive share option
Executive share option
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Status
Not exercisable
Not exercisable
Not exercisable
Exercisable
Exercisable
Exercisable
Lapsed
Not exercisable
Not exercisable
Not exercisable
Exercise price
(pence)
460.25
480.00
420.00
199.50
174.75
246.00
nil cost
nil cost
nil cost
nil cost
Long Term Incentive
Options
(’000)
1,906
507
–
(24)
2,389
577
–
(1,278)
1,688
Exercise price
(pence)
–
–
–
–
–
–
–
–
–
Number options
2015
(‘000)
254
14
320
134
212
550
–
657
457
574
2014
(‘000)
359
72
–
249
321
600
1,147
759
483
–
The fair value of options granted during 2015 determined using the Black-Scholes valuation model ranged from 68p to 390p per
option. The significant inputs into the model were the exercise price shown above, volatility of 27% based on a comparison of similar
listed companies, dividend yield of 3%, an expected option life of four years, and an annual risk-free interest rate ranging from 0.87%
to 0.68%. See note 8 for the total expense recognised in the income statement for share options granted to Directors and employees.
81
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 24 Cash generated from operations
Group
Profit before income tax
Finance costs – net
Operating profit
Adjustments for non-cash items:
Share of post tax profits of joint venture
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of non-current assets
Adjustment in respect of employee share schemes
Changes in working capital:
Inventories
Trade and other receivables
Prepaid expenses
Trade and other payables
Accrued expenses
Cash generated from operations
The parent company has no operating cash flows.
2015
£’000
27,948
1,051
28,999
(1,222)
16,884
2,479
75
750
3,126
16,283
(744)
(15,150)
(520)
50,960
2014
£’000
25,188
874
26,062
(884)
14,437
1,199
7
255
424
(112)
592
3,947
1,699
47,626
25 Commitments
(a) Capital commitments
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
Property, plant and equipment
2015
£’000
688
Group
2014
£’000
2,547
2015
£’000
–
Company
2014
£’000
–
(b) Operating lease commitments
The Group leases various properties under non-cancellable operating lease arrangements.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Group
No later than one year
Later than one year and no later than five years
Later than five years expiring 2021 to 2026
Land and buildings
Plant and equipment
2015
£’000
5,658
12,518
15,718
33,894
2014
£’000
6,019
15,043
19,229
40,291
2015
£’000
1,001
1,828
45
2,874
2014
£’000
802
2,025
36
2,863
82
Hilton Food Group plc Annual report and financial statements 2015Notes to the financial statements continued 26 Related party transactions and ultimate controlling party
The Directors do not consider there to be one ultimate controlling party. The companies noted below are all deemed to be related
parties by way of common Directors.
Sales made on an arm’s length basis on normal credit terms to related parties during the year were as follows:
Group
Woolworths Limited and subsidiaries–recharge of joint venture costs
Amounts owing from related parties at the year end were as follows:
Group
Woolworths Limited and subsidiaries
The Company’s related party transactions with other Group companies during the year were as follows:
Company
Hilton Foods Limited – dividend received
Hilton Foods Limited – interest expense
Hilton Foods UK Limited – payment for group relief
2015
£’000
1,581
2014
£’000
1,245
Owed from related parties
2015
£’000
605
2015
£’000
13,600
56
30
2014
£’000
33
2014
£’000
11,000
140
53
At the year end £439,000 was owed by Hilton Foods Limited (2014: £4,403,000 owed to Hilton Foods Limited) and £31,000
(2014: £53,000) was owed by Hilton Foods UK Limited.
Details of key management compensation are given in note 8.
27 Financial instruments by category
The accounting policies for financial instruments have been applied to the line items below:
Group
Assets as per balance sheet
Trade and other receivables
Cash and cash equivalents
Group
Liabilities as per balance sheet
Trade and other payables
Borrowings
Loans and receivables
2015
£’000
2014
£’000
90,937
52,806
143,743
111,193
35,586
146,779
Other financial liabilities
at amortised cost
2015
£’000
2014
£’000
132,970
40,133
173,103
152,702
43,260
195,962
In addition to the above, amounts owed to the Company by Group undertakings of £31,000 (2014: £53,000) are classified as ‘loans
and receivables’ and amounts owed to the Company by Group undertakings of £439,000 (2014: £4,403,000 owed by the Company)
are classified as ‘other financial liabilities at amortised cost’.
83
OverviewStrategic reportGovernanceFinancial statementsHilton Food Group plc Annual report and financial statements 2015 Registered office and advisors
Registered office
2-8 The Interchange
Latham Road
Huntingdon
Cambridgeshire
PE29 6YE
Advisors
Corporate brokers
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Legal advisor
Taylor Wessing LLP
5 New Street Square
London
EC4A 3TW
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Waterfront Plaza
8 Laganbank Road
Belfast
BT1 3LR
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Financial Public Relations
Citigate Dewe Rogerson Limited
3 London Wall Buildings
London
EC2M 5SY
Bankers
Ulster Bank Limited
Donegall Square East
Belfast
BT1 5UB
84
Hilton Food Group plc Annual report and financial statements 2015 H
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Hilton Food Group plc
2-8 The Interchange
Latham Road
Huntingdon
Cambridgeshire
PE29 6YE
www.hiltonfoodgroupplc.com